COMPETITION COMMISSION AND ITS ROLE AGAINST ANTI-COMPETITION PRACTICES
INTRODUCTION
Competition law or policy is a tool that protect the consumer welfare by putting surveillance on different firm or undertaking that are jeopardizing the competition in a market, in various ways, for instance by reducing output, raising prices, degrading the quality of products in the market, holding out innovation and depriving consumers of choice. In competition market competitors are rival to each other so in order to maintain this rivalry they do everything for their profit that pose catastrophic effects in a competition market and pollute the environment of free flow of trade and economic activities. There are almost 120 systems of competition law in the world[1]. Bureau of Competition of USA, Competition Commission of EU, Competition Commission of India are playing effective role to protect competition in the relevant markets same as Competition Commission of Pakistan is participating with full force in Pakistan to discourage monopolies and to protect anti-competition practices. An important function of competition commission is to prevent private restrictive business practices and public policies that may unnecessarily impede the redeployment of scarce resources from lower to higher valued uses.
This article is segmented in to three sections. The first section deals with the history of competition law in Pakistan, second section pertains with how competition commission deals with the practices that are prohibited in competition law and third section depicts the author’s views.
HISTORY OF COMPETITION LAW IN PAKISTAN
Competition law is not new, 1960s was a decade of rapid economic growth in Pakistan, which at the same time became concentrated in the hands of twenty two family groups[2]. These groups collectively held “two thirds of the industrial assets, 80 percent of banking and 70 percent of insurance in Pakistan.[3]” This growing concentration of market-shares in the hands of a few prompted the government in commission of a detailed study into the trade, commerce, and industry of the country. So in 1963 Anti[4] cartel laws study group’s recommendations led to the monopolies and restrictive trade practices ordinance, 1970 (MRTPO, 70). The MRTPO was the first piece of legislation relating to competition law in Pakistan.
Broad objectives of this ordinance was to control undue concentration of economic power, monopoly and restrict trade practices but this ordinance was not much effective because of less mandate and due to lack of expertise, so government revamped this ordinance due to increasing modern economic environment.
On October 2007, competition ordinance 2007 was promulgated with the collaboration of World Bank and the UK’s Department for International Development (DFID) whose aim was to enhance economic efficiency, consumer welfare, to eliminate anti-competition practices in Pakistan just for sustainable development of Pakistan.
The Competition Commission of Pakistan (CCP) was established on 2 October 2007 under the Competition Ordinance, 2007 which dissolved the Monopoly Control Authority (“MCA”)
This ordinance was given permanency with the enactment of Competition Act, 2010 (hereinafter referred as an “Act”). Basically Pakistani competition law is inspired by the Treaty of Rome, United Nations’ set of multilaterally agreed equitable principles and rules for the control of restrictive business practices and the OECD’s recommendations and best practices.
The Act applies to all undertakings[5] (firms), whether governmental or private, and to all actions or matters which may have the effect of distorting competition within Pakistan regardless of their size and the way they establish or finance.
The Act gives the CCP legal and investigative instruments and powers to ensure free competition in all spheres of commercial and economic activity, to enhance economic efficiency, and to protect consumers from anti-competitive behavior as also described in preamble of the Act. The current Act has much broader objectives than the previous MRPTO.
The CCP as an institution is very well respected in Pakistan, even though it is relatively young. Its contribution to the creation of an institutional framework in the country is to be acknowledged. The CCP is an independent quasi-regulatory, quasi-judicial body that helps ensure healthy competition between companies for the benefit of the economy.
Although essentially an enabling law, it explains the procedure regarding mergers, acquisitions, enquires, imposition of penalties and grant of leniency. The Act prohibit situations that distort, or eliminate competition such as actions constituting an abuse of market dominance, competition restricting agreements, and deceptive marketing practices. Rather it empowers the CCP to take action against anti-competitive behaviour, covers both the services and public sectors and increases penalties to a maximum of PKR 75 million and PKR 1 million per day (from a maximum of PKR 100,000/- and an additional PKR 10,000/- per day).
ROLE OF COMPETITION COMMISSION
Following are the four practices mentioned in Competition Act, 2010 which are prohibited;
- Abuse of dominant position.
- Prohibited agreement.
- Deceptive practice.
- Approver of mergers.
Abuse of Dominant Position
There are large numbers of suppliers and buyers in a market that interact on a daily basis. Suppliers do their best to get a good profit, on other hand buyer wants quality things in a less price. This is possible only if there are a large numbers of competitors in the market. If one of the undertaking, that is dominant in a relevant market[6], commit acts that are explained in section 3 of the Act, will be deemed to abuse his dominant position i.e. practice that prevents, restricts, reduces, or distorts competition in the relevant market. These practices include, but are not limited to, reducing production or sales, unreasonable price increases, charging different prices to different customers without objective justifications, tie-ins that make the sale of goods or services conditional on the purchase of other goods or services, predatory pricing, refusing to deal, and boycotting or excluding any other undertaking from producing, distributing or selling goods, or providing any service.
Dominance itself is not an abuse unless undertaking did any of the above mentioned practices. Moreover, if undertaking abuses its dominance, its consequences would be borne by the consumer in shape of high price of the product of low quality, less variety of products, lessen competition in market and put a barrier for new competitors as well.
As it is stated in section 2(e) of the act that undertaking is presumed to be dominant if its share of relevant market exceeds forty percent. As show cause notice was disposed off in a case of WATEEN TELECOM LIMITED[7] when CCP came to know that Wateen’s share in the said locality was just 15% instead of 100%, so allegation of tie-ins due to its dominant position had no worth.
Other thing that dominant undertaking do generally is a predatory pricing that means to decrease the price of the product to the extent that is not possible for other small competitors to offer or to remain in market and once if the competitors get out of the market dominant undertaking again increase the price in their original position as it was stated in a case of MESSRS JCR-VIS CREDIT RATING COMPANY LIMITED[8] that the general approach with regards to predatory pricing, was that prices were assumed to be predatory if they were below average variable costs; that in such a case, there was no conceivable economic purpose other than the elimination of a competitor, since each item produced and sold, entailed a loss for the undertaking.
In the above case CCP imposed a fine of 5 lac for involving in predatory pricing, when respondent having share of 45% offered a bid of total Rs. 1,100/- for the rating assignment spanning 10 years against the amount quoted by complainant Rs. 7.22 million having 55% share just to eliminate the complainant from the market.
CCP also took notices in the cases where dominant firm refused others to enter in a relevant market by putting unnecessary conditions that are not possible in reality like in a case of BAHRIA TOWN (PVT.) LIMITED.[9]
CCP granted injunction and also imposed fine to the Bahria Town. When CCP received emails from the resident of the colony that colony is not providing right of way for another TV, internet, and telephone operator in Bahria Town and forced to use specific C.I.T. CCP held that management has exclusive right and dominant position to provide R.O.W, by not providing this they are violating section 3(1) read with section 3(e),(g),(h) of the act and imposed penalty of 2 million rupees and refrained them not to do this act again in future.
Prohibited Agreements
There are some agreements prohibited in the Act that are known as prohibited agreements or also known as anti-competition agreement and anti-cartel[10]. In these types of agreement competitors instead of taking part in competition do agreement with each other to earn the maximize profit that affect the competition in the market.
There are many agreements that are prohibited in section 4[11] of the act, collusion and cartelization were one of the most egregious forms of anti-competition behavior, which corrupted market as well as individual participants themselves. When any commercially sensitive information being exchanged, undertaking are already in realm of anti-competition. In these kinds of agreement commission mostly adopted illegal per-se approach[12].
In market economy, businesses are free to set their prices and discount their products and services as they deem fit. Business undertakings must set their prices and terms according to their independent scenario but if they do anything pre-planned, then it is prohibited under the act.
There are many instances where CCP took notice and imposed penalty when undertaking fixed the price like in case of MESSRS PAKISTAN FLOUR MILLS ASSOCIATION (PFMA)[13] and CCP held that;
By giving instructions to sell wheat flour at a fixed price, PFMA primarily took away bargaining power from retailers and consumers, vis-a-vis sale and purchase of wheat flour independently. Choice of different prices was not made available to end consumers and accordingly competition in relevant market was distorted. PFMA by fixing price of wheat flour, providing a platform to share commercially sensitive information and fixing quantities of production of wheat flour which had object of preventing, restricting or reducing competition within relevant market and same was to be condemned per se it was illegal and in violation of S. 4 of the Act.
Also an agreement that limited technical development and investment with regard to production, distribution with regard to sale of goods and services is prohibited like it was held in case of NFC EMPLOYEES CO-OPERATIVE HOUSING SOCIETY LTD;[14]
Exclusivity granted to the “Provider” prevented, restricted and reduced competition by imposing respective trading conditions; restricting output as well technical advancement in terms of innovation and efficiencies and investment, in violation of S.4(1) (2)(a)(b)(d) of Competition Act, 2010
Market sharing is also one of the instances of the prohibited agreement where CCP took per-se approach and imposed penalty because by doing this they bound the consumer to take services and goods from the fixed allocated places which caused high prices and left no other choice for consumers.
CCP issued a show cause to PAKISTAN OVERSEAS EMPLOYMENT PROMOTERS ASSOCIATION (POEPA) Vs G.C.C. APPROVED MEDICAL CENTERS ADMINISTRATIVE OFFICE (GAMCA) AND GCC APPROVED MEDICAL CENTERS[15]where pre-departure medical checkup centers are established for emigrants but medical centers allocate their areas for emigrants themselves causing division of market and equal allocation of customer that act totally vanish competition in a market and the competition was prevented and restricted, leaving no incentive to bring any innovation or efficiency, Such practice and conduct of the respondents were in violation of clauses (b) and (c) of subsection (2) of S.4 of the Act.
Deceptive Market Practices
Deceptive Market Practice is also very common in our market, where different undertaking use the name, trademark, logo of other undertaking that mislead or mis-inform the consumer and also advertise such content that cripple the business, reputation and cause heap of difficulties to other undertakings.
The CCP in one of the case[16] briefly explain the concept of misleading and false information. False information is contrary to truth or fact; implies either conscious wrong or culpable negligence, has a stricter and stronger connotation than can be justified and is not readily open to interpretation.
On the other hand, misleading information has the capability to give a wrong impression; is likely to lead to error of judgment or conduct and tends to misguide consumers because of it being vague. The omission of material information is also considered misleading, and hence, deceptive.
Section 10 of the Act states the different deceptive practice of the undertaking that are anti-competition. In case of COLGATE PALMOLIVE[17] Pakistan Limited CCP held;
That it was not necessary to show actual harm to the competitors; but it was sufficient to show the existence of deceptive marketing practice that had the potential to harm the business interest of the competitor.
One of the important role of this clause is to protect the goodwill and reputation of undertaking that is damaging by the tactics of another undertaking by using their names in their low quality products like in a latest case where show cause issued to NIMKO CORNER MESSRS KARACHI NIMKO[18]and held that;
The word Nimco was not a general descriptive word and the complainant was right in its stead to take appropriate actions in accordance with law to safeguard rightfully earned goodwill, reputation and investments. CCP imposed penalty, reprimanded the respondent to ensure responsible behavior in future with respect to the marketing of its business and directed the respondent to cease and desist from the use of complainants registered trademark.
CCP is playing a watchdog role against the undertaking that are doing deceptive practices. In most of the cases one undertaking shows himself superior against others by misleading the consumer against the ground reality like in case of UNIVERSITY OF MANAGEMENT TECHNOLOGY[19], show cause issued to them for deceptive market practice by showing the university ranking 2nd best business school but in ground reality university was not even in the list of HEC ranking.
There are many advertisements where disclaimers are in small font and are difficult to notice which is also a deceptive practice like in case of MESSRS PROCTOR AND GAMBLE PAKISTAN (PVT.) LIMITED[20], show cause issued for claiming “safeguard/soap” as Pakistan’s No.1 rated anti-bacterial soap; along with a disclaimer/disclosure in the points “based on product in use by AC Nielson on April 14 among 600+ consumers CCP held that;
The disclaimer/disclosure associated with the claims, must be ‘clear and conspicuous’ enough that the targeted consumers could easily notice and easily understand them along with advertising claims—“Deceptive Marketing Practices” encompassed protection of consumers and competitors from harm caused by the distribution of false and misleading information in the process of marketing and advertising campaigns by another undertaking—All representations, whether intentional or unintentional, that could give false information or idea, or had the likelihood to induce one’s conduct, thought or judgment, or had the potential to misinform or misguide due to vagueness or omissions, were materially misleading.
Generally, CCP initiates inquiry regarding deceptive marketing practices on its own or on the complaint filed to CCP. CCP after initiation of inquiry, if prima facie case has been made, send a show cause notice and after given the party a fair hearing, impose fine on them.
Acquisitions and Mergers
Law prohibits the merger and acquisition that restrict, distort competition or strengthening the dominant position of firm in a market. Review of merger and acquisition is important pillar of the competition policy to expose that there is no lessening competition or anti-competition effects on the relevant market. Section 11 of the Act clearly states that “no undertaking shall enter into a merger which substantially lessens competition by creating or strengthening a dominant position in the relevant market”. The Competition (Merger Control) Regulations, 2016 (‘Merger Regulations’) deals with the procedure of mergers and acquisition of undertakings.
CCP usually take notices when one undertaking who is already dominant in a relevant market wants an acquisition and merger with other undertaking that will further strengthen its dominant position in the market, that reduces the availability of choice for the consumer which was an important determinant of the competition market like in case of ACQUISITION OF PFIZER NUTRITION (A BUSINESS UNIT OF PFIZER INC.) BY NESTLE S.A,[21]
CCP required a written undertaking by the applicant/acquirer to the effect that, merged corporation’s products would continue to be available for a period of three years from the date of closing of transaction in Pakistan.
Usually CCP allowed a mergers and acquisition of undertaking that have no such effect in a relevant market because of the other number of competitors like in a case of ACQUISITION OF BUSINESS RELATING TO A PORTFOLIO OF ONCOLOGY PRODUCTS (EXCLUDING MANUFACTURING) FROM GLAXOSMITHKLINE BY NOVARTIS A.G[22], CCP held that;
“Large number of alternative to said common oncology products were available and were being marketed in Pakistan. Consumers would still have choice after completion of proposed acquisition. Competition Commission observed that proposed merger would reduce from 11 to 10 major companies developing and distributing said common product, which was large number of players. Consumers and suppliers would, therefore, still have choice of purchasing said product with same name. Proposed acquisition was not likely to have appreciable adverse effect on competition in Pakistan”
In most the cases CCP give go ahead with certain conditions like in case of KARACHI STOCK EXCHANGE, LAHORE STOCK EXCHANGE AND ISLAMABAD STOCK EXCHANGE[23], where all exchange submitted pre-merger application for the formation of “Pakistan Stock Exchange”. Under phase 1 review proposed merger had met the both threshold as described in Merger Regulations. CCP held that undertaking engaged in abuse of its position at any time in post-merger scenario, had power to penalize the undertakings and rectify such situation under section 3 of the Act. However CCP allowed a merger with certain conditions to safeguard the competition.
Same in a matter of M/S FAUJI FERTILIZER COMPANY LIMITED & M/S FAUJI FERTILIZER BIN QASIM LIMITED[24] where commission allowed merger with conditions and approval shall be subject to the review within one year.
In the light of above mentioned case it appears that the Act give many powers to the CCP for the maintenance of competition within the relevant market. It protects the small companies from the abusive behavior of the dominant undertaking. The CCP before issuing clearance certificate determines whether the merger reduce the competition within the market or not. After the determination the commission issues N.O.C with some condition
CONCLUSION
Representatives of the Pakistani business community comment that surprisingly the Pakistani Government truly respects the independence of CCP, perhaps in part due to international pressure. It was also emphasized that investments will only flow into Pakistan if legal certainty, through independent institutions like CCP, is achieved.
Khawaja Muhammad Yousaf former President MCCI, CCP said the economy needs a competitive business environment that ensures investors’ confidence and conducive conditions for innovation and growth. He termed the role of CCP crucial for protecting consumers’ rights and a competitive economy while urging the businessmen to increase their knowledge of the Competition Law. He assured MCCI’s support to CCP in creating awareness of the law and improving its compliance.[25]
The Commission’s solid reputation is based on technical competence and integrity. There is a common perception among Pakistani business and legal communities that the law gives CCP adequate power and discretion, as well as, along with CCP initiatives and performance, making the CCP known and respected in the country.
It is also considered that there are adequate checks and balances in the competition law and in the Pakistani legal system, particularly in regards to the judiciary
The mindset of CCP, which people believe is to enforce law not only to punish and favors the competition but against such competition that affects the market
In the nutshell, CCP is playing very important and active role in Pakistan for the progress of the economy and consumer welfare because economy is the back bone of countries but there is lack of awareness in business community about the competition law and policies. Due to this lack of awareness, they do not bother to make their business arrangement according to it and face consequences in the form of penalties. CCP must arrange seminars and workshops in order to make people aware so that businessmen can conduct their business in a free environment.
[1]A Helpful Way Of Accessing The Competition Laws Of The World Is Through The Website Of The InternationalBar Association’s Global Competition Forum, At www.globalcompetitionforum.org; Other Useful Sources Are The Websites Of The International Competition Network, www.Internationalcompetitionnetwork.Org; The OECD, www.oecd.org; And UNCTAD, www.unctad.org.
[2]UlHaq, Mehbub, The Poverty Curtain: Choices For The Third World 5-6 (1976).
[3] IBID,
[4]Organization For Economic Cooperation And Development, Global Forum On Competition: Roundtable On Bringing Competition Into Regulated Sectors, Contribution From Pakistan Available At Http://Www.Oecd.Org/ Dataoecd/14/44/19936969.Pdf [Hereinafter Contribution From Pakistan].
[5] Section 2(q) of the competition act,2010 “Undertaking means any natural or legal person governmental, body regulatory authority, body corporate, partnership association, trust or other entity in any way engaged, directly or indirectly in the production, supply distribution of good, or provision or control of services and shall include an association or undertakings.”
[6]Section 2(1)(k) of the Competition Act defines the term ‘relevant market’ to mean, ‘the market which shall be determined by the Commission with reference to a product market and a geographic market a ‘product market comprises of all those products and services which are regarded as interchangeable or substitutable by the consumers by reason of the products’ characteristics, prices and intended use. A geographical market comprises the area in which the undertakings concerned are involved in the supply of products or services and in which the conditions of competition are sufficiently homogenous and which can be distinguished from neighboring geographic areas because, in particular, the conditions of competition are appreciably different in those areas.
[7] 2019 CLD 188 [Competition Commission Of Pakistan]
[8] 2017 CLD 1003 [Competition commission of Pakistan]
[9]2017 CLD 881, [Competition Commission of Pakistan]
[10] A group of similar independent companies who join together to control prices, share market and limit competition.
[11]Section 4 of the Act prohibits undertakings or associations from entering into any agreement or making any decision in respect of the production, supply, distribution, acquisition or control of goods or the provision of services, which have the object or effect of preventing, restricting, reducing, or distorting competition within the relevant market. Such agreements include, but are not limited to, market sharing and price fixing of any sort, fixing quantities for production, distribution or sale; limiting technical developments; as well as collusive tendering or bidding and the application of dissimilar conditions.
[12]Restraints analyzed under the per se rule are those that are always (or almost always) so inherently anticompetitive and damaging to the market that they warrant condemnation without further inquiry into their effects on the market or the existence of an objective competitive justification.Craftsmen Limousine, Inc. v. Ford Motor Co., 363 F.3d 761 (8th Cir. 2004);
[13]2020 C L D 433 [Competition Commission of Pakistan]
[14]2019 C L D 164 [Competition Commission of Pakistan]
[15]2013 C L D 748 [Competition Commission of Pakistan]
[16]Messrs China Mobile Pak Limited And Messrs Pakistan Telecom Mobile Limited, 2010 C L D 1478 [Competition Commission Of Pakistan]
[17]2019 CLD 254, [Competition Commission of Pakistan]
[18]2020 CLD 277, [Competition Commission of Pakistan]
[19] 2019 CLD 615, [competition commission of Pakistan]
[20]2017 C L D 1609 [Competition Commission of Pakistan]
[21]2013 C L D 1129 [Competition Commission of Pakistan]
[22]2016 C L D 444 [Competition Commission of Pakistan]
[23] 2016 CLD 871, [Competition Commission of Pakistan]
[24]SHOW CAUSE NOTICES NO. 21 & 22/2010 ISSUED TO M/S FAUJI FERTILIZER COMPANY LIMITED & M/S FAUJI FERTILIZER BIN QASIM LIMITED (FILE NOS. 8(576)/INV/CCAO/MCA/94 & 8/AC(R&I)/MCA/05)
[25] http://cc.gov.pk/index.php?option=com_content&view=article&id=327&Itemid=193&lang=en
The views expressed in this article are those of the author and do not necessarily reflect the views of Law Recorder Pakistan.
By: Ahmad Abdul Rehman
Author is a practicing lawyer and currently pursuing his LLM from the University of Management & Technology.
