Competition policy and law in Lao PDR Critical Issues and The Way Forward

1. Competition policy and law in Lao PDRCritical Issues and The Way Forward CUTS-NERI Advocacy and Capacity Building on Competition Policy and Law in Asia (7Up2 Project) Alice Pham-Saykham Vodalet

2. Lao Economy at a Glance • LDC vs. good economic performance since NEM (1986) • Relative macroeconomic stability • High growth rate • Stable price levels and exchange rates • Considerable increase in FDI inflows • Improved living standards for Lao people • Expanded international economic relations (US, EU, ASEAN, WTO) • Agriculture remains the backbone of the economy (57% of GDP in 1995, 48% in 2003), followed by industry (26%), and services (25%). • High level of import dependence, esp. in consumer goods • In 1997/1998, about 1.56mn (30% of the population) still lived below poverty line

3. Major Economic Policies • Industrial policy: • Small and Medium-sized Enterprises (SMEs) development policy • Encouragement of import-substitution industries • Targeting industries and specific products for promotion • Trade policy: • Liberalisation of domestic trade via (i) price liberalisation, (ii) removal of inter-provincial trade restrictions, and (iii) private sector participation • Liberalisation of external trade via (i) private sector participation, (ii) removal of State-trading monopolies, (iii) abolishment of QRs on import goods, (iv) rationalisation of the tariff structure, (V) abolishment of export license and relaxing the procedures for import license • Problems: administrative intervention, QRs and NTBs

4. Major Economic Policies (Contd.) • Privatisation policy • Privatising most large except ‘strategic’ SOEs • Closing heavily loss-making SOEs • Strengthening the finance of those remain under State control • Problems: Unprofitable privatisation (bid rigging, etc), remaining SOEs abusing dominance and monopolies • Investment policy • Fairly liberal (100% foreign ownership permitted, investment incentives) • Remaining discriminatory policies between foreign and domestic investors

5. Market Structure and Competition • Monopolistic sectors: Beer, insurance, domestic aviation, electricity, water, etc • Oligopolistic sectors: Telecommunications, petroleum, international aviation, banking, logging, cement • Sectors with competitive market structure: Textile and garment, tobacco, steel, pharmaceuticals, etc.

6. Policy-induced Barriers to Competition • Sectors with high market concentration level under State protection (e.g..: State control and QRs, high tarriffs on imported goods, stringent licensing conditions, unfair tax policy, etc) • Petroleum products, steel and cement, coffee, beer, vehicles, electricity, minerals, tobacco, and timber, etc • Commercial banking • Exclusive rights to SOEs to provide services to the public (e.g.: Electricity Law) • Complicated and lengthy enterprise registration bars entry and increases the cost of doing business in Lao (45-60 days in Lao against 7 days in Vietnam) • Access to capital by SMEs • Others (e.g. transport, customs, etc)

7. Anticompetitive Practices as Barriers to Competition • Monopolies • Privatised enterprises fail to infuse competition into the economy • Monopolistic elements/tendency still exist in many sectors due to the concentrated market structure • Exclusive joint-venture agreements by the GOL • Price-fixing and other cartel arrangements • Business or professional associations • Bid rigging • Construction projects and privatisation • Tied selling • Schools and hospitals • Abuse of dominance • Beer, passenger aviation markets

8. Current Legal and Institutional Framework • Decree No.15/PO on Trade Competition (2004) • Objectives • Scope • Prohibited Practices • The Trade Competition Commission • Penalties • Current Status of Implementation • Sectoral Regulatory Policies • Electricity Law 1997 • Telecommunications Law 2001 • Prime Minister’s Decree No. 3 (1992) on the Management of Commercial Banks and other Financial Institutions • Consumer Protection Policy • Prime Minister’s Decree on Goods Price Control (2001) • Standards and quality • Food Law (2004)

9. Stakeholders’ Perception and Level of Awareness Project survey results presented by Dr. Saykham Vodalet (NERI)

10. Critical Issues • Great delays & no progress in implementation • An analysis across relevant stakeholder groups reveals that there are weaknesses throughout, leading to such consequences. • The government: • Lack of competition culture and competition thinking due to many years under the centrally-planned economic mechanism • Pressure of more urgent priorities • Lack of interests, resources and implementation capacity • Weak administration capacity and weak rule of law enforcement, coupled with lack of public availability of laws and regulations (no effective mechanism to make the laws known to people is in existence) • Corruption

11. Critical Issues (Contd.) • The business knows very little about the PM’s Decree on Trade Competition, because: • The Decree, not based on the ground realities of the economy, is not relevant for application; • Inactive implementation  no compliance education • No consumer movement which is a concomitant factor for building a healthy competition culture in the country • Inactive and unequipped media (no reporting of anticompetitive practices) vs. the role of the media as a means of spreading knowledge and generating interests

12. The Way Forward: An Agenda for Action • Generating Demand and Renewing Interests • Policy dialogues/Technical training for government officials and bottom-up training activities • Building the Trade Competition Commission for Implementation • Specialised training for the competition authority officials • Enhancing awareness • Media and consumer training and advocacy • Hybrid approach • One law for both competition and consumer protection • One agency administering two separate laws • Regional integration with Vietnam and Cambodia or ASEAN • Maximum Consultation • More appropriate legislation