CITIZENS’ REPORT ON THE STATE OF COMPETITION LAW IN THE WORLD – LAO PEOPLES’ DEMOCRATIC REPUBLIC
LAO PDR PROFILE
GDP (Current US$)
2 billion US$***
Per Capita Income (Current US$)
320.0 (Atlas method)***
1,730 (at PPP)***
236.8 thousand sq km
66.4 (of ages 15 and above)**
World Development Indicators Database, World Bank, 2004
Human Development Report, UNDP, 2003
(**) For the year 2002
(***) For the year 2003
Lao People’s Democratic Republic (Lao PDR), with an area of 236,800 km2, is a small landlocked country situated at the centre of the Indochina’s peninsula, sharing borders with China, Vietnam, Cambodia, Thailand, and Myanmar. The capital city is Vientiane. 70 percent of the total territory is mountainous, richly forested, and/or covered by rivers. Such geography is conducive for building hydroelectric industries and developing eco-tourism.
After comprehensive economic reform was initiated in 1986, commonly known as the New Economic Mechanism (NEM), Lao PDR has maintained moderate but steady growth rates that have averaged seven percent per year between 1992 and 1997. The growth rate, however, slowed to 4.5 percent between 1996/97 and 1997/98 because of the financial crisis in Thailand, which is the most important single market for Lao exports, and then recovered to just under the 7 percent rate that had been achieved in the early 1990s. Nominal GDP per capita increased from about US$200 in 1990 to US$320 in 2003.
Agriculture remains the backbone of the economy, accounting for 57 percent of the total GDP in 1995, and still accounting for around 48 percent in 2003, followed by industry (26 percent) and services (25 percent), then import duties (1 percent). The backwardness, as well as the small size, of Lao’s industrial sector has resulted in a high level of import-dependence for the economy, especially in consumer goods, which come mainly from Thailand, China and Vietnam. This resulted in Lao PDR’s economy being highly susceptible to regional and global turbulence.
Competition Evolution and Environment
Major economic reform in Lao PDR started in 1981, when the politburo of the Lao People’s Revolutionary Party (LPRP) issued a decree on the improvement, adjustment and strengthening of economic management. However, it is widely known that the economic reform really started only in 1986, when the LPRP Fourth Congress adopted a resolution to develop the country through economic reforms until the year 2000, known as the New Economic Mechanism (NEM).
Prior to 1986, Lao PDR faced major socio-economic problems, which were deeply rooted in the socialist centrally planning mechanism itself. The command and control economy, led by loss-making State-owned enterprises (SOEs), did not provide any incentive for growth. The private sector had only a negligible share of the market, and was often suppressed as being of ‘capitalistic elements’. Prices of all commodities were officially decided, and the exchange rate was determined administratively. Salaries were given in the form of ‘coupons’, which could be used later at State department stores to buy food and other consumer goods. There was no such concept in existence as ‘competition’ or ‘business rivalry’ in the country during this period.
To make matters worse, under the system of equal income distribution, regardless of individual performances, economic agents only tried to meet the numerical target quotas. The system, therefore, discouraged any independent initiatives for undertaking innovation, or improving efficiency. Gradually, it became clear that such economic policies were only preventing growth and development, even aggravating poverty. The demand for a comprehensive reform and shake-up thus became inevitable.
In this context, NEM was introduced, around three main pillars: (i) macro-economic stability and fiscal adjustment; (ii) private sector encouragement; and (iii) public sector reorganisation. The decentralisation process, and liberalisation of ownership and management, recognised the role of the private sector, setting the framework for its increased participation in the economy.
Though competition is officially pronounced to be a ‘major driving force for economic development’, Laos’ approach in this direction, however, has been viewed by many as rather cautious, and state intervention into various market functions remains rather strong as compared to other economies in the region. Under many aspects, Laos remains a centrally planned economy and the LPRP holds tight control over its commanding heights.
Nonetheless, some initial cornerstones of an evolving competition policy have been set. The most recent landmark is the Prime Minister’s Decree on Trade Competition adopted in February 2004, supposed to become effective from August 2004.
The Prime Minister’s Decree on Trade Competition in Lao PDR:
The Decree was drafted and promulgated as a subordinate legislation to the Business Law 1994 of Lao PDR, which stipulated “All types of operations conducted by enterprises in all economic sectors are inter-related and competing on an equal footing before the law” (Art.5). This principle is further reflected by the Decree in that “Business activities of all sectors are equal under the law; they cooperate and compete with each other in a fair manner in compliance with this Decree and concerned laws and regulations” (Art.3 – Fundamental principle in competition).
The objective of the Decree is to “define rules and measures to regulate monopolisation and unfair competition in trade of all forms, aiming to promote fair trade competition, protect the rights and legal interests of consumers and to encourage business activities in the Lao PDR to function efficiently in the market economy mechanism as determined by the Government of the Lao PDR” (Art. 1 – Objectives).
The Decree consists of five chapters, and 17 articles. The Decree would apply to the sale of goods and services in business activities (Art. 4 – Scope of application) by all business entities, which have established and operated a business in the Lao PDR, no matter whether they are State-owned, privately owned or foreign-invested, etc2. Some specific sectors or businesses, however, may be exempted for socio-economic or security reasons (Art. 13 – Exemption).
The Decree, amongst other things, defines the concept of market dominance, monopoly, mergers and acquisitions (M&As), and unfair trade practices; and provide for the establishment of a Trade Competition Commission, which will be responsible for the implementation and enforcement of the Decree.
Anti-Competitive Business Practices
The Decree was initially named as Decree on Anti-Monopoly and Competition during the drafting process. Though the name has been changed after promulgation, the ultimate objective of the decree is still to prevent monopolisation. This was reflected in Art. 8 of the Decree - Antimonopoly, “It is prohibited for a business person to perform an act stipulated in Articles 9, 10, 11, and 12 of this Decree so as to monopolise any market of goods and services.”
Monopoly, according to the Decree, is constituted when a business dominates the market, individually, or in collusion with other businesses (Art. 2 – Definitions). This definition, however, is not in line with the conventional economic concept of “monopoly” - a situation where there is only a single seller in a market. Another drawback of the Decree is to mention “the market” without clearly defining the boundary of such a market - the line of commerce in which competition has been restrained and/or the geographic area involved, defined to include all reasonably substitutable products or services, and all nearby competitors, to which consumers could turn, in the near term, if the restraint or abuse raised prices by a significant amount.
Be that as it may, “monopolising” is considered to constitute the intent underlying a trade practice prohibited by the Decree. Those prohibited practices include:
Merger and acquisition (M&As)
It is prohibited for a businessperson to monopolise the market in the form of a merger or acquisition that destroys competitors or substantially reduces or limits competition (Art 9 – Merger and Acquisition). However, who is considered to be a ‘competitor’, or when it can be said that competition is substantially reduced or limited, or who can decide that competition has been substantially reduced or limited (the Trade Competition Commission?), is not provided anywhere in the Decree. This lack of clarity might make it practically impossible for the Decree to be enforced, in the future, in M&A cases.
Elimination of other business entities
Causing losses directly or indirectly, by such conduct as dumping, limiting or intervening with the intent to eliminate other business entities is also prohibited by the Decree (Art. 10). However, as with other prohibitions, the Decree failed to clearly define the nature of the conduct, for example, what constitutes “dumping”, and failed to clearly prescribe the threshold by which such conduct will violate the regulations. Intent, in this case “eliminating other business entities”, is required to be proved in any case of restrictive trade practices. However, relying completely on ‘intent’ to prove that a conduct is restrictive by nature, and that such conduct violates the competition rules, would provide the leeway for arbitrary decisions or rulings in future competition cases, especially when government officials or judges may be tempted by bribes or lobbying activities. Such ambiguity, sadly enough, is quite common throughout the Decree.
Collusive arrangements jointly undertaken by two or more business entities
The Decree prohibits any business entity from colluding or making arrangements to engage in any unfair trade practices that will create a monopoly in any market of goods and services (Art. 11 – Collusive arrangements). Those practices include (i) price fixing; (ii) goods hoarding, or limiting the production, purchase, sale, distribution or importation of goods and services; (iii) collusive tendering; (iv) fixing conditions that, directly or indirectly, force their customers to reduce production, purchase or sale of goods or the supply of services; (v) limiting the customer’s choice to purchase, sell goods and receive services; (vi) exclusive dealing; (vii) market sharing in restraint of competition; (viii) territorial exclusivity in licensing agreements; (ix) entering into arrangements to fix conditions or the manner of purchase and sale of goods or services to restrict other business entities; and (x) any other acts that are contrary to the trade competition regulations prescribed by the Trade Competition Commission.
There also is another type of prohibition, which applies to practices jointly undertaken with a Foreign Business Entity (by contract, shareholding or other form), if such practices result in limiting the opportunity of local businesses to choose to purchase from, sell goods, or provide services directly to that Foreign Business Entity (Art. 12 – Cartel with foreign business persons).
Institutions and Competencies
The Trade Competition Commission
The Decree provides for the establishment of a Trade Competition Commission chaired by the Minister of Commerce, consisting of relevant parties of the trade sector and a number of relevantly experienced people appointed by the Minister of Commerce. The Commission will have its office and its permanent Secretariat set up within the Ministry of Commerce (Art. 5 – The Trade Competition Commission). It will have the responsibilities and powers as to:
Determine rules on activities, rights and duties of the Secretariat, and supervise the functioning of the Secretariat;
Formulate and stipulate further regulations in enforcing the Decree;
Establish a sub-commission to implement a specific duty when necessary;
Consider submissions on exemptions and give approval for any business person as stipulated in Article 13 of the Decree;
Determine and publish a list of sectors and types of businesses that may enjoy exemptions as stipulated in Article 13 of the Decree;
Call on concerned persons for consultations, advice or clarification on any matter;
Monitor and control business activities and order any business entity to solve, change, suspend or stop its behaviour that is unfair;
Determine the threshold of market share, on the basis of the total sale volume of a business, which can be considered as market dominant;
Consider complaints from business persons and consumers;
Coordinate with relevant government agencies to take measures against those who breach the provisions of the Decree;
Liase with the media and business entities concerned to publicise various competition-related activities and issues;
Implement any other duties and responsibilities as may be assigned by the Government.
A business entity that commits offences under the Decree shall be first notified by the Trade Competition Commission to change and rectify its behaviour. If the business entity fails to comply with the Commission’s order, temporary suspension of all its business activities may be applied until the behaviour is changed and rectified. The business entity may even be closed down indefinitely and may be punished in accordance with the law. The violator would also have to compensate any business entity that has incurred losses as a result of the offences (Art. 14 – Measures against business entities who commit offences). Any civil servant or government authority that commits offences under the Decree would also be punished according to relevant laws and regulations (Art. 15 – Other offences).
Interestingly, though the Decree provides for the consumers’ right to submit complaints to the Trade Competition Commission for any wrongful competitive behaviour of business entities, it does not provide for any measure to recoup the losses or damages done to the consumer as a result of such anti-competitive practices by enterprises. This is a big drawback against the Decree’s objective of “protecting the rights and legitimate interests of the consumers…in Lao PDR”.
Though the Decree was supposed to enter into effect in August 2004, until now, its enforcement agency – the Trade Competition Commission - is yet to be set up; and no further implementation guidelines have been released. To make matters worse, competition awareness, not to mention technical expertise, in Lao PDR is particularly low. This is not only because competition is still a relatively knew phenomenon in the country, but also due to the low quality of the education system, as well as the remaining control of the State over information. This necessitates more technical assistance, especially in the form of capacity building activities, if the Decree is to be effectively implemented, in order to truly benefit the society.
Telecom price hike: Whose faults?
There are more telephone service providers in Laos than ever before, but this competition has not been beneficial for customers who are now paying double the previous year’s cost for a fixed line telephone call. The cost of making phone calls from your home phone line has shot up from the previous average of around 30,000 kip per month (approximately US$3) to a new average of around 60,000 kip per month (approximately US$6), say disgruntled telephone subscribers.
After the year 2000, the Government allowed more telecom companies to set up business in Laos, aiming to provide quality services and reasonable prices for the people. The logic was simple: greater competition and wider connection would lead to a decrease in the cost of using phones, as businesses competed for customers and cut down on fixed costs. Despite the good intentions, call costs have remained uniform across the industry and have actually risen to about 200 kip (2 US Cents) per minute. From 1995-1997, the price for a local call was only 45 kip per minute and, in 2000, it increased to 100 kip (1 US Cent) per minute. The new cost of 200 kip per minute was implemented last November, but many customers have expressed confusion because nobody has been able to explain the reason behind the price hike.
There are now three main telecommunication service providers in Laos, but it seems that competition has not produced a positive impact as yet. The prices are the same amongst all the providers. The recent call cost rise was uniform amongst all companies. According to telecom experts, normally, the service price of telephone calls would decrease if the companies have been established for a long period of time and have got more subscribers. Profit margins also increase allowing the prices to become lower and lower. In Laos, this theory seems to work the other way round.
The responsible people should explain the reason behind the lack of business competition; or, at the very least, they should inform customers in advance about price rises, in order to avoid conflict between the consumers and providers. If they do not understand, consumers may go to the business premises and use inappropriate words to describe the companies and their employees.
A telephone service provider representative recently said that one reason why the companies have to increase their prices is because of the inflation rate to US dollars (which have not risen doubly). Another reason is that they need more funding to continue expanding their networks. Despite this, one company reported, last year, that it could earn about 300 billion kip (US$0.03 billion) including a profit of about 120 billion kip (US$0.012 billion). Providers seem to best making a profit.
According to one company, they also have a problem with consumer credit. Many clients have not paid for their calls and some people are dishonest. They use their mobile phone to call overseas and then do not pay the bills. The company then cuts the phone but cannot get its money back. This is a difficult problem for the companies to solve. One telecom provider said, every year, it loses about 100 million kip in unpaid bills. The users also have to take responsibility for the state of the telecom industry by paying for the services they use. Customers may be overacting, as company officials pointed out that call costs in Laos are actually the cheapest in the region.
Lao PDR has made a number of changes to the structure of its telecommunication sector over the last decade. Until 1993, the Enterprise of Post and Telecommunications Lao (EPTL) was the 100 percent State-owned organisation responsible for operating telecommunications in the country. Liberalisation started in 1994, when a first joint venture was established between the Government of Lao (GOL) and a Thai company, Shinawatra International Public Company Limited, called Lao Shinawatra Telecom Company Ltd (LST). Postal services were separated from telecommunications in 1995, when EPTL was divided into Enterprise of Post Lao (EPL), and Enterprise of Telecommunication Lao (ETL). In 1996, ETL and LST were merged to form Lao Telecommunications Company Limited (LTC) with the GOL owning 51 percent and Shinawatra owning 49 percent. The telecom sector was open to free competition by November 2001, with the end of LTC’s five-year exclusivity (through October 2001). The market is currently shared by four operators: LTC, ETL (which has been resurrected and came into operation in August 2000), LAT (Laos Asia Telecom-a new State-owned operator) and Sweden’s Millicom.
The Ministry of Communication, Transport, Post and Construction (MCTPC) is the government agency responsible for telecommunication policy and regulation. The Department of Posts and Telecommunications is the functional unit within the MCTPC whose tasks include frequency management; telecom and post policy; long term development strategy; licensing; and regulation. The MCTPC has an annual budget allocated by the Government.
The Lao National Assembly adopted a Telecommunications Act in April 2001. Due to the time-consuming legislative process, the Act is yet to be implemented; and only a draft Sector Policy Statement exists. The Statement and subsidiary legislation, such as decrees and regulations, have not yet been finalised. With the help from different donors, the MCTPC is working to complete the Sector Policy Statement and Decrees, essential to making the telecom law operational, as well as to establish a regulatory authority for the sector. Guiding principles are to broaden the access to services, and to keep the real cost of service provision as low as possible; in addition, to try to establish and maintain linkages with neighbouring countries, especially the neighbours in the greater Mekong sub-region. Appropriate technologies will be included in the overall regulatory process, taking into account the ICT developments.
The Telecommunications Act recognises the paramount importance of telecommunication in the development of Lao PDR, as well as the role played by the private sector in developing the industry. Article 4 of the Act states that the State encourages local and foreign investors to compete and to cooperate in investment in the construction, development and expansion of the telecommunication network and services in accordance with the system prescribed by the Government.
Whilst the Telecommunications Act sets out general obligations of operators with respect to universal service, no formal policies or specific objectives have yet been defined for universal service or access in Lao PDR. The Act also provides for the establishment of a telecommunications development fund for the progressive development of an up-to-date telecommunication system through the pooling of government resources, contributions by foreign aid donor agencies, and a share of the revenue generated by the provision of telecommunications services. No actions have yet been taken to establish the fund. At present, operators do not have any obligations for the extension of the network outside of the terms and conditions of their licences.
Hydropower development is considered, by the GOL, as a means of achieving economic and social aspirations. The overall aims of power sector policy3 are:
To maintain and expand an affordable, reliable and sustainable electricity supply in Lao PDR to promote economic and social development;
To promote power generation for export to raise revenues to meet GOL development objectives;
To develop and enhance the regulatory framework to effectively direct and facilitate power sector development; and
To reform institutions and institutional structures to clarify responsibilities, strengthen commercial functions and streamline administration.
The Electricity Law, adopted in 1997, set the regulatory framework for the sector. The Law is strongly committed to private sector participation in power sector development and export promotion. It strives to define a clear procedure for power project approval, and includes an explicit State guarantee to protect the rights and interests of both foreign and domestic investors in electricity enterprises.
Under the law, the Ministry of Industry and Handicrafts has the primary responsibility for policy formulation and strategic planning, which are undertaken jointly with the State Planning Committee (SPC); the Science, Technology and Environmental Agency (STEA). It also has the responsibility for preparing and implementing legislation and regulations, and for overseeing the performance of electricity enterprises.
The Department of Electricity (DOE), which was established within the Ministry of Industry and Handicrafts, has the primary responsibility for strategic power planning, project identification and evaluation of power project proposals.
Lao National Committee for Energy (LNCE) is the GOL agency with powers to manage the development and marketing of power projects for export. It negotiates on behalf of the GOL, and reports to it, on matters concerning investment in power projects, regional grid interconnection, export sales of electricity, and contracts with project sponsors.
Electricité du Laos (EdL) develops, owns, and operates the country's main generation, transmission and distribution assets, and manages electricity imports to its grids and exports from its stations. Access to EdL’s transmission network is guaranteed for both private and public generators. The Law explicitly stipulates, “The owner of an electricity transmission line…does not have the right to refuse unless the transmission of electricity over that transmission line cannot be technically guaranteed…” (Article 28), and “All electricity production sources must send electricity into the National Electricity Transmission Grid unless...there is yet no national transmission grid” (Article 29).
EdL was corporatised as a public company under a Charter approved by the Ministry of Industry and Handicraft (MIH), along with two other State-owned enterprises (SOEs): the Electrical Installation and Construction Company, which is responsible for micro hydropower schemes in remote areas; and the Hydropower Engineering Consultants Co., which carries out investigations, surveys, design, construction, supervision and other related engineering services in cooperation with foreign hydropower companies. EdL's role in the sector has expanded far beyond domestic utility operations in Vientiane and sales of power to Thailand. It now supplies many towns and districts in the provinces. An electricity tariff is variably set by the GOL “subject to socio-economic conditions and the standard of living from time to time”, with a view to promote recovery of costs of supply, repayment of loans and reasonable returns for investors.
In Lao PDR, there is no specific law, regulation, or institution on consumer protection. The ‘consumer’ is a recently recognised subject in laws by many Asian countries, even the more advanced market economy. It is, therefore, a completely new subject for Lao legislators and law enforcers. However, whilst those relatively more developed countries already had laws with emphasis on consumer protection, such as those on weights and measures, contracts, product safety and liability, advertising, sale of goods and services, provision of public utilities, etc; Lao PDR does not possess many such bases due to the bad shape of the overall legal system and the limited capability of the administration. Nonetheless, some of the current legislation does have some bearing on consumer protection in Lao PDR.
Most relevant is the Prime Minister’s Decree on Goods Price Control (October 2001). The Decree, to be implemented by the Ministry of Commerce - controlling the prices of strategic goods that have a direct impact on production and on Lao people’s lives - aims to promote business operations, production and commerce, as well as protect the consumers by keeping goods at reasonable prices.
Article 2 of the Decree emphasises that the management of goods prices is determined by market mechanisms under State management. Goods to remain under state control, in terms of prices include some imports, agricultural produce, industrial products, some domestic products, and natural resources for export.
The Decree also points out the rights and obligations of businesses in the areas of commerce and production. Entrepreneurs must hold accounts (book-keeping) according to the law; put price labels on goods for sale; cooperate with officers in the inspection of goods prices; and be entitled to lodge complaints or file appeals against inspectors and bad practices.
The Ministry of Commerce is to be directly responsible to the GOL for the control of prices of consumer goods and raw materials. The Ministry will list goods under state control in each period, and coordinate with relevant services and agencies to ensure the adequate supply of domestic goods to meet consumer demand. The Ministry will also review consumer complaints and oversee the goods management activities of commercial services in the provinces, the municipality, and the special economic zone. An agency in charge of price control management will be specifically set up within the Ministry of Commerce and relevant authorities in the provinces, the municipality, and the special economic zone.
Businesses that violate price control regulations, including those involved in price hiking, hoarding, causing turbulence, and producing counterfeit goods, will have their business operation licences revoked, and be prosecuted according to the law.
Implementation has been underway. The Ministry of Commerce frequently made public, through popular media, information on the average market [sometimes controlled] prices of various types of goods [as well as] services, for widespread reference, to prevent unfair business practices that may harm the consumers. The price control management unit is yet to be set up within the Ministry of Commerce; and the agency currently in charge of relevant issues is the Department of Domestic Trade. However, consumers are yet to be equipped with necessary knowledge about their rights, and the available forum for lodging complaints and seeking redress.
Also relevant are issues related to standards, quality, testing and metrology (SQTM). The Department of Intellectual Property, Standardisation and Metrology (DISM), under the Science, Technology and Environment Agency (STEA), is the government agency in charge. The DISM was established in 1993 under the STEA, consisting of four main divisions. The DISM is empowered to organise the formulation of national standards; provide and implement quality system and product certifications, testing and calibration, etc; supervise and inspect on quality of goods and products and measuring instruments, etc.
Issues related to food safety are under the control of the Food and Drug Administration Commission (FDA), which was established in June 1991, comprising of nine members, representing seven ministries and a permanent bureau. The FDA has been located within the Food and Drug Department (FDD), Ministry of Health (MOH), which carries out all activities of the Commission in practice. The FDA Commission is chaired by the Minister of Health and is responsible for managing, controlling the quality of various food products and drugs that are imported and domestically produced, in order to protect and ensure consumers’ health.
The Food Law has just been adopted by the National Assembly in May 2004 and will soon be implemented. Based on the Codex Alimentarius Commission guidelines, good manufacturing practices and some necessary food standards of Lao have been established, such as the Standard for drinking water, ice cream, tomato sauce, idolisation salt, Mineral water and ice....
The State Of Consumer Welfare and Prevalent Consumer Concerns
The deficient legal framework and the low capability of the administration, however, only amount to a part of the problems, which have been aggravating the welfare of Lao consumers. More challenging, and rather the root of all other problems, is the poverty situation in Lao PDR. Though the country’s economic performance has improved considerably in recent times, a large number of Lao consumers still find it difficult to get access to most basic utilities in their daily lives.
Agriculture accounts for a large part (more than 50 percent) of gross domestic product, as well as manpower (around 80 percent) in Lao PDR. However, as said earlier, a majority of this sector is family subsistence production, using traditional methods; and not large business or community-based production, using advanced technologies. The deficiency and bad conditions of roads, amongst other infrastructure, also make it almost impossible for farm produce to reach the market, so as to generate income for the farmers. Farmers, who altogether account for around 80 percent of the total population, are left with no choice but consuming their self-produced foods. In fact, in the rural areas in Lao PDR, the food consumption, to a large extent, consists of own-produced food. In rural areas without access to road, the proportion of food consumption that is own-products is as high as 82 percent.
Moreover, since most things produced are to be consumed within the family, the absence of cash crops also means lack of access to other basic needs such as clothing, health care, education and sanitation. The producers of agricultural goods, and also the consumers (to a large extent) in Lao PDR for other goods and services, simply do not have money to get their basic needs fulfilled.
Water and sanitation is still a big problem in Lao PDR. Though access to piped water or water from protected wells/boreholes has doubled since 1995, only 50 percent of the Lao population have access to safe water in villages (according to the village heads) until now. In the rural areas without access to road, only 24 percent of the population have access to safe water in the village. Half of the population does not have a toilet, though this is still a big improvement as compared to the situation in 1995, when 71 percent of the population did not have toilet.
Whilst this bad incidence of poverty deprives the Lao consumers of access to basic utilities; budget and technological constraints of the State and the low awareness level of the consumers, expose the latter to many products, production processes and services, which are below standard, or even hazardous to health or life.
With Lao’s low industrial base, the high level of dependence on commodity imports, goods and services, are never sophisticated and diversified enough, or offered at competitive prices. Sadly enough, in most cases, the consumers are totally ignorant of this bad situation, as well as their legitimate rights, so as to be protected against possible abuses. This low level of awareness also leads to a restricted incidence of complaints or cases of consumer abuses being reported. Unfair, uncompetitive, practices have been noted in Lao PDR in the case of steel bars and drinking water, where fiercer competition has induced manufacturers to cheat on the quality and standards of products, in order to be able to give out reduced prices. There are also cases of misleading advertisements and deceitful promotional programmes. However, nobody has ever been punished for such conduct due to the absence of a strong legal framework and lack of investigative and law enforcement capability. Redress of damages for consumers is, of course, beyond practicable. A draft Decree on Consumer Protection is in the pipeline, at the moment, with the Ministry of Commerce. However, it has been overshadowed by other more ‘prioritised’ legislative agendas.
Small Steel Producers Steal Market Share By Cheating Consumers
According to the Vice President of the Construction Materials Group (CMG) of Laos, a rise in the number of small-sized steel manufacturing businesses is killing the country’s steel industry. He added that increasing competition between companies for customers has forced down the sale price of steel bars in the country, in recent times. There are about ten new small-sized companies in the steel market, so production is increasing day by day. National steel production is currently 200,000 tonnes per year, with steel consumption being at a low average of only 50, 000 tonnes per year.
"The big problem is competition. We should compete with each other to produce standard quality products," opines Phisith Sayathith, Vice President of Vientiane Steel Industry. He also reported "There are many companies that produce poor quality steel at a cheap price to gain clients”. He said that many people do not know much about the quality of the steel that they purchase. They just see that it is a steel bar, and it is cheap, so they buy it.
An inspection undertaken by the CMG has revealed that the quality of the steel, produced by most of these small-sized steel companies, does not comply with the standards. “We use chemicals to check and conduct tests on the durability of the steel and have also found that the size of the products is different to industry standards," said Phisith.
Experts feel that the Government should take all the steps necessary to ensure that the quality of the steel, produced by these small producers, abides by international standards, so that these small producers are able to compete with the foreign companies that would soon flock the market. Moreover, small-sized steel companies are able to sell their products at a cheap price because they use waste steel, whilst the members of the CMG import most of the raw materials at a higher price from outside, hence, the high price.
Mr Sayathith pointed out that people who thought they were buying cheaper steel from the small companies were actually paying more per tonne, because the size of the products was smaller than the accepted standard. (The standard width of steel bars was 10mm and 1,000 kg of steel produced 162 steel bars. Small steel companies used only 600 kg of steel to produce 162 steel bars and the bars were only eight or nine mm in width.
Group members sell 162 steel bars for 5.5 million kip per tonne, but small steel companies sell 162 steel bars for 3.5million kip per 600 kg.)
Even though the steel industry was currently expanding at a rate of around 10 percent per year, it was being damaged by small and unregulated companies. "We have had to decrease production because our sales have decreased by about 20 percent. This is the result of these small companies taking our market," said Phisith.
He said his own company, Vientiane Steel Industry, had large production potential but was being held back by market limitations. Production currently exceeds domestic demand but Laos cannot export its steel to other countries because of quality concerns. "We have to create good domestic competition to improve the quality before we can achieve exports," he said. "Transportation is also expensive. We have to pay for the transportation of raw materials imported from other countries, and after we produce the steel bars we have to pay for export. If we do this now we will probably make a loss," said Phisith.
He added that one way to export steel was to search for steel mines in Laos and produce for export. "We are planning to survey the steel potential in Laos and, if we can set up mines, we may be able to export," said Phisith.
Combined with the production surplus was lack of sales access to many areas of the country, he said. Some areas still import steel, like Savannakhet and Champassak in the south. "We cannot transport our steel to the south because it is too expensive and we risk making a loss," said Phisith. He said Vientiane Steel Industry would attempt to diversify its products in order to compete with small companies. The customer would be able to choose the quality and the price, he said.
Source: (www.vientianetimes.org.la, 22.11.04)
Concluding Observations and Future Scenario
It is beyond doubt, from the analyses in preceding parts, that the future of competition in the Lao economy depends, to a large extent, on whether the country has an appropriate competition legislation, and a national competition policy or not. However, as can be seen from the various weaknesses in the recently promulgated Decree on Trade Competition, as well as the bad shape of the process to put the Decree into operation, a more appropriate attitude towards the issue should be adopted in Laos. At the very least, a thorough diagnosis of the health of the market, as well as a survey of enterprise competitive behaviour and public perceptions, should be undertaken as a proper preparatory process.
Given the overlapping nature of competition and consumer issues, and the lack of financial and human resources to deal with them, many small economies have adopted a hybrid approach by coupling consumer and competition policies. They have only one organisation dealing on both issues. This will, also, probably be the right approach for Lao PDR, given its resource and human capacity, and the novelty of issue. The possibility for a regional approach with the other two Indochina neighbours, Vietnam and Cambodia; or within the ASEAN framework, should not be ruled out either.
Having the three main stakeholders - the consumer, the business and the policymakers - to reach a common consensus on various issues, relating to competition, is key to the effective implementation of a competition law. This can be brought about by involving all sides in informed debates and open discussions. This in turn will require that all the stakeholders have the capacity to understand the issue and put forward their fears. Thus, capacity building of the different stakeholders will form and integral part of developing a competition culture in Lao PDR.
Though competition has recently been recognised as a major driving force for social-economic development, there remains much more to be done before any benefits can be reaped. As said, strong institutions are yet to be developed and more training is required. On the other hand, looking at the low economic capabilities of the country as a whole, good regulation and adequate intervention by the State is needed, so as to avoid the scenario when a majority of the economy will be controlled by a handful of monopolies possessing capital and technologies. Unfettered competition may be destructive for local small and medium-sized enterprises in the end.