Fostering competition in Asean is the Organisation for Economic Co-operation and Development’s (OECD) latest project across the 10 member states to support the implementation of a regional competition action plan. The OECD’s Paris-based senior competition expert, Ruben Maximiano, tells Freny Patel in an exclusive interview how adopting an effective competition policy helps increase investor confidence and prevents trade being lost through anti-competitive practices
Asean stands to benefit by USD4 billion annually from e-commerce alone if governments in the 10 member states remove existing regulatory barriers to competition in the logistics sector, based on recommendations made by the OECD in its Competitive Neutrality Review of Asean’s small-package delivery services.
The association’s 10 members – Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam – form one of the world’s largest markets, with more than 650 million consumers. The decision to focus on Asean’s logistics sector is because of its importance in developing e-commerce in the region.
The OECD looked into two parallel components – competition assessment reviews of specific logistics sub-sectors, and competitive neutrality reviews of small-package delivery services across its member states.
In the study, the OECD assessed the regulatory constraints on competition in the logistics sector across the Asean region, and made numerous recommendations to address restrictions found in legislation in the 10 member states, after discussions with regulators and competition authorities in the past two years.
Cross-border e-commerce transactions, the new dynamics of international trade, have seen rapid and unprecedented growth in the demand for small-package delivery services. This is very relevant to Asean, where member states are moving away from export-oriented to consumer-driven economies. The covid-19 pandemic further expedited the shift to e-commerce, says the OECD in its review.
Asean total freight and logistics market revenues were estimated at USD357.78 billion in 2019. They are expected to have dropped by 12% in 2020 to USD316.54 billion as a consequence of restrictions on mobility and activity as a result of the covid-19 pandemic, according to the review.
Freight transport within cities, on the other hand, such as courier, express and parcel delivery services, is expected to have grown by about 20% in 2020 as a result of changing consumer behaviours during the lockdown.
The covid-19 pandemic has compelled governments around the world, including from Asean, to impose social distancing measures and lock down since early 2020. While this put a strain on the brick-and-mortar retail sector due to the widespread closure of physical establishments, it accelerated the shift towards online retail and increasing use of e-commerce channels.
The OECD’s suggestions, therefore, could not have been better timed, as evidence demonstrates the critical importance of competition law and policy, especially during times of crisis. A statement issued by the Asean Expert Group on Competition, on 9 June 2020, emphasised the importance of fair competition, regional co-operation and enforcement by national competition agencies to overcome the adverse impacts of the pandemic.
The OECD tends to play a critical role in helping countries develop and improve competition law. Its motto: “Better policies for better lives” is aimed at improving prosperity and ensuring societies are better off, Ruben Maximiano, the organisation’s top competition expert, tells Asia Business Law Journal. The OECD helps countries improve markets by way of better regulations and enforcement that achieve policy objectives, he explains.
Government policies should allow for new market entrants and exits for incumbents if markets are to work well, says Maximiano. “Companies should be able to focus on innovation and better products, rather than on heavy, burdensome regulations,” he explains, as he outlines the key objectives of the OECD review on Asean’s logistics industry.
Using the OECD experience and brand, competition authorities can make policy more well known outside the competition community through advocacy, says Maximiano. “These communities, including regulators, related ministries and other stakeholders associated with the logistics sector, would come to understand what competition policy can bring to the table,” he says.
The second objective is to make the logistics sector more competitive because of the “spillover effects across the economy,” he notes. “Asean is particularly reliant on trade, more than most other regions in the world. Hence, we offered recommendations to improve the laws and regulations in the logistics sector.”
The third objective of the logistics review has been the transmission of technical capacity and know-how. Maximiano says this includes how to undertake an analysis of laws and regulations, and make recommendations based on the OECD’s experience from similar projects around the world including in Greece, Portugal and Mexico. With this, competition authorities can learn how to undertake similar analyses of other sectors, he says.
The OECD has helped connect competition authorities in Asean with their counterparts in more experienced agencies to discuss cartels, abuse of dominance, mergers, and competition assessment of regulations. “We are trying to help Asean authorities design regulations that are pro-competitive,” says Maximiano. Since 2015, the OECD has been working closely with the Asean economic community, the blueprint of which for 2025 has a strong focus on competition under the Asean Competition Action Plan for 2016 to 2025.
Logistics is one of the priority sectors of the Asean Economic Blueprint. Without naming the member state, the OECD report highlights how a state-owned enterprise (SOE) sets delivery charges at a discount of up to 75% compared to private players. This shuts out competition from private companies, while the SOE ends up making losses.
“When regulations go beyond what is strictly necessary – increasing costs for business unnecessarily – we like to propose better, lighter alternatives that can still achieve the same policy objectives,” says Maximiano.
Some of the key objectives of the Asean Competition Action Plan include the removal of tariff barriers, and the study of SOEs and their impact on competition in the market.
Governments across many Asean member states tend to rely on SOEs for the development of industrial policies, the OECD review shows, and legal frameworks differ between member states. While certain states have adopted specific laws and regulations for SOEs, some have applied general corporate rules. Others have either delayed their implementation, or selectively adopted measures for a limited number of SOEs.
Addressing gender bias
Competition policy can also address gender equality, according to the OECD review. Removal of gender bias and allowing women to participate in the logistics sector could boost gross domestic product by up to 30% in Asean, the review states, citing data from McKinsey Global Institute.
Vietnam is an example of where there is a prohibition on employing women in logistics activities including manning trains, driving trucks and working on seagoing ships. Against Singapore’s 25%, only 9% of females participate in Vietnam’s transportation sector, the OECD says.
“Discriminatory laws or policies against women’s economic participation may be interpreted as anticompetitive regulations,” the OECD notes. Consequently, pro-competitive regulations following a pro-competition policy that takes gender into account can help address issues of gender equality, it adds.
Indonesia takes cue
The OECD’s discussions with competition authorities have not been in vain. Indonesia’s so-called omnibus law, for example, was enacted in November 2020, and consists of 45 government regulations and four presidential regulations. With the stroke of a pen, the law amended 76 legislations across various industries aimed at strengthening Indonesia’s economy by improving competitiveness, job creation, and the ease of doing business, especially for foreign investors.
“Many of our recommendations are included in the new law,” says Maximiano. During discussions with regulators and Indonesia’s competition agency, the OECD suggested the removal of the biannual inspections of commercial vehicles for safety purposes, as this was “quite burdensome and costly for companies, and could hinder the entry of new players”.
The OECD proposed annual inspections that could be supplemented by random on-road spot checks. The omnibus law replaced the biannual inspections of commercial vehicles with the implementation of risk-based business licensing, which Maximiano says “has simplified the inspection process and reduced costs as we had proposed”.
The OECD had proposed progressive relaxation of foreign equity caps to encourage new entrants from other countries and increase competition in Indonesia, says Maximiano. A new regulation has just been enacted in the area of transportation management services in Indonesia, relaxing foreign equity limits and making it easier for foreign logistics companies to enter the country, he adds.
The two-year project came with its own set of challenges, as the OECD team was physically present on the ground, holding numerous meetings with regulators and government officials.
The challenges differed from country to country, says Maximiano. One of the most serious was the pandemic. “When covid hit, we could not undertake our missions to Cambodia or Laos, and had to hold our meetings over the phone, which was not ideal,” he says.
Another challenge is that competition authorities in Asean have different resources and different “buy-ins” across jurisdictions. Maximiano says that where competition authorities did not have adequate resources, or the political buy-in from stakeholders, the challenge for OECD was the need to be more involved in these jurisdictions.
The OECD team was able to overcome challenges with co-operation from both the competition authorities and the regulators. “Our relationship with competition authorities, the regulators, and other stakeholders were extremely fruitful,” says Maximiano.
Benefit of lower prices
The OECD has made various recommendations to Asean member states including improving consumer welfare by reducing prices, increasing foreign direct investment in the small-package delivery services sector, developing small and medium-sized enterprises, increasing employment, enhancing cross-border trade, and improving gender equality.
Among the Asean member states, the review says Cambodia needs to adopt pro-competitive policies to boost its logistics sector, which today suffers because it is priced much higher than that of neighboring countries including Thailand and Vietnam.
Cambodia has yet to enact competition legislation, and the OECD is hopeful that it will ensure that SOEs are not exempted, and establish an independent antitrust agency strong enough to investigate their conduct.
The OECD forecasts that the market for small-package delivery services will grow at a compounded annual growth rate of 12% between 2020 and 2025. Although not all benefits can be quantified, implementing the recommendations suggested could benefit the Asean economy by around EUR93 million (USD110 million) annually for every 1% decrease in the price of delivering small packages. An average price decrease of 5% in the delivery of small packages could see benefits ranging between EUR464 million and EUR699 million a year, the reviews indicates.