RI need to draft competition policy, say analysts

JAKARTA (JP): Indonesia has undergone substantial trade reform and deregulation and now needs to draft competition policy to give it a more competitive economic structure, experts said here yesterday.

Mari E. Pangestu of the Centre for Strategic and International Studies said at a seminar here that there was increased domestic and international pressure to address issues related to competition policy.

Competition in the domestic market due to trade liberalization, relaxation of foreign investment restrictions, removal of entry and exit barriers and privatization was not sufficient to ensure market power was not abused, she said.

"In fact trade liberalization without safeguards for fair competition could indeed cause increasing concentration in some industries which may in turn affect the structure of competition," Mari said.

She said trade reform measures were historically more concerned about national producers than consumers.

Liberalization in trade in goods and investment was not accompanied by liberalization in services, especially distribution, which remained anti-competitive behavior, Mari said.

Edward M. Graham from the Institute for International Economics, Washington D.C., told the meeting that while tariff and non-tariff barriers had been dismantled, the so-called "behind the border" barriers to cross-border trade were still there.

Such "behind the border" barriers included government measures to discriminate against foreign trade, private measures to block market access by foreign firms and intrinsic economic factors barring the entry of foreign firms, Graham said.

"To further global economic integration and efficiency, these barriers must be addressed to make markets more 'internationally contestable'," Graham said.

But there is still a lack of consensus at the World Trade Organization (WTO) to address such "behind the border" barriers through competition policy.

Indonesia opposes multilateral negotiations under the WTO. Because of the lack of consensus, the WTO has assigned a working group on trade and competition policy to study the issue and make recommendations.

The working group has not yet started work, but Graham predicted it would address issues related to cartel arrangements in international trade, anti-dumping reform and other market access issues like vertical restraints and global mergers and acquisition policies.

Warning

Mari said that although the WTO had not set a clear definition of what would be the scope of competition policy, Indonesia should not develop its own brand of policy in isolation of these international developments.

She said that globalization through foreign investors and multinational firms would lead to common principles and enforcement of competition policies.

She said competition policy should be viewed in a broader perspective, not just as competition law.

"Comprehensive competition policy should include trade reform and deregulation, consumer protection law, transparency and accountability measures," Mari said.

She said that Indonesia's current legislation did speak about competition, albeit infrequently.

The 1993 State Policy Guidelines, for instance, describe monopoly, oligopoly and monopsony as inimicable to social justice and said steps should be taken to guard against "unfair and unhealthy competition".

The 1995 Company Law and the 1995 Small-Scale Business Law also address competition. The company law regulates mergers, consolidation and takeovers, while the business law assigns the government to adopt pro-competition policies to cultivate a good business climate for small firms.

Ministry of Industry and Trade secretary-general Aidil Juzar said the government was considering including competition elements into the trade bill currently being prepared.

But Indonesia still needs a comprehensive and effective competition policy to ensure there is fair and open competition. This in turn leads to maximizing outcome in terms of efficiency and productivity, encouraging innovation and entrepreneurship and providing consumers with the widest choices of goods at the lowest price, Mari said.

But formulating a competition policy in Indonesia would not be a straightforward exercise, she said.

"Policy makers and the general public should consider carefully the type and scope of competition policy, and the process of introducing such a policy," Mari said.

She said if competition policy were prematurely introduced the benefits could be undermined by improper implementation and enforcement, and power abuse. (rid)