The Need and Rationale for Competition Law and Policy in Cambodia Training Workshop on Competition Policy and Law Implementation for Cambodia Phnom Penh 10 March 2006 Deunden Nikomborirak Thailand Development Research Institute

Presentation Outline 1.The Idea and Principle of Economic Competition 2.Definition of Competition Policy and Law 3.The Need to have Competition Policy 4.The Need for competition Law 5.Conclusion

1. Idea and Principles of Economic Competition zEconomics: Perfect competition will yield most efficient allocation of resources and outcome zBusiness: Michael Porter – A Firm’s Competitiveness depends on the level of Competition in the market. But competition in the market may be limited i.e. “market failure”. Hence, this requires economics of regulation and competition.

Economic Competition “Whoever claims that economic competition represents 'survival of the fittest' in the sense of the law of the jungle, provides the clearest possible evidence of his lack of knowledge of economics” George Reisman

2. Definition of Competition Policy Policy to promote free and fair competition in the market.

Imported products Locally made products Foreign Competition in a Market Domestic SOE Trade Policy Investment Policy Privatization Policy

Competition Policy & Law Competition policy Trade & investment policy Privatization Policy Regulatory policy Competition law Competition Advocacy

How to ensure “Free and Fair” Competition ? zCompetition Advocacy (government rules and regulations) yThe Competition Authority yBusiness Associations yNGOs yAcademics zCompetition Law ( private practices) yCompetition Authority

Competition Advocacy zEnsuring that state laws and regulations do not restrict or distort competition in the market -- i.e., investment incentives, industrial standards, quota allocations, exclusive concessions etc.

Competition Law zEnsuring that businesses – both private and state owned – compete fairly in a market zThe law prohibits yExploitation of monopoly or market power yCollusive practices yMergers that lead to market power yUnfair trade practices resulting from unequal bargaining power between buyer and seller of a product or service

Competition Law in ASEAN zThailand 1999 zIndonesia 1999 (effective 2000) zVietnam (2005) zSingapore (2005) zLao PDR (Competition Decree - effective August 2004)

3. Why does Cambodia need competition Policy ? zThe country is undergoing privatization of SOEs zRegulatory regimes are not well developed. zThe country is implementing many new rules and regulations that have import implications for the competitive environment in many industries.

4. Why does Cambodia need a competition law ? High risk of monopolization and collusion because 4.1 Limited size of domestic market implies potentially concentrated markets. 4.2 Lack of transport infrastructure implies that markets are geographically “segmented” 4.3 proliferation of “exclusive” private concessions in order to mobilize private investment 4.4 A large agricultural sector where farmers will be exposed to competition from vertically integrated food MNCs. 4.5 Foreign acquisition of local businesses or business consolidation (mergers) may lead to monopolies/duopolies

4.2 Geographical Market

4.3 Competition Problems between farmers and MNCs in Agriculture Chicken breeding Chicken feed Chicken farming Chicken eggs MNCs FARMERS Chicken farming Chicken eggs Margin squeeze COST PRICE

4. Why does Cambodia need a competition law ? High risk of “unfair trade practice”, resulting from 4.4 Proliferation of SOEs with regulatory and monopoly power 4.5 Unequal bargaining power between buyer and seller – i.e., retail business or franchise business

5. Conclude zCompetition Policy = Competition Advocacy + Competition Law is important to ensure the competitiveness of the economy as well as the growth of local SMEs and entrepreneurs.