Competition policy and pro-poor development

An issue, often raised, while discussing competition policy in the context of a developing country, is the role of competition policy in the process of economic development of a country.

The biggest challenge in the developing world today is to get rid of object poverty that deprives a large section of their population a dignified life.

An important approach to poverty reduction is to empower the poor, provide them with productive employment and increase their access to land, capital and other productive resources. But this approach may not be successful unless people are linked to the market and these are made to work for their benefit.

“Well functioning” implies markets that work efficiently and without distortions. Nevertheless, competition is often distorted by few players, and it is essential that governments enact competition laws to regulate the distortions.

What is very often ignored is the fact that the prevalence of anti-competitive practices in the markets hurt the poor more. A rich person would not mind paying few rupees more for buying something but for people living on a few rupees a day, getting value to money for every cent they spend is more vital. This is the consumption side.

If we turn to “ability to pay” angle or the “income” side, a sector that immediately comes to mind is agriculture. Of the 1.2 bn people of the world population who live in extreme poverty, approximately about 75 per cent live and work in rural areas and two-third of them draw their livelihood directly from Agriculture.

The market for agricultural products is very often considered to be an example of a perfectly competitive market. After all, there is a huge gap between the prices consumers pay and the farmers actually receive. This is because of the chain of intermediaries between the consumers and farmers that do not always work in a competitive manner.

These intermediaries abuse their monopolistic dominance in the market for final product while in the markets for primary products, they abuse their monopsonistic dominance.

In a Country like Sri Lanka where two-thirds directly or indirectly draw their livelihood directly from agriculture, the linkage between market imperfections in agriculture goods and poverty is manifest.

It needs to be realised that competition law is not a luxury of the developed world, but one of the necessary tools for developing countries, in their fight against poverty.

Developing countries should not be dogmatic about withdrawing from the markets as distortions and failures in markets are quite ubiquitous and the state needs to play a role in promoting a fair and orderly market.

Competition Policy maximises consumer welfare, by ensuring goods and services at best possible quality, offered at lowest prices and available in adequate quantities. Alongside, competition policy also loads to business welfare, by ensuring for instance, that intermediate goods and services consumed by businesses are available through a competitive process.

CAA Executive Director

New Companies Act

The Companies Act No. 7 of 2007 is an attempt to simplify the procedure on company formation and functioning which has not been changed since the introduction of the previous Act No. 17 of 1982. Before 1982 the basis of the company law in the procedure was based on the legislature which was introduced in 1948 onwards.

The Company Law and Procedures was inherited to us by the British who had long experience of companies. The British East Indian Company was founded in 1599.

The Company as a part of the expansion of business invaded other countries and colonised in order to conduct the business dealings with the naval power which they had to compete with the Danish India Company founded in 1616.

The Dutch East India Company was founded in 1602. The French East India Co was founded in 1664 and the Swedish East India Company was founded in 1731.

The Honourable East India Company often referred to as “John Company” who were the hoist joint stock company was granted an English Royal Charter by Elizabeth I on December 31, 1600 with the intention of favouring trade privileges in India.

The company transformed from a commercial trading venture to one that virtually ruled India as required auxiliary governmental and military functions until its dissolution in 1858 following the events of the “Indian Mutiny”.

Automatically, Sri Lanka then Ceylon too came under the Company and the British Monarchy thereafter.

Based in London the company presided over the creation of the British Raj in 1617 and since then the British company model has assimilated into the Indian and Sri Lankan commercial law and procedure to date.

In the West the system of Company Law and procedure has been successful. The Company is a juristic person who acts and function independently and there is continuity irrespective of the individuals. In the West there are multi national companies running into generations managed by directors and shareholders acquire ownership subsequently.

Under Act No. 9 of 2003 the Consumer Affairs Authority is empowered to regulate trade in various ways.

It has power to undertake studies on the distribution of goods and services, which give directions to manufacturers or traders in respect of price marking, labelling and packeting of goods, determining standards and specifications relating to goods and supply of services, inquire into complaints, enter into agreements with traders, industrialists and manufacturers and many other functions which are described in the Act in detail. The CAA has the mandate on services such as:

a) Makes any article or any goods

b) Assembles or joins any article or any goods whether by chemical process or otherwise; or

c) Adapts for sale any article or any goods

“service” means service of any description which is made available to actual or potential users, and includes -

a) Banking, financing, insurance, shipping and entertainment

b) The construction, production, manufacture, supply, storage, maintenance, repair, treatment, cleaning, processing or alteration of goods

c) Services in connection with the import, export or distribution of goods

d) The transportation of goods and passengers

e) The cleaning of buildings and building premises

f) The sale and supply of any utility services including electricity, water, gas and telecommunication

g) The provision of information technology and communication

h) Professional services such as accounting, auditing, legal, medical and health, surveying, architecture and engineering

It is in this spirit that the CAA organised a Seminar on Company Law in collaboration with Organisation of Professionals Associations in order to discuss future strategies to simplify and working arrangements in the interests of consumers, companies, manufacturers, industrialists and traders.

Sarath Wijesinghe,
Chairman,
Consumer Affairs Authority

Powers vested in Consumer Affairs Authority to Regulate trade - Part 3

The powers envisaged by Sections 10,11 and 12 were discussed last week and this article reviews the provision made in Section 13 & 32 of the CAA Act.

Powers envisaged by Section 13 and 32

As per section 13, the Authority can inquire into complaints regarding the manufacture or sale of any goods which does not conform to the warranty/guarantee.

Also the Authority can inquire in to complaints regarding the production, manufacture, supply, storage, transportation or sale of any goods and to the supply of any services which does not conform to the standards and specifications determined under Section 12.

When a consumer purchases a product/service in the market, there is always an implied warranty that the product will be reasonably fit for the purpose that they are supplied. With regard to a service it is presumed that the service will be provided with due care and skill.

A consumer complaint has to be forwarded to the Authority within three months of the sale of such goods or the provision of the service. When a consumer complaint received the Authority call observation from the respondent on the issue and the type of redress that can be offered to the aggrieved consumer.

This information is requested under Section 57. As per Section 57, the Authority has the power to request to furnish any information, which the Authority consider necessary for the proper implementation of its functions.

A person who receives such notice has to disclose the information within given period of time. If he fails to forward the information within the given period of time the Authority has the power to prosecute him for non compliance.

If the defective samples are submitted to the Authority with the complaint, those samples are sent to obtain technical reports from the relevant institutions. Expert evidence is generally obtained from the Department of Government Analyst, Medical Research Institute and Sri Lanka Standards Institute.

If the respondent accepts that there is a defect in the product/service and willing to offer a fair redress to the consumer this complaint can be settled without mush hassle. If the complaint cannot be settled in this manner the Authority call both parties for negotiation discussion. At this juncture Authority acts as a mediator to settle the problem. There are two main objectives in a negotiation discussion.

1. Seek redress to the affected individual.

2. Inform the company to correct their erroneous practice/mistake in order to avoid affecting other consumers.

Even though there is no legal binding, our experience shows that this method is an effective means of finding solutions to consumer problems. If the negotiation discussion fails and if the complaint is within the specified time period of three months an inquiry will be conducted and after an inquiry in to a complaint, the Authority is empowered to redress the consumer in three ways.

1. Order the trader to replace the goods

2. “to refund the money paid for the product

3.“to pay compensation to the consumer

This order is communicated to the trader through registered post. If the trader fails or refuses to pay the amount required to be paid within the give period of time, the Authority can make an application to the relevant magistrate’s court. Then this amount can be recovered through the magistrate courts and offered to the affected consumer.

Chandrika Thilakaratne,
Director Consumer Affairs and Information

Complaints handling activated

Action has been initiated to handle complaints received from consumers in an expeditious manner, which has reduced the delays in the recent past.

The following are two cases which have been settled by mediation by the CAA.

01. A motor cycle was purchased from a trade centre by paying the full cost of Rs. 51,500. But the Trade Centre did not provide the consumer with the necessary documents for registration at the RMV. The CAA having discussed the matter with the owner of the Trade Centre was able to help the consumer to collect the required documents.

02. A mobile phone was handed over to the owner of a Communication Centre, from where it was brought for repairs which was within the warranty period. However, the consumer had to pay Rs. 2,500 for the repairs done. With the intervention of the CAA, the owner of the centre agreed to refund the sum of Rs. 2,500 to the consumer.

List of products subjected to quality checks

The list of products which are subjected to quality checks under the Import Inspection Scheme is as follows:-

The items are:
01. Skimmed Milk Powder,
02. Full Cream Milk Powder,
03.Condensed Milk,
04. Butter,
05. Soya Beans Oil,
06. Groundnut Oil (Peanut Oil),
07. Palm Oil,
08. Palm Olein,
09. Palm Stearin,
10. Sunflower Seed Oil,
11. Coconut Oil,
12. Palm Kernel Oil,
13. Corn Oil,
14. Seasame Oil,
15. Margarine,
16. Canned Fish,
17. Canned Fish Curry,
18. Brown Sugar,
19. Noodles (including instant noodles),
20. Rice Noodles,
21. Biscuits,
22. Rusks,
23. Jams, jellies, Marmalades and Preserves - Homogenised preparations,
24. Fruit Squashes, Fruit Syrups and Fruit Cordials,
25. Fruit Concentrates,
26. Ready-to-serve Fruit Drinks,
27. Tomato Sauce,
28. Chilies Sauce,
29. Ice Cream,
30. Milk Added Drinks,
31. Bottled Natural Mineral Water,
32. Synthetic/Artificial Cordials,
33. Ordinary Portland Cement,
34. Baby Cologne,
35. Skin Powder for infants,
36. Toothpaste,
37. Toilet Soap,
38 Baby Soap,
39. Laundry Soap,
40. Safety Matches,
41. Mosquito Coils,
42. Mosquito Mats,
43. Conduits for electrical installation,
44. Rigid unplasticised polyvinyl Chloride pipes for potable cold water supplies,
45. Unplasticized polyvinyl Chloride pipe joints and fittings for potable cold water supplies,
46. Polythene Water Storage Tanks,
47. Bicycle Tyres,
48. Bicycle Tubes,
49. Exercise Books,
50. Cotton Sewing Thread,
51. Spun Polyester Sewing Thread,
52. Protective Helmets,
53. Asbestos Cement Corrugated Sheets,
54. Asbestos Cement Flat Sheets,
55. Plain Steel Bars for the reinforcement of concrete,
56. Ribbed Steel Bars for the reinforcement of concrete,
57. Hot rolled, steel bars for structural and general engineering purposes:
i. Round bars
ii. Square bars
iii. Hexagonal bars
iv. Flats
58. Hot rolled structural steel sections
i. U sections (channels)
ii. L Sections (equal and unequal angles)
iii. T Sections (tees)
59. Mild Steel Wire,
60. Cold Drawn mild steel wire for manufacture of wire nails,
61. Transportable welded Steel Gas Containers,
62. Wrought aluminum utensils,
63. Electric fans and regulators,
64. Ballasts for tubular fluorescent lamps,
65. Primary Cells and Batteries,
66. Lead-acid starter batteries,
67. Electric immersion water heaters,
68. Electric Hot Plates,
69. Electric Kettles,
70. Circuit breakers for over-current protection for household and similar installations,
71. Residual current operated circuit breakers without integral over current protection for household and similar uses,
72. Residual current operated circuit breakers with integral over-current protection for household and similar uses (RCBO’s),
73. Switches for household and similar fixed electrical installations,
74. Glow starters for tubular Fluorescent lamps,
75. Insulated bayonet lamp holders,
76. Household electric plugs, sockets-outlets and adopters,
77. 13-A fused plugs and switched and unswitched socket outlets,
78. Tungsten filament lamps for domestic and similar general lighting purposes,
79. Conductors in insulated cables and cords,
80. PVC insulated cables with copper conductors for electric power and lighting,
81. PVC insulated flexible cords,
82. PVC insulated electric cables 600/100V,
83. Vacuum Flasks,
84. Portland Limestone cement,
85. Blended hydraulic cement,
86. PVC-U fittings for soil and waste discharge systems inside buildings,
87. Motorcycle and scooter tyres,
88. Sanitary towels,
89. Umbrella,
90. Roofing tiles,
91. Ceramic Tiles,
92. Cement Tiles,
93. Porcelain ware,
94. Galvanized steel pipes and fittings,
95. Chain link fence fabric,
96. Self ballasted lamps for general lighting services,
97. Leaf springs for automobile suspensions,
98. Radiator core,
99. Cables for motor vehicles,
100. Cables trunking.

Why a competition law?

Theoretically speaking, trade liberalisation is one of the most effective measures to ensure competition in the market place and abuse of market power. However, even this has its limits.

Imported goods cannot reach the customers directly and the well entrenched market players way have a grip over the distribution systems or channels, which way nullify the gains of liberalised trade.

Then there are goods and services which are not tradeable. There are goods which are tradable only within a limited market, cement being a classic example of this due to its bulby nature it is no economical to transport it to distant markets. As a result even geographical segments of a national market can be successfully monopolised.

Therefore, it is not surprising to see that while countries have gone to more and more trade liberalisation over the last decade, more and more countries have also embraced competition laws with many adopting new laws after scrapping their old ones.

In the beginning of 1990 or so, there were number of countries with a competition law. However, at present, the number is more than it was and many more in the queue obviously there is a greater acceptance of the fact that trade liberalisation may not always be a perfect remedy for an abuse of market power.

Although a competition law may be quite narrow in its scope, competition policy is much more broad and comprehensive in its scope and tries to bring harmony in all government policies that may encourage or adversely affect competition and consumers welfare. To put it differently, ensuring competition is just a means to achieve the above stated objectives.

There are complex inter-relations between competition and other public policies. This factor has a direct bearing on the extent to which competition policy objectives can be pursued without being constrained by or confliction with other public policy objectives.

Accordingly, even in the absence of a competition law a stated competition policy, many of the related concerns can be addressed, at least partially, if there are other polices, which are favourable to competition.

C.A.A. Executive
Director

Anti-competitive practices

In terms of Section 34 of the Consumer Affairs Authority Act No. 9 of 2003, the Authority on its own motion or on a complaint or request made to it could investigate the prevalence of any anti-competitive practice. In implementation of the above the Authority considers the following;

1. What does Anti-competitive practice mean?

In a nut shell

“Persons involved in the sale and supply of goods and services get together to avoid competition among them to maintain the price for any goods or services they wish to keep”

2. What is the nature of an Anti-Competitive Practice and how does it operate?

Practices which will generally need investigations will be those,

a. Restricting the persons to whom goods are sold or from whom goods are bought;

b. Requiring purchaser of goods to purchase some other goods as a condition of purchase;

c. Restricting a purchaser from acquiring or otherwise dealing in any goods other than those of the seller or any other person;

d. Ensuring that the purchase or sale of goods or the services or the tenders for the sale or purchase of goods is made only at prices or on terms or conditions that have been agreed upon between the seller or purchaser;

e. Granting or allowing concessions or benefits, including allowances, discounts, rebates or credits in connection with, or by reason of dealings;

f. Ensuring that the sale of goods is made on condition that the prices to be charged on re-sale by the purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices lower than those prices may be charged;

g. Limiting, restricting, or withholding the output or supply of any goods or allocating areas or markets for the disposal of the goods;

h. Preventing or restricting the employment of any methods, machinery or process in the manufacture of goods;

i. Excluding from a trade association any person carrying on or intending to carry in good faith the trade in relation to which the trade association is formed;

j. Ensuring the sale of goods at such prices as would how the effect of eliminating competition or a competitor;

3. If Anti-Competitive Practice affects the following areas in any form then Consumer Affairs Authority can intervene.

3.1 Competition in the production, supply or distribution of goods

3.2 Consumer prices

3.3 Cost of production of the goods

3.4 Quality and Variety of the goods supplied or services provided

3.5 The balanced distribution of industrial activity and employment

3.6 The internal trade or the public interest

If Anti - Competitive Practice Restricts the following events in any form then again the CAA can intervene

4.1 The Entry of new Competitors into the market

4.2 Technical developments

4.3 Capital investment

Shanthini Neelakandan

Director - Competition promotion