High hopes for competition deal

By Nikki Mandow

Key competition principles are being considered for possible adoption at next month's Apec leaders' summit.

The principles have been developed by an international team from the Pacific Economic Cooperation Council (Pecc) led by Auckland-based competition specialist and the head of Pecc in New Zealand, Kerrin Vautier.

The "Pecc principles for guiding the development of a competition-driven policy framework for Apec economies" are intended as guidelines for governments to ensure that they focus on promoting competition when they develop or modify their policy environment in a number of areas. These could include trade policy, regulatory policy, government procurement and even product standards.

They are intended to apply to developed and developing economies, large and small, government and private sector, and trade as well as other policy instruments.

Kerrin Vautier stressed they were umbrella principles rather than binding rules, meaning there can be flexibility in policy mix and timeframes.

The aims include:

* Promoting the competitive process throughout the Apec region as a means of enhancing economic efficiency and welfare.

* Guiding the development of a competition-based policy framework to assist policy development as well as the resolution of policy conflict within and between member economies.

* Providing a discipline on domestic policy-making in the context of Apec-wide goals.

* Minimising uncertainty for business through greater transparency and consistent application of an agreed set of competition principles and disciplines.

Although the competition principles project has been going on since 1993, and so considerably pre-dates the Asian economic crisis, its goals have been reinforced by the regional problems.

Adoption by Apec of the competition principles is seen as a counter to the risk of increased protectionism and as a way to guide sustainable recovery for the region.

"Because the Pecc competition principles directly address the conditions for well-functioning markets, they are seen as an integral part of an effective response to the crisis and, in particular, a central part of promoting coherent policy responses to it," says the Pecc document.

"Adoption of the Pecc competition principles, coupled with institutional capacity-building, provide a framework in which to address some of the critical issues that have arisen in financial and other markets ... Failure to contemplate application of competition principles to financial markets at this time - balanced by appropriate regulation - would risk a further weakening in these markets as well as in the goods and services markets they serve."

There are four keys to the competition principles:

* Comprehensiveness - ensuring there is a competition dimension to all policy-making that makes an impact on globalising markets and that this framework applies to all goods and services.

* Transparency - ensuring the substantive principles on which policies are based and the processes by which they are applied should be clear for all stakeholders.

* Accountability - ensuring those responsible for applying the competition principles should be accountable for any departures from those principles.

* Non-discrimination - ensuring that once a transition period is complete, the principles should be applied by an economy in a non-discriminatory manner to ensure competitive neutrality in respect to the different modes of domestic and international supply.

Alex Duncan, head of corporate finance for Arthur Andersen New Zealand, said the Pecc principles were important because they provided an agreed framework for disciplined changes in the regulatory environment in the region, hopefully preventing repeats of the sorts of mistakes that led to the Asian crisis.

Arthur Andersen sponsored the publication of the competition principles and will promote the document at the Fortune 500 Global Economic Forum in Shanghai just before Apec.

Governments, rather than the private sector, are responsible for the majority of existing distortions in the competitive process in the region, and Mr Duncan said the principles aimed to "avoid the arbitrary and undisciplined use of regulation by government, for example when it tries to protect national champions."

This was important for businesses making investment decisions, he said.

Pecc plans further work into competitive distortions and the extent to which these problems arise from government actions (regulation of markets and raising artificial entry barriers, for example), government inactions (inadequate enforcement of existing laws or inadequate regulation of the use of monopoly power), private sector conduct (price fixing, bid rigging, group boycotts), or a combination of all these.

The competition framework needs to address both public and private sector distortions, in particular to ensure that deregulation does not simply see the replacement of state-sanctioned distortions by private sector ones.

This might involve competition law, enforcement measures and effective deterrents. However, Pecc recognises that some regional economies do not yet have the necessary regulatory environment and skills to make this possible.

Mr Duncan said the fact that the Pecc competition principles were non-binding rather than rules-based was an advantage, as it did not impose uniformity on all countries.

"In a way, you want competition in regulatory environments because it makes different countries try different approaches and you find new and better ways of doing things. Countries then compete within these principles in terms of setting up their regulatory environment and attracting investment."

Kerrin Vautier said in the end the success of the competition principles would depend on the success of the Apec model, with its concerted unilateralism and peer pressure-style monitoring.

While the Pecc document acknowledges that the competition principles will not be popular with all business people in the region, particularly those who stand to lose favoured status within a particular economy, Kerrin Vautier believes it will benefit New Zealand businesses.

"The principles are designed to make markets throughout Apec more open, contestable, competitive and efficient. It is this overall policy direction that we stress, even if actual change might be slower than we would like."

Slow it may be, but Kerrin Vautier is still surprised and pleased that the project is receiving so much attention from senior Apec figures. She has already made five presentations to Apec meetings, and competition principles are a key requirement of the Apec Collective Action Plan as well as being central to the "strengthening of markets" theme of New Zealand's Apec year.

Kerrin Vautier is also pleased to have achieved so much consensus within Pecc on the principles given the diversity of the region.

"The most challenging issue was how to build a coherent and credible approach and at the same time accommodate the different economic circumstances in the region."

The ball is now in Apec's court. If the competition principles are endorsed by leaders, the most likely way of implementing them would be through Apec members' individual action plans. These at present lack consensus as to both the objectives and scope of competition policy, as different governments have very differing views on the role competition policy can play in promoting Apec's overall trade and development goals.

The principles might even eventually be used to guide World Trade Organisation rules, said Kerrin Vautier.

"We are confident that whatever level of formal endorsement they receive in Apec they will be a durable reference point for many policy-makers and international agencies."

* This is the ninth in an occasional series by the New Zealand Committee of the Pacific Economic Cooperation Council dealing with policy issues ahead of the Apec summit in Auckland. Other articles ran on August 19, September 22, October 13, November 2 and November 25, 1998, and February 12, April 13 and May 27, 1999.