wto competition policies and the indian response

WTO Competition Policies and the Indian Response

1. INTRODUCTION

Trade has been one of the primary factors that have played a fundamental role in the

development of civilisation. Theorists have coined new theories and concepts to

increase trade, commerce and profits. With time it has grown more and more intricate

and complex, with the inclusion of additional knowledge, methods and practices of

trade. Starting with the fundamental theory of mercantilism, Adam Smith’s Classical

Theory of Economics, Theory of Comparative Advantage to the balance of a laissez

faire and protectionist economy, promoted by John Stuart Mill, theories and practices

of trade have abounded, and gone through a lot of transmutations. But the essential

principle in every one of these theories is ensuring the profits of the country

concerned, and preventing their economies from exploitation and expanding their

trade to newer markets. Exploitation would not occur in that environment where there

is a code of conduct or standards of behaviour laid down. Also access to newer

markets occurs when there is an ethical mode of functioning. This is where

competition laws of different countries have come into the picture. There can be no

standard unless it’s the same everywhere and for everyone. This has lead to the

debate over the formulation and adoption of a global competition policy.

This project seeks to outline the international political and economic activities which

have shaped the competition policies at the international level. The issues of

competition policy in the international context and the debates in WTO with respect

to this, has been dealt with in Part 2 of the project. The international scenario would

obviously have an effect on domestic legislations of any economy. Part 3 of the

project gives a brief outline of the evolution of competition policies in India, along

with the need for changes in the MRTP Act, 1969. Part 4 analyses and discusses the

Indian Competition Act, 2002 in a detailed manner, apart from elucidating upon its

salient features. In Part 5 I have concluded the project with a few observations of

mine and need for changes in certain sectors of the Competition Act.

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2. ISSUES OF COMPETITION POLICY IN THE

INTERNATIONAL CONTEXT AND THE WTO

DEBATE

The idea of an international competition policy figured for the first time in 1946, in

the Havana Charter, which had laid the groundwork for the establishment of the

International Trade Organisation [ITO]. Article 46 of the Havana Charter had stated

“Each member shall take appropriate measures and to cooperate with the

Organisation to prevent, on the part of private or public commercial enterprises,

business practices affecting international trade which restrain competition, limit

access to markets or foster monopolistic growth…”. The ITO never came into

existence due to opposition from the United States of America [USA], and the

General Agreement on Trade and Tariffs [GATT], which was the progeny of the

Havana Charter never dealt with competition policies. So the idea of establishing the

ITO was disbanded and the opportunity for developing a new competition policy was

also shelved.1 There had been frequent complaints by the developing countries about

the Restrictive Business Practices [RBPs] of Multi National Enterprises [MNEs] in

the 1950s and 1960s, at the GATT, UN and the United Nations Conference on Trade

and Development [UNCTAD], but all to no avail as the developed countries were

against taking any measures controlling or regulating the same. Finally the UNCTAD

“Set of Multilaterally Agreed Equitable Principles and Rules for the Control of

Restrictive Business Practices” [UNCTAD RBP] was adopted in the 1980s. But this

was retained as a non-binding instrument, despite calls for making it binding by the

developing countries, due to the opposition of the advanced countries in making it

binding, as a result of which the UNCTAD RBP did not have much of an impact on

the competition policies at the international level.

1 Aditya Bhattacharjea, Trade and Competition Policy (Nov. 2004), p. 4, available at http://icrier.org/pdf/wp146.pdf, (last visited on 5th Sept. 2008).

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The WTO discussed competition policies related issues for the first time in the

Singapore Ministerial Conference, 1996, where the link between trade and

competition policies were discussed, among other issues. But there were several

oppositions from the developed countries regarding the issues discussed in the

Singapore Ministerial, which contributed to the collapse of the Cancun Round in

2003 and the formal dropping of the discussions of competition policies in the

working plan of the Doha Round of negotiations, by the General Council, after its

meeting in Geneva in 2004.

2.1 ISSUES RAISED IN THE WTO DEBATES

The Singapore Ministerial had set-up a working group for each of the issues

discussed in the conference – Relationship between trade and competition,

relationship between trade and investment, trade facilitation and transparency in

government procurement. The agenda for the Working Group on Trade and

Competition Policies [WGTCP] was to “study the issues raised by the Members

relating to the interaction between trade and competition policy, including anti-

competitive practices, in order to identify any other areas that may merit further

consideration in the WTO framework.”2 Each of the working groups was to draw

upon each others’ resources for their work, apart from using the resource material of

the UNCTAD. The General Council was in charge of reviewing the functioning of all

the groups.3

The WGTCP submitted six reports which reported the stand and arguments of the

various Members regarding the competition policy framework, with no breakthrough

as to what policies can be adopted. The conclusion was clear that none of the

Members wanted a Multilateral Agreement on Competition [MAC] under the aegis of

the WTO. Subsequently a development-friendly tone was rendered to the discussions

in the Doha Ministerial Declaration, where it was declared that “full account shall be

2 Singapore Ministerial Declaration (1996) WT/ MIN (96) / DEC, Para. 20, available at http://www.wto.org/english/thewto_e/minist_e/min96_e/wtodec_e.htm (last visited on 29th July 2008)3 Bhattacharjea, Supra note 2 at p. 6

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taken of the needs of the developing countries and least-developed country

participants and appropriate flexibility provided to address them.”4 There were

several discussions on the MAC and a lot of academic literature emerged out of this,

but the adoption of the MAC and all discussions about the same was finally discarded

after the breakdown of the Ministerial talks at Cancun in 2003. The development of

the concept of MAC, the discussions on it and the reasons for failure of talks shall be

dealt with in a detailed manner as follows.

2.2 THE PILLARS OF MAC AND THEIR

DISINTEGRATION

The concept of MAC was developed on five different pillars, which disintegrated due

to several reasons, during the course of discussions at WTO, according to

Bhattacharjea. They are discussed as follows.

2.2.1. HARMONISATION OF COMPETITION LAWS OF NATIONS TO

PROMOTE FOREIGN INVESTMENT

The competition laws of nations normally have three main components. They prohibit

anti-competitive agreements, including joint ventures, monopolisation or abuse of

dominance, and anti-competitive mergers. In the category of anti-competitive

agreements, jurisdictions normally prohibit cartels, which are agreements among

competitors not to compete on terms of trade such as price or output, and agreements

to divide markets. In some cases, the laws enable the competition authorities to

identify or limit anti-competitive practices of state or local government. While all

competition / antitrust laws have some prohibitions against cartels, the laws of

different nations diverge on whether cartels are prohibited per se only when

unreasonable, and to the extent of exceptions and exemptions. For most other acts,

practices, contracts and transactions, laws may differ on the conception of what anti-

4 Doha Ministerial Declaration (2001) WT/ MIN (01) / DEC / 1, Paras. 23-25, available at http://www.worldtradelaw.net/doha/mindec.pdf (last visited on 10th Sept. 2008)

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competitive means, and whether and to what extent anti-competitive measures may be

justified by efficiencies or by non-market values, such as health and safety, ethics and

industrial policy (e.g., Protecting jobs). The debate on what is anti-competitive

reflects a significant divergence in various national antitrust policies.5Working

assumptions are often involved; e.g., the assumptions that markets tend to work well

and government antitrust intervention tends to be inefficient and impose costs, or the

counter-assumptions that private power tends to impair the working of markets and

government intervention is helpful in removing the impediments. Most – but not all –

nations accept the mandate to protect efficient competition and disavow a goal to

protect competitors; but even so nations disagree about how to reach this goal. The

controversy is well illustrated in the jurisprudence of the US and the European Union

[EU] on the law of monopolisation and abuse of dominance regarding exclusionary

practices and duties to deal. US case law reflects the presumption that freedom to deal

or not, aligns with the interests of the consumers.6 EU case law presumes that

openness of and access to markets align with the interests of the consumers, and

unlike US law, imposes duties of special responsibility on dominant firms not to

exclude rivals unnecessarily.7

The US and the EU models are the two principal antitrust models in the world.

Nations, especially newer antitrust jurisdictions, tend to gravitate towards one or the

other. Also, its often asserted that developing countries have special needs and

interests that may influence the shape of their antitrust laws. These ‘special and

differential’ needs are seldom articulated, except that the claim is made that if an

international regime is adopted, developing countries should not be subjected to the

same obligations as developed countries (e.g., to open their markets to incoming

trade), and that the effective date of obligations should be delayed.8

5 Eleanor M. Fox, World Competition Law – Conflicts, Convergence, Cooperation , p.238, from “Competition Law Today – Concepts, Issues and the Law in Practice” (2007), Edited by Vinod Dhall, (New Delhi: Oxford University Press).6 Id. cited Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, 540 U.S. 398 (2004)7 Id.8 Id.

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In any case, MNCs have to follow different national laws relating to environment,

labour, taxation, product standards, etc., although the MNCs are more willing to

invest in those nations with some competition law rather than no competition law, as

the scope for political arbitrariness is much reduced in those nations. However, there

isn’t much of a solution for a cross-border merger where the merger is accepted by

the law of one nation and prohibited by another. Some compromises have to be made

by the concerned Competition Authorities of the two countries. For example, the

mergers between the US firms Boeing and McDonnell Douglas and between General

Electric and Honeywell was accepted by the US, but opposed by the EU. Similarly,

the merger between Ciba-Geigy and Sandoz was approved by the EU, but opposed by

the US.9 The UNCTAD, the OECD and the International Competition Network [ICN]

(an association of national competition authorities) have been working on procedures

to handle such cul-de-sacs in the future. However, this may not be included in the

WGTCP as it was not included in the revised list of activities in the Doha

Declaration.10

2.2.2. PROMOTING MARKET ACCESS FOR IMPORTS

The second pillar of the MAC was promoting market access in all countries. The EU

had also advocated a similar policy and that was its primary agenda behind bringing

competition policies to the WTO and making it an international code. It made this

move from its own experience of abolishing private trade barriers, for restriction on

movement of goods, among its member countries and which contributed to the

abolition of official restrictions on trade between them.11 On a global although

government-imposed trade restrictions have reduced under the aegis of the WTO,

there is the apprehension that private RBPs would always restrict the access of

foreign firms to new markets through the blocking of distribution channels, or import

cartels, etc. In one of the earliest WGTCP meeting in 1998, India had complained of

9 Bhattacharjea, Supra note 1, p. 710 Id. p.811 Id.

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being precluded from participating in the Basel Jewellery and Watch Auction, and

Dutch flower festival.12 Japanese business groups have often been accused of import

cartels and practicing other RBPs by the US Courts, as in the famous Kodak-Fuji case

in 1998, where the US had taken the Japanese Government to a WTO Dispute

Settlement Panel [DSP] on the ground that some of the market access concessions

given by Japan was violative of the National Treatment principal. Although the DSP

did not rule in favour of US, the panel did investigate the allegations of the US and

ruled in favour of Japan.13 Similarly in the recent, 2004 Telmex case, where the US

had initiated action against Mexico before the WTO for restricting access to US

Telecom companies, by not containing an import cartel functioning in Mexico, in the

telecom sector, which adversely affected the US Telecom companies. The panel ruled

in favour of the US telecom companies and ordered Mexico to take action against the

import cartel.14

Recently, the EU has changed its focus away from market access for the promotion of

MAC. Whereas the US has started emphasizing more on the competition-related

clauses in the bilateral trade agreements that it enters into with other countries, for

market access. For example, the US uses the Structural Impediments Initiative with

Japan to promote market access.15 The US is not apprehensive of restriction of access

to the market of India, to US firms as the United States Trade Representative’s report

so succinctly puts that RBPs are rampantly practiced by private and public enterprises

in India, with little governmental action against the same. These practices do not

affect the access of American firms to India, adversely in any manner. The US is

more concerned about the market access restrictions imposed by the Indian

Competition Authority, rather than the restrictions that emerge as a result of RBPs.16

2.2.3. PREVENTING ABUSE OF ANTI-DUMPING PROCEDURES

12 Communication from India, WT/WGTCP/W/11 (Nov. 1998), available at http://commerce.nic.in/wto_sub/CP/sub_cp111.htm (last visited on 10th Sept. 2008).13 The International Economics Study Centre (1998), available at http://internationalecon.com/wto/ch2.php (last visited on 10th Sept. 2008)14 Bhattacharjea, Supra note 1, p. 915 Id.16 Id.

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The Uruguay Round on Anti-dumping has allowed Member countries to impose anti-

dumping tariffs, if they can prove that goods are being dumped in their markets.

Alternately, agreements can be signed by exporters that they shall not export products

at prices much below the market value, which may affect the industries in another

country. But such anti-dumping measures have often been misused by stating flimsy

reasons for imposing the same.

Countries have also tried to determine ways of containing predatory pricing practices

of MNCs as well, which is supposed to be more rigorous than anti-dumping duties. In

predatory pricing private enterprises sell their products at such low prices in the

market, incurring a loss themselves, such that all competitors are killed, until there

comes a time when they attain monopoly position in the market. So curbing predatory

pricing is supposed to protect competition and not the competitors, unlike the anti-

dumping laws. But in world market where there are a lot of competitors, it is unlikely

for a particular enterprise to attain monopoly position. Even if predatory pricing is

found to occur, the antitrust remedy for predatory pricing is an injunction and a fine,

which doesn’t have the anti-competitive consequences of price undertakings or anti-

dumping duties. So replacing lax anti-dumping laws with laws curbing predatory

pricing would technically help prevent abuse of anti-dumping laws. But practice has

been very different. In 2000, the DSP adopted a resolution to adopt stringent laws

curbing predatory pricing in place of anti-dumping laws17, but it met with stiff

opposition from EU the US, who were then the most recent and active users of anti-

dumping laws.

Ironically even developing countries are opposed to the above resolution, even though

they complain about the abuse of anti-dumping laws by the developed countries.

India, being one of the most vociferous critics of developed countries for abusing

anti-dumping laws has one of the highest records of abusing anti-dumping laws itself.

A recent study, applies statistical filters used in the EU and the US, to determine the

17 Minutes of the Working Group meeting, July 1998, WT/WGTCP/M/5, Paras. 38, 48 & 49, available at http://www.wto.org/english/tratop_e/dispu_e/162ra1.doc (last visited on 10th Sept. 2008).

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number of cases that could have justified as legitimate use of predatory pricing laws

in India, and the study found that only five out of 92 cases passed the test. In the rest

of the cases, anti-dumping laws were found to have been applied to protect Indian

industries.18 So the anti-dumping regime has actually harmed competition and

aggregate employment rather than protected competition. But with developed and

developing countries playing the same game, reforming usage of anti-dumping laws

seems to be off the agenda of WTO.

2.2.4. PREVENTING ABUSE OF INTELLECTUAL PROPERTY RIGHTS

Intellectual Property Rights [IPRs] is, many times, almost like giving monopolistic

license to the IPR holder. There has been an increasing tendency for large

corporations to cross-license their patented products to each other, with conditions of

not sharing it with anyone else, effectively creating cartel- like arrangements, without

an explicit cartel agreement. Other RBPs would include mandating the licensee to

buy an input only from the patent-holder, not to deal with the products of rivals and

making improvements to the patented product and selling it to the patent-holder alone

and not others.

Also, most of the patent-holders are concentrated in the developed countries, so

developing countries are worried about the restriction in access to new medicines or

seeds, the patent-rights for which are concentrated in a few MNCs of developed

countries. The developing countries are also concerned about the protection of their

‘traditional knowledge’, like the use of different medicinal herbs for various

purposes, and prevent their exploitation by MNCs of the developed countries.

Several discussions have taken place in this regard, to dilute the IPR protection for

different products in the WGTCP, but the discussion has not gone far, with the

developed countries firm on their stand of maintaining the high IPR protection for

patented products. Certain concessions were made with respect to granting licenses to

18 Bhattacharjea, supra note 1, p. 10.

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manufacturers of developing countries to manufacture certain patented medicines,

which they have the capacity to produce, just before the Cancun Ministerial in 2003.19

Developing countries are however, still vulnerable to IPR abuse with respect to other

products.

2.2.5. CROSS-BORDER CARTELS

A fifth and much more widely accepted argument for MAC is the increasingly

international nature of cartels, which affect several countries simultaneously. Many

countries have utilised the Effects Doctrine to penalize or prevent mergers between

different enterprises, if it can be proved that such a combination would adversely

affect them. It becomes particularly problematic for developing countries, which do

not have proper national competition laws, with equally weak enforcement

mechanisms. Even if the developing countries did have adequate competition laws

and enforcement mechanisms, they often require the cooperation of the competition

authorities, and other authorities, of the foreign countries to help in the investigation

process and precluding the combinations of different enterprises. In the 1990s, the US

and the EU had prosecuted more than forty international cartels and fined them, for

affecting the consumers of the US and EU, even though the cartels adversely affected

several other countries as well.20 This was because of the good working rapport

between the Competition Authorities of the US and EU, which had been built over

time. Similarly, if Indian Competition laws have to be effectively enforced in foreign

jurisdictions with respect to the mergers of foreign enterprises, it requires the

cooperation and trust of the competition authorities of other countries, which would

not happen overnight. Here, having a MAC would help, which would automatically

mandate the cooperation of the Competition Authorities of different countries and

help develop a universal competition policy.

19 Id.20 Id.

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2.3 SUBSEQUENT EVENTS AND ASSESSMENT OF THE

WTO DEBATE

The WGTCP discussions during the first few years of its existence were

diffused and non-converging. Faced with a lack of consensus on so

many issues, the Doha Declaration of the 2001 Ministerial Conference

of the WTO limited further discussion at the WGTCP to the issue of

hard-core cartels; application of the fundamental WTO principles of

nondiscrimination, transparency and procedural fairness in competition

policy; capacity building in developing countries; and voluntary

cooperation between Members.21 The EU modified its position to press

for a MAC that would require Members to enact and enforce (possibly

on a regional basis) a national competition law incorporating the

fundamental principles. Such a law should at least prohibit hard core

cartels, which were to be clearly defined, with any exemptions being

well-defined and transparent. Countries would have to provide

deterrent sanctions in their domestic competition regimes, and take on

obligations that would be subject to the WTO dispute settlement

mechanism, but these would be limited to the de jure consistency of

their laws and regulations with the agreed framework. De facto

implementation of these laws in practice, or the outcome of specific

cases, would not be subject to review, according to the modified EU

position. Transitional periods and technical assistance were offered for

developing countries to enable them to comply with the proposed

agreement.22 Underlying the position of the EU and most developed

countries was the presumption that vigorous competition is undeniably

a good thing, and that government policy should be geared towards

promoting it.

21 Doha Ministerial Declaration, supra note 4, Paras. 23-28.22 Communications from the EU and its member States, (2002), WT/WGTCP/W/193 & WT/WGTCP/W/222, available at http://www.jmcti.org/2000round/com/doha/wg/wt_wgtcp_w_193.pdf & http://www.jmcti.org/2000round/com/doha/wg/wt_wgtcp_w_222.pdf, (last visited on 11th Sept. 2008).

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While acknowledging the harm caused by international cartels, India

and many other

developing countries emphasized the need to respect their diversity in

terms of stages of

development, socio-economic circumstances, legal frameworks, and

cultural norms. They opposed a “one size fits all” agreement, and drew

attention to the dangers of transplanting a competition policy

framework that has evolved over many years in industrial countries

into economies lacking in experience, expertise, and institutional

memory. Several developing countries claimed that development

required giving greater priority to policy objectives other than

promotion of competition, and questioned virtually every specific

proposal advanced by the proponents, including the necessity of

applying the fundamental WTO principles of non-discrimination,

transparency and procedural fairness to competition policy. While they

acknowledged the importance of transparency and procedural fairness,

they raised concerns about the financial and administrative burdens

they would have to incur in implementing an agreement which

enshrined developed country standards. The developing countries

were also worried about whether they would receive the kind of

assistance that they require from the Competition Authorities of the

developed countries to enforce their competition laws. Overall, the

developing countries were reluctant to enter into the idea of

competition policies and their implementation as they had so little

experience in the same, and make them more vulnerable than what

they are.23

Due to the irreconcilable differences between the developed and

developing countries, a MAC was not very likely. The developing

23 Bhattacharjea, supra note 2, p. 16.

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countries suggested a peer review mode of assessment, where all

Member countries would review the functioning of competition

Authorities of every other country and ensure that they all toed the

line, with respect to competition policies. But other developing

countries were apprehensive about this because there was no

delineation on the aspect of who would undertake the review, in what

bases and criteria would the review be undertaken and others.

As late as February 2003, the EU was continuing to insist that

according to the Doha

declaration negotiations on all the four Singapore issues “will

commence after Cancun”, and that they “are a key element of the DDA

[Doha Development Agenda] and part and parcel of the Single

Undertaking”. Only clarification of modalities of the negotiations

remained to be worked out. However, some new signs of flexibility

were apparent. The EU also held open the possibility that the

discussion on modalities on a MAC could include exemptions from the

‘core’ principle of nondiscrimination; differential levels of commitment

and implementation periods for developing countries; and even “how

and in what timeframe (or even whether) WTO Members or certain

categories of WTO Members would assume some or all of the

obligations resulting from these agreements”.24

According to Bhattacharya, the newly conciliatory position could well

have been a ploy to induce wavering developing countries to agree to

the commencement of negotiations, with the EU hardening its stance

once they were under way. But ultimately, the developing countries’

opposition to any negotiations towards a MAC, along with disputes over

agriculture and the other Singapore issues, came to a head in

24 Comments on the EC Communication WT/GC/W/491, WT/GC/W/501, (2003), available at http://ictsd.net/downloads/2008/08/wtgcw501.doc (last visited on 11th Sept. 2008).

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September 2003 at the Cancun Ministerial, which ended with no

consensus.25 On the eve of the Ministerial, several developing

countries, led by India, formally protested that their views on the

Singapore Issues had been bypassed in consultations and had not been

reflected in the draft of the Ministerial declaration.26 Their statement

listed several points which they felt had not been adequately

addressed and required further clarification in the Working Group. Most

of these are discussed at various points in this monograph. At Cancun

itself, the EU showed a willingness to unbundle the Singapore Issues

and drop competition policy from the agenda, but subsequently it

continued to raise the possibility of introducing it in some other form.

In the Framework Agreement that was reached in July 2004, the WTO

General Council formally dropped three of the four Singapore Issues,

including competition policy, from the Doha work programme

altogether,27 but the debate is likely to continue outside the WTO, and

competition policy may well be reintroduced in the WTO after

completion of the Doha round. Policymakers and the emerging

“competition community” in India should therefore remain engaged

with the issues. This process should also contribute to improving the

effectiveness of the new Competition Act.

The ultimate result of all these discussion has been that there would be

no MAC in the foreseeable future. The developing countries have not

been able to make a headway in those competition issues with which

they were most concerned, like the curbing of hard-core cartels.

Although the proponents of MAC have not been able to develop and

introduce the same, fifty new developing countries have adopted new

25 Bhattacharjea, supra note 1, p. 17.26 Communication from Bangladesh on Behalf of the LDC Group (4th Sept. 2003), WT/MIN(03/W/4, available at http://www.wtocenter.org.tw/SmartKMS/fileviewer?id=5704 (last visited on 11th Sept. 2008).27 Doha Development Agenda (1st Aug. 2004) WT/L/579, available at http://www.wto.org/english/tratop_e/dda_e/draft_text_gc_dg_31july04_e.htm (last visited on 11th Sept. 2008).

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competition laws in their countries over the last decade, which is one

step closer to the future of a global MAC.

3. A BRIEF OVERVIEW OF THE EVOLUTION OF

COMPETITION POLICIES IN INDIA

The Indian economy was subject to controls and regulations for several decades, such as

industrial licensing, monopolies and restrictive trade practices, foreign exchange

restrictions, small scale industry protection, control on foreign investment and

technologies, exit barriers under the Industrial Disputes Act and the Sick Industries

Companies Act, quantitative restrictions on imports, administered prices, and control on

capital issues. Major economic decisions were in the hands of the Govt. and there was

little room in the system for competition policy. At the same time, the domestic industry

was sheltered from competition arising out of imports.28

The economic consequences of this policy regime, though initially beneficial, were

reflected in a poor rate of economic growth, low levels of productivity and efficiency,

absence of international competitiveness, sub-optimal size of businesses, and outdated

and inefficient technologies in various sectors. Some firms and business houses were

particularly adept at exploiting the system of licenses and controls, and they built up and

maintained monopolistic positions in the market to the detriment of public interest.29

In the late 1980s and 1990s, the realization began to dawn that this policy regime had

outlived its utility and the system was crying for reform. Wide ranging policy and

regulatory reforms were initiated, such as delicensing of industry, shrinking the

monopoly of the public sector industries (other than those where strategic and security

concerns dominated,) reducing the purchase preferences in Government procurement,

28 See Speech of Mr. Vinod Dhall, WTO/UNESCAP/ASCI Regional Seminar for Asia and Pacific Economies on ‘Competition Policy and the Multilateral Trading System’, (6th October2008), available at http://www.competitioncommissionindia.nic.in/speeches_articles_presentations/Speech%20Technical%20Hyderabad%2006%20Oct%2004.pdf (last visited on 29th July 2008).29 Id.

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removal of quantitative restrictions on imports, market determined exchange rate,

liberalization of foreign direct investment, capital market reforms, liberalizing the

financial markets, reduction in small scale industry reservations, and a much greater role

for the private sector in infrastructure industries such as power, transport and

communications. Sectoral regulators were set up in key infrastructure and utility

industries which were hitherto dominated by the public sector and were now being

opened up.

The reform agenda is far from complete. Areas still needing attention are, for example,

labour policy, exit policy under the Industrial Disputes Act, infrastructure sectors such as

power, coal and roads, and opening of the remaining state monopolies to competition

forces.

The Monopolies and Restrictive Trade Practices Act, which came into being in1970, was

designed for a different era to serve the socio-economic objectives of that time. However,

it was soon realized that the Act needed extensive review. A high level committee was set

up to suggest a modern competition law in line with international practice and to suit

Indian conditions. The committee recommended a new competition law which was

enacted and it came into force in January, 2003.

3.1 NEED FOR CHANGING THE MRTP ACT, 1969

Many countries like Australia, Canada, the UK, and the EU have competition law. The

US covers competition in more than one statute. India had a very rudimentary

competition law – the MRTP Act, 1969.

Unlike the competition laws of the countries mentioned above, which address

engendering competition in the market and trade, and which address anti-competition

practices, the Indian MRTPA was inadequate for addressing international competition

issues that the competition legislations of other countries did.30

30 Report of the High Level Committee on Competition Policy and Law, from S. M. Dugar (2006) “Commentary on MRTP Law, Competition Law & Consumer Protection Law”, 4th ed., Vol. 2, App. 5,

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The MRTPA lacked provisions to deal with anti-competition practices that may

accompany the operation and implementation of the WTO agreements. Many of the anti-

competition practices have to be spelt out instead of having to rely on section 2(o) of the

MRTPA, which merely spoke of the prevention, distortion or restriction on competition

in a very broad, general sense.31

A perusal of the MRTPA would show that there is no definition or even mention of

certain offending trade practices like the abuse of dominance, cartels, collusion, price

fixing, bid rigging, boycotts, predatory pricing and refusals to deal.32

These were just a few of the reasons attributed to the MRTPA, by the High Level

Committee for the enactment of a new competition legislation in India.

4. INDIAN COMPETITION ACT, 2002 AND ITS

SALIENT FEATURES

The Act was part of India’s economic reform and globalisation process

which necessitated aligning the economic laws of the country with the

new economic scenario. the Monopolies and Restrictive Trade Practices

Act, 1969 [MRTPA], has become obsolete in certain respects in the

light of international economic developments, relating more

particularly competition laws, and there is a need to shift our focus

from curbing monopolies to promoting competition.33 The Preamble

and section 18 read together would suggest that the Act seeks to

achieve its objectives through the establishment of the Competition

Commission of India [CCI], the enforcing authority, which in turn is

(New Delhi: Wadhwa & Co. Nagpur)31 Id.32 Id.33 Vinod Dhall, The Indian Competition Act, 2002, pp. 499, 500, from “Competition Law Today – Concepts, Issues & The Law in Practice” (2007), Edited by Vinod Dhall, (New Delhi: Oxford University Press)

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given the mandate to spell out in section 18. section 18 states that ‘it

shall be the duty of the Commission to eliminate practices having

adverse effect of competition, to promote and sustain competition in

markets, to protect the interests of consumers and to ensure the

freedom of trade carried on by other participants in markets, in India,

and for matters connected therewith and incidental thereto.’34 So the

principle objective of a competition law is to maintain and protect the

competitive process; this figures as the core objective of the Act and

also as a principle duty of the CCI. The above objective appears in the

competition laws of other jurisdictions as well. Economic theory asserts

that competition itself maximizes consumer interest; nevertheless the

protection of the interests of the consumers has been emphasized as a

distinct objective of the Act. This view corresponds to the school of

thought that regards competition law as being important to economic

freedom as democracy is important to political freedom.35

4.1 ANALYSIS OF THE INDIAN COMPETITION ACT,

2002

The analysis of the Act has been divided and discussed under the

following categories. Those portions of the Act considered relevant for

the previous sections of the project have been discussed.

4.1.1. ANTI-COMPETITIVE AGREEMENTS

Section 3(i) prohibits any agreement with respect to production,

supply, distribution, storage, acquisition, or control of goods or

provision of services which causes or is likely to cause an appreciable

34 The Indian Competition Act, 2002, The Gazette of India, Extraordinary, available at http://www.competition-commission-india.nic.in/Act/competition_act2002.pdf (last visited on 13th July 2008).35 Dhall, supra note 33, p. 500.

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adverse effect on competition within India.36 The term agreement itself

is defined in section 2 (b) of the Act; it includes any arrangement or

understanding or action in concert whether or not formal or in writing

or is intended to be enforceable by legal proceedings. Clearly, the

definition which is inclusive, and not exhaustive, is a wide one. The

agreement does not necessarily have to be in the form of formal

document executed by the parties. It may include even what is

commonly called a ‘gentleman’s agreement’.

In competition laws, generally the tern ‘agreement’ is given a wide

definition, because parties often choose to not formalize agreements,

and sometimes they go to great lengths to hide it. In particular, cartels

are shrouded in great secrecy. The World Bank/OECD glossary states

that agreements ‘may be implicit, and their boundaries are

nevertheless understood and observed by convention among the

different members’ and ‘most agreements which give rise to anti-

competitive prices tend to be covert arrangements that are not easily

detected by competition authorities.37 In Registrar of Restrictive trade

Agreements v. W. H. Smith and Sons,38 the court observed, ‘people

who combine together to keep up prices do not shout it from the house

tops. They keep it quiet. They make their own arrangements in the

cellar, where no one can see. They will not put anything into writing

nor even into words. A nod or a wink will do. Parliament as well is

aware of this. So it included not only an “agreement” properly so called

but any “arrangement”, however informal.’ If any agreement creates

even a shadow of doubt in the minds of competition authorities, as to

its legality, then the parties trying to enforce the agreement through

law could face serious difficulties. Section 19(3) states that while

determining whether an agreement has an appreciable adverse effect

36 S. 3(1), Indian Competition Act, 2002, supra note 34.37 Dhall, supra note 33, p. 502.38 (1968) 3 All ER 721.

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on competition under section 3 the CCI shall consider the following

factors: (i) creation of barriers to new entrants in the market; (ii)

driving existing competitors out of the market; (iii) foreclosure of

competition by hindering entry into market; (iv) accrual of benefits to

consumers; (v) improvements in production of goods or provision of

services; and (vi) promotion of technical, scientific and economic

development by means of production or distribution of goods or

provision of services. This approach to determining adverse effects on

competition is similar to the rule of reason adopted by the competition

laws of most countries.39 Black’s Law Dictionary defines rule of reason

in antitrust law as a ‘judicial doctrine holding that a trade practice

violates the Sherman Act only if the practice is an unreasonable

restraint of trade, based on economic factors.’40 In India, in Tata

Engineering and Locomotive Co. Ltd.,41 the Supreme Court of India [SC]

observed that to determine whether the restraint promoted or

suppressed competition, it was necessary to consider three matters: (i)

what facts are peculiar to the business to which the restraint is

applied; (ii) what was the condition before ad after the restraint was

imposed; (iii) what is the nature of the restraint and what is its actual

and probable effect. In the case of horizontal agreements, listed in

section 3(3), once it is established, it will be presumed that the

agreement has an appreciable adverse effect on competition; the

burden of proof would then shift to the defendant. This is called the

‘Shall Presume’ rule, which most competition laws apply in cases of

horizontal mergers, which are considered to be grave violations of

competition laws. However, those horizontal mergers for research

purposes, which have efficiency enhancing effects, shall be subject to

the Rule of Reason as against the ‘Shall Presume’ Rule.42

39 Dhall, supra note 33, p. 504.40 Black’s Law Dictionary, 7th ed. P. 103341 (1977) 2 SCC 55. 42 Dhall, supra note 33, p. 507.

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Vertical agreements are subject to the Rule of Reason and not the

‘Shall Presume’ Rule, under section 3(4), which deals with vertical

agreements. This softer treatment acknowledges that vertical

agreements can have beneficial aspects as well, and these need to be

weighed against the harmful effects to see if the agreement is on

balance anti-competitive.43 Exclusive distribution agreements also

cause concern because these could dilute intra-brand competition and

partition the market. This would be particularly so if inter-brand

competition is weak between the supplier and the competitors. In Tata

Engineering and Locomotive Co. v. Registrar of Restrictive Trade

Practices,44 a case under the MRTPA, the SC did not find the

distribution of areas between the company’s distributors as being

restrictive.

Section 3(5) of the Act deals with IPRs. This section allows patent-rights

holders to impose those necessary and reasonable restrictions to

protect their intellectual property, under the Patents Act, 1970 and the

Copyright Act, 1957. For the effective implementation of competition

laws and patent/copyright laws, the cooperation of the Competition

Authorities of other countries is required.45

4.1.2. ABUSE OF DOMINANT POSITION

Section 4(1) prohibits any enterprise from abusing its dominant

position. The European Commission’s [EC] Glossary states that ‘a firm

is in a dominant position if it has the ability to behave independently of

its competitors, customers, suppliers and ultimately the final

43 Id.44 (1977) 2 SCC 5545 Dhall, supra note 33, p. 512.

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consumer.46 Dominant position defined in Explanation (a) relates to the

relevant market and it is therefore necessary to determine the relevant

market in which the dominant position is alleged. The markets are

classified into geographical market, product market, etc. A

geographical market is determined by factors such as regulatory trade

barriers, local specification requirements,47 national procurement

policies, adequate distribution facilities, transport costs, language,

consumer preferences and need for regular or secure supplies or rapid

after-sales services. This is given in the definition of geographical

market in section 2(s) of the Act. Section 2(t) defines the relevant

product market as ‘comprising all those products or services which are

regarded as interchangeable or substitutable by the consumer, by

reason of characteristics of the products or services, their prices and

their intended use.48

According the World Bank/OECD Glossary of Terms on competition

policy, ‘if markets are defined too narrowly in either product or

geographic terms, meaningful competition may be excluded from the

analysis. On the other hand, if product and geographic markets are

defined too broadly, the degree of competition may be overstated.’49

In Hoffmann-La Roche, the Court listed the following as relevant factors

in determining the existence of a dominant position: the relationship

between he market shares of the undertaking concerned and of its

competitors, especially those of the next largest, technological lead of

an undertaking over its competitors, the existence of a highly

developed sales network, and the absence of potential competition.50

The court also noted that ‘an undertaking which has a very large 46 Glossary of Terms Used in EU Competition Policy – Antitrust and Control of Concentration , Director General for competition (Brussels: July 2002), available at http://ec.europa.eu/comm/competition/publications/glossary_en.pdf (last visited on 11th Sept. 2008)47 Dhall, supra note 33, p. 515.48 See Indian Competition Act, 2002, supra note 30.49 World Bank/ OECD: ‘Glossary of Industrial Organisation Economics and Competition Law’ , available at http://www.oecd.org/dataoecd/8/61/2376087.pdf (last visited on 11th Sept. 2008).

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market share and holds it for some time, by means of the volume of

production and scale of supply which it stands for…is by virtue of that

share in a position of strength which makes it an unavoidable trading

partner and which, already because of this, secures for it, at the very

least during relatively long periods, that freedom of action which is a

special feature of a dominant position.’51

Section 4(2) states that ‘there shall be an abuse of dominant position’

if an enterprise indulges in any of the activities listed in the sub-

section, these being: unfair or discriminatory price including predatory

pricing, limiting or restricting production or technical or scientific

development, denying market access, imposing supplementary

obligation having no connection with the subject of the contract, or

using dominance in one market to enter into or protect another

relevant market. The list of abuses is exhaustive.52 The laws of many

other jurisdictions are not very different from section 4 in respect of

the practices that are treated as abuse of dominance. The term ‘abuse

of dominant position’ has been incorporated in competition laws such

as those of EC, UK, Canada and Germany.53 In the US, the

corresponding term for abuse of dominance is ‘monopolization or

attempt to monopolize’, prohibited under section 2 of the Sherman Act.

Monopolization has two elements: one, the possession of monopoly

power, and two, the willful acquisition or maintenance of that power,

as distinguished from growth or development as a result of a superior

product, business acumen or historic accident.54

50 See Para. 48, Hoffman-La Roche AG v. Commission of European Communities [1979] 3 CMLR 211, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:61976J0085:EN:NOT (last visited on 11th Sept. 2008).51 Id. Para 41.52 Dhall, supra note 33, p. 517.53 Id.54 See Black’s Law Dictionary, Supra note 40, p. 1023.

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In order to demonstrate an attempted monopolization, a plaintiff must

prove: (i) that the defendant has engaged in predatory or anti-

competitive conduct with (ii) a specific intent to monopolize and (iii) a

dangerous probability of achieving monopoly power.55 Abuse of

dominant position is particularly harmful in the case of an ‘essential

facility’, that is a facility, access to which is essential to compete

effectively. The term is said to have originated in a US case Terminal

Railroad Association of St. Louis.56

In some legal systems, there is a presumption that certain practices by

dominant firms are inherently unfair and the approach has the merit of

facilitating the design and enforcement of new competition laws. But in

the Indian Competition Act, 2002, there is no such presumption, so

technically, if a firm fulfills the conditions in section 19(4) which

determines if a firm enjoys a dominant position or not and if it

indulges in any of the activities listed in section 4(2), then it shall be

presumed that there is an abuse of dominant position.

4.1.3. REGULATIONS OF COMBINATIONS, EXTRA-

TERRITORIALITY AND SECTORS REGULATED BY THE

COMPETITION LAW

The Act contains provisions fro regulations of combinations, in section

5. a combination has been defined in section 5, and it includes an

‘acquisition’, ‘acquiring of control’, and any ‘merger or amalgamation’.

The section sets certain size-related thresholds and only an acquisition,

acquiring of control or a merger or amalgamation above these

thresholds is covered under the definition. Section 20(3) provides that

these thresholds are subject to periodic revision by the Central

55 Dhall, supra note 33, p. 519.56 224 US 383 (1912) referred to in Dhall, supra note 33, p. 520.

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Government, so as to account for, inter alia, inflation and exchange

rate fluctuations.57 Section 5(c) also explains how the value of the

assets is to be computed, which shall include intangible assets like the

value of goodwill, copyright, patent and trademark.

Merger control is an essential ingredient of the competition laws of

most countries. In the US, the Sherman Act does not contain specific

provisions relating to merger control and this lead to numerous

difficulties dealing with mergers; consequently the Clayton Act was

enacted in 1914, which incorporated, inter alia, specific provisions for

merger control. In the EC, merger control was introduced through a

Council Regulation in 1989, which was later replaced by the Council

Regulation of 2004.58

While the definition of combination is given in section 5, the regulation

of the same is given in section 6. Section 6(1) states that no such

combination shall be recognised as valid, which adversely affects the

competition in the relevant market. Such a combination shall be

considered to be void. Section 6(2) provides for a notice to be given to

the CCI, disclosing the details of the combination, within seven days of

approval of the board of directors of the enterprise concerned.59

Once the relevant market has been determined, it would be necessary

to determine whether the combination causes any adverse effects to

competition in that market. Section 20(4) both positive and negative

factors and the last factor specifically states ‘whether the benefits of

the combination outweigh the adverse effect of the combination, if

any.’ In the UK, mergers are to be analysed according to the

‘substantial lessening of competition’ test. The EC law requires

57 Id. p. 526.58 Id. p. 527.59 See Indian Competition Act, 2002, supra note 34.

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determination of the relevant market, and the factors considered

include the market structure, actual or potential competition, economic

and financial power, barriers to entry, technical and economic

progress, countervailing power, efficiency and failing firm defence.60

The procedure for inquiry into a combination is laid down in section 29

and 31 of the Act. The investigation can commence either on the basis

of a notification given to either of the parties to the CCI or it can be

undertaken suo motu by the CCI up to one year after the combination

has taken place [section 20(3)]. If the CCI does not give its approval

within 90 working days since the publication of details regarding the

combination, the CCI is deemed to have given its approval.

The effects doctrine has been incorporated in the legislation,

empowering the CCI to look into combinations or abuse of dominant

position or anything else, if it adversely affects the competition in any

relevant market in India [section 32].

The jurisdiction of competition law extends to all sectors in the

economy. Section 21 of the Act allows the CCI to coordinate with the

Sector Regulator of a particular sector concerned, to increase the

efficiency in implementation of the competition law. For efficient

enforcement of the competition law, the competition authority in India

requires the cooperation of other bodies as well.

4.1.4. POWERS OF THE CCI AND ENTITIES AGAINST WHOM

ACTION SHALL LIE

The CCI is empowered to regulate its own procedure and is not bound

by the procedure laid down by the Code of Civil Procedure, 1908, which

60 Dhall, supra note 33, p. 529.

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describes the general procedure for civil courts. However, the CCI shall

follow principles of natural justice, as enshrined in section 36 of this

legislation, whereby any party sought to be prosecuted shall be heard

and be given an opportunity to present their case.

The CCI has the power to summon witnesses, require production of

documents, etc.61 The same powers are available with the Director

General while carrying out investigations, undertaking search of

premises, etc.

Prohibition against abuse of dominant position lies only against an

enterprise, while the prohibition against anti-competitive agreements,

anti-competitive combinations, etc. lie against enterprises and

association of persons [section 6(1)].

4.2 SALIENT FEATURES OF THE NEW INDIAN

COMPETITION LEGISLATION

The Competition Act improves upon its predecessor in many ways. It

defines crucial terms that were left undefined in the MRTPA, for

example cartel, consumer, predatory pricing and turnover. Several

criteria have been listed for defining the ‘relevant market’ and the

‘relevant product’ in determining effects of business conduct on

competition. The Competition Act provides for regional benches of the

proposed Competition Commission, as well as specialized merger

benches, unlike the MRTP Commission, which sat only in Delhi. Unlike

the MRTPA, the new Act provides for outside advisers and consultants,

and for hearing expert testimony. Firms violating the new law can be

fined ten per cent of their turnover, whereas the MRTP Commission

could only issue ‘cease and desist’ orders, with modest fines for not 61 Section 36, Indian Competiton Act, 2002.

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complying with them. Apart from regulatory and adjudicatory

functions, the Competition Commission, unlike its predecessor, is also

entrusted with ‘competition advocacy’. The Competition Act also

includes clauses specifically related to cross-border competition

issues.62

Another range of improvements relates to what the Act does not

attempt to cover. It wisely avoids unfair trade practices [UTPs]. The

vast majority of cases before the MRTP Commission in recent years

came under the chapter on UTPs and the section on compensation.

These involved mainly complaints relating to misleading advertising,

deficiency in quality of goods or delayed delivery, usually of flats or

cars booked with dealers. Matters such as these should have been

taken up by the consumer forums under the Consumer Protection Act

[COPRA], because adjudicating consumer cases requires principles that

are quite different from those required for a modern competition law.

Consequently, the limited resources of the MRTP Commission were

unnecessarily diverted away from the monopolistic and restrictive

trade practices that were its original responsibility. The Competition

Act rightly transfers pending UTP cases to the National Commission

constituted under COPRA, to be disposed of under its provisions, which

have recently been streamlined.63

In recent years the Commission has also entertained several

complaints under clause 2(o)(ii) of the subsection defining Restrictive

Trade Practices [RTPs], which refers to “manipulation of prices … so as

to impose on the consumers unjustified costs or restrictions”. This

issue is related to the second way in which the Competition Act

represents an important improvement, again because of what it does

62 Bhattacharjea, supra note 1, p. 27.63 Id.

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not include. The MRTPA was pervaded by the notion that the “public

interest” was to be decisive in adjudicating cases. This criterion has

been removed from the Competition Commission’s mandate in the new

Act.64 MRTP Commission’s interpretations usually had nothing to do

with maintaining competition, but were based instead on idiosyncratic

notions of social justice, such as protecting employment in industries

threatened by low-priced imports, or (in conjunction with the “price

manipulation” aspect of alleged [RTPs] protecting consumers from

prices which the Commission believed to be excessive. Evidence of

collusion, market dominance or effects on competition, which should

be central to establishing an anti-competitive act, was not required.

The MRTP Commission thus displayed a tendency to issue orders

against prices that it regarded as ‘unfair’, whether too high or too

low.65

5. FINAL OBSERVATIONS AND CONCLUSIONS

The Indian market today is totally different from what it was a few years back; there is

greater availability of goods and there is wider choice for the consumers. Prices of many

goods and services have fallen in real terms and, generally speaking, business is growing

at a healthy pace. The benefits of competition are particularly visible in sectors such as

automobiles, telecommunication, airlines, banking and insurance.66

It would be a major challenge to build up the Competition Commission as a highly

professional organization and attract well qualified professionals to work in the

Commission. Given the Governmental salaries provided for the Commission, it may be

difficult to attract and retain professionals and prevent a rapid turn-over of staff,

especially economists and lawyers. It is also important to undertake capacity building of

the Commission and its staff so that they have a deep understanding of the concepts, both

64 Id. p. 28.65 Id.66 See Speech by Mr. Dhall, Supra note 28.

29


economic and legal, which underlie the Act and also the latest developments in this area

across the globe. This challenge extends also to the investigating staff as they would be

required to investigate complaints keeping in mind the complicated economic and legal

issues that are bound to arise.67

It is also important to build up a larger body of professionals, outside of the Commission,

having adequate knowledge and experience of competition policy and law such as

economists, lawyers, professionals and business managers. Our experience is that, being

a new subject, the number of knowledgeable people in the country is very small, confined

mainly to the leading lawyers or law firms and a few economists. The law provides that,

in addition to advocates, chartered accountants, company secretaries and cost accountants

can also appear before the Commission. It is a challenge before them to build up their

knowledge and skills to effectively appear before the Commission.68

India is still getting used to the idea of having its own indigenous

competition legislation. With time the efficiency of the CCI is bound to

improve. As the CCI establishes itself as a fair body, the Competition

Authorities from other countries would also start trusting the CCI with

their investigation work for their cases and cooperation between the

Indian CCI and the other authorities can slowly develop.

The progress may be slow, the Indian Competition Act, 2002 is the first

step towards a more globally comfortable India.

67 Id.68 Id.

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wto competition policies and the indian response

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