Volume 13, January-March 2012

CUTS Centre for Competition, Investment & Economic Regula tion

REGULETTERA Quarterly NewsletterA Quarterly NewsletterA Quarterly NewsletterA Quarterly NewsletterA Quarterly Newsletter

Special Articles

Mexican Experience inScreens for Bid-Rigging– Carlos Mena-Labarthe .............. 7

Europe Changes Tone onTelecommunicationsInitiatives– Kevin J. O’brien ....................... 14

Too Big To Jail– Simon Johnson ........................ 16

The World Bank isFlirting with Irrelevance– Ian Goldin ................................. 17

Anticompetitive practices particularly cartelisation in primary commoditymarkets across both horizontal and vertical chains has been seen to have

severe developmental consequences contributing to the high prices and volatilityin these markets.

The Southeast Asiannatural rubber cartel is onesuch example of a type ofexport cartel that threatensthe global supply of naturalrubber today. On the otherhand, the European bananacartel shows a slightlydifferent picture. While theend consumers may benefitfrom low prices, smallfarmers in the producing countries bear the cost.

In 2009, the International Rubber Consortium (IRCo) announced plans to cutthe rubber exports by a sixth causing serious panic world over. The GlobalTrade Alert estimated that such a jumbo measure has the potential to impactworld trade worth US$26.3bn across a total of 105 trading partners. Today,there is a worldwide crunch in availability of natural rubber, and the rapidly risingprices are a major concern for all tyre manufacturers. This is attributable to themajor production cuts and export quotas maintained by these big rubber growers.

The case of the European banana cartels is an example of cartelisationacross the vertical chain as opposed to horizontal as seen in the earlier case ofnatural rubber. Banana exports are concentrated in Central America and theCaribbean. Some of the nations in these regions are quite dependent on bananaexports. On the other hand, banana trade is controlled by only a limited numberof companies, with just five major multinationals controlling more than 80 percentof all internationally traded bananas.

Given the lack of capacity of competition authorities in developing and leastdeveloped countries, there is a crying need for capacity-building reforms andtechnical assistance that equip countries to face such cross-border anticompetitiveimpacts. What is needed through such reforms is for domestic governments tocorrect market distortions by building the capacity of small commodity producersin order to reduce the impact of asymmetries in power relations between the smallproducers and large intermediaries/suppliers across the value chain.

At the international level, there may be a case for a multilateral governanceprocess that recognises market power imbalances in the agri-food chain so thatcountries can coordinate with one another in the regulation of internationalagricultural markets. Similarly, although a multilateral competition policy wouldbe best suited to challenge export cartels, the current state of the politicaldebate makes it more likely that second-best solutions such as capacity-buildingin lesser developed target states will have to be established.

To this end, CUTS International with the support of Centre for Economic PolicyResearch and Agence Francaise de Developpement organised a symposium on“Trade and Competition Policy in Primary Commodity Markets” in Geneva onSeptember 22, 2011. The papers presented at the symposium were published asan Ebook freely available at: www.voxeu.org/reports/CEPR-CUTS_report.pdf

Global Welfare Consequences ofCartelisation in Primary Commodities

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Inside this Issue

Merger Control GuidelinesAmended............................ 2

Businesses to Face PowerfulNew Competition andMarkets Authority ............... 3

China Telecoms CaseHeats Up ............................. 4

New Antitrust FineGuidelines .......................... 6

Lower Roaming Costsin GCC.............................. 13

Regulators Warn AgainstRatings Plan ...................... 14

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Competition Act Waits in WingsThe Philippines is moving closer to

establishing its first comprehensivecompetition law, as a bill to consolidateand strengthen the country’s existingantitrust legislation and create a FairTrade Commission to act as anindependent enforcement agency.

The Act would prohibitanticompetitive agreements and abuseof dominance and establish notificationguidelines for mergers.

Competition law itself is not new tothe Philippines. The country inheritedthe Sherman and Clayton Acts into itsconstitution from the US, and thereforehas some of the oldest antitrustregulations in Asia. (GCR, 29.02.12)

Competition Threshold IncreasedUnder the Competition Act –

Canada’s antitrust law – there is a two-part test for determining whether a pre-merger notification is necessary. Thetest is based on the size of the partiesand the size of the transaction.

Under the size of the parties test,the parties, together with their affiliates,must have aggregate assets in Canadaor annual gross revenues from salesin, from or into Canada, in excess ofUS$400mn.

Under the size of transaction test,the value of the assets in Canada orthe annual gross revenue from sales inor from Canada of the target operatingbusiness and, if applicable, itssubsidiaries, will need to be greaterthan US$77mn in order to trigger thenotification obligation. The size oftransaction threshold can be adjusted

annually for inflation; the newthreshold took effect on February 11,2012. (ILO, 01.03.12)

Make Competition Act AutonomousThe Portuguese government

submitted a draft of the newCompetition Act to the Parliament. Thereform of the country’s key competitionlegislation attracted a level of publicparticipation rarely seen in Portugal’srecent legal history.

A revision of the Act has been underconsideration since 2008, if not before,but it was not until 2011 that it becameone of the government’s priorities. Thegovernment, the EuropeanCommission, the European Central Bankand the International Monetary Fundsigned a memorandum ofunderstanding which identified therevision of the Act as one of thestructural benchmarks of the financialassistance plan for Portugal.

The main aim is to make the Act asautonomous as possible from thestructures of administrative and criminallaw and more closely harmonised withthe EU competition framework.

(ILO, 01.03.12)

Malaysia Begins Competition ProbeMalaysia has marked the

implementation of its Competition Actby opening an investigation of twoairlines based on a concern that theircooperation agreement could raisecosts and have a negative effect oncustomers.

Malaysia’s CompetitionCommission asked Malaysia Airlines

and AirAsia, the country’s two largestairlines, to provide information anddocuments relating to their share swapagreement.

As part of the deal, AirAsia’s majorshareholder gained a 20.5 percent stakein Malaysia Airlines, while MalaysiaAirlines’ major shareholder purchaseda 10 percent stake in AirAsia. Airlinesagreed to cooperate in areas of groundhandling, training and engineering.

(GCR, 05.01.12)

Harmonising Albanian LegislationIn order to harmonise Albanian

legislation with EU law – and inparticular with EU Regulation 1217/2010 on the application of Article 101(3)of the Treaty on the Functioning ofthe European Union to certaincategories of research anddevelopment (R&D) agreement – theAlbanian Competition Authorityapproved the Regulation on theExemption of Research andDevelopment Agreement Categories.

The objective of the regulation isthe block exemption from applicablecompetition restrictions of agreementsregarding the R&D of products orprocesses up to the stage of industrialapplication and exploitation of theresults, including provisions regardingIP rights. This exemption is intendedto encourage undertakings in theirtechnological R&D activity andcooperate with each another.

(ILO, 02.02.12)

India Simplifies Merger RulesThe Competition Commission of

India (CCI) has amended its mergercontrol rules, simplifying the mergerreview application process andexempting more non-problematicmergers from antitrust scrutiny.

The changes introduce exemptionsfor intra-group mergers – or mergersbetween companies which are fullyowned by the same parent company –allowing businesses to avoid a mergerreview by the CCI.

Other exemptions from antitrustscrutiny include acquisitions of up to25 percent of a company’s share – itwas 15 percent under the previous rules– and acquisitions of shares through abuy-back, if they do not lead to controlof the company. (GCR, 29.02.12)

MACRO ISSUES: NEWS BRIEFS

Merger Control Guidelines Amended

Korea�s Fair Trade Commission (KFTC) amended its merger controlguidelines by extending the scope of merger reviews regarding large companies

and increasing the number of deals that can apply for fast-track review.Under the amended guidelines, the KFTC

will review more transactions betweencompanies with a turnover of more thanUS$1.8bn before the deals take place. Theamendment means the KFTC will now alsoscrutinise these cases. Only deals in which crucialinformation such as the date of the transaction orthe price cannot be confirmed in advance canbe exempted from pre-merger review.

The amendment also widens the scope ofthe KFTC�s merger reviews, which now takesinto account transactions that confer joint control. (www.bkl.co.kr, 03.01.12)

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– This update was captured in the Berwin Leighton Paisner, on March 15, 2012

MACRO ISSUES: IN FEATURE

Businesses to Face PowerfulNew Competition and Markets Authority

Following a year-long publicconsultation process, the UK

government announced a suite of majorchanges to the UK competition regimeon March 15, 2012. The reforms takentogether represent a significantstrengthening of the hand of thecompetition authorities. Mostsignificantly:

• the two existing UK competitionauthorities – the Office of FairTrading (OFT) and the CompetitionCommission (CC) – will be mergedinto a new body called theCompetition and MarketsAuthority (CMA); and

• the authority will no longer haveto show that individuals engagingin prohibited cartel activity acted“dishonestly” in order for thoseindividuals to be convicted of thecriminal cartel offence and facepotential imprisonment.

Creation of a New CMATo streamline decision-making incompetition cases, the government willtransfer the functions of the CC andthe competition functions of the OFTto a newly-created CMA. Currently, theCC has a role as an in-depth “phase 2”review body in relation to mergers andmarket investigations referred to it bythe OFT.

Combining the institutions maybring about certain processimprovements, for example, enablingthe CMA to “cherry pick” some of thebest aspects of the current institutionalprocedures. However, a “phase 2”review which is under the same roof asa “phase 1” review, and subject to thesame ultimate management structures,may not be sufficiently independentof the original review.

Removal of the Dishonesty Elementin the Criminal Cartel OffenceAt present, an individual facespossible imprisonment and fines if he

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or she dishonestly engages inprohibited cartel activities such as price-fixing, bid-rigging or market sharing.

The OFT has brought only onesuccessful prosecution to date underthe criminal cartel offence. Thegovernment believes that this paucityof prosecutions is a consequence of thecurrent requirement to show thatdefendants acted dishonestly.

To facilitate criminal prosecutionsand, by implication, convictions,defendants will no longer need to haveacted “dishonestly”; acting secretly willsuffice. In this context, the governmenthas made the unexpected and ratherpuzzling proposal that the offence willnot include arrangements the details ofwhich the parties have agreed topublish before they are implemented.

Although the scope of this“defence” to criminality is unclear, theelements the prosecution will need toprove have clearly been considerablyreduced, and the risks of enforcementaction have correspondingly increased.

This attempt to bolster the criminalregime is mirrored by somestrengthening of the civil investigatorypowers, including for the first timepowers to require individuals to answerinterview questions during civilinvestigations.

Changes to the Mergers RegimeThe UK is relatively rare in having amerger control regime which allowsparties to complete mergers beforeregulatory approval or indeed elect notto make a merger filing at all.

These key characteristics remain inplace, which will be welcome tocorporate advisors that appreciate theflexibility of the UK regime. In additionthe reforms will tighten merger controltime limits and processes, as well asincreasing merger fees.

Sectoral RegulatorsThe government also announced thatthe UK sectoral regulators, e.g., Ofcom,Ofgem, Ofwat, the Office of RailRegulation and the Civil AviationAuthority, will retain their concurrentcompetition powers, with the CMAeffectively taking the oversight andappeal role currently held by the CC.

Sector regulators will be requiredto consider first whether a competitionremedy is more appropriate than use ofsectoral powers to resolve theirconcerns.

The CMA will have increasedoversight and the power to takecompetition cases from the sectorregulators where they consider thatthey are better placed to deal with aparticular case. The appetite of theCMA to seize jurisdiction in this way,of course, will remain to be seen.

Next StepsSome of these changes will require newprimary legislation. Others may beimplemented without Parliament’sinvolvement. The competitionauthorities and the Department ofBusiness, Innovation and Skills willwork together to establish timetablesfor reform of the latter category, andthe government hopes to have the fullreform package in place by Spring 2014.

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MICRO ISSUES: NEWS BRIEFS

Greece Punishes Pepsi SubsidiaryThe Greek Competition Commission

(HCC) fined Pepsi-owned Tasty FoodsUS$21.4mn for abuse of dominance inthe market for salty snacks. It is thelargest fine the HCC has issued in morethan two years.

The Tasty Foods implemented a“single, consistent and targetedpolicy” to exclude its competitors fromthe market. The company allegedlyadopted tactics to prevent its rivals fromselling their products in small retailoutlets such as kiosks, grocery storesand small supermarkets.

The decision is a confirmation ofthe HCC’s tough stance againstanticompetitive practices aimed ateliminating competitors and exploitingconsumers. (Businessweek, 08.02.12)

Italy Accuses Gas DistributorsItaly’s Antitrust Authority fined

Estra Reti Gas and its parent companyEstra about US$357,637 for abusingtheir dominant position in the marketfor gas distribution. The authorityconcluded that the companies’ abusivebehaviour was intended to maintain theirdominant position in gas distribution inthe district of Prato, in Tuscany.

Estra, which is the incumbentcompany that manages Prato’s gasdistribution network, adoptedanticompetitive tactics to stop thelocal government from conducting apublic tender that could result in

ABUSE OF DOMINANCE competitors challenging the company’sposition in the market.

The authority says Estra initiallyrefused to submit information regardingthe gas network to the localgovernment, which prevented potentialcompetitors from presenting acompetitive offer in the public tender.

(Reuters, 01.02.12)

SRR Accused for Non-complianceFrance’s Competition Authority

fined SRR, subsidiary of telecomscompany SFR, US$2.7mn for breachingemergency measures imposed on thecompany to address concerns of abuseof dominance.

SRR is a mobile phone carrierowned by SFR, active in the Frenchislands of Réunion and Mayotte. In 2009its main competitors, Orange andOutremer Telecom, complained to theauthority that SRR was adoptingdiscriminatory prices and charging itscustomers more to call other operators’mobile phone.

After receiving the complaint, theauthority considered the pricedifference was not justified by differentcosts incurred by the operator and mightamount to an abuse of dominance.

(www.whitecase.com, 25.01.12)

Facebook Sued Over MonopolyWeb application maker Sambreel

has filed a lawsuit against Facebook,accusing the company of trying toeliminate competition in the sale ofonline advertising. Facebook is the

single largest supplier of advertisingon the internet. Until 2011, Sambreelused the social networking site as aplatform for its products.

Sambreel’s main product – PageRage– allows users to customise theirFacebook pages by adding designs thatappear on their web browsers.PageRage and Sambreel’s otherproducts also compete with Facebookin the sale of online advertisementswhich change with every pagedownload, known as “impressions”.

Sambreel claims that Facebook“engaged in a pattern of anticompetitivebehaviour in order to drive [it] out ofthe market”. (GCR, 20.03.12)

Pfizer Fined over GenericsItaly’s Antitrust Authority fined

pharmaceutical group Pfizer US$14mnfor abuse of dominance. Pfizer excludedproducers of generic versions of itsXalatan drug, which is used for treatingglaucoma, from the market.

Pfizer’s sales of Xalatan accountedfor 60 percent of the market for anti-glaucoma drugs. The companyemployed anticompetitive tactics toprotect its market share from itscompetitors.

The authority says Pfizer artificiallyextended its patent protection onXalatan beyond its natural end. Inaddition to the fine, the authorityordered the company to cease itspractices, but Pfizer denies wrongdoingand says it intends to appeal againstthe decision.

(www.nortonrose.com, 18.01.12)

Fresh Probe into Airline AlliancesBrussels has stepped up its

scrutiny of the partnerships thatunderpin the transatlantic airlinebusiness by launching an investigationinto a joint venture between Air France-KLM, Alitalia and Delta Air Lines.

The European Commission isexamining “as a matter of priority”whether the partnership is harming theinterests of passengers by limiting thecompetitive pressure on ticket pricesfor some key transatlantic routes.

The three joint ventures haveassumed a dominant position on routesbetween Europe and the US,controlling three-quarters of northAtlantic seating capacity. (FT, 28.01.12)

China Telecoms Case Heats Up

The debate over whether China�s first antitrust probe on large state-ownedcompanies will end up with a

settlement or a fine has taken a newturn, following comments made bya government adviser.

China�s National Developmentand Reform Commission (NDRC)is currently assessing how toproceed against telecom companiesChina Telecom and ChinaUnicom, which are accused ofemploying anticompetitivepractices to maintain their dominant position in the broadband market.

China Telecom and China Unicom promised the NDRC they would lowerinternet access price by 35 percent in five years, in an attempt to persuade theauthority to end the investigation with a settlement. But such remedies werenot enough to address NDRC�s competition concerns. (GCR, 10.01.12)

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CARTELS

MICRO ISSUES: NEWS BRIEFS

France Breaks Endive CartelFrance’s Antitrust Authority fined

endive farmers for running a cartel since1998 to keep prices of the bitter-leafedvegetable from falling for more than adecade.

The Antitrust Authority imposedfines worth almost a combinedUS$5.3mn on 11 farmers and sevenproducer unions and associations afterthey colluded to set prices towholesalers and retailers between 1998and now in an effort to apply antitrustlaws to the agriculture industry.

The Authority said that since 1998,agreements and actions were carriedout by market players to collectivelycoordinate pricing policies and controlsales prices to wholesalers andretailers.

(www.marketwatch.com, 06.03.12)

CCB Fines Foam MakerThe Canadian Competition Bureau

(CCB) fined foam makers DomfoamInternational Inc. and its associatedunit Valle Foam Industries (1995) Inc. atotal of US$12.5mn for participating ina price-fixing cartel for polyurethanefoam.

CCB said that Domfoam and itsaffiliate, Valle Foam, pleaded guilty toagreeing with competitors to fix theprice of polyurethane foam productsmade at plants in Brampton, Ontario;Delta, British Columbia; and Montreal,over a period of 11 years. Thecompany’s products are used mainlyin carpet underlay, furniture andbedding.

CCB said the charges are the firstto arise from its investigation into price-fixing in the polyurethane foamindustry. (www.plasticsnews.com, 09.01.12)

Pharmacies Fined for Price GougingChile’s National Competition

Tribunal (TDLC) fined two of thecountry’s largest pharmaceuticalcompanies US$38mn for colluding tofix the price of drugs. It is thelargest penalty ever imposed by theAuthority.

Salcobrand and Cruz Verde facefines of US$19mn each. A thirdcompany, Farmacias Ahumada, settledwith Chile’s National Economic

Prosecutor (FNE) for US$1mn inMarch 2009 and agreed to assist withthe authority’s continuinginvestigation.

The TDLC has agreed with acomplaint made by the FNE inDecember 2008 which accused thecompanies of “taking advantage oftheir enormous market power toeliminate price competition”. Thecompanies, which represent over 90 percent of pharmaceutical sales in Chile,are said to have colluded to fix theprices of at least 222 medicines betweenDecember 2007 and March 2008.

(www.santiagotimes.cl, 30.01.12)

Spain Slams Honda & SuzukiSpain’s National Competition

Commission (CNC) fined motorcyclemanufacturers Honda and SuzukiUS$5.3mn for colluding to exchangeprice information. The Commissionsaid employees of the two companiessent each other emails sharingsensitive information regarding theprice of all the companies’ motorcycleswith engines between 125cc and1800cc.

According to the Commission,Honda and Suzuki agreed to discloseboth wholesale prices and therecommended retail prices. Theexchange of information took place inJanuary 2009, and the companiesintroduced price changes that year.

The Commission said the practicewas a “very serious” infringement ofcompetition law, and fined HondaUS$2.8mn and Suzuki US$2.5mn.

(GCR, 23.01.12)

Korea Penalises Samsung & LGKorea’s Fair Trade Commission

(KFTC) fined Samsung Electronics andLG around US$40.4mn for colluding toincrease the prices of their electronicproducts. According to theCommission, company representativesmet between 2008 and 2009 to fix theprices of washing machines, flat-screenTVs and laptop computers.

Samsung and LG were finedUS$23.1mn and US$16.9mnrespectively. Both companies havebeen subject to other investigations bythe KFTC and other antitrustauthorities. (GCR, 13.01.12)

Argentina OpensOil Investigation

Argentina�s National Commissionfor the Defence of Competition

has opened an investigation of thecountry�s five largest oil companiesfor fixing the price of fuel. TheCommission is investigating RepsolYPF, Argestina�s largest oil company,Shell, ExxonMobil, Petrobras and OilCombustible for allegedly raising theprice of wholesale diesel fuel.

According to the Commission, thecompanies agreed to charge wholesalepurchasers of fuel more than retailcustomers who buy it at petrolstations. It opened a preliminaryinvestigation after receiving acomplaint from Argentina�s TransportSecretary Juan Pablo Schiavi and fromtrade associations of truck companies.

(Reuters, 17.01.12)

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Apollo Tyres Arm Pays FineIn what would be a first for any

Indian multinational company, ApolloTyres South Africa recently paid a fineof US$5.7mn to the South AfricanCompetition Commission (SACC) afterbeing found to be in violation of thecompetition law in the country.

A probe by the South African anti-trust regulator has found that a tyrecartel operated between 1999 to 2007among South African TyreManufacturers Conference and fourlocal manufacturers – the South Africanunits of Apollo, Goodyear, Continentaland Bridgestone.

Following this, and Apollo TyresSouth Africa’s admission that it didengage in the cartel, the regulatorslapped a fine of on the firm amountingto 4.75 percent of the company’s totalturnover in 2008. The settlement wasreached in November 2011.

(FE, 12.01.12)

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MICRO ISSUES: NEWS BRIEFS

Record Fine for Oil Cos.Romania’s Competition Council

fined four oil companies a recordUS$340mn for an illegal agreement withfour other companies.

The Authority has evidence thatfour companies – the country’s largestoil company, Petrom; Russia’s Lukoil;Italy’s Eni; and Romanian companyRompetrol – agreed to cease trading aparticular type of petroleum in 2008.

The evidence includes emails,letters and documents. The authoritywas able to levy by far its highest everfines due to direct evidence of an“understanding” between thecompanies.

The case could represent anotherimportant first for Romania; theauthority’s case is continuingalongside a criminal investigation of thealleged agreement, meaning that itcould culminate in the country’s firstantitrust cases against individuals.

(GCR, 10.01.12)

Cemex Hit with Abuse FineMexico’s Federal Competition

Commission (CFC) fined concrete andcement manufacturer Cemex more thanUS$800,000, for allegedly stopping arival from importing cement from Russiain 2005.

The CFC says that Cemex used itspower in the market to stop 26,000tonnes of less-expensive, Russian-made cement from entering the country.

The Commission says the ship thatwas transporting the cement was stuckin port for months before Cemexeventually convinced the port authorityto turn the ship away.

The complaint in the case was firstfiled in 2006. The CFC did not respondto repeated requests for comment, nordid it elaborate on how Cemexconvinced the port to hold the ship formonths and turn it away.

(GCR, 15.02.12)

Doctors� Association AccusedThe Netherlands’ Competition

Authority (NMa) fined the generalpractitioners’ association LHV andsome of its officials US$10.2mn forrestricting doctors’ rights to choosewhere to establish their practice, thusreducing competition.

The NMa also issued some of itsfirst penalties to individuals, fining twoLHV officials US$66,228 and US$33,114each for their personal responsibilityin setting the association’s conduct.

The LHV is a trade association thatoperates throughout the country,representing the majority of Dutchdoctors. According to the NMa, theLHV recommended that new GPs canestablish their practice in certain areasonly if the incumbent doctors agree.

The NMa fined the LHV forbreaching competition laws, saying thepolicy “harms not only new doctors,but patients and health insurers whohave less choice”. It also ordered LHVto withdraw the recommendation.

(GCR, 09.01.12)

CCP Slams Oil ManufacturerThe Competition Commission of

Pakistan (CCP) has passed an order ona show cause notice issued to PakistanVanaspati Manufacturers Associationfor contravening a number ofprovisions of the Competition Act2010.

FINES & PENALTIES Pakistan Vanaspati ManufacturersAssociation is a representativeassociation of all ghee and cooking oilmanufacturers in Pakistan andregistered under the TradeOrganisations Ordinance 2007.

The CCP carried out a study of theghee and cooking oil sector whichindicated that manufacturers, actingcollectively, did not fully synchronisetheir prices with changes in inputprices. They acted independently ofmarket forces and influenced marketprices. (ILO, 12.01.12)

Fine for Resale Price MaintenanceThe Finnish Market Court imposed

a fine of US$3.9mn on Iittala Group OyAb, a Finnish design companyspecialising in houseware goods, forhaving implemented resale pricerestrictions infringing Finnishcompetition law. While the FinnishCompetition Authority had requestedthat the company be fined US$5.3mn,the imposed fine is still the highestever in Finland for resale pricemaintenance.

Between 2005 and 2007, Iittala wasfound to have restricted the resale ofits independent retailers in Finland forthe company’s best-known products.Iittala’s anti-competitive behaviourwas intended to raise the prices of itsproducts, and reduce competitionbetween resellers of its products.

The retail price fixing activitiescovered the majority of Iittala’sresellers across Finland, and lasted forseveral years. The Market Court statedthat it considers the company’sbehaviour to be a hardcore restrictionof competition. (Mondaq, 15.02.12)

New Antitrust Fine Guidelines

The Hungarian Competition Office issued new guidelines on determiningfines in cartel and abuse of dominance cases. The guidelines are the

result of a long dispute between the Competition Office and variouscourts.

The new guidelines apply to cartel and abuse of dominance cases.Although the Competition Office is expected to follow the rules, it remainsfree to deviate from them if it can provide comprehensive reasoning to showthat such deviation is justified by the particular characteristics of the case.

According to the general principles set out in the guidelines, a fine mustbe an effective and material deterrent, but should also be proportionate tothe infringement committed. (ILO, 08.03.12)

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Mexican Experience in Screens for Bid-Rigging� Carlos Mena-Labarthe*

* Director, Division for Cartel and Interstate Commerce Restrictions Investigations at the Federal Competition Commission of Mexico.Abridged from an article that appeared on www.competitionpolicyinternational.com on March 13, 2012.

I t is a common place nowadays to say that antitrustauthorities have relied significantly (or over relied) on

leniency applications to detect cartels. Some intend this as acriticism; others intend this as recognition of the strategy.Indeed, evidence shows leniency has been the most usefultool for cartel detection and it has been one of the greatsuccess stories in cartel enforcement in various jurisdictions.It is without a doubt one of themost important institutionalexports of the United States andit is only beginning to take off.

According to the InternationalCompetition Network, aninternational body devoted tocompetition law enforcement ofwhich members represent nationaland multinational competitionauthorities, during the last twodecades leniency programmeswere adopted in more than 50jurisdictions. This hastransformed the way competitionlaw is enforced in those jurisdictions, but also howcompetition authorities work and coordinate with each otheras they have created a race to disclose illegal conduct by theparticipants of the cartel, nationally and internationally.Nowadays, companies and their counsel coordinate leniencyapplications all around the world and competition authoritiescoordinate their enforcement.

In Mexico, as in other parts of the world, we regard leniencyas one of the most important and useful tools for thedetection and prosecution of cartels.

Leniency programmes may have some effects that need tobe addressed by the authorities and this is where screenstake such an important role. Leniency programmes only workwhen you have severe sanctions including individualaccountability, a good track record of enforcement and ofcourse when you discover conspiracies without the use ofleniency as well.

So, as various studies have documented in many interestingstudies, despite the considerable success of leniency, somecollusion remains undetected. And it may be true that thisundetected collusion may be the worst, as it is still an on-going cartel that may still harm consumers for many years tocome.

I recognise the great value of multiple approaches todetection and how authorities need to work in ex-officiodetection as well.

Historically, but nowadays even more so, most competitionauthorities have started to search for alternative andcomplementary approaches to detect and investigate cartels;

this is very important and shouldbe given priority, especially inagencies and jurisdictions wherecartel enforcement has over reliedon leniency applications fordetection.

There are many routes and effortsbeing explored. Somejurisdictions are working topromote complaints, extractinginformation from other cases,working with procurementofficials and other enforcementagencies, even some countriesare paying whistle-blowers for

information.

One interesting method that has been advocated by manyeconomists as well as some officers and legal consultantshas been the use of empirical methods commonly known asscreens.

As experience has proved, screens have flagged unusualpatterns in a variety of countries and industries, and helpedin the detection of cartels.

These empirical methods have their pros and cons. Therehave been great success stories, as well as some importantwaste of resources and never ending work to find a needlein a haystack where ultimately there is none.

In the Mexican experience, the Mexican CompetitionCommission has made some efforts to use screening to detectcollusion and to prioritise investigation resources.

These efforts of course do not mean we have relied less onleniency in Mexico. Since 2006 when the programme wasintroduced, it has been one of the top priorities of the CartelInvestigations Division. Accordingly, we believe advancingboth efforts are complimentary and should not be seen asunrelated or contraries.

MICRO ISSUES: IN FEATURE

Leniency has been the most useful tool for cartel detection and it has been one of thegreat success stories in cartel enforcement in various jurisdictions

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RESTRUCTURING: NEWS BRIEFS

BA to Team-up with JALInternational Airlines Group and

Japan Airlines announced plans for ajoint venture that would seek to maximisethe profitability of routes betweenEurope and Japan. JAL and BritishAirways, IAG’s UK subsidiary, want tocreate a partnership business that wouldco-ordinate flight schedules betweenEurope and Japan and share revenues.

Such partnerships are more importantthan the three global airline alliances –Oneworld, SkyTeam and Star – becausethe joint ventures can combine theirschedules to provide more daily flightsto lucrative business customers.

However, the joint ventures havebeen subjected to intense scrutiny byregulators to determine whether theyare adversely affecting passengers bylimiting competitive pressure on ticketprices. (FT, 09.02.12)

EU to Rule on D Börse-NYSE MergerThe NYSE Euronext and Deutsche

Börse tie-up faces its day of reckoningin Brussels, as European Unioncommissioners are expected to sign-offa recommendation to block a mergerthat allegedly stifles competition.

Senior officials are confident that aclear majority of the 27 Europeancommissioners will back JoaquínAlmunia, the competitioncommissioner, and prohibit the bid. Butit is likely to come after an extremelycontentious and rare debate at the full

college of commissioners, a discussionof the like not seen in Brussels sincemerger control rules were pioneered inthe early 1990s against stiff resistancefrom supporters of dirigiste industrialpolicy.

The potential dissenters are beingled by Michel Barnier, the EU’s topfinancial regulator, who is determinedto air his views on the mergerparticularly given the sweeping marketreforms he is overseeing. (FT, 01.02.12)

US Chemical Rivals to UniteEastman Chemical has agreed to

buy its competitor Solutia for a totalvalue of US$4.7bn. US-based EastmanChemical, which produces chemicals,fibres and plastics, will pay US$3.4bnin cash to acquire its rival Solutia, whichmakes speciality chemicals, such asmaterials used in laminated glass,protective barriers and rubberprocessing. The company will also takeon Solutia’s debt.

The merger requires antitrustclearance in the US, as the companies’activities overlap in the markets forseveral speciality chemicals,particularly for products sold in theautomotive and architectural markets.Eastman Chemical expects to close thetransaction in mid-2012. (GCR, 30.01.12)

Asahi Kasei to buy Zoll MedicalJapan’s Asahi Kasei Corp will buy

US medical equipment maker Zoll

Medical Corp for US$2.21bn as it looksto build a global healthcare businessand reduce reliance on its chemicalsand fibers operations.

Asahi Kasei, which is seeking toexpand its presence in the US, will buyZoll in an agreed cash deal for US$93 ashare. The deal is Asahi Kasei’s biggestacquisition by far. The transaction,which adds to about US$200bn thatJapanese firms have spent on overseasacquisitions in the past four years, isexpected to close in the second quarter.

Asahi Kasei derives more than halfits sales from its chemicals and fibersbusinesses and almost a third fromhomes and construction materials.

(FT, 13.03.12)

ADP Acquires Turkish StakeA new alliance between Aéroports

de Paris and TAV, the Turkish airportsoperator, will aim to expand in Russia,Central Asia and the Middle East, theTurkish group said after ADP agreedto buy a 38 percent stake in TAV forUS$874m.

As part of a concerted move intothe growing Turkish market, ADP –which said it expected a double-digitreturn from the transaction as a whole– also agreed to buy a 49 percent stakein TAV’s construction unit for US$49m.

The deal brings the operator ofParis Charles de Gaulle airport intoalliance with the operator of IstanbulAtatürk airport in a transaction thatwould give the partnership a total of180m passengers in 37 airports aroundthe world. (FT, 13.03.12)

Bristol-Myers to Acquire InhibitexBristol-Myers Squibb agreed to

acquire Inhibitex for about US$2.5bnto gain access to its promising hepatitisC treatment. Recent years have seensignificant advances for treatinghepatitis C – a serious liver disease thatafflicts an estimated 180 million peopleworldwide – while setting off ascramble among large drugmakers tosecure the most promising products.

The Bristol-Inhibitex deal comes onthe heels of Gilead Sciences’ US$11bnacquisition of Pharmasset, which hasits own promsing hepatitis C therapies.Inhibitex’s lead asset is INX-189, an oraldrug in Phase II or mid-stagedevelopment. (FE, 08.01.12)

Glencore and Xstrata in Talks

Mining giants Glencore and Xstrata are in talks to merge, potentially creatinga company worth US$80bn, subject to competition

approval. Glencore is the world�s largestcommodities trader, with a global turnoverof US$145bn. Xstrata is one of the largestmining companies in the world, postingrevenues for US$30bn.

The companies confirmed that theyare discussing the deal, saying Glencorehas until March 01, 2012 to make anoffer for Xstrata�s shares or drop its bid.Glencore already owns 34 percent ofXstrata.

A merger between the Switzerland-based companies, listed on the LondonStock Exchange, would combine theirmarket share in the production of severalmetals, and this could raise competitionconcerns among antitrust authorities worldwide. (BBC, 02.02.12 & FT, 03.02.12)

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9No.1, 2012

EGULETTERR

RESTRUCTURING: NEWS BRIEFS

Nestle-Danone Battle for PfizerNestle will battle a Danone-Mead

Johnson team for Pfizer’s US$10bninfant nutrition business. The Pfizerunit being sold is a high-growthUS$2.1bn turnover business with over70 percent of sales in emerging marketsand a key position in China, and hasattracted the attention of the threelargest players in the infant milk formulasector.

Nestle, the world’s largest foodgroup, is seen by many bankers asfavourite due to its size and deeppockets, but it faces stiff competitionfrom the French-American combine,which was brought together toovercome antitrust concerns.

The Pfizer business ranks as worldnumber five in the infant milk formulamarket after Nestle, Mead Johnson,Danone and Abbott Laboratories, withover a quarter of its sales in China, wherethe US$6bn market is expected todouble by 2016. (FE, 19.02.12)

Setback for Anglo-Lafarge DealAnglo American’s planned joint

venture with Lafarge to create aUS$2.9bn building materials group wasthrown into question after the UK’sCompetition Commission warned that itcould increase the risk of prices beingrigged.

The Commission is nowconsidering whether to block the dealor force asset sales, with a final reportdue on May 01, 2012. With the UKcement market already in the hands ofjust four companies, the regulator saidit was concerned that furtherconsolidation could squeeze suppliesand force prices higher.

The Commission said that althoughit had not found evidence of collusion,cement prices and profit margins havenot been affected in the way it wouldhave anticipated following a drop incement demand over the past few years.

(FT, 22.02.12)

DoJ Investigates Health MergerThe US Department of Justice’s

(DoJ) antitrust division is investigatingthe US$475mn merger betweenHighmark and West Penn AlleghenyHealth System over concerns the dealwould reduce competition in thehealthcare sector.

The merger would combinePennsylvania’s largest health insurer,Highmark, with Pittsburgh’s secondlargest hospital group, West Penn,which is also embroiled in a civilantitrust lawsuit over collusion in thehealth-care sector.

A spokesperson for University ofPittsburgh Medical Centre says theauthority is concerned the mergerwould give Highmark excessive controlover the health insurance market in thePittsburgh area. (GCR, 20.02.12)

Kellogg to Snap up P&G�s PringlesProcter & Gamble terminated the

planned sale of its Pringles snacksbusiness to -Diamond Foods and willinstead sell it to Kellogg in a US$2.7bnall-cash transaction.

The world’s largest consumergoods group by sales ended protracteduncertainty over Pringles by saying itwould sell it to Kellogg, which will useit to triple the size of its internationalsnacks business.

Pringles has annual sales ofUS$1.5bn and will become Kellogg’ssecond largest brand after Special Kcereal. Analysts opine that Kellogg wasthe better fit for Pringles. (FT, 16.02.12)

Walmart�s Stake in Chinese WebsiteWalmart is taking a 51 percent stake

in Yihaodian, a leading Chineseecommerce website, in a significantmove by the US retailer to boost itsonline presence in China. Walmart didnot disclose financial details for thepartnership with Yihaodian, one of the

fastest-growing companies in China. Butit already held a minority stake in thebusiness, which sells more than 180,000products ranging from grocery items toconsumer electronics and apparel.

Founded in 2008, Yihaodian runslogistics centres in Shanghai, Beijing,Guangzhou, Wuhan and Chengdu andis able to offer same-day and next-daydelivery. Yihaodian sales hit US$429min 2011. The Chinese consumerecommerce market is dominated byhomegrown online retailer Taobao.Walmart has more than 350 stores inChina, where it has been making steadyprogress. (FT, 21.02.12)

Spain Pushes for Bankia MergerSpain’s new government is

pressing for Bankia, a group of savingsbanks listed in 2011, to seek a mergerwith another Spanish bank in a deal thatwould create the country’s largestdomestic lender by assets if itmaterialised, according to bankers inMadrid.

The three possible candidates areSantander, BBVA and Caixabank – thecountry’s biggest institutions. But thefirst two have remained profitablethrough the crisis owing to their foreigninvestments, and their executives arewary of increasing exposure to themoribund domestic property market.

The third, Caixabank in Barcelona,denied that it was in discussions withBankia, in Madrid, over a possible deal.Bankia also said it was notcontemplating such a merger.

(FT, 18.01.12)

Bell�s Bid to Swallow Astral Media

Canada�s largest telecoms company, Bell CanadaEnterprises, has announced plans to acquire

television company Astral Media, in a dealthat will require approval from theCanadian Radio-television andTelecommunications Commission(CRTC) and Competition Bureau.

Bell will purchase Québec-basedAstral for US$3.4bn. The transactionwill give the company ownership of allof Astral�s pay and specialty televisionservices, radio stations, digital mediaproperties and out-of-home advertising activities.

Astral employs about 2,800 people across Canada, about half of whom arelocated in Québec. Bell�s latest venture is now subject to approval from industryregulator CRTC and the bureau. (www.dwmw.wordpress.com, 16.03.12)

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10No.1, 2012

EGULETTERR

RESTRUCTURING: IN FEATURE

FRAND or Foe?

Go ahead, but we are watching you. That, in effect, is what competitionauthorities in America and the European Union told Google on February 13,

2012. In August 2011, the search-engine giant agreed to buy Motorola Mobility,a maker of mobile phones with 17,000 issued patents and 6,800 pending, forUS$12.5bn. Neither America’s Department of Justice nor the European Commissionhas found a reason to halt the deal, but both tempered their approval with wordsof caution.

The watchdogs sniffed the deal carefully because patents are powerful weaponsand war is already being waged. This month Motorola Mobility won a courtruling in Germany to stop Apple selling several iPhones and iPads in its onlinestore there; Apple managed to have the ban suspended. Microsoft and Applehave been firing regular volleys at devices that use Google’s Android operatingsystem. At the International Trade Commission (ITC), a popular American venuefor patent disputes, Microsoft is suing Barnes & Noble over the bookseller’sNook e-reader. In April some Android phones made by Taiwan’s HTC are due tobe barred from America, after a ruling in Apple’s favour by the ITC in December.

Google has hitherto been poorly armed, which helps explain why it is forking outUS$12.5bn for Motorola Mobility’s arsenal. The protection this affords to Androidshould help the spread of the operating system, which according to Gartner, aresearch and consulting firm, powered just over half of all smartphones sold inthe fourth quarter of 2011.

Even so, Google’s purchase won less than wholehearted endorsement fromAmerican and European officials. A lot of Motorola Mobility’s patents covertechnology needed to meet agreed industry standards that allow, say, phones totalk to networks. Once a standard is set, people have little choice but to use it.

I n theory, companies with “standard-essential” patents (SEPs) can chargeexorbitant royalties, refuse licences or ask courts to ban unauthorised products.

In practice they usually do not: in return for having their know-how built intostandards, holders of SEPs are required by international standard-setting bodiesto license it on “fair, reasonable and non-discriminatory” (FRAND) terms. Loads– The news appeared in The Indian

Express, on February 23, 2012

No sign of a ceasefire in the mobile industry�sintellectual-property war

of companies use the technology ofothers, sometimes freely, sometimes fora fee or in cross-licensing agreements.But because FRAND is in the eye ofthe beholder, an owner of an SEP maystill demand more than others think isfair for a licence, and spark hostilities.

Although it let the Motorola deal goahead, the DoJ compared Googleunflatteringly with Apple andMicrosoft. On the same day, it approvedthe picking of 6,000 patents from thecarcass of Nortel Networks, a bankruptCanadian equipment-maker, by aconsortium that includes Apple andMicrosoft, as well as Apple’s purchaseof patents once owned by Novell, anAmerican software company. Thedepartment said that short statementsby Apple and Microsoft promising notto seek injunctions against productsusing SEPs had eased its concernsabout possible damage to competition,but it called Google’s commitments“more ambiguous”.

In a letter to the IEEE, a standards-setting organisation, Google said it

would not go to court either – as longas licensees accept its terms. Theseinclude a maximum royalty of 2.25percent of a final product’s price, beforemobile operators’ subsidies; on aUS$500 phone, that makes US$11.25.

Joaquín Almunia, the EU’s competitioncommissioner, had already made hisworries about the potential abuse ofSEPs plain: he started an antitrustinvestigation into South Korea’sSamsung, which has been seekinginjunctions against Apple in severalcountries. He restated his fears – andpointed out that his approval for thedeal did not imply a blessing forwhatever Google might do in the future.

Google surely knew that: separately,Almunia’s trustbusters have beenexamining complaints that thecompany abuses its dominant positionin online search. Google looks likegetting Motorola. But it may yet be gotat.

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EGULETTERR

CORPORATE ISSUES: NEWS BRIEFS

Big Tobacco Heads to CourtA class action lawsuit that argues

that three of the major tobacco firmsmanipulated nicotine levels and hidevidence on the health effects ofsmoking is coming to trial after 15 years.The suit, which seeks up to C$27bn indamages, is the first of its kind inCanada.

Imperial Tobacco, JTI–Macdonaldand Rothmans Benson and Hedges arethe target of the suit, which is similarto the major action in the US that ledto the industry paying out nearly$250bn over 25 years.

The damages reflect C$10,000 foreach of the 1.8m Quebec residents whoreport that they are unable to quitsmoking. A separate action is made upof people that have fallen ill withemphysema and cancer. ImperialTobacco, in a statement, labelled thesuits as an “opportunistic cash grab.”

(BR, 13.03.12)

SEC Turns Whistleblower TipsA tip from an accounting executive

that a company poised to go publichad allegedly filed misleading financialstatements kick-started a Securitiesand Exchange Commission (SEC)investigation.

The lead is one of many cominginto the SEC from company insiderslooking to cash in on the newwhistleblower programme. Defencelawyers say they are working onnumerous internal investigations andSEC probes that started fromwhistleblower tips.

The SEC vets the tips through itsmarket intelligence unit, a group of

nearly 50 attorneys plus an embeddedagent from the Federal Bureau ofInvestigation. They funnel good leadsto enforcement attorneys to opencases. The whistleblower office alsoreviews whistleblower complaints andultimately decides whether to grantrewards. (FT, 13.03.12)

US to Curb Foreign BriberyThe US government has dropped

a case brought against 16 executivesaccused of bribing overseas officials,in a setback for its efforts to step upenforcement of the foreign bribery act.Citing mistrials and acquittals of threeindividuals, the DoJ filed a motionseeking to drop charges against thedefendants.

The decision was an abruptreversal on a case the DoJ had heraldedas the “largest single investigationand prosecution against individuals inthe history” of the foreign bribery act.It comes as the DoJ faces pressure tocharge bank executives and companiesfor wrongdoing tied to the financialcrisis.

The case began with a FederalBureau of Investigation sting duringwhich the defendants allegedly agreedto pay bribes to sales agents in orderto win a US$15m contract to providethe Gabon military with uniforms,grenades and other equipment.

(FT, 22.02.12)

Greece Cracks Down on GraftThe Greek government has

suspended more than 100 civilservants involved in awardinginvestment grants, following the arrestof two officials for taking bribes. These

suspensions mark a rare attempt tocrack down on graft, seen as asignificant obstacle to attracting FDIto Greece.

Anna Diamantopoulou,Development Minister said that theentire staff of the investmentdepartment would be replacedimmediately and that their bankaccounts would be examined by theFinancial and Economic Crime Unit.

Diamantopoulou said an“overriding priority” for Greecefollowing its successful debtrestructuring was to create a business-friendly environment for investors. Shepromised to contact individualcompanies, many of them German, tohelp them overcome problems withGreek bureaucracy. (FT, 16.03.12)

Walmart BlacklistedThe country’s biggest pension

fund, Algemeen BurgerlijkPensioenfonds, has stated that it is toblacklist Walmart for a range of factorsconcerning its social and environmentalpractices.

In particular, it quoted thecompany’s alleged noncompliance withthe UN Global Compact. The fund,which had invested approachingUS$133mn in Walmart in 2011, blacklistsa small number of other firms – mostlyfor involvement in chemical or nuclearweapons.

The fund says it had met repeatedlywith Walmart executives over recentyears to persuade it to improve labourand environmental practices. Althoughit had seen some progress, it decidedthat this had been too slow.

(BR, 09.01.12)

Monsanto Guilty of Chemical Poisoning

Monsanto has been found guilty by a court in Lyon of poisoningfarmer Paul Francois who suffered neurological problem after

using the company�s Lasso weedkiller. The suit charged that Monsantohad failed to provide sufficient warnings on the product label.

The ruling was the first time in France that a manufacturer ofpesticides had been found guilty of poisoning. It potentially opens thedoor for a host of other claims from farmers that have suffered similarproblems.

The company will review whether or not to appeal the decision. Itsaid there was not sufficient proof to prove that exposure to the producthad been the cause of the symptoms suffered in this case. Difficultiesin showing causal links had led to previous such cases failing.

(BR, 14.02.12)

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12No.1, 2012

EGULETTERR

INVESTMENT & DISINVESTMENT

Europeans Welcome Chinese Investors

As cash-strapped European governments put assets up for sale, Chinesecompanies and funds are seen as increasingly welcome investors,

displaying a growing firepower that is helping to reshape the globaleconomy.

Some of the more surprisingbidders emerging for Europeanassets are China�s powercompanies, often largeconglomerates expanding intowestern markets for the firsttime.

As the euro zone crisis playsout, Chinese groups have beeneager to examine the hard assetsbeing sold, even though thebloc�s debt has appeared to be a tougher sale to Beijing.

More Chinese deals are expected in 2012 as cash-strapped governmentsand companies put infrastructure on the auction block, particularly in theutilities sector. China�s US$410bn sovereign wealth fund has also shownan interest in investing in infrastructure in developed countries. (FT, 20.01.12)

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National Companies or Foreign Affiliates:Whose Contribution to Growth is Greater?

� Alice H. Amsden*

A priori, is there a growth/efficiency justification forgovernment programmes designed to support and

promote national companies (public and private) as opposedto, and in competition with, opening the doors tomultinational enterprises (MNEs)? In competitive markets,there should be no difference. Where national companiesclose in capabilities to foreign affiliates do not exist, foreigndirect investment (FDI) may stimulate development, if acountry is lucky enough to attract it.

National firms are likely to be the more entrepreneurial of thetwo types because national firms know their local marketsbest. But foreign affiliates may have synergistic advantagesfrom operating in more countries than the typical nationalfirm. More specifically, without private or public nationallyowned enterprises to secure home markets:

• Supplying outsourcing services to developed countriesis unrealistic. Outsourcers, by definition, look overseasfor national firms to undertake production, especially inelectronics.

• Establishing brand names is very difficult.

• Dislodging a foreign legacy position in a natural resourceindustry like oil is undoable.

• Reversing brain drain of top national talent is moredifficult.

• The illegality of imposing local content requirementsunder WTO law is binding. While foreign affiliatescannot be subjected to local content regulations,national enterprises have more incentive to build theirown local supply chains and state-owned enterprisescan help in this respect via procurement.

• The benefits of outward FDI undertaken by foreignaffiliates located in the country ultimately accrue to theparent company at home.

• Foreign affiliates conduct almost no research anddevelopment in emerging markets; so competing in high-tech industries is problematic, unless governments areable to take a hard line with foreign investors, as in Indiaand China.

• SMEs must be brought up to speed as subcontractors,and FDI rarely makes a large impact in this firm-sizerange, which is the object of numerous governmentprogrammes.

In the past, FDI was compared with no FDI, as if nationalenterprise had nothing to contribute. Now, the presence orabsence of foreign affiliates must be compared against thatof well-managed national firms. How different the resultswill be remains to be seen, depending on policy formulationand implementation. National firms must be nursed andnurtured to fulfill the functions that foreign affiliates areless likely to undertake.

* Barton L. Weller Professor of Political Economy at MIT, Department of Urban Studies and Planning. ‘National companies or foreignaffiliates: Whose contribution to growth is greater?,’ Columbia FDI Perspectives, No. 60, February 13, 2012. Reprinted with permissionfrom the Vale Columbia Centre on Sustainable International Investment (www.vcc.columbia.edu).

FDI Inflows Show India AttractiveIndia witnessed the second highest

growth in FDI inflows in the world during2011, which helped generate over two lakhjobs, reflecting robust faith of internationalinvestors in Indian growth and allayingfears of its fading global sheen.

Although, some internationalcompanies have expressed concern overstalled decision-making in the Indianbureaucracy, the majority has expressedintent to expand operations within thecountry during 2012, according to an Ernst& Young attractiveness survey.

The report cited potential of the homemarket, cost competitiveness and qualifiedworkforce as the factors driving FDI intoIndia. Total FDI inflows grew by 25 percentduring January-November 2011, secondonly to Brazil where the growth was 48percent. (ET, 30.01.12)

13No.1, 2012

EGULETTERR

SECTORAL REGULATION: NEWS BRIEFS

Foreign Mine Licences CurbedForeign investment in Indonesia

could take a hit following a recentgovernment decree barring foreigncompanies from owning more than 49percent of certain mines. The newregulation by the government to keepat home a greater portion of the gainsof the resource boom and growth inforeign investment.

The country is the world’s largesttin producer, a leading exporter of coal,and is rich in copper, gold and otherminerals.The move echoes a planfloated by Indonesia’s central bank lastyear to cap foreign ownership of banksat 50 percent, which would forceinvestors including Singapore’sTemasek to divest significant holdings.

Under the mining decree, foreignholders of mining licences will have tobegin divesting their share toIndonesian ownership, beginning fiveyears after production starts. By the10th year, at least 51 percent must beheld locally. (FT, 08.03.12)

Tesco Attacks Seoul�s Retail PolicyTesco’s chairman in South Korea –

its biggest market outside the UK – haslaunched an unusually caustic attackon Seoul’s policymakers, accusing themof being “red” for attempting to protectsmall family-run shops from theexpansion of supermarkets.

Seoul has introduced a law thatsmaller urban supermarkets cannotopen within 1km of small stores withoutfirst gaining the local communities’consent. It is also blocking largeretailers from running certain kinds ofstore between midnight and 8am, whensmall stores generally cannot compete.

Such protectionism hurt poorconsumers who would be able to getcheaper goods at Tesco than familystores. (FT, 01.03.12)

Lower Roaming Costs in GCCOman’s telecoms regulator, the

Telecommunications RegulatoryAuthority (TRA) has confirmed theimplementation of regulatory price capson the international roaming callcharges in the Gulf Cooperation Council(GCC) countries.

The price caps set a ceiling on theinternational roaming prices wereimplemented over a two years period.

The caps apply to roaming calls withinthe visited country and to the homecountry or other GCC countries.

These regulatory price caps comein addition to the international roamingrates transparency obligations, whichwas mandated in 2007, where operatorswere obliged to inform consumers ofthe roaming charge as soon as theyland on a visited network.

(www.cellular-news.com, 07.02.12)

�Too Big to Fail� to ExpandGlobal regulators may expand the

definition of a too-big-to-fail financialfirm, signing up domestic lenders,clearing houses and insurers to capitalrules designed for the world’s biggestbanks.

The “framework should be in placefor domestically systemicallyimportant banks by the end of 2012,”Mark Carney, Chairman of the FinancialStability Board (FSB), said. The FSBwill review its work on shadow banksby March, the board said.

Global regulators will also work onrules to ensure the robustness ofclearing houses, the FSB said in thestatement. Regulators should be ableto take decisions by June 2012 on the“appropriate form” of central clearersdealing with derivatives. (FE, 11.01.12)

Energy Sector to be ReformedThe Greek Parliament passed Law

4046/2012,(1) which introducedstructural changes to various sectors

China to Boost Web biz

China�s Ministry of Industry and Information Technology (MIIT) releasednew regulations governing competitive practices in the Internet space to

promote healthy industry growth and safeguard the rights of both companiesand online users.

MIIT issued regulations to curbpoor business practices in one ofChina�s less regulated industrieswhich is dominated by non-state-owned companies that would accusecompetitors of foul play in order togain the upper hand in the onlinearena.

The MIIT stated the rules wouldprevent companies from infringing onthe �legal rights and interests� of otheronline service providers, such as by�maliciously� interfering with servicesfrom other companies on a user�s device. (ZDNet Asia, 03.01.12)

of the economy, as agreed with the EUunder a memorandum of cooperationfor a new loan programme for Greece.

These structural reforms areconsidered vital for the liberalisationof the energy market; in fact, key playersin the market have consistentlydemanded their introduction andimplementation for the past few years.

As a result, the obligationsundertaken by the Ministry ofEnvironment, Energy and ClimateChange under the new loan agreementwith the EU may be considered apositive development towards the fullliberalisation of the Greek energymarket. (ILO, 26.03.12)

Tepco Poised for NationalisationJapan will inject US$12.9bn of fresh

capital into Tokyo Electric Power, ownerof the Fukushima Daiichi nuclear powerplant, in effect nationalising thefinancially strapped utility.

Tepco, Asia’s largest private utilityby sales, has lost 90 percent of itsmarket value since reactors atFukushima melted down in March 2011after Japan’s earthquake and tsunami.The government’s cash injectionwould be matched by a roughly equalamount of loans from Tepco’s privateand public-sector banks.

A key issue yet to be resolved ishow much control over Tepco’smanagement the state will acquire.

(FT, 27.01.12)

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14No.1, 2012

EGULETTERR

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mSECTORAL REGULATION: IN FEATURE

Europe Changes Tone onTelecommunications Initiatives

� Kevin J. O�brien

I n March 2012, the EuropeanCommission’s powerful competition

directorate, whose antitrustinvestigations can lead to hefty fines,said it was examining a series ofmeetings that had been held since late2010 by the chief executives of the fivelargest mobile operators in Europe tosee whether they had colluded onstandards.

The commission said it was lookinginto whether the group — Telefónica,Deutsche Telekom, Vodafone, FranceTélécom and Telecom Italia — wastrying to develop standards that wouldexclude or penalise rivals that tap intothe carriers’ wireless networks, whichare becoming the ubiquitous platformsfor financial transactions and otherforms of digital commerce.

A commission spokeswoman, MariaMadrid, said the decision to sendquestionnaires to the carriers had beena preliminary step that might or mightnot lead to a formal investigation. Thechief executives have publiclycomplained about the inquiry, denyingthat collusion took place and sayingthat the commission has been keptapprised of events at each meeting.

Given European success at settingstandards in the mobile phonebusiness, there are several unansweredquestions and a certain amount of ironyabout the current situation.

In 1982, Europe essentially sanctionedthe same form of collaboration when it

– The article appeared in The International Herald Tribune, on March 26, 2012

By creating the world�s dominant mobile phonetechnology standard in the 1980s, Europe andthe companies that worked on the effort, likeEricsson and Nokia, played a major role in thebirth of the global wireless industry. But threedecades later, industry wide initiatives are nolonger in vogue in Europe. Quite the contrary.

began work on Groupe Spécial Mobile,later the Global System for MobileCommunications. The effort drewtogether industry and governmentpostal services, which ran Europeanphone monopolies. Today, networksrunning the GSM standard, whichspecifies how cellphones connect tonetworks and to each other, cover morethan 90 percent of the world’spopulation.

The GSM effort, in many respects,could be viewed as a larger, moreinclusive version of what the Big 5carriers are doing as the matureindustry looks to fend off advances bycompetitors like Apple and Google.While the smartphones and Internetservices those companies provide canenergise wireless traffic, they alsoprovide a means to circumvententrenched networks, siphoningrevenue from carriers.

The timing of the commission’s scrutinyalso raises questions.

The examination in Brussels wasopened two weeks after one of the chiefexecutives, Vittorio Colao of Vodafone,publicly feuded with the Europeancommissioner for telecommunications,Neelie Kroes, during the industry’sannual convention in Barcelona, overthe commission’s efforts to lower theregulated prices of many mobile fees,which has eroded revenue for carriers.

The action by the competition panelhas shaken the world of well-financed

lobbying organisations in Brussels,where many industry associationsroutinely hold meetings of topbusiness leaders that could, in a certainlight, be construed as locales forpotential collusion. Some lobbyistswonder whether legal lobbying effortswill now be tarred as illegal.

“We hold a lot of the same kind ofindustrywide meetings as the Big 5telco operators,” said one lobbyist fromthe telecommunications industry, whowanted to be anonymous to avoidinviting similar scrutiny. “Everyonedoes.”

What is clear is that the tone ofexchanges between carriers andlawmakers in Brussels, which has beendeteriorating since the first caps onroaming fees were adopted in 2007, hashit a new low. The commission needsoperators to build new networks tofulfill its Digital Agenda, which calls forevery EU resident to have broadbandservice with download speeds of atleast 30 megabits per second by 2020.In 2011, only 5 percent of thepopulation did.

But operators are wary of investing innetworks when regulators in Brusselsare cutting roaming and mobiletermination fees, two chief sources ofincome. They are also trying, withoutmuch success, to bill big contentcompanies like Google and Apple forthe digital traffic those companies’services generate on mobile networks.

15No.1, 2012

EGULETTERR

FINANCIAL SECTOR: NEWS BRIEFS

Spain to ease Bank Merger FearsSpain’s larger banks will not be

forced into politically motivatedmergers, according to governmentofficials, following concern that recentgovernment pressure for consolidationcould imperil the interests of theirshareholders.

Banks in Spain, which have beenencouraged by new legislation toswallow weaker rivals, will not berailroaded into “unnatural mergers” thatwould risk frightening internationalinvestors and draining foreign capitalfrom the sector.

Investors in Spain’s two largestbanks by assets and those with themost geographically diverseshareholder bases, have expressedconcerns that political considerationscould create a “Lloyds-HBOSsituation”, in reference to the UK bankmerger that saw the combined entitystumble into a state bail-out.

(FT, 14.02.12)

Global Body to Represent Big BanksThe world’s biggest banks are set

to have a new voice on the globalregulatory stage as a little known bodythat acts as an umbrella group for threeregional trade associations beef up itsprofile and changes its topmanagement.

The Global Financial MarketsAssociation (GFMA) plans to reinventitself as a body to represent theinterests of the world’s biggest banks,as regulators around the world start totarget the toughest new rules at acategory of so-called GSifis – globalsystemically important financial

institutions – most of which are banks,or GSibs in the jargon.

The GFMA encompasses theSecurities Industry and FinancialMarkets Association in the US, theAssociation of Financial Markets inEurope, and Asifma, their Asian sisterorganisation. (FT, 27.02.12)

Overhaul of Banking SystemVietnam’s Communist government

has unveiled plans to force weak banksto merge and will potentially inject newcapital into the ailing banking systemas it tries to stabilise the economy.

The government wants to ensurethat banks develop in a “safe, effectiveand stable” manner in order to supportwider economic reforms, according toa three-year bank restructuring plan.

Analysts welcomed the publicationof the restructuring road map, butcriticised the lack of clarity about howthe government would fund therecapitalisation of the banking systemand questioned whether top leaderswill have the political will to enforce it.

Vietnam has more than 40 banks andalthough the ownership is oftenunclear, bankers say that many of themare linked to tycoons and major state-owned companies. (FT, 06.03.12)

Legislation on Financial RegulatorThe Indonesian Parliament finally

passed the Bill on the Financial ServicesAuthority. The long-awaited law is oneof the most important in Indonesianhistory and will change the landscapeof the country’s financial industry.

The new authority’s overall task isto ensure that the financial services

industry is managed in a way thatimproves its transparency andaccountability, providing greaterprotection for consumers and thepublic.

The authority will have a board ofcommissioners comprised of sevenmembers who are in charge of thespecific sectors. They will also haveresponsibility for audits, education,consumer protection and matters ofethical conduct.

The board will also include an exofficio representative from both BankIndonesia and the Ministry of Finance.These members are to be selected bythe Parliament from nominees proposedby the president. (ILO, 20.01.12)

SocGen Faces Disciplinary ProbeSociété Générale is to face a

disciplinary probe, which could result infines, by the Autorité de ContrôlePrudentiel, the French banking regulator.

France’s second-largest bank bymarket value made the disclosure in itsannual report, in which it said that theregulator’s inquiry focused on controlsin its private bank over money-laundering and terrorism financing.

The regulator opened thedisciplinary process in September. Itwas part of a broader inquiry beingconducted at leading French banks.

The bank received the requests “aspart of inquiries into informationsubmitted to the British Bankers’Association regarding the calculationof some Libor rates and informationsubmitted to the European BankingFederation regarding the calculation ofthe Euribor.” (FT, 08.03.12)

Regulators Warn Against Ratings Plan

Forcing issuers to rotate the agencies that rate their bonds, asproposed by the European Commission, could do more harm

than good by opening the door to lower quality ratings byinexperienced analysts.

The proposal is designed to encourage competition and cut downon chumminess between the raters � led by Moody�s, Standard &Poor�s and Fitch � and the companies that hire them.

The FSA�s David Lawton said mandatory rotation could lead to ashortage of acceptable raters and the market would come �to acomplete halt�. High quality global journalism requires investment.

The rotation proposal also drew criticism from an industry panelthat raised concerns about commission plans to have Esma superviseratings methodologies. At the moment the watchdog focuses on ensuring internal procedures preserve analystindependence and are properly followed. (FT, 01.03.12)

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16No.1, 2012

EGULETTERR

SPECIAL COLUMN

* Former Chief Economist, IMF. Abridged from an article that appeared in The Economic Times, on March 16, 2012

Too Big To Jail� Simon Johnson*

A mong the fundamentalprinciples of any functioning

justice system is the following:don’t lie to a judge or falsifydocuments submitted to a court,or you will go to jail.

Breaking an oath to tell the truth isperjury, and lying in officialdocuments is both perjury andfraud. These are serious criminaloffences, but apparently not if youare at the heart of US’ financialsystem. On the contrary, keyindividuals there appear to be wellcompensated for their crimes.

As Dennis Kelleher of Better Marketshas argued, the recent so-called ‘robo-signing’ settlement - in which five largebanks ‘settled’ their legal liability forcarrying out fraudulent foreclosures onmortgages - is a complete sellout to thefinancial industry.

First, there was no serious criminalprosecution - meaning that no one willbe charged with a felony, and no onewill go to jail. In terms of affectingexecutives’ incentives, this is the onlything that matters.

Even the terminology used to frame thediscussion is wrong. Kelleher, anattorney with extensive experience inprivate practice and the public sector,tells it like it is, “‘robo-signing’ ismassive, systematic, fraudulent,criminal conduct”.

Second, the civil penalties in thissettlement - a form of fine - are minusculerelative to the size of the companiesinvolved. In other words, from acorporate perspective, the penalty is atrifling affair.

Third, such fines are, in any case, paidby the companies’ shareholders, not bytheir executives or board members. In

US banks have grown beyond the reach of criminal prosecution

the rare cases in which fines have beenlevied on individuals, either theirinsurance policies picked up most ofthe bill, or the penalties were trivialrelative to the cash compensation thatthey received while committing theircrimes – or both.

As if all of this weren’t bad enough,the banks reportedly will be able to usegovernment money to write down thevalue of mortgages, which amounts tosubsidising them to pay their ownmeaningless fines.

The Obama administration and itsallies have worked hard to sell itsroughly US$20bn settlement with thebanks as one that will have ameaningful impact on the housingmarket. But nothing could be furtherfrom the truth.

In fact, the Obama administration’ssettlement with the mortgage lendersis consistent with its track record onall of its policies related to the financialsector, which has been abysmal. But itis also puzzling. Why would theadministration continue to bend overbackwards to be lenient towards topbankers under these circumstances?

I honestly do not believe that theadministration’s stance reflects anyform of corruption - payments made toindividuals or even to political

campaigns. And, in this case, itdoes not even appear to reflect thelobbying power of big financialplayers.

That power certainly explains whythe Dodd-Frank financial reformsenacted in 2010 were not stronger,and why there is now so muchopposition to effectiveimplementation of that legislation.But mortgage lenders’ criminalactivities are another matter.

Indeed, at stake in the mortgagesettlement are fundamental andsystemic breaches of the rule of law -perjury and fraud on an economy-widescale. The DoJ has, without question,all of the power that it needs toprosecute these alleged crimes fully.And yet US’ top law-enforcementofficials have consistently backed off.

The main motivation behind theadministration’s indulgence of seriouscriminality evidently is fear of theconsequences of taking tough actionon individual bankers. And maybeofficials are right to be afraid, given themassive size of the banks in questionrelative to the economy.

Top bankers want to make a lot ofmoney. They also want to stay out ofprison. Political leaders can huff andpuff as much as they want, but, withouta credible threat of poverty and timebehind bars, bankers have no reasonto comply with the law.

The message to bank executives todayis simple: build your bank to be as bigas possible – and then keep growing. Ifyou manage to become big enough, youand your employees are not just toobig to fail, but also too big to jail.

The Obama administration has justmade everyone else the sucker.

17No.1, 2012

EGULETTERR

SPECIAL COLUMN

* Former World Bank Vice President and Professor of Globalisation and Development and Director, Oxford Martin School, University ofOxford. Abridged from an article that appeared in The Financial Times, on March 06, 2012

The World Bank is Flirting with Irrelevance � Ian Goldin*

President Barack Obama will soondecide on a new World Bank

president. Once again, the Bank’sremaining 186 shareholders arespectators of the scandalous bilateraldeal that since 1946 has allowed Europeto claim the International MonetaryFund and the US to appoint the headof the Bank. With emerging marketsnow accounting for more than half theglobal economy, there is no excuse fordelaying a global search for the best-qualified candidate.

By the time the leadership is opened toa genuine contest, the Bank could havebecome irrelevant. About 65 years ago,the Bank was set up to help rebuildsocieties ravaged in the second worldwar. By the 1960s its focus had turnedto development. Its incoming presidenturgently needs to reinvent it to focuson five global challenges.

First, governments – and especiallydemocracies – are increasinglypreoccupied with short-term concerns.Yet their decisions and investmentsshape society for the longer term. TheBank is the only global financialinstitution with a clear mandate to thinkbeyond tomorrow. The average periodof its loans is more than 20 years, andits key task is to assist countries indeveloping infrastructure andinstitutions for the coming decades.

Yet the Bank does not yet have thecapacity to form a view on how theworld is evolving and to provide globalperspectives on shifting trends. Thisis vital if its clients are to make thedifficult choices required to setpriorities.

Only Singapore and China have thenecessary expertise, which is absenteven in advanced economies such asthe UK or US. Change is certain. Socialand investment choices require anunderstanding of the structural

changes expected over the coming decades. The Bank has the unrealised potentialto form a truly global perspective, and to consider the consequences for policyand investment.

Second, greater global integration has been associated with at least as rapid anincrease in externalities that spill over national boundaries. The yawning gapbetween existing governance structures and the need for the management of ourglobal commons requires urgent attention. Without the legitimacy, capacity orexecutive power to manage the widening range of global public goods, this missioncreep is doomed to failure. The Bank cannot take on this responsibility withoutdeep governance and administrative reforms. With such reforms, it has thepotential to meet the crucial global challenge.

Third, the financial crisis is the first systemic crisis of the 21st century but certainlynot the last. Increased integration and complexity mean that all countries will besubject to rising systemic risk. Poor countries and poor people everywhere arethe most vulnerable.

Reducing systemic risk and building resilience are central to the Bank’s relevance.It must also help to build the shock-absorbers and regulatory capacity to ensurethat individuals and society are less subject to the vagaries of cascading shocksthat will hit countries with increasing force and frequency from climate change,pandemics, finance and other sources.

Fourth, well over one billion people remain in urgent need of support to escapedire poverty. This is particularly true of individuals living in dysfunctional orfailed states, but also of those in low- and middle-income societies that neglecttheir needs. The Bank, working through governments, has not adequatelyaddressed the needs of those people that governments cannot or will not reach.Developing the means to act in these circumstances requires new authority andcapability.

Fifth, tackling these challenges requires a cultural shift to ensure the Bank learnsfrom others and from its history of success and failure. Its ability to realise itspotential has been stymied by a culture where failure is hidden and successexaggerated. The world needs the Bank to meet its potential to address thepressures that threaten all societies. It faces a stark choice: a new leader couldreinvigorate it. Otherwise, it will sink into irrelevance.

The Bank�s ability to

realise its potential has

been stymied by a

culture where failure

is hidden and

success

exaggerated

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18No.1, 2012

EGULETTERR

OPINION

– The news appeared in the Recorder Report on December 03, 2011

CCP Making Headway in Curbing Collusive Bidding

The Competition Commission of Pakistan (CCP) is makingheadway in curbing collusive bidding in public

procurements as the Public Procurement RegulatoryAuthority (PPRA) has estimated US$8bn savings throughrevamped public procurement procedure.

In his presentation at the international conference, CCPMember Abdul Ghaffar said that as per PPRA, Pakistanspends an estimated 20-25 percent of its gros domesticproduct (GDP) on public procurement which comes aroundto around US$55-60bn equivalent to M5,312 billion.

The PPPRA has estimated US$8bnin savings from improved publicprocurement processes.

“There is a need to have exclusivefederal as well as provincialinstitutions to regulate publicprocurements,” CCP Member toldthe heads of the competitionagencies.

Abdul Ghaffar further stated thatreportedly the misuse of the publicprocurement in Pakistan as perTransparency International stoodat around US$4bn and accordingto the PPRA the estimates come toaround US$8bn.

Keeping in view the huge impact on economy and thusconsumer welfare, curbing collusive bidding in publicprocurement is a priority area for CCP under its roadmap.

Furthermore, Public Procurement is highly susceptible tocollusive bidding. Concrete steps have been taken by theCCP for capacity building of staff to investigate andprosecute the cases of collusive bidding, the Member ofFederal Borad of Revenue, Government of Pakistan said.

Abdul Ghaffar further stated that the in case of collusionbetween any employee or employees of Public ProcurementAgencies (PPAs) and prospective bidders for a particularprocurement, the case is liable to be prosecuted by publicprosecution agencies eg National Accountability Bureau(NAB), Federal Investigation Agency (FIA) or provincialanti-corruption agencies.

He explained that the PPRA is an autonomous bodyendowed with the responsibility of prescribing regulationsand procedures for public procurements by FederalGovernment owned public sector organisations with a viewto improve governance, management, transparency,

accountability and quality of public procurement with regardto goods, works and services.

It is also endowed with the responsibility of monitoringprocurement by public sector agencies/organisations andhas been delegated necessary powers under the PublicProcurement Regulatory Authority Ordinance 2002.

Punjab and Sindh have adopted PPRA Rules, 2004 andformed Punjab Procurement Regulatory Authority and SindhPublic Procurement Regulatory Authority respectively.

In Khyber Pakhtunkhawaprocurement is regulated underNorth-West Frontier ProvincePublic Procurement of Goods,Works and Services Rules, 2008.In Balochistan and Gilgit BaltistanProcurement is managed byprovincial departments under theirPurchase Manuals.

Collusive Bidding Agreements canbe very difficult to detect as theyare negotiated in secret. Someinside information or search andinspection is usually required toestablish such conspiracies.

He said that the CCP is making efforts to build a liaison withPPRA to jointly pursue the objective of ensuringcompetitiveness in public procurements by exchange ofinformation and sharing of resources.

In this connection, the CCP will ensure close liaison withPPRA at Federal Level and Procurement RegulatoryAuthorities at Provincial level.

There is a need for sharing and exchange of informationwith National Accountability Bureau, Federal InvestigationAgency, etc. Moreover, the capacity building of CCP’s staffto investigate cases of collusive bidding. Abdul Ghaffarfurther stated that the collusive bidding/bid rigging can takemany forms.

Some of the broad categories included ‘Cover Bidding’ and‘Bid Suppression’. In case of Cover Bidding, where one ormore bidders submit bids which are highly unlikely to beaccepted, to give an impression of competition bidding.

However, Bid Suppression is in cases where one or morecompetitors who normally bid do not submit their bids sothat a particular competitor’s submission is accepted, headded.

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19No.1, 2012

EGULETTERR

NEWS & VIEWS

According to the FCA study on buying power in thedaily consumer goods trade published today, retailers

use their firm position with respect to suppliers in severalways that may be considered questionable for sound andeffective economic competition. The FCA hence finds thatthere is a clear need for further investigations into thepractices of the trade.

The FCA investigated the phenomena related to the use ofbuying power with questionnaires directed to retailers andthe food industry. The industries included were the meatprocessing, bakery, mill and pet food industries.

In addition to the responses to the questionnaires, the FCAalso used other signals obtained from the market and thestudies of the European Commission and the EuropeanCentral Bank on the structure and practices of the marketsconsidered. The financial situation of the actors and the roleof foreign trade were also examined.

Gratuitous marketing allowance remarkably commonThe majority of the suppliers who responded to the FCA’squestionnaire do not feel that they obtain any value for themarketing allowance they have paid other than theopportunity to be included in the retailer’s product categories.

Gratuitous marketing allowances may induce price increasesbecause suppliers seek to pass on all their cost increases topurchase prices. The practice is particularly harmful for theentry of new businesses and hence the competitive situationin the entire field. In addition, gratuitous allowances mayhave a wider impact on the weakening of price competitionin the field.

Own risk transferred to suppliersThe study explored several ways in which retailers transfertheir own risk to suppliers. Repurchase requirements forunsold products are the most common way. In addition tosuppliers, the transfer of risk may also have an impact onthose competing actors at the retail level who are in a weakerposition: if one retailer succeeds in transferring risks to thesupplier, this may result in the supplier seeking to obtainbetter conditions when negotiating with relatively weakerretailers.

Private label products reinforce strong position ofretailersThe increase in the number of private label products benefitsconsumers because it increases product variety and lowersprices. However, problems may occur in the long run, as theretailers have such a strong position in category managementand pricing.

– The news appeared on www.kilpailuvirasto.fi on January 10, 2012

Daily Consumer Goods Trade in Finland

Moreover, as a manufacturer of private label products, aretailer is able to obtain better information about new brandproducts, in addition to which they have better informationthan before about the cost structure of products.

According to the suppliers’ responses, retailers often pricebrand products above private label products. According tothe study, this phenomenon and the possible competitiondistortions created by it could possibly be prevented bythe suppliers’ maximum resale price maintenance.

However, it is difficult to present tenable estimates aboutthe possibilities and incentives of the supplier level toinclude conditions on maximum resale price maintenanceinto the agreements.

A complex problem not easily solvedTo summarise, it may be stated that the highlighted practicesbetween retail and suppliers lie in a so-called grey area whenit comes to the application of competition law. No clearlyprohibited, hard core restraints on competition were found.

The buying power of retail does not in itself automaticallymean the lack or distortion of competition. However, thenature of the detected phenomena and their apparentprevalence clearly motivate further measures to be taken.

It is also important to estimate other factors influencing theconsumers’ choice of retail outlet, such as the practicesrelated to the placement of the retail outlets and the supplyof supplementary services located in connection to them.

FCA study shows that daily consumergoods trade uses its buying power inseveral ways that are questionable forcompet i t ion

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Published by CUTS Centre for Competition, Investment & Economic Regulation (CUTS CCIER)D-217, Bhaskar Marg, Bani Park, Jaipur 302016, India

Ph: +91.141.2282821, Fax: +91.141.2282485, Email: c-cier@cuts.org, Website: www.cuts-ccier.orgPrinted by: Jaipur Printers P. Ltd., M.I. Road, Jaipur 302001, India.

BR: Business Respect; BBC: British Broadcasting Corporation; CD: China Daily; ET: Economic Times; FE: Financial Express; FT: Financial Times;GCR: Global Competition Review; ILO: International Law Office

Sources

The news/stories in this Newsletter are compressed from several newspapers. The sources given are to beused as a reference for further information, and do not indicate the literal transcript of a particular news/story.

Complete reproduction without alteration of the content, partial or as a whole, is permitted for non-commercial,personal and academic purposes without a prior permission provided such reproduction includes full citationof the article, an acknowledgement of the copyright and link to the article on the website.

Publications

Did we make any difference? Reforming Competition Law Regimes inthe Developing World through the 7Up Programme

CUTS has undertaken a number of research based advocacy and capacity building projects on competition policy and law issues in nearly 30 countries of Africa and Asia. One ofthe main goals behind these projects was to equip key national stakeholders with awarenessand understanding on competition policy and law issues, so that they can play their (respective)roles in the effective enforcement of competition laws.

Having embarked on competition policy projects since 2000, it was also critical forCUTS to evaluate its effectiveness in achieving this goal, which is likely to witness fargreater action pertaining to competition enforcement.

In a recently published (February 2012) book, Did we make any difference? ReformingCompetition Law Regimes in the Developing World through the 7Up programmes, CUTSsummarises its experiences of having worked on competition reforms across these countries� highlighting some of the benefits that have accrued to these countries and the challengeslie ahead.

www.cuts-ccier.org/pdf/Reforming_Competition_Law_Regimes_in_the_Developing_World_through_the_7Up_Programme.pdf

Evolution of Competition Laws and their Enforcement:A Political Economy Perspective

The book covers case studies of nine countries of differing sizes and at varying stages ofeconomic development that have at one stage or another repealed extant competition

laws for new ones, and seeks to examine the motivations and contexts under which this wasdone. The countries examined include the Czech Republic, Hungary, India, Ireland, Poland,Serbia, South Africa, Tanzania and the UK. Tracing the evolution of competition regimes inthe countries covered, the book provides lessons for countries still in the process of formingtheir competition regimes.

The contributions show that the road to strong competition regimes is seldom smooth,and that social, economic and political factors in the country hugely impact on the paceand effectiveness of competition reforms.

This book can be purchased at: www.routledge.com/books/details/9780415672139/

Policy Watch

The January-March 2012 issue of PolicyWatch encapsulates �Catch the Signal of Change�in its cover story on the spectrum scam in India, which suggests that a hybrid model be

adopted, wherein bidders can offer a bid with a one-time payment and a periodic paymentfor usage linked with earnings and spectrum-usage charges.

A special article by Arun Maira opines that If India�s discordant democrats could cometo consensus more quickly, India will be able to implement many difficult reforms. So,installation of democratic processes to arrive at genuine consensus must be the mother ofall reforms.

Besides, it carries regular sections on Infrastructure, Trade & Economics, Governance &Reforms, Corporate Governance, Report Desk, Competition Insight etc.

www.cuts-ccier.org/pw-index.htm