Thursday, April 27, 2006

WTO seeks UAE reforms

Gulf News:
"Several participants noted the absence of competition legislation, importing activities and distribution services could be reserved for exclusive national agents and branches of foreign companies were obliged to recruit a local agent," said the concluding communique issued by its chairperson.
. . .
While praising the UAE's generally liberal and business friendly environment, the report also brought forward some of the pending reform issues, including government ownership of large businesses, telecom liberalisation as well as private sector participation in infrastructure development and management.

"In services, a vibrant, growing sector of the economy, the emirate governments retain control over certain activities, and asked whether, as part of its economic reforms, the UAE intended to separate the regulatory functions of state enterprises from their commercial activities," the report said.

Information was sought about the end of the state monopoly in telecommunications.
Absolutely. Much of what prevents the UAE from being truly competitive is the result of government action or inaction. All these recommendations would enrich the UAE as a whole. Reforms will create winners and losers, but this set of reforms will benefit a wide sweep of consumers and harm firms that have been sheltered from competition.

It's ironic, isn't it, that what economists mean by "business friendly" is vigorous competition that puts pressure on existing business. Existing businesses do not regard these reforms as friendly. The reforms would be friendly to new business by opening doors to existing markets. Business friendly is really consumer friendly.

Note also that consumers include households and businesses. For example, the UAE continues to impoverish itself be limiting competition in telecommunications, making it more costly for firms in global markets to operate from the UAE.

This statement is largely doublespeak:
"In order to protect consumers from unjustified price increases, the government is currently assessing the possibility of introduction of a Competition Law, after evidence surfaced of possible anti-competitive practices," said the UAE Government's trade policy report submitted to the WTO prior to the review meeting.
First, the possibility for anti-competitive practices exists solely because of the government's role - in the variety of ways listed by the WTO - in limiting competition.

Second, recent steep price increases are not the result of an increase in anti-competitive practices. The price increases are demand-driven due to a growth in the UAE economy, growth that is in very large measure the result of an external factor - the increase in the world demand for oil as the result of successful economic liberalization programs in India and China.

If the UAE adopts the WTO recommendations that will make it easier for new firms to enter markets in the UAE bringing prices down. But, again, the increase in prices for goods and services in the UAE was not the result of firms suddenly taking advantage of their government-created shelter from competition. That shelter already was exploited.

Third, the remedy for anti-competitive practices is not price controls. Price controls are creators, not of greater benefits but of greater waste of resources. Let prices alone and let profit opportunities serve as the magnet for new firms to enter the market and drive down prices. That will work like a charm -- If you unleash new firms on the market by removing the government regulations that make entry costly or impossible.

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12:04 AM  

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