Approaches to Deregulation �� the Case of Chinese Taipei
By
Chairperson CHAO, Yang-ching
The Fair Trade Commission of Chinese Taipei
For APEC's Competition Policy and Deregulation Workshop
Quebec City, Canada
May 18-19, 1997
��
Mr. Chairman, first of all, I wish to thank the convener of competition policy, New Zealand for all the hard work in the organization of the workshop. I would also like to thank the host economy, Canada for making the conference arrangements. I am sure the views exchanged and shared in this workshop will contribute significantly to member economies' implementation of competition and deregulation policies.
For the presentation today, I will address the issue of the approach to deregulation, from Chinese Taipei's perspectives. In particular, Chinese Taipei's experience on regulatory reforms.
Government regulation ranging in depth and in scope has long been used in managing economic activities. Chinese Taipei is no exception. A wide spectrum of business activities, from public utilities to financial and insurance business, and from healthcare to school fees, are regulated by the government. Nevertheless, increasing global competition and changes in the international trading environment have brought about substantial pressure for regulatory reform, calling for the reduction of traditional government regulation and control, and the restoration of market mechanism.
These changes have been reflected in government economic development policies, especially within the last decade. In Chinese Taipei, the drive towards liberalization and internationalization of our economy has underpinned our economic policies and consequently, the calls for deregulation.
The regulatory reform began with the relaxation of foreign exchange control and interest rate control in the 1980s, followed by removal of entry barriers to various sectors including securities, banking, transportation (particularly air transport) and telecommunications. The deregulation has been deepened by the subsequent relaxation of regulatory control over the operations of the business concerned. The room for competition in the relevant sectors is thus much broadened. The enactment of the Fair Trade Law and subsequent establishment of the Fair Trade Commission is a necessary element in the deregulatory process, in that the relevant markets, after being deregulated, would have to be subject to competition-based control, rather than no control at all.
In addition to serving as a watch dog of the de-regulated market, the Fair Trade Commission has in a number of case forced the opening of specific markets by exercising its administrative power.
There are however cases where the regulatory power falls within the jurisdiction of other agencies, and the Commission is required by Article 46, paragraph 1, of the Fair Trade Law to refrain from exercising its power. Under such circumstances, the Commission would, by exercising its consultative power under Article 9 of the Law, work with such other agencies with a view to reducing regulatory control which in the Commission's view restrains competition.
The Commission's work in this area has been expanded by establishing a special task force, the so-called "Article 46(1) task force", which reviews all existing laws to determine whether or to what extent they need be amended so as to be consistent with the spirits of free trade.
A mush more ambitious move by the Commission recently is the establishment of another task force aiming at accelerating deregulation process; this is the so-called "Deregulation task force".
In the following, I will give a fuller account of each of the Commission's endeavors in the area of deregulation.
��
First, the specific cases of deregulatory reform in which the Fair Trade Commission has actively participated or has initiated:
��
Chinese Taipei has gradually begun regulatory reform in certain market sectors prior to the formal establishment of the Fair Trade Commission five years ago in 1992. The pace of this reform has been taken steps further with the establishment of the Commission. Looking back, markets which were opened due to case-by�ase investigations conducted by this Commission included:
For 30 years, the distribution of liquid-gas has been dominated by a single distributor. Liquid-gas is a daily household necessity and is at the same time a war time goods. The government, in its efforts to ensure security in the supply, designated the state-owned Chinese Petroleum Corporation to be the sole distributor of the goods. However, Chinese Petroleum appointed another organization to be the exclusive distributor. The sole distributor, after several years in operation, implemented a series of market restrictions, including freezing the establishment of new distribution outlets, restricting relocation of distribution outlets and setting quotas for gas refills. All these contributed to a non-competitive market and kept price of goods at an impasse. This rigid system lasted for 30 years, until decisions reached by the Fair Trade Commission in February of 1993 to:
- forbid Chinese Petroleum from signing contracts of exclusive dealing with other businesses, effective March 1993;
- require Chinese Petroleum to establish a set of standards within six months on the eligibility to become distributors. This is to ensure the opening of the distribution system;
- to require immediate correction of anti-competitive practices within the exiting state-run sole distributor.
Since the decision of the Commission, the number of distributors has increased to 10. In addition, pressure from competition has also pushed for the subsequent privatization of the state-run distributor in 1996.
The market was previously opened only to three bills-financing companies, and therefore a highly concentrated one. This had resulted in rigidity in underwriting and certification fees. Also, there was 90% chance that interest rates of the bills issued on the same day were the same. After a detailed investigation into the market, the Commission, after consultation with the Ministry of Finance and the Central Bank, decided in late 1993 that:
- competition in the market need be increased by allowing more competitors to enter the market,
- a system shall be set up to monitor the market, especially the fees and interest rates charged by the service providers.
This decision has prompted the regulators, i.e. the Ministry of Finance and the Central Bank in 1994 to allow commercial banks to engage in bills underwriting and financing business, and to establish rules to allow the establishment of new bills financing companies.
The securities refinancing market had been dominated by a government sanctioned monopoly. The Commission, after consulting with the Ministry of Finance and the Central Bank, reached a decision that:
- the standard for entering the market shall be lowered in order to allow more competitors to enter the market,
- the regulators should allow securities firms greater leeway in making use of the securities they have acquired when providing financing to investors.
In response to the Commission's decision, the regulators in 1993 removed the entry barrier to securities refinancing market, and raising the short-term refinancing limit from 25% to 50% of the net worth of the securities firms seeking refinancing.
��
2. Deregulation through Amendment of Existing Laws
The Fair Trade Commission, shortly after its establishment, has identified areas of deregulatory reform to be actively involved in. In January of 1994, the Commission established the so-called "Article 46(1) task force" on legislative reform. The task force reviewed all "other laws" which provide legal basis for exemption from application of the Law. The group identified and prioritized "other laws" either for revisions or for annulment. The task force assessed a total of 250 provisions embodied in various laws and regulations, over the course of a year and actively co-ordinated and consulted with the various responsible authorities such as the Ministry of Finance, Ministry of Economic Affairs, Ministry of Transportation, Ministry of the Interior, Ministry of Education, Department of Health and the Council of Agriculture. The intention is to encourage these agencies to take the initiative to revise the laws or regulations under their respective jurisdictions, so as to introduce more competition into the regulated markets concerned.
��
3. New Deregulation Initiative
Although much has been achieved by this task force, the Fair Trade Commission feels that this is just the tip of the iceberg. Competition does not exist or is still not sufficient in many regulated markets. As a result, the Commission established a new and separate task force on deregulation in December last year. This task force on deregulation aims to further strengthen a free and fair competition environment, to promote overall national competitiveness and to encourage investments. This approach reflects international trends of merging competition policy issues with deregulation efforts.
The task force on deregulation will be responsible for coordinating and conducting sector-specific analysis which are divided into two broad categories: the services sector and the manufacturing sector. This task force will allow the Commission to have in-depth focus on issues relating to competition and deregulation policies. A white paper will be issued some time in December by the task force in which respective recommendations will be made.
��
The objectives
The main objectives of the task force on deregulation are as follows:
First of all, to identify and remove unnecessary or undue regulatory control so as to maintain a fair competitive environment, with due account being given to the international competitiveness of local industries.
Second, to review and to assess competition in highly concentrated markets, with a view to ensuring sufficient competition in the relevant market and protection of consumer welfare.
Third, to identify and review trade and investment barriers with a view to introducing more competition from outside, in keeping pace with the trade and investment liberalization under the multilateral framework.
��
Approaches
The Commission will adopt a six-prong approach to realize the objectives I have just mentioned.
First, the Fair Trade Commission will gather information on deregulation experiences of other economies and at the same time, to participate in international discussions on deregulation issues, in order to find the best practice for carrying out deregulatory process.
Second, based on case-by-case investigations of the First and Second Departments of the Commission (which are the main investigation arms of the Commission) or the anti-competitive business practices of individual firms, the Commission will look into the structure of the relevant market and the regulation that the market is subject to, in order to find whether the regulation bears any relation to the prevalence of the particular market behavior that is found to be anti-competitive. If so, the Commission will work with the regulatory agency concerned, with a view to improving or even abolishing the relevant regulation.
Third, to complement Chinese Taipei's accession bid to the WTO and our commitments to APEC in trade and investment liberalization, the Commission will either participate in or initiate market investigations, to review and to remove obstacles to free and fair market competition.
Fourth, to ensure a trading environment where prices are determined by the market, the Commission will review price-setting mechanism for existing monopolies according to Article 10 of the Fair Trade Law. In addition, the Commission will initiate review of markets where pricing is not determined by market, and explore the possibility of establishing a competitive process for determination of prices in regulated sectors.
Fifth, the Commission will exercise its administrative power to break up monopolies and oligopolies which are not statutorily sanctioned, with due account being given to the necessary scale of economy. The Commission will also participate in the privatization of those state enterprises which are monopoly providers of public utilities, so as to ensure that the privatization process takes adequate account of the need for a competitive market structure.
Sixth, where the deregulation reform requires legislative action, the Commission will work with other agencies concerned to initiative the necessary legislative process.
��
Competence of the Fair Trade Commission in the Regulatory Reform
The competence of the Fair Trade Commission in the area of deregulatory reform is prescribed in Article 25 of the Fair Trade Law and Article 14 of the Organization Charter of the Fair Trade Commission. Both articles provide for the Fair Trade Commission's responsibilities in drawing up policies, rules and regulations relating to fair trade. This follows that the Fair Trade Commission, in addition to its responsibilities as an enforcement agency of the Fair Trade Law, is also an initiator of competition policies.
The Fair Trade Commission, according to the provisions prescribed in Article 28 of the Fair Trade Law, functions as an independent agency. In addition, the fact that the Commission is an agency at the cabinet level grants it equal footing with other ministries, such as the Ministry of Economic Affairs. This arrangement permits the Chair of the Commission to express policy views during regular sessions of the Cabinet. Thus, the Fair Trade Commission is rather unique, in that it possesses dual function as an independent law enforcement agency and as an initiator of policies. The platform and the neutral role of the Fair Trade Commission provides it with ample room to maneuver. The Commission is thus well equipped to initiate regulatory reform.
��
Progress
As mentioned, the deregulation task force is to identify and correct entry barriers as well as anticompetitive behaviors, and or cooperate with the relevant responsible authorities when appropriate for reform. Full-scale reform plan, once drawn up by the Commission, requires the approval of the Cabinet. Despite so, I would like to share with you some of the initial findings of the task force. This is to give an indication of the breadth and depth of this venture of ours.
In the manufacturing sector, the task force has identified five markets to be deregulated and to be opened up for imports: (1) sugar; (2) oil products; (3) telecom switch; (4) liquid-gas; and (5) gravel.
In the services sector, the task force has identified eight markets where regulatory reform should be given priority in order either to remove entry barriers, or to improve the existing regulation which encumbers competition in the relevant market: (1) consumers cooperatives; (2) telecommunications; (3) cable television; (4) customs clearance computer network; (5) courier services; (6) warehouses of export processing zones; (7) government procurement of freight services; and (8) electronic information dissemination network relating to securities trading.
��
Conclusion
Chinese Taipei is in a transition from government regulated market to a free and open market. The process is a long one. It not only requires removal of entry barriers to each of the previously closed sectors, but also a thorough examination of the structure of the market concerned as well as the way the market is regulated. Regulatory reform is not about simple removal of regulation, but a process of searching for the best way to regulate the market. Competition based regulation seems to be a good solution, but the conclusion can not be made without first looking into the regulatory capability, market structure, as well as national preference of the economy concerned. This is exactly what the Fair Trade Commission of Chinese Taipei is aiming at in its regulatory reform efforts. We will be benefited, if our APEC colleagues can provide us with their comments and experiences.
��
Footnotes