Growth guaranteed: Protect the competition not the competitors

LAHORE: There is a positive correlation between competition policy, trade and investment and when a country enacts a competition law, it sends a signal down to all players, onshore or offshore, that they are serious about enforcing a policy that promotes fair play.

We have an excellent competition law but ineffective competition agency, which is the reason that the country is starved of investment both from local and global investors. Just as a competition agency has a positive obligation of advocacy with the government, all ministries/departments whose policies affect commercial activity and free trade must consult with the competition agency before issuing such policy.

Many of our official policies are uncompetitive. We facilitate certain sectors over the rest. Mark-up rate support on Export Financing Scheme is offered to selected export sectors. Similarly mark-up support on prevailing Long Term Financing Facility is also for selected sectors. Bureaucrats enjoy discretion in granting licenses, releasing unauthorised imports and in resource allocations such as EXIM Bank. Tax incentives and subsidies for few exporting sectors actually inhibit export diversification. Discretionary and exponential growth in tariff structure hinders competition.

The architects of economic policies of Pakistan have been led by a false belief that protection promotes competitiveness and encourages investment. Pakistan’s experience shows that it is trade liberalization, which not only promotes competition but also incentivises direct investment. The telecommunication revolution in the country is because of trade liberalisation.

A healthy competition regime without a truly open trade regime does not increase consumer choice, particularly in a legally archaic environment. In the prevailing culture in Pakistan collusive behavior, exploitation and cartels are tolerated and respected by the society.

This is the reason that we lag behind in competition from the rest of the world. The competition agency in Pakistan has to struggle hard to get the recognition and political support. The political will to support anti-trust agency is very weak in our country.

The judicial system in the country does not work efficiently. The procedural delays upset the writ of competition agency; and there is a need to reform the system to make it efficient.

The Competition Commission of Pakistan (CCP) has given some landmark decisions in the past. The true test of its effectiveness was tied to the recognition and endorsement of its decisions.

The sooner the pending court battles are concluded the better it will be for the CCP, the undertakings effected by the CCP rulings, and the consumers. Since most high profile decisions are pending for over a decade no one takes the CCP seriously. The competition agency has gradually become a toothless institution.

The goal of achieving sustained higher growth would remain elusive if the competition regime in the country is not strengthened. Monopolies are harmful even to those that take temporary benefit from them. Domestic monopolies now face tough competition from the foreign products because no one having a monopolised market cares for efficiency and technology upgrade.

As the trade in Pakistan liberalized, those enjoying sole excess to the domestic market got exposed.

Under-invoicing is an uncompetitive practice that denies the domestic industries a level-playing field. It is in fact more injurious for the economy than the cartels as it transfers precious jobs outside the country. Yet we have never heard the CCP taking any action against this malpractice. Discussions with the CCP officials reveals that commission thinks that interfering in import matters is beyond its mandate as it is the duty of National Tariff Commission (NTC) to keep an eye on unfair imports. There is a fine line that separates the CCP and the NTC both of which aim to ensure that businesses operate fairly – the former ensures fair competition, while the latter prevents foreign products from being dumped in Pakistan. But any measure that denies domestic producers a level-playing field should come under the preview of the CCP.

The least the competition agency could do is to issue policy note to the NTC on under-invoiced imports coming into Pakistan and suggest remedial measures. The CCP does issue policy notes to various government departments if they observe that norms of fair competition are being violated by them in procurement, tenders, and other matters relating to economy.

International trade, foreign direct investment and competition policies can be mutually reinforcing when pursued with the common goal of encouraging cross-border competition.

A liberal trade policy has as its goal the elimination or lowering of barriers to trade in goods (if imported on fair price), opening foreign markets to goods from abroad and bringing competition to bear on domestic producers.