Revising Sri Lanka’s Competition Law Is Essential for Economic Growth

By Ashanthi Abayasekara and Yasmin Raji

As Sri Lanka’s gears itself toward a path of economic recovery, it is now more important than ever that we rethink Sri Lanka’s existing competition law framework. Why is there a need for such a framework, one might wonder, and what is wrong with the current law? 

The answer to the first, is that competition has profound implications on economic growth. In a dynamic market, competition between businesses becomes the catalyst for technological innovation, improved product quality, and increased productivity. 

For example, Advocata Institute’s newest study on the ‘Impact of Anti-Competitive Practices in the Construction Industry on Affordable Housing in Urban Sri Lanka’, highlights the prevalence of specific anti-competitive practices (such as tied selling, cross-ownerships, prevalence of monopolies, exclusive dealings and misleading advertisements) in the domestic tile, cement, and aluminum industries. These anti-competitive practices have deterred fair competition and stifled innovation among businesses, leading to increased prices of these construction goods in the market. A well-crafted and strictly enforced competition law can help minimise such effects by promoting fair competition  and the efficient allocation of scarce resources within markets. 

However, Sri Lanka’s current competition framework, the Consumer Affairs Authority Act of 2003, is far from comprehensive as it does not effectively address anti-competitive practices in markets. Here’s why.

Although the law has provisions that address abuse of dominance between businesses and anti-competitive trade practices, it fails to address issues pertaining to mergers and acquisitions, which is a fundamental aspect of competition law. Current efforts to privatise Sri Lanka’s state-owned enterprises underscore the urgency of addressing this deficiency in the current competition law to prevent the transition from government monopolies to private sector monopolies.

In addition, despite having the legislative powers, the current competition authority, the Consumer Affairs Authority (CAA), lacks the independence and institutional capacity to practically implement the above law, including successfully investigating and adjudicating anti-competitive practice cases. 

The CAA comes under the purview of a line ministry (presently the Ministry of Trade, Commerce and Food Security), with staff appointments, dismissals and decisions about remuneration being made by the minister in charge, leaving the authority susceptible to undue political influence. The CAA  relies on ministry budget allocations for its daily operations, which constrains the extent to which the authority can strengthen its institutional capacity (by hiring qualified, competent and experienced legal staff) to handle cases related to anti-competitive practices in markets, as and when needed. These financial constraints are also a major reason behind the prevalence of low salary scales for staff members. The fact that the Consumer Affairs Authority has not investigated a single case related to anti-competitive practices in the past ten years, according to findings by Verité Research, is indicative of these issues. 

The CAA also suffers from a lack of transparency, wherein their procedures and scope for carrying out raids and investigations, which are largely limited to consumer protection issues, are discretionary, making it difficult to gain the trust of the public. There is also a lack of awareness amongst the general public of the CAA and its functions. Often, this means that the public are not aware of what anti-competitive practices look like, are unaware of their consumer rights and how the CAA can help them address their concerns, resulting in very few complaints filed with the CAA. Whilst the CAA does carry out some awareness campaigns, they are mostly limited to consumer protection issues.  

To enhance the effectiveness of Sri Lanka’s competition law and address anti-competitive practices, the Consumer Affairs Act of 2003 needs to be amended to include provisions on mergers and acquisitions.

Improvements to the transparency of the CAA will also be of importance to enhance legitimacy and build public trust in the organisation. One of the ways in which this can be done is by allowing public access to information on the CAA’s mandate and procedures, including actions taken by the CAA against anti-competitive practices.

In addition, awareness about the nature and consequences of anti-competitive practices should be improved amongst the public, law makers, the business community as well as the judiciary, who will be directly involved in matters related to competition.

Most importantly, establishing an independent competition authority with adequate resources is vital for the successful enforcement of competition law in the country. Some ways to do this would be to transfer the power to appoint and remove staff from the line minister to a parliamentary body. Also, revamping the CAA to serve as an appellate body for specialised regulators, like the Public Utilities Commission of Sri Lanka (PUCSL), funded through regulatory levies rather than government allocations, can contribute to its financial independence and effective enforcement.

While implementing reforms to the current competition legal framework will pose challenges, the long-term benefits of fostering a fair and competitive market far outweigh them. Such reforms are crucial for sustained economic growth and prosperity for businesses and consumers alike. Sri Lanka must pursue recommended changes without delay to secure its economic future.