1. COMPETITION LAW & POLICY, ECONOMIC GROWTH & DEVELOPMENT: AUSTRALIA & INDONESIA A Brief Discussion Rafaelita M. Aldaba, PIDS 15 November 2011 Bali, Indonesia

2. Australia & Indonesia: competition gains Very different countries: stage of development, institutions, history, culture ACCC: relatively long history of competition law; KPPU in its nascent stage; objective is to enhance national welfare & efficiency Benefits from competition law & policy esp. reduced prices for utilities & basic commodities Australia: efficiency gains: 2.5% of GDP or $20B/year Indonesia: consumer savings from reduced prices of basic commodities & mobile telecommunications Australia: evolving nature of competition law & policy in response to business behavior & economy

3. Debate on merits of competition law continues: main arguments Missing markets: financial markets, investments can only be financed by retained profits, eroded by unfettered competition Achieve a certain size to compete in world markets: implications for conduct of reviews of mergers No need for government to promote rivalry in markets where innovation is principal source of competition; monopoly profits are incentives for firms to innovate Maximizing rivalry leads to inefficient outcomes in natural monopolies & some network industries Philippines, no comprehensive competition law, same arguments raised by skeptics

4. Philippines: a study in contrast Shallow, hollow, & lagging growth; failed to create jobs Gross domestic investment has been low & declining from 25% in ‘97 to 14% in ‘09 Phils 16.5% (average) lagged behind Indonesia 25%, Malaysia 22%, Thailand 26% VN 36% Phils 1.4% & Indonesia 0.52% lagging, Malaysia & Thailand 3%, Cambodia 4.7%, Viet Nam 5.5%

5. Why has the Philippines lagged in attracting investment? Weak institutional & regulatory mechanisms Poor infrastructure Weak competition Weak competitiveness of Philippine industries, low productivity, & low trade gains (exports as % of GDP rose 82% in ‘90s to 97% in ‘00s; imports 44% to 50%; unfavorable trade balance ) Growth Competitive- ness Index Macro Environ- ment Index Public Institution Index ‘04‘10‘04‘10‘04‘10 MAL292427423443 THAIL323626223760 PHILS6687607685113 INDO725464527658 WB Ease of Doing Business 20102011 SING11 THAIL1619 MAL2321 CHINA7879 VIET8878 BRU117112 INDON115121 PHILS146148 CAM145147 LAO169171

6. Competition issues in vital industries: rising prices, high cost & low quality services First country in Asia to enact competition law (1925); not effectively implemented; since 1980s attempts to legislate Cement cartel: controlled by the world’s big 3, prices continued to rise even during the GFC, government eliminated tariffs in ‘08-’09 but to no avail TelecommunicationsPLDT-DigitelGlobe Fixed lines61%16% Mobile services68%32% CMTS frequencies47%21% 3G (90 MHz)70 MHz10 MHz Cable landing facilities (6)42 Interconnection issues Merger took place, duopoly Strengthened incumbent’s market dominance High entry barriers: congressional franchise, 40% foreign equity limit Merger can endanger competition & welfare improvement arising from the deal

7. Other competition problems & major lessons from Australia & Indonesia Shipping cartel & inefficient ports: lack of regulatory independence & credibility; uses its power to protect its own ports against competition from privately-owned ports (conflict of interest) Low quality of service, high logistics & shipping costs affecting competitiveness: one of the longest duration & high cost for port & terminal handling in Asia (exports: 3 days/$270; Indonesia: 2 days/$165 ) Australia & Indonesia: greater competition leads to welfare gains & benefits Philippines: weak competition has led to poor economic performance, lack of investments, low competitiveness Done quite a lot of liberalization but not efficient institutions/regulatory Liberalization & shift to more open economy requires changes in legislations & policies, building efficient institutions & good infrastructure to support reforms, generate supply side responses & reap gains in terms of employment & growth