The social impact, limits and downside risks of enacting a competition law and policy within a society Hanoi, April 2004 Dr. Patrick Krauskopf, Vice-Director, Swiss Competition Commission Dr. Pascal Raess, Swiss Competition Commission

Structure of Presentation 1.Competition Law & Policy 2.Legal / Economic / Social / Cultural Frameworks 3.Social Impact 4.Limits & Downside Risks 5.Conclusion

1. Competition Law & Policy Competition law encompasses –Horizontal agreements –Vertical restrictions –Abuse of dominance –Merger control

Competition Policy … is much broader than competition law: –Deregulation –Privatisation –State-aids and subsidies –Trade policy –Investment policy  Consistency problem

2. Environment for competition Law & Policy Legal framework Economic framework Social framework Cultural framework

Legal Framework Private property Contract law Transparent procedure rules Intellectual property rights (IPR) Etc.

Economic framework Markets should be opened to competition (privatisation, deregulation) Private sector / public sector distortions should be removed Subsidies / State-aids should be carefully analysed National preference

Social framework Labour mobility Unemployment « insurance » Regional policy Education Health

Cultural framework Profit as driving economic force Entrepreneurship Legal and economic training of the relevant Government bodies / enforcement agencies Civil society awareness (consumers, businesses, etc.)  Competition culture

3. Social Impact (I) Unemployment decreases in the long run (although it might increase in the short run) Costly transition period (structural change) Sectoral prices might decrease (improved competition, increased productivity)

Social Impact (II) Internal migration (e.g. rural  urban) Redistribution of wealth (e.g. via privatisation) Environmental policy (e.g. pollution, externalities on health) Land use policy

4. Limits & Downside risks (I) Potential contradictions with industrial policy (e.g. building « national champions ») Potential waste of comparative advantages with nations without Competition law (attracting FDIs becomes more difficult) Advocates of « one shot » introduction of new competition law vs. « phased » introduction of new competition law (i.e. merger control and abuse of dominance in a second phase)

Limits & Downside risks (II) « Unrealistic » business expectations: Competition law aims at protecting competition (not companies, notably SMEs) « Unrealistic » Consumer expectations (« Deflation », sharp rise in purchasing power) Institutional design of authorities responsible for competition law and policy enforcement (trans- parency, accountability, independence)

Limits & Downside risks (III) Lack of training & experience of new competition authority Scope of competition law is too limited Application of « Per se » rules

5. Conclusion Competition law & policy is only one aspect of economic policy / Consistency with other policy goals The benefits more than compensate potential harms Risks of errors are limited with a « rule of reason » approach Capacity building Long term cooperation