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Achieving the Goals of the ASEAN Economic Community:

The Role of Regional Competition Policy and LawProfessor Mark Williams15-16 November 2009

The Goal of ASEAN Economic Community

The ASEAN Economic Community (AEC) shall have the goal of regional economic integration by 2015.

AEC envisages the following key characteristics: (a) a single market and production base, (b) a highly competitive economic region, (c) a region of equitable economic development, and (d) a region fully integrated into the global economy. The AEC will transform ASEAN into a region with free

movement of goods, services, investment, skilled labour, and freer flow of capital.

Role of Regional Competition Policy Establishing a free trade area for goods and services involves

the removal of legal barriers at the border or inside the country that discriminate on grounds of national origin.

Once liberalization of these rules has been achieved and implemented, the foreign goods and services should have greater access to the domestic markets of member countries within the FTA.

However, removing the legal/regulatory restrictions at the border does not mean that new players can necessarily enter or succeed in new markets.

Regional competition policy seeks to encourage a more competitive market within the FTA that will give all FTA consumers more choice of goods and services and hopefully ensure better quality and lowest competitive prices.

However, local market structures, within national boundaries, and the behaviour of dominant national firms and agreements between incumbents can frustrate the attainment of the goal of more competitive regional market by attempting to retain national pre-eminance.

Role of regional competition law A regional competition law will seek to

prevent the partitioning of the FTA along national boundaries and encourage the creation of single internal regional market.

The law will take a regional perspective, not a national one.

The enforcement agency will be guided by regional considerations, not national ones, that might conflict with the market integration objective.

Role of National Competition Law

If a government accepts that a more competitive domestic market will increase consumer choice, improve the quality of goods and services available and ensures that only competitive prices prevail, private restrictions on competition through unilateral abuse of market power, anti-competitive agreements and overly concentrative mergers must be tackled.

This is usually achieved through the adoption of a competition law that provides for the investigation of abuses and provides suitable remedies to punish, prevent and deter similar anti-competitive conduct.

The EU Model The EU is often thought to be the best

example of a successful regional economic integration policy

Regional competition policy was one of the tools used to help create a single EU market.

In addition to the removal of trade restrictions at national borders, the EU developed an active regional competition policy and law and restrictions on national government subsidies to national industries (state aides) that distorted the regional market.

EU’s regional economic integration model

Regional community founded on the Treaty of Rome Treaty provided legal rules enforceable by states and

private citizens in national courts and at the regional court

Regional law regarded as superior to national law Member states obliged to accept rulings adverse to

their policies The Four Freedoms – goods, services, labour and

capital seem as fundamental to establishing the internal market

Competition policy and law at EU level Regional law provisions to help establish a single internal

market for goods and services by progressively reducing regulatory barriers to market entry

Competition law and prohibition of ‘state aides’ seen as a essential complement to free movement, so allowing a level playing field, for market competition

The EU competition policy and law attempts to prevent the erection of private (firm-level) barriers to entry to markets (exclusionary abuses) and anti-competitive activities (hard-core cartel activities) that undermine the benefits of competition especially where such actions maintain or strengthen the status quo in national markets and so preventing regional market integration.

Attributes of EU competition law enforcement

Strong regional competition authority that acts independently of the member states

Adequate financial and human resources to investigate breaches of the law

Enjoys police powers of investigation – search and seizure of evidence, interrogation of witnesses etc

Power to apply financial punishment in respect of offences and impose injunctions (cease and desist orders)

A regional court of justice to hear appeals from the Commissions decisions and interpret the treaty and regional laws

Devolution of power to national authorities in 2004

Reasons for EU Competition policy successMember state commitment to the benefits of

a single EU marketRule of law – framework and implementationInstitutional strengthSufficient resourcesClear market integration objectiveDevelopment of capacity of national agencies Creation of good inter agency cooperation

AEC steps toward economic integration Free trade area for goods – removal of tariffs

and non-tariff barriers, adopt unified rules of origin and customs procedures by 2015

Liberalisation the trade in services – establishment and offering of services – professional services

Liberalise cross-border investment – free and open investment by 2015

Freer movement of capital – strengthen, integrate and develop capital markets and movement of capital

Freer movement of skilled labour

How can regional competitionauthorities in small and developing economies work effectively?

See Gal & Wassmer, Regional Agreements of Developing Jurisdictions: Unleashing the Potential in Competition Policy and Regional Integration in Developing Countries Bakhoum et al Eds, Edward Elgar (2012).

Small and Developing Economies: Constraints on implementation of national competition law Developing countries with new competition laws often

face considerable problems in implementing the law effectively which include: Enforcement resource constraints – human and

financial Enforcement capability constraints – evidence

gathering esp. in international cases, being a credible threat to MNCs, level of available sanctions

Public choice limitations – political pressure from interests groups and government

Weak competition culture Ensuring certainty and predictability of decisions and

comparability with neighbouring countries

Benefits of a Regional Competition Agency Reduce resource constraints by encouraging

pooled or shared resources Improve effectiveness in cross border

investigations, provide a credible threat to MNCs especially in terms of sanctions

Mitigate direct political pressures on national agencies

Enhance competition culture on a regional basis Assist in enhancing regional consistency and

predictability of decisions

Conditions required for the success of regional competition lawMember states accept that each of them

will benefit from national and regional competition policy

Acceptance of direct costs – institutional set up and operational costs

Acceptance of indirect costs – limits to sovereignty and that specific decisions of the regional authority might be adverse to the interest of a particular member state

Further issues that can affect successEqual distribution of benefits of a

pro-competition systemDifference in competition cultureCession of enforcement powersDifferences in market structuresPolitical-economy influences

Additional obstacles to successSequencing and monitoringPoor institutional designRelationship between national and

regional agenciesPoor design of jurisdictional reach

and powers of detection and punishment

Hints for successClear objectivesSolve problems of taking effective

collective actionFTA limited to similar economies (so

enabling all to benefit equally from pro-regional competition policy)

Modes of cooperationEnforcement priorities

Contd.Hierarchy of legal procedureMonitoring and enforcing

collaborationConflict resolution processAgency capabilities must fit

functionsReview and improvement

mechanism

ASEAN Economic Community AEC has several priority integrationareas

Agricultural products Transport – air, land and sea Telecommunications – telephony and internet Energy – oil, gas SME enhancement

Each of these sectors may well have competition-related issues

that both national and regional authorities may have to address.

http://www.aseansec.org/5187-10.pdf

Benefits of successful regional and national competition policy and law Allows consumers and business access to a greater

range of products and services Setting of competitive prices Encourages economies of scale and scope across

national boundaries, reducing unit costs of production and so challenging MNCs

Improves national and regional competitiveness Reduces national rent seeking behaviour and

possibilities for national-based corruption ( for example in making bids for public works contracts more transparent and available to a wider rage of contractors)

Conclusion Regional competition policy and law has clear

advantages and benefits for improving national and regional competitiveness

Integrating regional markets is not a simple or an easy task and demands: Political will and determination A well-thought out regional legal structure Robust and well resourced regional institutions that

are independent of national political interference A transparent decision-making process Judicial review Proper and effective implementation of decisions

Thank you!Professor Mark Williamsafmarkw@polyu.edu.hk