WORLD TRADE
ORGANIZATIONWT/WGTCP/W/95
22 September 1998
(98-3633)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM KENYA
The following communication, dated 27 July 1998, has been received from the Permanent
Mission of the Republic of Kenya with the request that it be circulated to Members.
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1. Introduction
Globally, competition policy and law has gained increased importance and interest in many
circles over the recent years.  Countries all over the world have accepted the global call and are
liberalizing their economies hence the need for the regulation of market conduct through competition
law and policy implementation.
The primary objective of both trade and competition policies is to allocate scarce resources
optimally and efficiently and hence they complement and strengthen each other.  However, their other
objectives and methods of approach may occasionally diverge.  It is increasingly recognized that trade
policy may have adverse effects on competition and that competition policy can have adverse effectson trade.  This calls for harmonization of the two policies to make them complementary to each other.
The theory of trade policy has largely been c oncerned with two questions.  First, when should
governments intervene in trade, and second, what form should that intervention take?  In practice,
trade policy may address issues such as:
(a) protection of domestic industries;
(b) removal of trade restrictions/barriers and administration of technical regulations such
as customs valuation, determination of country of origin, etc.
Competition policy, on the other hand, is aimed at improving economic efficiency.  In some
instances, efficiency is raised by encouraging ri valry among firms, while in other situations fewer
firms may be tolerated when there are pronounced gains from economics of scale.  In practical termsthe competition objective has been translated into rules which in most countries prohibit corporate
agreements whose sole purpose is to restrain trade (e.g. market allocation, price fixing, bid rigging,
etc.);  regulate mergers between firms with substantial market power (i.e. with the ability to raise
prices or reduce output) and prohibit activities which may enable dominant firms to monopolize
markets.WT/WGTCP/W/95
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2. Trade policy
The scope of trade policy covers all instruments that encourage or restrict imports or exports.
Traditionally, more attention has been given to instruments that restrict imports because they have
been more prevalent.  But the scope of trade policy has been expanding as a result of the decrease inthe importance of border restrictions brought about by successive General Agreement on Trade and
Tariffs/World Trade Organization (GATT/WTO) Rounds  and also as a result of the growing linkages
between economies.  For example, national economies are being brought closer together by the rising
volume of foreign international trade.
3. Comparative Analysis of Trade and Competition Policies
Competition policy in Kenya is a recent phenomena compared to trade policy.  However,
global economic changes have necessitated various orientations in trade policy.  As a result,
competition policy was established.  There are certain salient features that the enforcement of
competition policy faces that affect trade policy and these include:
(a) The policy of import substitution which was a trade policy after independence
encouraged the creation of protected industries which were either monopolies oroligopolies in nature.  These industries have not been very receptive to competition
policy and are in the forefront of resisting it rather than ensuring harmonious
interdependence.  Trade and competition policies should be implemented
concurrently for positive results in the national enhancement of economic growth and
development.
(b) Monopolies usually have restrictive or exclusive agreements which hinder entry by
competitors into the market.  The competition policy encountered a highly
concentrated market established over time and to break the norm is not taken very
kindly by operators.  This requires concerted and coordinated efforts in theenforcement of both the trade and competition policies so as to develop competitive
markets.
(c) In the process of implementing competition policy, companies which are inefficient
as a result of the past protective trade regime have to be dealt with.  Nonetheless, the
prime mandate of competition authorities is to encourage competition and not to
protect individual firms and therefore freedom of entry and exit must be upheld at alltimes.
(d) In the early periods of this decade the Kenya Government recognized the need to
promote and sustain the informal sector popularly known as the Jua Kali sector, the
policy of this sector was clearly spelt out in sessional paper No. 2 of 1992 on small-scale enterprises and Jua Kali development in Kenya.  An example of this is the
passenger transport subsector (commonly referred to as the "matatu" industry) which
has become so competitive to the extent that price-setting cartels have emerged but
the competition authority can not get the culp rits, due to the informal nature of this
sector.
As earlier mentioned, trade and competition policies are concerned with the efficient
allocation of resources, trade policy is largely concerned with efficient cross-border markets while
competition policy focuses mainly on efficiency in the allocation of resources by ensuring fair play.
Trade policy takes into account the structure of the market in the domestic and foreign economieswhile competition policy over and above considers the nature and impact of interfirm rivalry.WT/WGTCP/W/95
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4. State Monopolies
These may include public utilities and parastatals involved in the supply of services and
commodities to the general public at large i.e. water, electricity, rail transport and
telecommunications.  These goods and services have ve ry distinct peculiarities such as the following:
(a) non-storable output which is viewed as vital for all members of society;
(b) play a fundamental role in each country's  growth and international competitiveness as
they are essential inputs to various economic activities;
(c) combination of natural monopoly features and other potentially competitive activities
linked together by vertical relationships for the betterment of efficiency, costreduction and benefits to consumers.
4.1 Public Utilities
The regulation of public utilities is of considerable importance to competition policy and law
enforcement because these utilities constitute an important share of the national economy and may be
partially or totally excluded from the operations of the free market system.  New entrants are
completely blocked out due to the nature of the subsectors, cost of entry, legal requirements or the
economic violability of the activity to the public.
Monopolistic and/or oligopolistic conditions are prevalent in public utilities which usually
combine natural monopolistic features such as transmission networks and potentially competitive
activities such as provision of services over the network.
Kenya is among the developing countries that have initiated privatization of enterprises
operating in the public utility sector to reduce budget deficits and in response to the increasing
demand for quality services and lower prices.  This privatization will be important to our economy ifonly the resultant implication will be conducive to co mpetition.  Therefore, the competition authority
has a fundamental role to play in the privatization process so as to identify the potentially competitive
activities of the public utilities to be privatized and ensure there is ease of entry with minimum
expectation of emergency of unwarranted concentrat ions of market power that may be prejudicial to
public interest.
4.2 Exclusive Rights
Exclusive rights are trade privileges granted and which are directly and necessarily associated
with the licensing of participants in certain trades  and professions by agencies of government acting in
accordance with authority conferred on them by an act of Parliament.  These exclusive rights bar other
players from joining in the trade because they are re cognized by law and as such enforceable in the
courts of law.
As exclusive rights tend to lead to inefficient allocation of resources, there is a danger of price
dictatorship as recently evidenced in the stage coach saga and inefficiencies since others are no
competitors.
Therefore, when exclusive rights are being granted, the competition authority needs to be
informed and its input sought.  This will help in the analysis of the sector and help to ensure the right
is going to occasion in the market place.WT/WGTCP/W/95
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5. Regulatory Policies
These are measures instituted deliberately to attain some designed objectives.  They are
expected to achieve a specified course.  They range from price control policies, imports quotas andfiscal policies which are in the form of tariffs.  Th e liberalization of the markets is in line with the
enthused spirit of competition as it is the market that dictates the prices.
Issues infringing on competition may not be fully resolved when other policies of the
Government have to be considered.  Competition policy which is enforced by the application of the
Restrictive Trade Practices Monopolies and Prices Control Act Cap 504 of the laws of Kenya intends
to promote other policies like employment, export , labour intensive production and indeed other
developmental goals.
On another perspective, regulatory policies should be seen as not hampering competition but
trying to protect strategic industries in the domestic country e.g. agricultural industries.  This policy is
in the form of tariffs and quotas and is put in place to protect one's local industries.
It should not be lost to sight that the pursuit of a free market per se is not the panacea to socio-
economic problems.
Competition policy should also take regard of the domestic goals as opening the market could
have far-reaching implications as can be attested by the sugar industry.
In some instances competition policy is contradicted by provisions in other statutes which in
essence negate some of its powers e.g. the Trade Licensing Act, the Company's Act, the Agricultural
Act.
In pursuant to a free market, all the policies ne ed to be reviewed from time to time to ensure
that conflict areas are resolved and stated objectives are not compromised.  This is to ensure harmony
in the policy framework and to avoid dysfunctional behaviour.
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