REGULETTER - Cuts CCIER

Volume 10, No. 1/2009

Inside this IssueCanada: CompetitionAmendment Act on Anvil ..................... 2

EU�s Microsoft Probe be Blunt ........... 5

Chrysler & Fiat in Joint Venture ........ 9

Price Reductions inTakeover Bids ........................................... 10

Economic Reforms Led to1mn Deaths .................................................. 12

Hong Kong Hot for Investing ............ 13

EU on French Auto Aid ........................... 14

CUTS Centre for Competition, Investment & Economic Regula tion

A Quarterly NewsletterA Quarterly NewsletterA Quarterly NewsletterA Quarterly NewsletterA Quarterly NewsletterREGULETTER

Special Articles

The New FrenchCompetition Authority– Philippe Nogues ..................... 3

A New ‘N’ Word– Bruce Stokes ........................ 15

The Role of Competitionin Anti-crisis Measures inUzbekistan– Golib Kholjigitov ................... 17

Do not Tie the Markets –Free Them– Vaclav Klaus ......................... 18

The financial meltdown and the consequent economic recession are oftenused by critics to take pot shots at the market mechanism. As a

consequence, objectives such as ‘enforcement of competition’ are also beingput under the scanner.

The common man and his opinion have been expertly mobilised by thementioned critics to drum up support for the tight regulation or even suppressionof the market mechanism.

Competition regimes, which have been so assiduously nurtured by developingand developed economies all over the globe, are a likely victim of such attacks.But the attacks lack any conceptual basis whatsoever. Here is why.

First, the financial meltdown occurred not because ofthe market but in spite of it. Sub-prime mortgagingconstituted an act of undue interference in the marketmechanism by a financial sector which wasegged on by a government that in turn thoughtthat deficits in real estate could be easilywiped off through such credit creation.

Second, it must be rememberedthat ‘regulation’ and ‘markets’ arenot substitutes for each other:what we need to realise is thatthe need of the hour is forappropriately regulatedmarkets.

The danger lies in thehuman tendency to overreact.While the 1980s and the1990s saw the triumphant resurgence of the market, the 21st century mightmark the return of rigid government controls – a state of affairs we should doour best to avoid.

A careful analysis of the neo-classical economic paradigm tells us that it isnot an unreserved advocate of free markets. Rather it calls for interference inthe market mechanism whenever it fails due to asymmetries of information,externalities or economies of scale. Moreover, ‘competition enforcement’ itselfconstitutes regulation of the market, ensuring that market forces are not usedor distorted by individual players to gain an unfair advantage.

But are there no lessons from the recent meltdown for competition policy?Absolutely not! An important lesson which emerges from this crisis is theneed to treat the financial and real sectors differently. In the case of the financialsector, government attempts to bail out banks are welcome since these helpto maintain competition in that sector as well as avoid the adverse cascadinginfluence that the failure of one bank has on others. This is not true for the realsector where the fall of one firm often results in gains for others.

In short, the global meltdown should not spell any danger for the survival ofcompetition enforcement regimes. However, the lessons from it when learntproperly should make competition authorities a much wiser lot.

Competition Policy Will Endure

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MACRO ISSUES: NEWS DIGESTMACRO ISSUES: NEWS DIGESTMACRO ISSUES: NEWS DIGESTMACRO ISSUES: NEWS DIGESTMACRO ISSUES: NEWS DIGEST

DOJ: Antitrust Amnesty AgreementsIn an unprecedented move, the US

Department of Justice released antitrustamnesty agreements that it has signedwith some 100 corporations sinceAugust 1993.

The release was part of a settlementof a Freedom of Information Act suitagainst the government, which alsoagreed to pay US$40,000 in attorneyfees to the law firm of White & Case.

Until now, the government wouldonly let companies see a “model letter”that discussed the provisions of anamnesty deal in general terms, ratherthan the specific details of actual deals.

(Law.com, 09.02.09)

China Issues New Merger GuidelinesA series of new guidelines issued

by the Anti-Monopoly Bureau of theChinese Ministry of Commerce (AMB)will generate more work in M&A deals,law firms have told ALB.

The new guidelines outline themerger review framework and process,and the information required to notifythe AMB of a transaction in accordancewith the compulsory pre-mergernotification regime under the Anti-Monopoly Law (AML).

Notable changes, including draftguidelines for consultation and amerger filing template, make the systemof notification more transparent, makingit easier for law firms to advise clients onthe relevant procedure. (ALBN, 22.01.09)

Poland Adopts Fining PoliciesThe Poland Competition Authority

has adopted its first official guidelines

on setting fines for competition-restricting practices. The basic purposeof the guidelines is to enhance thetransparency of fining policies and thusallow companies further insight intothe financial penalties that they mayface for breach of competition rules.

The guidelines reiterate the basicrule laid down by the Anti-monopolyLaw, according to which a fine is set onthe basis of the aggregate revenueobtained by an undertaking in the fiscalyear preceding that in which the fine isimposed.

A fine for infringement cannotexceed 10 percent of the undertaking’srevenue. The guidelines apply as ofJanuary 01, 2009. (ILO, 19.02.09)

FTC Prefers Dynamic EfficiencyA new report from the US Federal

Trade Commission shows that it’s staffare more likely to accept claims ofdynamic efficiencies when reviewingmergers than any other type ofefficiencies claim.

The study also shows that, ingeneral, the Commission’s Bureau ofEconomics has over the past decadebeen more willing to accept efficiencyclaims than the bureau of competition.

The findings should offer someguidance to merging parties whobelieve, and plan to argue, thatincreased efficiency outweighs thepotential anti-competitive impact of adeal – especially when arguing fordynamic efficiencies, which canimprove cost, quality and productinnovation on a continuing basis.

(TAHP, 09.02.09)

Botswana Competition LawThe drafting of the competition law

took longer than it was anticipated dueto capacity problems and lack ofexpertise since it is a very complexpiece of legislation.

The ministry was obliged to seekexternal help from the United NationsConference on Trade andDevelopment (UNCTAD) and engagein intensive consultations with thestakeholders.

The cabinet memorandum on theDraft Competition Bill was circulatedin October 2008 and it was necessaryto redraft certain sections of the bill onthe basis of the comments received. Itis expected that the bill will bepresented to the Parliament in July2009. (BOPA, 31.03.09)

Iraq: Capital Investment at HomeIraq’s industry ministry said the

sector had sent an invitation to co-owners of the Iraqi capital to direct theirinvestments into Iraq.

The statement in this regard to“What it represents a promising marketand has the ability to extend consumerand at least twenty years to come withthat enjoyed by Iraq’s oil wealthenormous”.

The statement said that “Iraq isheading towards the enactment of lawsfor the protection of the domesticproduct and consumer protection andcompetition law, which is a strongimpetus to the mixed sector companiesthat have been played again in spite ofthe difficult lending conditions andunfair competition”. (II, 29.03.09)

Canada: Competition Amendment Act on Anvil

The Budget Implementation Bill (Bill C-10) received Royal Assent on March 12, 2009, bringing into force substantiallyall of the proposed amendments to the Competition

Act and the Investment Canada Act.These amendments are the most

significant changes to the Competition Actsince 1986, and introduce a two-stageprocedure for merger review, administrativemonetary penalties in abuse of dominancecases and increased fines and maximumterms of imprisonment upon conviction ofan offence under the Competition Act. Thenew dual-track conspiracy regime will notcome into force until March 12, 2010.

(Davis LLP News, 12.03.09)

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MACRO ISSUES: IN FEAMACRO ISSUES: IN FEAMACRO ISSUES: IN FEAMACRO ISSUES: IN FEAMACRO ISSUES: IN FEATURETURETURETURETURE

On November 13, 2008, theFrench Government adopted a

sweeping reform of the competitionregime in France. The reform takeseffect following the first meeting ofthe new French competitionauthority, and brings about three keychanges to the French competitionregime:• the creation of the Autorité

de la concurrence (“theAuthority ”) to replace theConseil de la concurrence (“theCouncil”);

• the new Authority will centralisemost of the powers andresources previously sharedbetween the Ministry ofEconomy and the Council, andwill be responsible for merger control in France;

• the Authority will have enhanced powers in the retailsector.

These developments, which will create a modern systemby merging jurisdiction over all competition matters into asingle independent institution, will have a significant impacton businesses operating in France.

Creation of a New Competition AuthorityThe key element of the reform is the creation of a new

competition authority which will unify the antitrustenforcement powers currently held by the Council and theMinistry of Economy. While this reform simplifies theenforcement of competition laws in France through a centralauthority, the Minister of Economy will nevertheless retaincertain abilities to review mergers and anti-competitivepractices considered to have a limited impact.

The Reform of the Merger Control regimeFollowing the reform, the Authority, rather than the

Ministry of Economy, will receive notifications ofconcentrations and investigate proposed mergers, both inPhase I and Phase II. Nevertheless, the Minister of Economywill retain two significant rights of oversight overconcentrations:• at the end of Phase I, the Minister has five working days

following the clearance decision to request, but notrequire, that the Authority open a Phase II investigationnotwithstanding the clearance decision;

• at the end of Phase II, the Minister has 25 working daysfollowing the conditional clearance or prohibitiondecision to review the transaction.

The New French Competition Authority— Philippe Nogues*

These Ministerial powers haveraised questions and criticisms fromthe French business community asthey create legal uncertainty forparties involved in a transaction.While French law prohibits partiesfrom implementing a concentrationprior to the Authority’s approval,the reform de facto extends the legalwaiting periods in order to allow theMinister to decide whether hewishes to exercise jurisdiction overthe case after the Authority’s ruling.

While the notificationthresholds remain unchanged, thetime periods applicable to mergercontrol have also been modified:• Phase I – 25 working days,extended by 15 working days if

commitments are offered. This time limit also may befrozen (similar to the “stop the clock” procedures thatexisted before the European Commission) for a maximumof 15 working days.

• Phase II – 65 working days, extendable by 20 workingdays in the case of commitments being offered late intoproceedings. As with Phase I, the investigation’stimetable may be “frozen” for a maximum of 20 workingdays.

Specific Powers in the Retail SectorThe retail sector has been singled out for special treatment

in the reform, including several changes relating to bothmerger control and anti-competitive practices.

First, the reform creates specific merger control thresholdsfor mergers in the retail trade sector. For example, any mergerinvolving at least two parties running one or several retailtrade sale points in France will have to be notified if:• the total worldwide turnover of all of the parties

concerned exceeds US$99mn; and• the turnover in France of each of at least two of the parties

concerned exceeds US$18mn.

These new thresholds target acquisitions of retail storeswith individual turnover that do not reach the traditionalFrench thresholds.

Second, the new law broadens the Authority’s ability toimpose structural remedies in the retail sector. In cases wherea business has been found to have abused its dominantposition or a position of economic dependence, the businessin question could be required to amend or terminate certaincontracts, and even to divest the shops involved.

* Associate in O’Melveny’s Brussels office and a member of the Antitrust and Competition Practice.

The article appeared in the O’Melveny & Myers LLP Antitrust and Competition Practice Alert, March 02, 2009.

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4No.1, 2009

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MICRO ISSUES: IN FEAMICRO ISSUES: IN FEAMICRO ISSUES: IN FEAMICRO ISSUES: IN FEAMICRO ISSUES: IN FEATURETURETURETURETURE

Contrary to some findings in the economics literature oncartels, empirical studies of infringements punished in

the last 10 years indicate that many collusive agreementsmay be formed as a consequence of an economic downturn.Cartels allow competitors to deal with the overcapacity whichresults from a sudden fall in demand, and to reduce the riskof bankruptcy. There may also be an expectation that demandwill increase again soon, making the incentive to deviatefrom a collusive agreement minimal.

Economic downturns might also influence businessmen’snormative perceptions of cartel laws. When faced with theprospect of losing one’s job or becoming insolvent, therange of options or strategies for increasing a firm’sperformance may become wider. Business attitudes tocompetition law are, in any case, weak as compared to otherforms of corporate crime; something that was recentlydemonstrated by British Airways in promoting to the boardan employee pending trial for cartel behaviour.

The relationship between explicit and tacit collusion is alsoworth exploring. Tacit collusion (i.e. no agreement or directcontact) is less likely to be sustained through a period ofsudden demand shocks because firms are unable toadequately communicate to each other as to

The best way forward. By contrast, explicit collusion (i.e.something more akin to a hard core cartel) involvescompetitors meeting up to reassure one another, to plan for

Will the Recession Make Cartels More Likely andCartel Enforcement More Difficult?

— Andreas Stephan*

ReferencesM C Levenstein & V Y Suslow, ‘What Determines Cartel Success?’ JEL Vol XLIV (March 2006) pp43-95

J Harrington, ‘How Do Cartels Operate?’ Foundations and Trends in Microeconomics Vol 2 No1 (2006) 1-105

OFT, ‘Predicting Cartels’ (March 2005) OFT 773

L J White Private Antitrust Litigation (MIT 1988)

A Stephan, ‘An Empirical Assessment of the European Leniency Notice’ (2009) Journal of Competition Law and Economics

A Stephan, ‘Bankruptcy Wildcard in Cartel Cases’ (2006) JBL, August Issue, 511-534

‘BA sales chief on price-fixing charge to join board’ (28 November 2008) Financial Times, London

the future, as well as monitoring each other and ensuringthe agreement is being adhered to.

Recession can also have a serious implication for cartelenforcement. The increased risk of bankruptcy placesconstraints on a competition authority’s ability to imposepecuniary fines. In the UK, the Office of Fair Trading (OFT)will be struggling to calculate appropriate fines for smallfirms under investigation for price fixing in the constructionindustry, as many are already facing bankruptcy as aconsequence of the economic downturn.

Understandably, competition authorities do not want to finefirms out of business as this will result in a more concentratedmarket, although it should not be the role of competition lawto protect the number of competitors. However, bankruptcyalso involves a number of social costs, such as loss of jobs.One might argue that the bankruptcy issue strengthensarguments for the effective use of criminal sanctions againstindividuals, as a complement to corporate fines. A criminaloffence exists within the UK and a number of other EuropeanUnion (EU) member states, but has been invoked infrequentlyand cannot operate on the community level.

One upshot of the bankruptcy issue may be a greaterwillingness amongst firms to sue upstream cartelists fordamages. Under normal trading conditions, these firms maybe unwilling to upset the long-term relationship with theirsuppliers, whereas if the firm is on the verge of insolvencyevery avenue for extra revenue will be explored.

* Lecturer in Competition Law, The Norwich Law School & ESRC Centre for Competition Policy University of East Anglia. Abridgedfrom an article that appeared in the Centre for Competition Policy Newsletter, Issue No 16, February 2009.

The theoretical view is that a sudden drop in demandwill break up many existing cartels. Assuming thatcartelists constantly weigh the costs and benefits ofcheating a collusive agreement, break up is more likelyif the drop in demand is anticipated, as the short-termgains from cheating are expected to be at their greatest.Moreover, dealing with demand instability will test boththe mechanics of a cartel and put an enormous strain onthe trust which exists between the parties to theagreement. One might thus expect an increase inleniency applications as a result of the downturn

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MICRO ISSUES: NEWS DIGESTMICRO ISSUES: NEWS DIGESTMICRO ISSUES: NEWS DIGESTMICRO ISSUES: NEWS DIGESTMICRO ISSUES: NEWS DIGEST

IBM Faces Antitrust ProbeIBM faces fresh scrutiny from

European competition regulators as anew complaint is filed formallyaccusing the US company of abusingits monopoly power in Europe’scomputer mainframe market.

A much smaller US rival, T3Technologies, is due to lodge acomplaint with the EuropeanCommission alleging that IBM hasabused its market position by tying thesale of its operating system to itsmainframe hardware, preventing salesof competing hardware products.

It will also claim the US companyhas withheld patent licences and otherintellectual property to the detrimentof mainframe purchasers in Europe.

(FT, 20.01.09)

Move Over MonopolyA good sign that no one’s in the

mood to invest right now is probablythe cartoon of the new recession gamethat’s doing the rounds on the internet.The board game, like monopoly, has theusual places you land on dependingupon the throw of the die.

It’s what each place says that makesthe game unique – ‘Sales Go Down …Move One Space’, and ‘Layoff MoreWorkers … Move One Space’ are someexamples.

The Chance/Community Chestcards of this game are also differentfrom those in your standard monopoly.Samplers: ‘Receive Tarp Funds … TryTo Buy Corporate Jet … Lose Turn’.

(BS, 10.02.09)

Swisscom on Abuse of DominanceSwitzerland Competition

Commission announced its initialfinding that Swisscom had abused itsdominant position in the asymmetricdigital subscriber lines (ADSL) market.Swisscom has been invited to commenton the Secretariat’s finding before thecommission hands down its decision.

Swisscom offers its competitorsaccess to its ADSL lines on awholesale basis, so they can then offerbroadband services to their customers.However, according to the Secretariat’sfindings, the prices Swisscomcharges its competitors are excessive

compared to end-user (retail) prices.Thus, the Secretariat considersSwisscom’s price strategy an abuse ofits market dominance. (ILO, 26.11.08)

EU�s Microsoft Probe be BluntA year after ending its lengthy legal

battle with the European Union,Microsoft, the software giant, is facingnew charges of abusing its dominantposition with the Windows operatingsystem.

But this time, legal experts opinethat the European authorities may havea harder time winning their casebecause Microsoft may in fact be losingmarket share – at least in somesegments of the software market.

Microsoft could request a privatehearing, after which the commissioncould take up to a year for a decision,which Microsoft could then appeal incourt. (FE, 22.01.09)

Competition Commission ChallengedDairy products producers Clover

and Ladismith Cheese have petitionedthe Supreme Court of Appeal, followingthe Competition Appeal Court’s refusalto grant leave for another appeal onthe procedural case Clover andLadismith Cheese had initiated againstthe Competition Commission of SouthAfrica (CCSA).

Clover and Ladismith Cheese havealready lost the procedural case againstthe CCSA twice, once in theCompetition Tribunal, and again in theCom-petition Appeal Court.

Clover, Ladismith Cheese and theCCSA are currently waiting to find outif the petition was successful or not,thus determining whether theprocedural case will be heard yet againor whether the actual merits of theCCSA’s cases against Clover andLadismith Cheese for illegal marketpractices can finally be dealt with.

(EN, 27.02.09)

ABUSE OF DOMINANCE CARTELS

Sea Shrimps Raided by ECThe European Commission (EC)

has confirmed that it conductedunannounced inspections, inconjunction with officials from therelevant national authorities, at thepremises of a number of companiesactive in the North Sea shrimps andrelated products industry in several EUMember States.

The inspections were conductedfollowing suspicions that thecompanies in question may have actedin violation of EC legislation prohibitingcartels, namely Article 81 of the ECTreaty. Surprise inspections are apreliminary step in investigations intosuspected anti-competitive practices.

(EC Press Release, 31.03.09)

Cartel Accusation RejectedThe National Commission for the

Defence of Competition rejected anaccusation initiated by Baro Gasagainst Repsol YPF Gas SA alleginginfringement of the Antitrust Law.

After assessing the facts presentedby Baro Gas, the commissionconcluded that the claim was based onan alleged cartel that was intended todivide the market.

The clients that would have beenaffected by the cartel were not endconsumers, but the distributors, andtherefore the alleged infringement alsoinvolved vertical restrictions (refusal todeal). After a thorough analysis of theevidence, the commission rejected theaccusation. (ILO, 15.01.09)

KPPU to Summon CarrefourThe Indonesian Business

Competition Supervisory Commission(KPPU) has opened a probe intoCarrefour. The KPPU is examiningwhether the supermarket giant hasviolated article 17 and 25, whichprohibit monopoly and abuse of adominant position respectively.

Carrefour expanded throughacquisitions in 2008 and now reportedlyhas up to two thirds market share ofcertain upstream markets, giving riseto concern that it is able to dictate termsto suppliers.

If found to have contravened thelaw, the supermarket chain could facefines up to US$2.10mn. (JP, 03.04.09)

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FINES & PENALTIES

OECD: Guidelines for Bid RiggingThe Organisation for Economic

Cooperation and Development (OECD)Competition Committee has adoptednew guidelines for fighting bid riggingin public procurement.

The OECD says that by drawing onthe experience of more than 30jurisdictions, the guidelines provide themost comprehensive strategy availablefor designing tenders to hinder bidrigging conspiracies and foruncovering existing conspiracies.

The guidelines help to identify:markets in which bid rigging is morelikely to occur so that specialprecautions can be taken; methods thatmaximise the number of bids; bestpractices for tender specifications,requirements and award criteria;procedures that inhibit communicationamong bidders; and suspicious pricingpatterns, statements, documents andbehaviour by firms that procurementagents can use to detect bid rigging.

(OECD Press Release, 13.03.09)

Cartel Linked to Road FraudWorld Bank investigators looking

into allegations of bid-rigging in roadprojects in the Philippines haveconcluded that the fraud involvedcollusion among a network of privatecontractors, officials and politicalfigures, according to confidential bankdocuments.

The investigation, carried out bythe bank’s department of institutionalintegrity, suggests that the allegedcorruption was much more widespreadthan suggested by initial probes, whichprompted the bank to bar eightconstruction companies from China,the Philippines and South Korea frombidding for bank-funded projects. Bothsub-projects were scrapped.

(FT, 20.02.09)

Brazil Raids IT CompaniesFour IT companies and one trade

association have been subject to dawnraids by the Secretariat of EconomicLaw, the Secretaria de DireitoEconômico (SDE), and the FederalPolice in the Federal District of Brasilia.

They are being investigated for apossible bid rigging in procurementprocedures to contract informationtechnology services such as network

development and maintenance ofsoftware, database and networkswithin the Ministry of Education.

(www.mj.gov.br, 19.03.09)

Europe Accused of Stealing JobsEuropean leaders were accused of

“bribing multinationals” and stealingjobs from neighbouring countries asthey use taxpayers’ money to supportbusinesses battered by the economicturmoil.

Neelie Kroes, Europe’s seniorantitrust regulator said, “Of course nopolitician will admit to protectionistpolicies – it will be presented underbetter colours, using national moneyto protect national jobs”.

EU officials fear that the scheme –which involves a package of loans forRenault and Peugeot-Citroën – couldbreach Europe’s single marketprinciples or state-aid rules. The planhas angered other EU carmaking statessuch as Sweden and the CzechRepublic. Spain has since unveiled aUS$5.2bn car aid plan. Ministers havesuggested that government supportcould depend on manufacturers’ abilityto guarantee jobs. (FT, 18.02.09)

described Bernard Madoff’s businesspractices as “highly unusual,” thepaper said.

Madoff was interviewed at leasttwice by the SEC, the paper said, addingthat regulators never came close touncovering the alleged US$50bn Ponzischeme that investigators now believebegan in the 1970s. (FE, 05.01.09)

Oil Major Fined for Tax BreachThe Turkish government has fined

a local unit of oil major BP US$275mnover a tax breach but the company plansto appeal. The fine, which followed aninvestigation into BP’s sales of duty-free fuel at Turkish border crossings,is comprised of US$108mn in back taxeswith the rest in penalties and interest.

BP operates Turkey’s second-biggest chain of petrol stations. Thetax authority now wants BP to payspecial consumption and value-addedtaxes for each vehicle that purchasedmore than 550 litres of fuel between2006 and 2008.

BP argues that regulations set the“standard tank capacity” as the basisfor the amount of tax-free fuel that canbe sold and that it did not breach thelimit. (Reuters, 04.03.09)

Increased Traffic Fines StayThe Department of Transportation

and Communications, Philippinesreiterated that it was time to upgradefines for traffic violations to instilldiscipline, help curb reckless drivingand prevent accidents on the road.

Transportation andCommunications Secretary LeandroMendoza said a department order titled“Revised Schedule of LTO Fines and

Fines on Resale Price MaintenanceThe Federal Court of Australia has

imposed fines in excess of US$144,499on Telewater, Australia’s largestmanufacturer of aluminium boats, andits director for engaging in resale pricemaintenance.

The court heard that Telewater hadinformed dealers that they were notallowed to advertise boating packagesfor select brands below a specifiedprice. Under section 48 of the TradePractices Act 1974, engaging in retailprice maintenance is prohibited.

(ACCC Media Release, 17.03.09)

Regulators Probed MadoffBernard L. Madoff Investment

Securities LLC was examined at leasteight times in 16 years by the USSecurities and Exchange Commission(SEC) and other regulators, who oftencame armed with suspicions, the WallStreet Journal said.

SEC officials followed up on emailsfrom a New York hedge fund that

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7No.1, 2009

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PRICE FIXING

infringement proceedings againstseveral countries, including France,over regulated tariff structures that arebelieved to discriminate against smallerelectricity users in favour of majorclients of the utilities.

(TO, 11.03.09)

Chocolate Price-Fixing Suits ProceedA federal judge has ruled that

lawsuits alleging price fixing in the USchocolate industry may proceed andgave the plaintiffs additional time to tryto prove their claims.

District Judge Christopher C.Conner said the plaintiffs haveprovided enough evidence to allowclaims of antitrust violations to proceedand granted them time to tie in theactions of the companies’ foreignsubsidiaries to the jurisdiction of U.S.courts.

The 87 lawsuits against Hershey,Mars, Cadbury and Nestle, whichcollectively control 75 percent of thechocolate market in the US, allege thecompanies conspired to raise chocolatecandy prices by about 10 percent inDecember 2002, 6 in December 2004,and 5 percent in April 2007.

(Pennlive.com, 05.03.09)

Airlines to Pay for Price-FixingThe Federal Court has ordered four

international airlines to pay a total ofUS$16mn for their part in aninternational air cargo cartel.

Air France, KLM, Martinair andCargolux have admitted to reachingillegal price-fixing agreements inrelation to the fuel surcharges on aircargo. A combined US$41mn inpenalties has now been brought againstairlines, including Qantas and BritishAirways over the cartel.

The Australian Competition andConsumer Commission (ACCC) hasindicated it will be prosecuting moreairlines. (ABC Online, 16.02.09)

Penalties for Traffic and AdministrativeViolations” was the result of“consultation and consensus buildingwith the various stakeholders”.

“With the increase in the numberof accidents occurring daily, it is hightime we properly implement the rulesand impose stricter fines and penaltiesto prevent laxity and to build a cultureof safety among our road users”, hesaid. (PDI, 28.02.09)

Pfizer to Pay Record FinePharmaceutical companies often

complain that they spend billions ofdollars researching new drugs thatnever make it to market, but Pfizer brokea new record for the billions spent onsettlements linked to promotion of adrug that had already been launched.

In a tiny reference in the company’sfourth-quarter results issued it said ithad reached a US$2.3bn agreement inprinciple with the US Attorney’s officeto resolve a series of investigations“regarding allegations of off-labelpromotional practices concerningBextra”.

Nearly three years after thecompany, in April 2005, withdrew fromthe market, on the recommendation ofthe US Food & Drug Administration inApril 2005, the case has continued tohaunt the company. (FT, 28.02.09)

Pharmacy Associations FinedThe Spanish antitrust authority, the

Comisión Nacional de la Competencia(CNC), has imposed a total of US$1.3mnfine on four pharmacy associations,FEFE, CEOFA, APROFARMA andAPROFASE.

The investigation follows acomplaint filed by LaboratoriosDAVUR, a generic drugs producer,which accused three of the fourassociations of agreeing inrecommending their pharmaciesmembers to boycott thecommercialisation of its generic drugs.

CEOFA was included in theinvestigation by the CNC in a secondstage. (CNC Press Release, 02.04.09)

anti-monopoly activities oninternational air cargo fare and fuelsurcharges.

The Tokyo-based company said itreceived advance notice of the decisionfrom the Fair Trade Commission (FTC)and it will thoroughly consider itsresponse.

The FTC had notified more than 10companies that it will fine them a totalof about over US$100mn for forming acartel to hike international air cargocharges.

The FTC believes that thecompanies, including Japan’s threemajor distribution and logistics servicecompanies – Nippon Express, KintetsuWorld Express and Yusen Air and SeaService – constrained fair competitionby forming a cartel, adding fuelsurcharges and airport security chargesto air cargo service charges.

(Cargonews, 24.02.09)

Armenia�s Price-Fixing ProbeArmenia’s state anti-trust agency

will investigate alleged retail price-fixing, as consumer prices continue toclimb following the Central Bank’smove to devalue the national currency.

The State Commission onProtection of Economic Competitionannounced that prices on somefoodstuffs and home improvementgoods have soared to a “disproportionateand unfounded” degree.

The agency suspects that someimporters and suppliers are colludingto fix prices. Commission investigatorsintend to compare retail stores’ profitmargins both before and after thedram’s collapse. (EurasiaNet, 03.09.09)

EDF Offices Raided in Price-FixingInvestigators from the European

Commission have raided the offices ofÉlectricité de France (EDF) seekingevidence of price-fixing in the Frenchelectricity market.

The Commission said that theinquiry had enabled it “to gain an in-depth understanding of thefunctioning, and in some respects, themalfunctioning of the energy sector”.

The competition authority hasconducted numerous raids on thepremises of big utilities, including EDFand E.ON, the leading Germancompetitor, and has started

Nippon Fined for CargoNippon Express said that it has been

notified to stop and pay penalties on

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8No.1, 2009

EGULETTERR

RESTRUCTURING: IN FEARESTRUCTURING: IN FEARESTRUCTURING: IN FEARESTRUCTURING: IN FEARESTRUCTURING: IN FEATURETURETURETURETURE

Filing Criteria Currently in ForceGerman merger control is mandatory. If a transaction

meets the ARC filing criteria, the parties must delay closingtheir transaction until the Foreign and Commonwealth Office(FCO) has cleared it. In the past, a merger control filing wasrequired already if (i) one party generated revenues of morethan US$3.2mn in Germany and (ii) both parties generatedcombined revenues of more than US$658mn worldwide.These thresholds apply to the consolidated total revenuesof the groups of companies to which the direct parties to thetransaction belong, in their last fiscal year.

These filing thresholds have frequently resultedin filing requirements for transactions that have noor only an insignificant connection to competitionin Germany. This was because the US$3.2mnthreshold for sales in Germany could besatisfied by one party alone, either the buyeror the target. There was no separate revenuetest for the German turnover of the otherparty to the transaction. In theory,the ARC requires – in additionto the revenue thresholds beingsatisfied – that the transactionaffect competition in Germany.In practice, this “effects tests” is meaningless.

Compliance Risks InvolvedThe broad extra-territorial application of German merger

control raises significant compliance risks:• The FCO recently imposed substantial fines on parties

to M&A transactions that – in the FCO’s view – failed tocomply with the ARC’s procedural requirements. The FCOdetermines the amount of a fine on the basis of the revenuesof the parties to the transaction, multiplied by the numberof years in which the parties were in non-compliance.

• The acquisition of shares or assets for which FCOclearance was required, but was not obtained, is notlegally enforceable in Germany. The FCO no longeraccepts corrective filings, that is, post-closingsubmissions where the acquirer has only realised afterclosing that a filing was required. Therefore, currently

Germany: New Notification Threshold inGermany Reduces Risks to Offshore Transactions

— Johannes Zöttl*, Carsten T. Gromotke** and Thomas Jestaedt***

* Vice Chair of the Section’s Unilateral Conduct Committee, and a member of the German Antitrust Lawyers Association and theFrankfurt Antitrust Forum

** Head, Jones Day’s German Antitrust Practice***Competition Law Expert, Germany

The article appeared in the Mondaq, March 25, 2009.

there is no way to “cure” a legally defective acquisitionand to obtain retroactive effect.

• The extraterritorial application of German merger controldoes not only relate to acquisitions of control. Anyacquisition of a “competitively significant influence”over another business may trigger the ARC’sapplicability..

The New Revenues TestIn addition to the US$658mn and the US$3.2mn tests,

one of the parties must have generated revenues of morethan US$6.6mn in Germany. As a result, transactionswill only be subject to reporting in Germany if bothparties have substantial business interests inGermany.

The Ministry in charge of the amendmentanticipates that the amendment will reduce

the FCO’s revenue stream throughfiling fees by at least US$1.8mn peryear. The more significant effect onthe FCO’s daily business will bethat the FCO will be able to shiftfurther resources from mergercontrol to its ongoing fight against

cartels. Following a recent re-organisation of the FCO, itcurrently has three units exclusively assigned to cartels,dawn raids, and related sanctions.

Given the size of the German economy, however, revenuesof US$6.6mn are not much of a hurdle. Most other EC MemberSates have significantly higher thresholds for either party’slocal sales. Nonetheless, the Government estimates that thenew US$6.6mn test will reduce the number of merger controlfilings by about one third.

More importantly, for the majority of transactions,businesses can now determine if they have to file a transactionfor the FCO’s review solely on the basis of their revenues inGermany. The new threshold, therefore, will significantly reducecompliance risks. Issues remain in relation to multi-partytransactions, such as when JVs are formed, where theassessment of a filing and clearance requirement in Germanywill continue to be necessary on the basis of the FCO’soverly extensive and ambivalent criteria.

Germany has introduced a new threshold for premerger notifications to its merger control system. Thisamendment to the German Act Against Restraints of Competition (ARC) is expected to reduce the number ofmerger control filings in Germany dramatically. In particular, the amendment will provide (limited) relieffor the parties to offshore transactions, although enforcement risks remain for transactions to which theARC still applies.

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RESTRUCTURING: NEWS DIGESTRESTRUCTURING: NEWS DIGESTRESTRUCTURING: NEWS DIGESTRESTRUCTURING: NEWS DIGESTRESTRUCTURING: NEWS DIGEST

Canadian Oil Giants MergeSuncor Energy Inc will acquire Petro-

Canada for US$15.5bn, uniting two ofCanada’s biggest oil companies as thenation’s energy industry retrenches. Ifthe deal is approved, the combinedcompany would have a marketcapitalisation of about US$38bn.

The companies could saveUS$244mn in operating costs andUS$81mn in capital efficiencies eachyear. Petro-Canada commonshareholders would receive 1.28 commonshares of the expanded company for eachshare of Petro-Canada, while Suncorshareholders will receive new shares ona one-for-one basis.

Petro-Canada shareholders will hold40 percent of the enlarged company andSuncor shareholders will hold 60percent. (ET, 23.02.09)

Cement to See M&As by 2009-endThe 207-million tonne Indian

cement industry may witness M&Aactivity again by the end of 2009.However, this time, valuations will below and deals will be driven by astrategic desire to exit rather thanfinancial compulsion to restructure.

Sourav Mallik, Executive Director,Kotak Investment Bank, said, “Largeplayers or MNCs will make acquisitionswhen new entrants and small companiesstart feeling margin pressures”.

Apart from issues relating tooversupply, small companies may havemade expansions at high costs and willhave to spend on brand building;hence, returns may not be up to theirexpectations and they will look to beacquired. (FE, 14.01.09)

Norilsk Eyes Metal Mega-mergerAn ambitious plan to create one of

the world’s biggest mining groupsthrough the merger of up to five Russiancompanies has been proposed by twobillionaire tycoons.

Oleg Deripaska and VladimirPotanin, the two biggest shareholdersin Norilsk Nickel, have proposed themerger as the groups seek to restructuretens of billions of dollars in debts.

The proposal would see the statetake a 25 percent blocking stake in thecompany in return for writing off morethan US$27bn in total debts held by allthe companies. It would also create a

company with a market capitalisation ofUS$70bn-US$100bn and earningsbefore interest, tax, depreciation andamortisation of US$23bn. (FT, 20.01.09)

Vodafone Fuses with HutchisonVodafone, of the UK, and Hutchison

Whampoa, of Hong Kong plans tomerge their Australian mobile phoneoperations, in a move that shouldenable the combined business to bettercompete with local rivals.

By merging their Australianoperations, the 50:50 joint venturebetween Vodafone and Hutchison willhave a market share of 26 percent. Thecombined business will have 6 millioncustomers and annual revenue ofUS$2.7bn, and will use Vodafone’s brand.

Vodafone will receive a US$361mnpayment under the transaction’s termsbecause its Australian business isbigger than Hutchison’s. (FT, 10.02.09)

China: Chip Design Ripe for MergersThe global economic crisis is forcing

a long overdue shake-out amongChinese chip design companies asventure capital funds have dried up andmajor players are ready to merge.

Chipnuts, a company co-foundedby Taiwanese returnees from the US thatdesigns mobile chips, has sold part ofits business to Aptina, an affiliate ofUS chipmaker Micron.

China has more than 500 designhouses, but two-thirds of them havefewer than 50 employees and the largestamong them, Hisilicon, achieved justUS$170m in revenue in 2007. (FT, 12.01.09)

Kirin Acquires Stake in San MiguelKirin Holdings, one of Japan’s

leading beer and beverage companies,has won exclusive negotiating rights tobuy up to 43.25 percent of San MiguelBrewery in a deal that could be worthmore than US$1bn.

The deal comes on the heels of aUS$4.9bn buying spree by Kirin, Japan’ssecond-largest brewer after Asahi.Kirin, which already owns 20 percent ofSan Miguel Corp, the parent companyof San Miguel Brewery, said it aimed toacquire as much of the Philippines’largest beer company as possible. SanMiguel has said it wants to retain amajority stake in its brewery.

(FT, 20.01.09)

Chrysler & Fiat inJoint Venture

Chrysler and Fiat are in talks aboutcreating a joint venture that

would give the Italian carmaker asignificant stake in Chrysler.

Under the proposal beingconsidered, Fiat would help tofinance the retooling of someChrysler factories so they couldmanufacture Fiat cars andcomponents and give Chrysler accessto its technology. Fiat would notinject any cash into Chrysler.

A Chrysler-Fiat combinationwould have a strong presence inNorth and South America and inEurope and a broader global footprintand the ability to sell a widerspectrum of cars in various priceranges. (FT, 20.01.09)

Air France-KLM Buys into AlitaliaAfter once describing Italy’s state-

controlled Alitalia as in need of anexorcist, Air France-KLM bought a 25percent stake from the airline’s newprivate owners for US$432m. The dealallows Air France-KLM to make anoffer for a controlling stake afterJanuary 2013 under certain conditions.

The new Alitalia, merged with AirOne, will have 148 aircraft and fly to70 destinations. Under the deal, AirFrance-KLM and Alitalia expectsynergies of US$949mn over threeyears.

The agreement for Air France-KLM to become the strategicindustrial partner for the restructuredAlitalia was crucial for the Frenchcarrier to maintain its momentum asEurope’s biggest airline andstrengthen its Italian market position.

(FT, 13.01.09)

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RESTRUCTURING: NEWS DIGESTRESTRUCTURING: NEWS DIGESTRESTRUCTURING: NEWS DIGESTRESTRUCTURING: NEWS DIGESTRESTRUCTURING: NEWS DIGEST

Rio Fights Back over China DealRio Tinto defended its planned

US$19.5bn capital injection fromChinalco, the Chinese state-ownedmetals group, as criticism of the dealintensified from the mining group’s UKshareholders.

Heavily-indebted Rio has proposedselling minority stakes in some of itsbest assets, including the Hamersleyiron ore mine in Australia and theEscondida copper mine in Chile, toChinalco to raise US$12.3bn.

It is also raising US$7.2bn throughan issue of bonds to the Chinese groupthat can be converted into equity, liftingChinalco’s stake in Rio from 9 percentto as much as 18 percent. (FT, 13.02.09)

Merck Buys Schering-PloughMerck agreed US$41bn takeover of

its New Jersey rival, Schering-Plough ,in the second major deal in the globalpharmaceuticals industry within sixweeks.

The deal, which will create one ofthe world’s biggest drugmakers withcombined sales of nearly US$50bn, willbe done via a complex reverse takeoverin which the much smaller Schering-Plough will technically acquire Merck.

The deal was designed this waypartly because a Merck takeover wouldhave triggered a contract that wouldhave required Schering-Plough to giveup its rights to the lucrativeimmunological drug Remicade to itspartner. (FT, 10.03.09)

Valin Secures Fortescue StakeHunan Valin Iron & Steel joined the

swelling ranks of Chinese investors in

debt-strapped Australian resourcescompanies by agreeing to buy a 16.5percent stake in Fortescue Metals forUS771m.

Australia’s third biggest iron oreproducer said that it was alsoconsidering an institutional placement,as well as negotiating a hybrid fundingpackage with China Investment Corp(CIC), the sovereign wealth fund. CICis understood to be considering aneven bigger investment to helpFortescue reduce debt.

The transaction gives Fortescue anadditional US$399mn in cash, as Valinis buying US$161mn new shares atUS$1.78 a share. Valin is also acquiringUS$197mn shares from two HarbingerCapital funds, giving the Chinese groupa combined stake of 16.5 percent andreducing Harbinger ’s holding inFortescue from 16 to 7 percent.

(FT, 25.02.09)

Harris to Buy Telsima for US$55mUS wireless service provider Harris

Stratex Networks is set to acquire amajority stake in Telsima, a five yearold India focused WiMax solutions firmbacked by marquee valley investors forUS$55mn.

India-focussed WiMax solutionsfirm Telsima also works with telecomnetworks in African and Russianmarkets. Telsima’s lits of investorsinvestors include Vinod Dham, TusharDave, NEA and Intel Capital.

Headquartered at Santa Clara, thefirm has manufacturing and softwaredevelopment hub in Bangalore. Apartfrom offering Telsimas solutions in theUS, Harris will also be able to address

There have been a number of recent takeoverbids in Canada where the bidder has varied

the bid after commencement to reduce theprice offered for the securities. For example:� Borealis Acquisition Corporation reduced

the price of its bid for Teranet Income Fundfrom US$9.0-US$8.33 per unit. The reasonsprovided were the deterioration in economicand financial market conditions andincreases in the cost of capital. The reducedbid was successful;

� Jaguar Financial Corporation reduced theprice of its partial bid for Royal Laser Corpfrom US$0.65-US$0.51 per share. The

the lucrative and growing markets ofIndia, Russia and Africa after thisacquisition. (ET, 06.02.09)

Japanese Insurers Form AllianceMitsui Sumitomo Insurance Group,

Aioi Insurance and Nissay DowaGeneral Insurance would integrateoperations to create the country’slargest non-life insurance group, thefifth largest in the world, with combinedpremiums of US$31bn.

The new group would seek toexpand overseas organically andthrough mergers and acquisitions, withthe aim of staying in the world’s top 10in both revenues and profits.

The deal highlights pressuresfacing Japanese non-life insurancecompanies, which are highly dependenton the domestic market. (FT, 24.01.09)

Beijing Scuppers Coke DealChina rejected a US$2.4bn Coca-

Cola deal that would have been thecountry’s biggest foreign takeover,stoking fears of protectionism andwarnings that the decision couldscupper Beijing’s push to invest inoverseas mining companies.

China’s Ministry of Commerceruled against Coke’s proposedacquisition of Huiyuan Juice, thecountry’s leading juice maker, oncompetition grounds, saying the movewould hurt smaller domestic companiesand limit consumer choice.

Bankers and lawyers denouncedthe move as a protectionist measurethat would also have negativeimplications for Chinese investmentabroad. (FT, 19.03.09)

Price Reductions in Takeover Bidsreasons provided were a major decline inmarkets generally and the share price ofRoyal Laser. The offer expired without thebidder taking up any shares; and � a subsidiary of Andlauer ManagementGroup Inc reduced the price of its bid forATS Andlauer Income Fund from US$9.55-US$8.74 per unit. The reason provided wasa material deterioration of economicconditions and credit markets that resultedin the failure of a condition to the takeoverbid regarding the state of the markets to besatisfied. The reduced bid was successful.

(ILO, 14.01.09)

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11No.1, 2009

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CORPORACORPORACORPORACORPORACORPORATE ISSUES: IN FEATE ISSUES: IN FEATE ISSUES: IN FEATE ISSUES: IN FEATE ISSUES: IN FEATURETURETURETURETURE

From Charity to Strategic PartnershipsThe economic turmoil brought about by the financial

crisis of 2008, compounded by the impacts of a food crisisand pending climate change, has exacerbated many of theexisting development challenges in the Middle East andNorth Africa (MENA).

This paper explores the idea that inclusive, sustainablebusiness partnerships hold the potential to address multipledevelopment needs within MENA. Three reasons are putforward why inclusive and sustainable business practicesand CSR-related partnerships may be timely and an importantcomplement to private sector activity in the region includes:• the global economic crisis and limitations of existing

institutions and arrangements open the door forinnovative approaches that can both encourage economicactivity and address urgent development needs;

• private sector partnerships can address critical socialand equity issues in news ways; and

• CSR partnerships can contribute toincreased competitiveness andeconomic dynamism.

(http://www.eldis.org/cf/rdr/

?doc=42554&em=020409&sub=corp)

World�s 1st True Sustainability IndexThe non-profit Centre for Sustainable

Innovation (CSI) announced the releaseof a new model for measuring andreporting corporate sustainabilityperformance. Referred to as the TrueSustainability Index (TSI).

TSI is made up of metrics that arecontext-based, meaning that they expressorganisational performance relative toactual social and environmentalconditions in the world.

CSI’s context-based approach tomeasuring and reporting organisationalsustainability stands in stark contrast toother mainstream reporting methods and indexes, most ofwhich are context-free. (www.csrwire.com, 24.03.09)

Oxfam Urges Miner to Improve Community RelationsInternational aid group Oxfam America commends the

Newmont Mining Corporation for conducting a review ofits community relationship management practices and callson the mining company to fully implement the review’srecommendations to improve relationships with localcommunities near mining projects in Peru, Ghana, Indonesiaand Nevada.

The independent review is the first of its kind by a majormining company and provides information about communityrelationships and important recommendations for improvingthe company’s operations on the ground.

(www.csrwire.com, 11.03.09)

Coca-Cola to Clean Water Projects in AfricaThe Coca-Cola Company has committed US$30mn over

the next six years to provide access to safe drinking water

to communities throughout Africa through its ReplenishAfrica Initiative (RAIN).

Implemented by The Coca-Cola Africa Foundation,RAIN will provide at least 2 million Africans with clean waterand sanitation by 2015.

According to the World Health Organisation, more than300 million Africans lack access to safe drinking water, andmillions of them die each year from preventable waterborneillnesses. (www.afrol.com, 16.03.09)

NGOs Challenges �Integrity Measures�Following the refusal by the UN Global Compact (UNGC)

to accept and act on a formal complaint of “systematic oregregious abuse” of the Global Compact’s overall aims andprinciples by PetroChina, a UNGC participant, the NGOsthat submitted the complaint plan to escalate the matter tothe UNGC’s Board of Directors.

The complaint, submitted byInvestors Against Genocide (IAG) andCentre for Research on MultinationalCorporations (SOMO), asks the UNGCto formally apply its established“Integrity Measures.”

If after three months, there is nosatisfactory resolution of the issuesraised, the groups ask that the UNGC toremove PetroChina from the list ofparticipants. (www.csrwire.com, 19.01.09)

Business Charity Drop by a ThirdAccording to a survey of 450

business leaders in UK, corporategiving to charity is expected to drop bya third in 2009 as community budgetssuffer the same fate as many othercorporate budgets in the face of therecession.

The survey, carried out byYouGovStone for the Social Investment

Consultancy, showed that an estimated US$2.05bn per yeardonated is likely to drop to under US$1.5bn.

A number of respondents suggested that companiesinvolved in cut-backs would look for lower cost, creative waysto support communities instead, such as through increasedemployee volunteering or gifts in kind. (BR, 23.03.09)

Larger Firms to have CSR PoliciesCompanies with a turnover of more than 50m UK pounds

are twice as likely to have established policies on corporatesocial responsibility and diversity, according to newresearch by KPMG on its own suppliers.

The survey pulled together results from 955 companies,and showed that nearly two-thirds have a diversity policy,and just over half have a CSR policy. 60 percent say thatthey measure waste reduction and recycling, and nearly asmany track energy use.

KPMG said that it remains committed to working withsuppliers that share the company’s commitment to socialresponsibility issues. (BR, 24.02.09)

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INVESTMENT & DISINVESTMENTINVESTMENT & DISINVESTMENTINVESTMENT & DISINVESTMENTINVESTMENT & DISINVESTMENTINVESTMENT & DISINVESTMENT: NEWS DIGEST: NEWS DIGEST: NEWS DIGEST: NEWS DIGEST: NEWS DIGEST

Bolivia to Pay for NationalisationBolivia, the linchpin of gas supplies

to the southern half of Latin America,is struggling to secure long-terminvestment for its hydrocarbons sectoramid questions over its reliability as asupplier and uncertainty over demandfrom export markets.

Evo Morales, the country’s popularleftist president who faces apresidential election in December,travelled to Russia this week to sign anagreement with Gazprom, the state gasmonopoly, to develop Bolivia’s gasreserves until 2030.

The fact that Bolivia has to go sofar abroad highlights the damage it didby nationalising its energy industry in2006, driving away technically ableinternational companies with a provenability to raise funds. (FT, 17.02.09)

Investment Faces Regulatory HurdlesChinalco’s planned US$19.5bn

investment in Rio Tinto must clearsignificant regulatory hurdles inAustralia and pass Canberra’s“national interest” test whentransactions are undertaken by state-backed entities.

BHP Billiton, Rio’s larger Anglo-Australian rival and former hostilesuitor, will also attempt to derail the dealby using its influence in Canberra.

BHP, Australia’s biggest companyby market value, has already madeknown its opposition to the sale ofholdings in some of Australia’s premierresource deposits. (FT, 12.02.09)

Foreign Investment in ChinaChina’s actual use of foreign

investment plunged 32.67 percent yearon year to US$7.54bn in January.Foreign investment use has seenconsecutive falls in China sinceOctober, when a 2.02-percent annualdrop was recorded.

China used US$92.4bn of foreigninvestment in 2008, up 23.6 percent from2007, data from the National Bureau ofStatistics showed. The growth was 10percentage points higher than that of2007.

The upward trend would experiencea turning point in 2009 even withoutthe global financial crisis, as China’sadjustment to its foreign investmentpolicies took effect. (ET, 17.02.09)

Investors Turn Backs on Mega FundsInvestors are turning hostile to

“mega-buy-out” groups as many oftheir heavily leveraged, multi-billion-dollar takeovers of large companies arehit by the financial and economic crisis,according to research published today.

More than half of investors plan tocut their investment in the biggestbuy-out houses in 2009 includinginsurers and pension funds, by theprivate equity advisory boutiqueAlmeida Capital.

The “mega-buy-out” houses havegrown rapidly in recent years bygenerating big profits from acquiringlarge companies with a sliver of theirown investors’ money and big bankloans. (FT, 19.01.09)

Norway to Review Fund InvestmentsNorway’s finance minister has

ordered a review of investments by thecountry’s wealth fund in companiesactive in the Palestinian territories afterIsrael’s crackdown in Gaza.

The US$300bn oil fund, officiallyknown as the Government PensionFund – Global, invests under ethicalguidelines from the Ministry of Financeand has excluded a few dozencompanies that produce nuclear armsor cluster munitions, degrade theenvironment or violate human or workerrights.

Kristin Halvorsen, FinanceMinister, Norway has asked the fund’sethics council to assess whethercompanies in which the fund isinvested and which operate in thePalestinian territories comply with theguidelines. (FT, 07.01.09)

Sovereign Funds Revive InvestingSovereign wealth funds plan to

resume investing in assets around theworld in 2009, with a focus on strongdividend yields.

Many of the funds, the mostpowerful of which are based in Asiaand the Middle East, have stoppedinvesting in the wake of the globaleconomic downturn, which has slashedthe value of their portfolios.

Some funds admitted that, afterpolitical pressure, they had beendiverting cash inflows from their globalportfolios to invest in their homeregions in order to stimulate localmarkets. (FT, 17.02.09)

Zambia Offers Tax Sops to IndiaZambia is wooing Indian

companies by assuring no forexcontrols and tax sops after majorinvestments by Vedanta Resources,Tata Motors and Era Infrastructure.

The Manager, ZambiaDevelopment Authority, Robert BuzzBanda, said opportunities are aplentyin mining, tourism, manufacturing,education and healthcare sectors bothdirectly or through public privateparticipatory model.

Several corporate houses from Indiaare looking at tapping natural resourcessuch as coal, coal-bed methane, oil andnatural gas exploration and production.

(BL, 09.03.09)

Economic Reforms Led to 1mn DeathsAs many as one million working-

age men died due to theeconomic shock of mass privatisationpolicies followed by post-communistcountries in the 1990s.

The University of Oxford-led studymeasured the relationship between deathrates and the pace and scale of privatisationin 25 countries in the former Soviet Union andEastern Europe, dating back to the early 1990s.

They found that mass privatisation came at ahuman cost: with an average surge in the number of deaths of 13 percent orthe equivalent of about one million lives.

The rapid privatisation programme, part of a plan known by economists as�shock therapy�, led to a 56 percent increase in unemployment, which thestudy says played an important role in explaining why privatisation claimedso many lives. (FE, 19.01.09)

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INVESTMENT & DISINVESTMENTINVESTMENT & DISINVESTMENTINVESTMENT & DISINVESTMENTINVESTMENT & DISINVESTMENTINVESTMENT & DISINVESTMENT: NEWS DIGEST: NEWS DIGEST: NEWS DIGEST: NEWS DIGEST: NEWS DIGEST

Greece to Woo Foreign InvestorsThe Greek government is to launch a

charm offensive in Asia and the US totry to attract investors as record levelsof sovereign debt make it increasinglyhard to raise funds in Europe.

Greece, whose credit rating wasdowngraded because of rising worriesover its public debt, has been forced topay much higher yields relative toGermany to raise debt owing to thedeterioration in financial conditions andrising investor concern over the healthof its economy. The country plans toissue a 10-year bond of benchmark size,typically about US$6.6bn. (FT, 18.02.09)

HK Watchdog Hits at StanChartStandard Chartered, a pillar of Hong

Kong’s financial establishment, is tocompensate more than 1,000 investorsafter being rebuked by the localsecurities watchdog in a case relatingto mutual fund trading.

Hong Kong’s Securities andFutures Commission ruled that the UK-based bank had “failed to act in thebest interests of its clients” after failingto ensure a level playing field for allinvestors in third-party funds.

StanChart has promised to contact1,260 clients who invested in the relevantfunds, as part of a “payment scheme”that could total US$320,000 plus interest.The bank, which reported the matter toauthorities, denied wrongdoing andinsisted that it was making the payments“voluntarily”. (FT, 07.01.09)

China to Invest in Africa AgainChina is regaining its appetite for

acquisitions in Africa as asset priceson the continent tumble, according toStandard Bank, Africa’s largest lenderthat is partially owned by China’sbiggest bank.

Jacko Maree, Standard’s ChiefExecutive, said that Chinese companieswere readying to “turn on the taps” oncemore after 2007’s surge of investment intoAfrica fell away dramatically due to theglobal financial crisis.

Market valuations for many Africancompanies – particularly miners butalso telecoms groups and banks – havefallen sharply during the crisis. Lastyear, Industrial and Commercial Bankof China (ICBC) took a 20 percent stakein Standard for US$5.5bn.

However, Maree said that the “warchest” the bank had retained to fundfurther international expansion, whichstood at US$1bn in August, had insteadbeen used to shore up its capital base.

(FT, 05.03.09)

China�s Contractual Projects UpChina’s overseas contractual

projects stood at US$7.96bn in the firsttwo months of 2009. The figure was up24.8 percent year-on-year despite theworld economic downturn.

Many companies expanded theirtarget markets from the EuropeanUnion and the United States todeveloping countries in Africa andLatin America.

Also, many companies shifted fromlabour-intensive sectors to technology-intensive industries, such as electricpower, oil refining, telecommunicationsand metallurgy. (Xinhua, 16.03.09)

Streamlining FDI RegimeIn an effort to streamline the foreign

investment administration regime, theMinistry of Commerce issued a circularin August 2008 which delegates partof its approval authority over foreign-invested projects to its provincialcounterparts.

The circular establishes thresholdinvestment amounts of US$100mn inany foreign investment project in an‘encouraged’ or ‘permitted’ industryand US$50mn in a ‘restricted’ industry.

It grants the ministry’s provincialcounterparts the authority to approve:(i) an increase in the total investmentamount of a foreign-invested projectup to the threshold amount applicablefor existing foreign-investedenterprises; and (ii) the incorporationof and corporate changes to a foreign-invested company limited by sharesthat has share capital up to thethreshold amount. (ILO, 14.02.09)

Global FDI now in DeclineGlobal foreign direct investment

(FDI) inflows are estimated to havefallen by 21 percent in 2008 to anestimated US$1.4tr, and will likely fallfarther in 2009.

In the face of a global economicrecession, tighter credit conditions,falling corporate profits, and gloomyprospects and uncertainties for globaleconomic growth, many companieshave announced plans to curtailproduction, lay off workers, and cutcapital expenditures, all of which tendto reduce FDI.

The impact of the crisis varieswidely depending on region andcountry, with consequently varyingimpacts on the geographic patterns ofFDI flows. Developed countries havealready been directly hit, while theeffects of the crisis on developingeconomies have so far been indirect inmost cases, with varying degrees ofseverity. (UNCTAD, 19.01.09)

Hong Kong Hot for InvestingThe retail-investor market is growing

strong in Hong Kong. There are more than2 million retail investors in Hong Kong, and10 percent of them are active traders.

Hong Kong�s retail investors tend to bewell-educated, with 40 percent havingeducation beyond high school. They also tendto favour equities, allocating 70 to 90 percentof their portfolios to stocks. Not surprisingly,perhaps, they are wary of derivatives.

Mutual funds are also gaining popularity.The net asset value of such funds had acompound annual growth rate of 20 percent from 2003 to 2008, and it reachedUS$1.3tr in assets in 2008.

Responding to the demand, the combined asset management and fundadvisory business experienced a 40 percent compound annual growth rateover the same time period. And that fact has not been lost on US asset managerseither, which have announced plans to expand their presence in the HongKong market. (IN, 02.03.09)

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EGULETTERR

SECTORAL REGULASECTORAL REGULASECTORAL REGULASECTORAL REGULASECTORAL REGULATION: NEWS DIGESTTION: NEWS DIGESTTION: NEWS DIGESTTION: NEWS DIGESTTION: NEWS DIGEST

Regulators to Renew Battle with IBMIt is 40 years to the week since the

US government filed its last officialantitrust complaint against IBM, andmore than 50 years since it reached alandmark consent decree with thecomputer maker to open up the earlycomputing industry.

Yet some technology monopoliesnever die. The market for mainframes –the heavy-duty, monolithic machinesthat dominate the high-end of thecomputing market – once attracted theattention of companies includingGeneral Electric to Honeywell.

Today, though, it is once again thealmost exclusive preserve of IBM, withwhose name it has become almostsynonymous. (FT, 20.01.09)

Telecoms Urging for Less RegulationLeading European telecoms

companies urged governments to ease

the regulations on them, so the industrycan play a major role in liftingeconomies out of recession.

Spain’s Telefónica and Vodafone ofthe UK, said telecoms companies couldfuel economic recovery, but warnedthat their efforts were hampered byregulations, notably from Brussels.

Vittorio Colao, Vodafone’s chiefexecutive, complained the industry wassuffering from “regulatory activism”.

Telecoms companies are using theworld’s largest mobile phoneconference in Barcelona to highlighthow the industry makes a significantcontribution to gross domestic product.

(FT, 18.02.09)

Russia Supports for Aviation Cos.The Russian government’s

Committee on the Improvement ofSustainable Economic Developmentapproved a list of core Russiancompanies which are of strategicnational importance.

These airlines will be reviewed bythe working group established by thecommittee, with the additionalparticipation of the Ministry ofFinance, the Ministry of EconomicDevelopment, the Ministry of RegionalDevelopment and a nominated bank.

The object of the review isto prepare a plan for thecompanies’ rehabilitation, which mayinvolve the provision of stateguarantees; interest rate subsidies;plans to restructure tax debt; customsand tariffs benefits; and otherapproved measures. (ILO, 21.01.09)

Czech: Legislative Changes in BankingIn Czech Republic, an amendment

to the Act on Banks came into effect toincrease the insurance coverage ofdeposits.

Compensation for clients in theevent of a bank’s bankruptcy are to bepaid from obligatory contributions paidby financial institutions to the DepositsInsurance Fund. However, banks’ owndeposits do not enjoy the protectionof bank deposit insurance.

In light of the credit crunch, bankshave adopted a stricter and moreprudent approach to existing creditclients and new credit provision,particularly in relation to negotiatingsecurity for credits; monitoring various

financial indicators; andcomprehensive audits of creditconditions compliance. (ILO, 16.01.09)

All Modes of Transportation CoveredThe Swedish Transport Agency

began operations on January 01, 2009.It was established through a merger ofthe former Aerial, Maritime, Rail andRoad Inspectorates and the TrafficRegistry of the Road Traffic Authority.

The agency operates under theMinistry of Industry, Employment andCommunications. Its role is to formulateregulations; examine and grant permits;and supervise the four fields oftransport.

The new agency involves nosubstantial alterations, but ratheris merely a restructuring of theauthorities handling transportinspections and regulations in Sweden.

(ILO, 21.01.09)

No Customs Duty on Turbine FuelThe Indian Ministry of Finance

announced the withdrawal of the fivepercent basic customs duty on aviationturbine fuel.

Indian oil companies do not directlyimport aviation turbine fuel; however,the price of domestically producedaviation turbine fuel is determined by oilcompanies, based on import parity priceand factoring in the basic customs duty.

The government’s welcome step toease financial stress in the aviationsector is based on the view that anexemption from the customs dutyshould lower the base price of aviationturbine fuel and consequently theincidence of other indirect taxes suchas excise duty and value added tax.

(ILO, 14.01.09)

Changes to Fairway Dues ActThe Finland fairway dues collection

system has traditionally been based ona procedure whereby a foreign shipowner is obliged to appoint and use aFinnish representative (i.e. an agent).

The agent and foreign shipowner are jointly and severallyresponsible for payment of the fairwaydues imposed on the respective vessel.

The purpose of the system is tosafeguard the collection of the fairwaydues. The Fairway Dues Act has nowbeen amended to comply with EUlegislation. (ILO, 07.01.09)

EU on French Auto Aid

The European Union�s topcompetition regulator

expressed concern about France�splan to bolster its auto industry,which has drawn fire from EU alliesand German industry.

A spokesman for the EuropeanCommission suggested the planmight contravene EU laws byobliging French car makers to keeptheir plants in France in exchangefor government funds.

The state would also double itsaid to auto industry suppliers, toUS$790, as part of a drive toprotect the entire sector, whichemploys one French worker in 10,from the global economic storm.The aid package, which amountsto US$10.3bn in new funds, wasessential to protecting Frenchindustry and jobs from theslowdown. (BL, 10.02.09)

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SECTORAL REGULASECTORAL REGULASECTORAL REGULASECTORAL REGULASECTORAL REGULATION: NEWS DIGESTTION: NEWS DIGESTTION: NEWS DIGESTTION: NEWS DIGESTTION: NEWS DIGEST

Bank nationalisation is the lastbest option available to the

Obama administration, now thatmost other alternatives for dealingwith the banking crisis haveproven wanting.

In the end, politics and noteconomics might be the principalobstacle to nationalisation.President Obama would beslammed as a socialist, erodingpublic support for theadministration’s other goals. Yetsimply doling out more taxpayermoney to the banks will alsoengender populist outrage.

The White House andcongressional Democrats shouldbite the bullet and nationalise thebanks now, when public supportfor bold initiatives will never behigher. Waiting is no longerprudent. It is wishful thinking, botheconomically and politically.

There are only two potentialsources of new funds: private

investors or the taxpayer. Over thecourse of 2008, sovereign wealthfunds and other private sources put nearly US$1tr into theUS banking system. But now private investors are wary.Investment tailed off markedly toward the end of 2009.

“You cannot rely on the private sector or markets alone tosolve systemic banking problems,” advised Stefan Ingves,head of the Swedish Central Bank, who oversaw Sweden’sresponse to its banking crisis in the early 1990s.Thealternative is nationalisation, what the Swedes called thesocialisation of risk in return for the socialisation of control.

This is exactly what the Reagan administration did in 1984when it nationalised Continental Illinois, one of the country’slargest banks. And it is what the administration of GeorgeH.W. Bush did in 1989 when it created the Resolution TrustCorporation, which eventually controlled 350 failed savingsand loans.

Pelosi is being disingenuous. For many banks, sufficientpublic funds to keep them from failing would give thegovernment a majority of the institution’s shares.

A New �N� Word— Bruce Stokes*

Nationalisation of the banks is

the new “N” word. But, unlike

the original “N” word, it is not

a derogatory epithet to be

dismissed out of hand.

Nationalisation is a legitimate

policy tool that has been used

successfully before in the US

and abroad

* International Economics Columnist for National Journal.

Abridged from an article that appeared in the Congress Daily, January 29, 2009

Nationalisation by any other nameis still nationalisation.

To forestall an inevitable, politically unpalatable

nationalisation, there is growingsupport for an idea put forth bySheila Bair, chairwoman of theFDIC. She has proposedaggregating banks’ bad assets intoone government-controlled entity,thus liberating commercial banksto lend again.

This proposed “aggregator bank”poses several problems. Bair wantsto buy the bad assets at “fair value”.But the original Troubled AssetRelief Program failed on thatbecause it was not easy toestablish a fair value for essentiallyworthless mortgages. To havesufficient capital to begin lendingagain, banks need the governmentto pay a high price. This would bailout existing stockholders andmanagement at taxpayer expense.

Nationalising the banks would notobviate the need for new capitalfor banks to lend. But a new bank

bailout vote on Capitol Hill might be somewhat less difficultif the Obama administration can assure skeptics thatgovernment-appointed managers will be ordered to re-lendthe money, not stash it away as reserves or fritter it away inmanagement bonuses.

Nor will nationalisation be politically without cost. Itmeans bigger government. At the height of the savings

and loan crisis, the RTC had roughly 10,000 people on itspayroll. And public employees are not necessarily morehonest than private sector ones. Allegations of abusedogged the RTC. Most important, nationalisation means WallStreet will no longer be the scapegoat. The buck will stop atpoliticians’ doors.

Congress faces a choice. It can continue to pour money intothe private banking system, with little hope of greatersuccess, and face the wrath of voters in 2010, after wastinghundreds of billions of additional taxpayer dollars. Or it cantake the political heat now, nationalise the banks, and beginthe slow climb out of this financial hellhole.

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OPINIONOPINIONOPINIONOPINIONOPINION

Capitalism is in the throes of itsmost severe crisis in many

decades. A combination of deeprecession, global economicdislocations and effectivenationalisation of large swathes of thefinancial sector in the world’sadvanced economies has deeplyunsettled the balance betweenmarkets and states. Where the newbalance will be struck is anybody’sguess.

The real question is not whethercapitalism can survive – it can – butwhether world leaders willdemonstrate the leadership needed totake it to its next phase as we emergefrom our current predicament.

Capitalism has no equal when it comesto unleashing the collective economicenergies of human societies. That iswhy all prosperous societies arecapitalistic in the broad sense of theterm: they are organised around privateproperty and allow markets to play alarge role in allocating resources anddetermining economic rewards. Thecatch is that neither property rightsnor markets can function on their own.They require other social institutionsto support them.

So property rights rely on courtsand legal enforcement, and

markets depend on regulators to reinin abuse and fix market failures. At thepolitical level, capitalism requirescompensation and transfermechanisms to render its outcomesacceptable. As the current crisis hasdemonstrated yet again, capitalismneeds stabilising arrangements suchas a lender of last resort and a counter-cyclical fiscal policy. In other words,capitalism is not self-creating, self-sustaining, self-regulating or self-stabilising.

The history of capitalism has been aprocess of learning and re-learning

prosperity in the advanced economiesthat lasted until the mid-1970s.

This model became frayed from the1980s on, and now appears to havebroken down. The reason can beexpressed in one word: globalisation.

The current crisis shows how far wehave come from that model. Financialglobalisation, in particular, playedhavoc with the old rules. WhenChinese-style capitalism met American-style capitalism, with few safety valvesin place, it gave rise to an explosivemix. There were no protectivemechanisms to prevent a globalliquidity glut from developing and then,in combination with US regulatoryfailings, from producing a spectacularhousing boom and crash.

The lesson is not that capitalism isdead. It is that we need to reinvent itfor a new century in which the forcesof economic globalisation are muchmore powerful than before. Just asSmith’s minimal capitalism wastransformed into Keynes’ mixedeconomy, we need to contemplate atransition from the national version ofthe mixed economy to its globalcounterpart.

This means imagining a betterbalance between markets and their

supporting institutions at the globallevel. Sometimes, this will requireextending institutions outward fromnation-states and strengthening globalgovernance. At other times, it will meanpreventing markets from expandingbeyond the reach of institutions thatmust remain national. The rightapproach will differ across countrygroupings and among issue areas.

Designing the next capitalism will notbe easy. But we do have history on ourside: capitalism’s saving grace is that itis almost infinitely malleable.

Coming Soon: Capitalism 3.0— Dani Rodrik *

* Professor of Political Economy at Harvard University. Abridged from an article that appeared in the Business Standard, February 11,2009.

Those who predict capitalism’s

demise have to contend with one

important historical fact:

capitalism has an almost

unlimited capacity to reinvent

itself. Indeed, its malleability

these lessons. Adam Smith’s idealisedmarket society required little more thana ‘night-watchman state.’ All thatgovernments needed to do to ensure thedivision of labour was to enforceproperty rights, keep the peace andcollect a few taxes to pay for a limitedrange of public goods.

Through the early part of the 20th

century, capitalism was governed by anarrow vision of the public institutionsneeded to uphold it. In practice, thestate’s reach often went beyond thisconception. But governments continuedto see their economic roles in restrictedterms.

This ‘mixed-economy’ model was thecrowning achievement of the 20th

century. The new balance that itestablished between state and marketset the stage for an unprecedentedperiod of social cohesion, stability and

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VIEWPOINTVIEWPOINTVIEWPOINTVIEWPOINTVIEWPOINT

Since all the problems in thedeveloped markets started from

the financial system Uzbekgovernment increased the lendingcapacity of the banking system andmade sure that banks kept lendingespecially to the small and medium-sized enterprise (SME) sector at leastat previous levels. Thus, the totalcapitalisation of banking system (notspecific or privileged banks, but thewhole banking system) was increasedto 40 percent compared to 2007.

Moreover, the state has guaranteed(blanket guarantee) all the bankdeposits of population and developedstrict rules for banks to provide full andon time payment of the demandeddeposits, if such cases come up. Thesemeasures have increased the totalamount of deposits to 65,3 percent bythe year end 2008 (compared to 2007).The priority for the state was to makesure that the population trusts in itsbanking system. An overall measureprovided to the banking system isexpected to lead to two-fold increasein capitalisation by 2010.

Secondly, the government hasadopted an Anti-crisis program

which addresses measures thatsupports companies in the real sectorof the economy, with the emphasis onthe export-oriented companies;providing them with financial support,and making sure that most of thehealthy firms are supported. In thiscase the role of competition policy isto make sure that everything stays inline with the broad competitionprinciples.

Thirdly, the state made too muchemphasis on the support of SMEsector, by providing extended supportfor entrepreneurship, (the share ofSME at 48,2 percent of GDP in 2008),

In the anticipation of the

global financial and

economic crisis and its

possible negative

implications on the

economy of Uzbekistan, the

government swiftly

increased the capitalisation

of all major banks as well

as the whole banking

system

The Role of Competition inAnti-crisis Measures in Uzbekistan

* Director of Antimonopoly Policy Improvement Centre, Uzbekistan

— Golib Kholjigitov*

which is expected to reach 50-52 percent by 2010. It is understood that the role ofSME could be vital for the provision of sustainable economic growth during theperiod of global financial and economic crises, because of its flexibility. Thecompetition authority has developed specific legislation where huge statepurchases and orders are mandatorily subcontracted to small businesses. Alsoto boost investment capacity of SMEs, the state has lowered single tax rate fromeight to seven percent.

Fourthly, the state is making sure that only strong companies that felt suddencredit squeeze will get state aid, which also in line with competition principles,

because it brings stronger competition and provides effective allocation ofresources during the economic crisis.

Moreover, the state is planning huge production and social infrastructureprojects, mostly for rural areas where close to 70 percent of population resides,which could boost employment or keep it at sustainable levels. So in this casethe state purchases and orders for these big infrastructure projects are at thestrong attention of competition authorities, in order to prevent price collusions,concerted actions and thus provide transparency and fairness.

Finally the competition authority is making sure that state aid and other statesupport are in line with general competition principles, which are the following:

• The recipients of state aid (grants, support) should be healthy (solvent)undertakings that have experienced sudden difficulties (i.e. credit squeeze);

• State aid (support, grants) should be limited in time (period);• State aid (support, grants) should be limited in the amount;• State aid (support, grants) should be limited to stabilise the system (i.e.

financial);• State aid (grants) shall set certain conditions (obligations, binding rules) such

as increased efficiency, use of environmental friendly (green) technologiesand in the case with banks continuation of lending to SMEs and etc.

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SPECIAL COLUMNSPECIAL COLUMNSPECIAL COLUMNSPECIAL COLUMNSPECIAL COLUMN

Do not Tie the Markets � Free Them— Vaclav Klaus*

We need to weaken labour, environm,ental, social, health and other ‘standards’that block rational human activity

It is a common feeling that the CzechRepublic is taking over the European

Union presidency at a rathercomplicated moment, even thoughalmost all “moments” can eventuallybe called “complicated”.

The world is in the midst of a deepfinancial and economic crisis. The EUhas growing troubles with itsincreasingly visible democratic deficitand is gravely divided as regards itsown institutional arrangements. Theglobal climate is basically notchanging, but globalwarming alarmists havesucceeded in persuadingpoliticians that a doomsdayis coming and on this falseassumption they have triedto restrain our freedom andcurtail our prosperity.

The economic crisis shouldbe regarded as anunavoidable consequenceand hence a “just” price wehave to pay for immodest andover-confident politicians playing withthe market. Their attempts to blame themarket, instead of blaming themselves,are unacceptable and should beresolutely rejected. The Czechgovernment will – hopefully – not pushthe world and Europe into moreregulation, nationalisation, de-liberalisation and protectionism.

A big increase in financial regulationwill only prolong the recession.

Growth in the global economy is fallingrapidly, the banks have ceased to grantcredit and confidence is ebbing.Radically changing regulationgoverning financial institutions in themidst of recession iscounterproductive.

Aggregate demand needsstrengthening. One traditional way to

and prosperity are much moreendangered than the climate. Theuniqueness of current levels of globalwarming is not a proven phenomenon.Moves to mitigate climate change byfighting carbon dioxide emissions areuseless and, what is most important,human beings have proved themselvesto be sufficiently adaptable to anincrementally changing climate.

The world in the year 2009 will not bespared armed conflicts, internationalterrorism, and territorial and religious

disputes which – no matterhow geographically distantthey may be – will haveconsequences for all of us.We know that peace cannotbe declared unilaterally andthat long-lasting solutions areusually not the ones that areimposed from abroad. TheCzech government will notsupport externalinterventions into thedomestic affairs of sovereigncountries.

The pragmatic Czechs – with all theircriticism of European decision-

making mechanisms – will not attemptto initiate a pan-European “velvetrevolution” but will promote theirinterests and priorities. We will treatothers as we expect to be treated: withrespect for different views. We will behappy if a common denominator in – atleast – some cases can be found.Reliance on negotiations and on thepositive effect of the diversity of viewsis what makes Europe Europe.

The EU presidency might give us achance to make use of some of ourviews to the benefit of the citizens ofall EU member states. Their welfare andhappiness will be maximised in a free,democratic, decentralised, open andliberalised Europe.

* President of the Czech Republic. Abridged from an article that appeared in the Financial Times, Januray 07, 2009.

do this is to increase governmentexpenditures, probably in publicinfrastructure projects, on conditionthese are available. It would be muchmore helpful, however, to have a greatreduction in all kinds of restrictionson private initiatives introduced in thelast half a century during the era ofthe brave new world of the “social andecological market economy”.

A s regards the EU’s“constitutional” stalemate, the

Czech government will – hopefully –

not lead Europe to an ever-closerunion, to a Europe of regions (insteadof states), to a centralised,supranational Europe or to anincreasingly controlled and regulatedEurope masterminded from above. Itwill keep stressing its EU presidencyslogan “Europe without barriers”,which means the advocacy of furtherliberalisation, removing trade barriersand getting rid of protectionism.

Our historical experience gives us aclear instruction: we always need moreof markets and less of governmentintervention. We also know thatgovernment failure is more costly thanmarket failure.

The Czech government will hopefullynot be the champion of global warmingalarmism. The Czechs feel that freedom

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ABOUT A COMPETITION LAABOUT A COMPETITION LAABOUT A COMPETITION LAABOUT A COMPETITION LAABOUT A COMPETITION LAWWWWW

EconomyEgypt took up the socialist ideology after its revolution

in 1952, but an increasing number of economic reforms,starting with the Open Door Policies of the early 1970s havemoved it into a market economy. Lack of substantial progresson economic reform has limited foreign direct investment(FDI) in Egypt. However, in 2004, Egypt pushed throughcustoms reforms; proposed income and corporate taxreforms; reduced energy subsidies; and privatised severalenterprises. The budget deficit rose to an estimated eightpercent of gross domestic product (GDP) in 2004. In reality,it is currently something of a mixed economy, officially anopen free-market economy, but still bogged down withsocialist policies.

Competition Evolution and EnvironmentThe issue of competition is not new in Egyptian

legislation. The Criminal Law contains articles that deal withmonopolistic and anti-competitive behaviour.

However, Egypt never had a special law devoted tocompetition until 2005. There were several attempts made, inimplementing a competition law, since 1995, with severaldrafts turning into 17 drafts, but none of these drafts reachedthe final stages of being approved by the Parliament. It wasonly in 2004, when the new Cabinet, that took charge in July2004, agreed upon a draft for the law and passed it to theParliament for approval. In 2005, the law was approved bythe Parliament.

Competition PolicyThe objective of the law, Competition and Prevention of

Monopolies Law, adopted in 2005 is the right to undertakeeconomic activity, which is preserved for all, as long as itdoes not lead to restraining, preventing, or negativelyaffecting the status of competition. This objective does notclearly state the ultimate aim of the law, that is, to ensure thatit neither negatively affects domestic or international trade,nor economic development.

The Law applies to all natural persons and economicentities with all its kinds, while it excludes all public utilities.The Law gives the Cabinet the right to exclude private firmsfrom being subject to that law if they partake inanticompetitive behaviour, but simultaneously create welfaregains or positive benefits for the consumer, the so-calledpublic interest. The criteria for measuring the economic

Egypt is the most populated country in the Middle Eastern and North African (MENA)region; bordering the Mediterranean Sea between Libya and the Gaza Strip, and theRed Sea North of Sudan, including the Asian Sinai Peninsula. A rapidly growingpopulation, limited arable land, and dependence on the Nile, all continue to overtaxresources and stress the society. The Government has struggled to prepare the economyfor this millennium through economic reform and massive investment incommunications and physical infrastructure.

About a Competition Law � Egypt*

benefits for the consumer are not identified. Despite such alogical intervention here, such a provision might give roomfor political and discretionary power to negatively influencethe application of the law.

The Egyptian law applies to all kinds of economicactivities related to production, distribution, marketing,selling, buying, developing, inspecting, and transporting.The law does not include a de minimis provision. De minimismeans that certain agreements are too small in size to do anyreal harm to competition and are not, therefore, of real concernto competition authorities. The law does not identify specificcriteria other than the general competition status fordetermining the scope of the market.

Consumer ProtectionIn general, consumer rights and protection are the issues

which have been overlooked in Egypt. There is a draft law inEgypt on consumer protection. However, it is still in its earlystages, and has not been presented before the Parliamentfor its final approval. The existing draft law aims at creatinga body that governs and oversees consumer protectionissues, following the same lines of the competition law. Thislaw, in general, has a number of overlapping articles, likethose existing in the competition law. However, it is expectedthat such overlaps would be dealt before finalising the draftof the consumer protection law.

Future ScenarioEgypt, like other developing countries, has lacked the

necessary pillars of having an effective competition policy.The law, in itself, is not sufficient to ensure an effectivecompetition policy. The privatisation programme, in Egypt,has lately suffered a number of delays. Moreover, a number ofthe privatised companies remain ‘semi-privatised’, whereasthe Government still owns the lion’s share of their capital. Theinflows of FDI remain constrained by various bureaucraticand red tape measures. The labour market lacks the competitiveinstitutional pillars that would ensure full flexibility.

In a nutshell, the Government has started to move in theright direction, by tackling the different issues related tocompetition, which were overlooked by past governments.This is a positive step, which however, will have been takenin vain, if comprehensive reforms regarding the enforcementof laws and civil servants’ attitude do not experiencedramatic changes in the near future.

* Extracted from Competition Regimes in the World – A Civil Society Report, www.competitionregimes.com

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.

Publications

Competition and Regulation in India, 2009� A Curtain Raiser

India Competition and Regulation Report, 2009 tries to examine the evolution ofregulation/regulatory problems from a political economy perspective and assess the

quality of regulation in terms of the suitability of content for tackling market failures, theeffectiveness and independence of the regulator and the extent to which the set of sectorregulations fosters competition. This study is an important contribution towards enrichingthe available literature in the public domain and encouraging a dialogue to promote ahealthy and competitive environment as evolving an appropriate regulatory culture isalways a learning curve.

This Monograph can be viewed at:http://www.cuts-ccier.org/icrr09/pdf/Competition-Regulation-India-CurtainRaiser09.pdf

Political Economy of Regulation in IndiaI am sorry to have missed attending this important roundtable due to unavoidable reasons.From the summary of the deliberations I can say my congratulations to you for bringing outdetailed analysis of regulation efficiency and independence.

V S AilawadiFormer Chairman

Haryana Electricity Regulatory Commission

The January-March (2009) issue of the CUTS newsletter PolicyWatch encapsulates thestatus of the Right to Information in India in its cover story. Though this Act does

bolster the democratic foundations of governance in India, the text as well asimplementation needs a lot of fine tuning.

Special article by Arvind Panagariya states that the UPA government arguably had thebest economic team, raising the hope that it will go ahead with economic reforms.However, the �holy trinity of reformers� failed to live up to expectations. The newslettercaptures an interview with the Director, Corporate Finance, KPMG, India which saysthat most competition regulators out greater emphasis on concentration or market share,while deeming which all combinations should fall within its ambit.

Besides, it carries regular sections on Infrastructure, Trade & Economics, Governance& Reforms, E-governance, Corporate Governance, Expert Corner, Report Desk, Goodpractices, Corporate Governance etc.

To access the newsletter online please click on the following link:www.cuts-international.org/pw-index.htm

Published by CUTS Centre for Competition, Investment & Economic Regulation (CUTS CCIER)D-217, Bhaskar Marg, Bani Park, Jaipur 302 016, India

Ph: +91.141.228 2821, Fax: +91.141.228 2485, Email: [email protected], Web site: www.cuts-ccier.orgPrinted by: Jaipur Printers P. Ltd., M.I. Road, Jaipur 302 001, India.

ABC: Australia Bureau of Circulations; ACCC: Australia Competition and Consumer Protection; AHP: Antitrust Hotch Potch; ALBN: Asia Legal BusinessNews; BL: The Hindu Business Line; BOPA: Botswana Press Agency; BR: Business Respect; BS: Business Standard; CNC: Comisión Nacional deCompetencia; EN: Engineering News; FAS: Federal Anti-monopoly Service; FE: Financial Express; FT: Financial Times; II: Investors Iraq;ILO: International Law Office; IN: Investment News; JP: Jakarta Post; OECD: Organisation for Economic Cooperation and Development;PDI: Philippines Daily Inquirer; TO: Times Online; UNCTAD: United Nations Conference on Trade and Development

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