presentation on evolution of competition in india

7/28/2019 Presentation on Evolution of Competition in India

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WORKSHOPONCOMPETITION AND REGULATION POLICY WITH

SPECIAL REFERENCE TO THESTATE GOVERNMENT

06 JULY, 2007

EVOLUTION OF COMPETITIONPOLICY AND LAW IN INDIA

By

AUGUSTINE PETER

ECONOMIC ADVISERCOMPETITION COMMSSION OF INDIA

WWW.competitioncommission.gov.in
http://www.competitioncommission.gov.in/http://www.competitioncommission.gov.in/


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MONOPLIES INQUIRY COMMISSION

(MIC)

MIC appointed under Commission of Inquiry Act, 1952

Scope of inquiry - extent and effect of concentration ofeconomic powers in private hands.

TOR excluded agriculture sector and public sector

MIC to suggest legislation and other measures toprotect essential public interest and also suggestagency for enforcement of the legislation


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FINDINGS OF THE MIC - I

Adverse social effects of economic

concentration Government policies one of the main causes of

economic concentration

Managing agency system New technology scale of production

Birth of equity culture increase in size

War efforts of India Political largesse


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FINDINGS OF THE MIC II

MIC used CR3

Studied 100 products

64 products were found having CR3 >75% Infant milk food, biscuits, chocolates, tea, coffee

Dhoti, saree, shirting

Kerosene, coal, petroleum Lantern, stove, fan, lamp, radio, refrigerator,

geyser

Tooth-paste, razor, blade, cigarettes

Vitamins, penicill in Cars, commercial vehicles, tyres

Cement, sanitary-wares etc


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MIC distinguished between industry-wiseconcentration and country-wise concentration

Large number of industries had either singlesupplier or one supplier having large share of

market. Collusive behaviour in certain sectors

Entry barrier created by private players

Evidence of predatory pricing

Many public sector enterprises enjoyed

monopoly

FINDINGS OF THE MIC III


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FINDINGS OF THE MIC IV

Many restrictive trade practices (RTP)prevalent

Hoarding

Re-sale price maintenance

Exclusive dealing

Price fixing

Boycott

Price discrimination

Big business by its very bigness sometimes

succeed in keeping out competitors


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RECOMMENDATIONS OF MIC- I

Non-legislative recommendation Setting up public sector enterprises in sectors which have

little competition

Promoting SMEs and Cooperatives to challenge privatemonopolies

Continuation of license system and import restrictions


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RECOMMENDATIONS OF MIC- II

Proposed an autonomous Commission headed by aJ udge to implement a new law.

The proposed commission to have an investigatingarm

Punitive powers to the Commission

Scope of merger control limited to merger involving adominant enterprise (at least 1/3 of share inproduction/ supply/distribution)

All proposals for expansion by dominant enterprises tobe approved by the proposed Commission

IPRs to be under the purview of the proposed law.


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MRTP ACT

Made some significant departures from the

recommendations of MIC RTP prohibited MTP Government can refer to MRTPC for inquiry and

recommendation M & As powers entirely with the Government Enterprises having Rs.200 million in assets and

dominant enterprises having Rs.10 million in assets to

seek prior approval of Central Government forexpansion or setting up a new undertaking MRTPC had limited Civil Court powers enforcing

attendance of witness and calling for documents these

powers were not provided to the investigating agency Trial of offences in the domain of Courts


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SACHAR COMMISSION

Set up in 1997 to consider the working ofMRTP Act and recommend necessarychanges.


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FINDINGS OF THE SACHAR

COMMISSION

Reviewed the working of MRTPC during theperiod 1970-77

Found that the actual role of MRTPC waslimited and mostly advisory

The Government had not made use of theexpertise few references to MRTPC foropinion


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RECOMMENDATIONS OF THE

SACHAR COMMITTEE - I Definition of dominant enterprise to be changed

enterprises with market share to be termed dominant

Harmonization of definition of goods in the MRTP Actwith the Sale of Goods Act

Inter-connected undertakings concept to be introducedto the MRTP Act

Government Undertakings to be brought under purviewof MRTPC

Compulsory reference by the Central Government onMTPs to MRTPC


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RECOMMENDATIONS OF THESACHAR COMMITTEE - II

All M&As to be referred for advise of MRTPC, if theCentral Government so desires.

Division of enterprises- MRTPC to pass final orders ifthe Central Government referred the matter to it.

Certain Unfair Trade Practices (UTPs) like misleadingadvertisements to be inserted in the Law

Power to compensate against injury Power to grant interim injunction Power of contempt

Investigating arm to be provided more teeth by powersof conducting down raids and limited Civil Court powers


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1984 AMENDMENT TO MRTP ACT

Many deviations from the recommendations of theSachar Committee

Concept of deemed illegality to host of trade practicesintroduced

Exclusionary behaviour, tie in sale, re-sale price

maintenance, bid rigging, allocation of market, boycottpredatory pricing etc.

Registration of agreements by dominant enterprisesmade mandatory

Mis-representation as well as misleading ordisparaging advertisement included

Provisions prohibiting UTPs introduced


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1991 AMENDMENT TO THE MRTP ACT

Provisions dealing with monopolistic

enterprises seeking prior Governmentapproval deleted

Government Undertakings, Government

Corporations and Government ownedCompanies brought under the purview of theMRTP Act by notification

Granting of injunction without issue of notice tothe effective parties


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PROVISIONS IN

PRESENT MRTP ACT Has jurisdiction in RTP & UTP 14 practices are

deemed RTP, but there are gateways in S. 38 MTP if referred or suo moto, but can only

recommend to Government

M & A were deleted in 1991

Can grant temporary injunction

Has powers of contempt For disobedience, MRTPC must complain to

criminal court


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RAGHAVAN COMMITTEE

A high level Committee on Competition Policyand Law set up in 1999.

TOR inter-alia included recommending asuitable legislation framework which couldeither be a new law or appropriate

amendments to the MRTP Act


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FINDINGS OF THE RAGHAVAN COMMITTEE

Word competition used sparsely in theMRTP Act only twice

Absence of precise definition e.g. Cartels

Inadequate to deal with implementation of

the WTO Agreements No specific powers under the MRTP Act todeal with mergers

Inadequate in dealing with anti-competitivepractices as in other modern competition law

Expedient to have a new Competition Law


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Competition Commission of

India: DutiesCompetition Act, 2002 notified in January,

2003 - Stated objective (as indicated inPreamble) is to establish the Commission to:

Eliminate practices having adverse effect on

competition;

Promote and sustain competition

Protect consumers interests Ensure freedom of trade carried on by other

participants in markets in India[Section 18]

Preamble of the


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Preamble of the

Competition Act, 2002 States:keeping in view the economic development of the

country, to prevent practices having appreciable adverse effect

on competition;

to promote and sustain competition in trade andindustry:

to protect the interest of consumers;

to ensure freedom of trade carried on by theparticipants in markets in India;

Objectives to be achieved through the establishment of

the Competition Commission of India (CCI).


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MAIN FEATURES OF

COMPETITION ACT, 2002With the above objective, the Act:

Prohibits AnticompetitiveAgreements.

Prohibits Abuse of DominantPosition.

Provides for Regulation of

Combinations, and Enjoins Competition Advocacy

[Sections 3, 4, 5, 6 and 49(3)]


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Anti-Competitive Agreements - 1

Agreements having appreciable adverse effect on competitionin market in India are void

Presumptive logic Agreements between competitors - including Cartels-

(horizontal agreements) presumed to have appreciableadverse effecton competition

price fixing sharing of market limiting production, supply bid rigging/collusive bidding

Presumption Vs per se Treatment of J Vs; efficiency enhancing J Vs: Treatment of Production for Exports

(Section 3)


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Anti-Competitive Agreements -2

(contd.)

Rule of reason(i) Other Horizontal Agreements

(ii) Vertical Agreements: Agreements between enterprises at differentstages of the production, distribution etc. chain(burden of proof of appreciable adverse effect on competition lies on theprosecutor).

These include: tie-in arrangement, exclusive supply agreement exclusive distribution agreement refusal to deal resale price maintenance

List not exhaustive Treatment of IPRs in Section 3 on Agreements (3.5.1)


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ABUSE OF DOMINANT POSITION Dominant position means position of strength,

enjoyed by an enterprise, in the relevant market, inIndia, which enables it to

(i) operate independently of competitive forces

prevailing in relevant market; or(ii) affect its competitors or consumers or therelevant market in its favour

Not dominance, but itsabuse is prohibited Dominance not based on any arithmetical figure,

but on factors prescribed in Section 19 of the Act

C O S O CO S


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FACTORS TO BE CONSIDERED IN

DETERMINING DOMINANCE - 1Dominant position linked to a host of

factors Market share of enterprise

Size and resources of enterprise

Size and importance of competitors

Commercial advantage of enterprise overcompetitors


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FACTORS TO BE CONSIDERED IN

DETERMINING DOMINANCE - 2

oVertical integration

oDependence of consumersoDominant position as a result of a statue

oEntry barriers

oCountervailing buying poweroMarket structure and size of market

oSocial obligations and costs

oContribution to economic developmentoAny other factor


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ABUSE OF DOMINANCE - 1

Imposing unfair or discriminatory price

or condition in purchase or sale Limiting production or scientific

development to the prejudice of

consumers Denial of market access in any manner Conclusion of contract subject to

supplementary obligations Use of position in one relevant market

to enter into or protect other relevant

market


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ABUSE OF DOMINANCE - 2

List of Abuses in the Act are exhaustive

No action if an act(ion) is not covered in Abuse

Abuses are of two types:

> Exploitative (predatory pricing, e.g.)

> Exclusionary(interference with competitive process)

No concession in case of abusive use of intellectual

property Appreciable adverse effect on competition (AAEC)

need not be proved


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Regulation of Combinations

Combination is a broad term: includes merger,amalgamation, acquisition of shares, acquiring of

control Act takes a liberal view High threshold limits only big ticket combinations

subject to regulation Voluntary notificationregime Commission to decide in 90 working days, else

combination isdeemed approved Commission can take, upon its own knowledge or

information, actionwithin 1 year after combination


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RELEVANT MARKET

Relevant market is based on:

Relevant product market; and

Relevant geographic market


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RELEVANT MARKET

Relevant Product Market - 1

Relevant product market is the smallest

set of close substitutes Determination of substitutability of products:

Demand side substitutability- shift of demand to competing

product on price rise

Supply side substitutability- shift of production to meet demand

RELEVANT MARKET


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RELEVANT MARKET

Relevant Product Market- 2(Competition Act, 2002)

In determining Relevant Product Market,CCI is required to consider:

Physical characteristics or end-use of goods

Price of goods or service

Consumer preferences

Exclusion of in-house production

Existence of specialized producers

Classification of industrial products

RELEVANT MARKET


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RELEVANT MARKET

Relevant Geographic Market - 1

Relevant geographic market can be defined asthe area in which products are available at

approximately the same price given transportcosts and any increase in demand can be metfrom neighbouring areas profitably

Elzinga - Hogarty test to determine relevantgeographic market:

LIFO (Little In From Outside)

LOFI (Little Out From Inside)

Usually both should be at least 90% to define the relevantgeographic market shipment data required

RELEVANT MARKET


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RELEVANT MARKET

Relevant Geographic Market 2(Competition Act, 2002)

In determining Relevant Geographic

Market, CCI is required to consider: Regulatory trade barriers Local specification requirements

National procurement policies Adequate distribution facilities

Transport costs

Language Consumer preferences

Need for secure regular supplies or rapid after-salesservices


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COMBINATIONS

Combination covers

MergerAcquisition

Amalgamation

Acquiring control

Any combination which causes or is

likely to cause appreciable adverseeffect on competition (AAEC) is void

VOLUNTARY NOTIFICATION


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VOLUNTARY NOTIFICATION

& HIGH THRESHOLD While Agreements and abuse of dominance are

prohibited, combinations are regulated

Indian Combination regulation liberal High threshold limits

If combining parties are in India:

Combining parties assets in India > Rs 1000 cror turnover > Rs 3000 cr

If combining parties are a group, assets in India > Rs 4000 cr

or turnover > Rs 12000 cr

If any of the combining parties are outside India: Assets in India and outside India > US$ 500 m or turnover > US$ 1500 m

If any of the combining parties belong to a group and any one of them isoutside India, assets > US$ 2 b or turnover > US$ 6 b

APPRECIABLE ADVERSE EFFECT


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APPRECIABLE ADVERSE EFFECT

ON COMPETITON (AAEC)Market definition

AAEC has to be determined in therelevant market

Relevant market determinationdepends upon determination of therelevant product market and therelevant geographic market


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DETERMINING FACTORS - 1

Factors to be considered to determine AAECin the Relevant Market (Competition Act,

2002): Actual and potential competition through imports-

imports/trade agreements

Entry barriers- sunk cost/technological lead Concentration level - CR, HHI

Countervailing power

Likelihood of increase in prices or profit margins Effective competition after combination

DETERMINING FACTORS 2


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DETERMINING FACTORS -2

(Competition Act, 2002)

Substitutes actual or potential

Market share

Removal of vigorous and effective competitoror competitors in the market

Extent of vertical integration Failing business

Nature and extent of innovation

Contribution to economic development

Whether benefits outweigh the adverse impact

Competition Act 2002 MRTP Act


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Competition Act, 2002 MRTP Act,

1969 Aims at promoting competition

Focus on effects on competition

in the market

Based on reformative-cum-deterrent theory

Seeks to prohibit anti-competitiveagreements, abuse of dominantposition and to regulate

combinations Statutory Authorities can seek

opinion

Aims at curbing monopolies

Focus on size (uptil 1991) and

on behaviour from 1991onwards

Based on reformativephilosophy only

Prohibit monopolistic,restrictive and unfair trade

practices

No provision to seek opinion

Contd..

Competition Act 2002 MRTP Act


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1969 (contd.) Central government can seek

opinion on policy/law relating to

competition Enjoins competition advocacy

No more requirement to file anti-

competitive agreement with DG

Trade Agreement havingappreciable adverse effect oncompetition in the market is

VOID

No enabling provision to

render opinion to Central

Government on such issues No provision to undertake

competition advocacy

Restrictive Trade Agreements

are required to be filed within60 days with the DG (I&R) forregistration

Only restrictive clauses are held

to be void

Contd..



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Co pet t o ct, 00 ct,

1969(contd.)

Leans heavily on Rule of

Reason

Appreciable adverse effect is akey factor Factors prescribedto determine AAEC

Cartels explicitly defined Leniency programme exists

Commission to exercisejurisdiction in case ofunreasonable restraints exercisedin respect of IPRs.

Obsessed with deemed

concept

Prejudicial to public interest isa key factor parameters notmentioned in the law

Implicit jurisdiction in respectof cartel. No leniencyprogramme exists

No explicit power with theMRTPC in respect of IPRs

Contd..



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p , ,

1969(contd.)

Concept of Market is

rationalized Relevant

Market=Relevantproduct market + RelevantGeographical market

Primary duty to achieve the

objectives of the Act devolveson CCI

Combination a broad term,High threshold limits, only

regulated and not prohibited,notification voluntary, 90 daystime limit, suo-motuinvestigation within one year

Market has not been defined

nor factors to determine

market have been prescribed

Act implemented partly byCentral Government and partlyby the MRTP Commission

Combinations were regulatedby the Central Government

upto 1991.

Contd..



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p , ,

1969(contd.)

Explicit jurisdiction in respect

of overseas acts having impactin India- provision for MoUs

both complementary andsupplementary

Applicable to Government

Departments performing non-sovereign functions

Deterrent penalty provisions linked with turnover in case ofcartel, the penalty has to bethree times of profit or 10% of

turnover whichever is more

No provision to enter into

MoUs

Not applicable to GovernmentDepartments

No penalty provisions.

Competition Act 2002 MRTP Act 1969


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Consumer includes both

commercial buyer and ultimate

user Comparatively more autonomous

and independent-establishment ofcompetition fund

Multi-disciplinary body

Delineation of relevant market

No power of review / contempt

The consumer concept is notdefined

Lacked autonomy andindependence

Members from restrictednumber of fields

No such delineation ofrelevant market

Power of review / contempt

exists

Contd..

Competition Act, 2002 MRTP Act, 1969(contd.)


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Exclusion of jurisdiction

in respect of export business

Inquiry to be preceded byinvestigation by DG

DG does not have suo-motu power forinvestigation

DG vested with powers of

a Civil Court

Implicit exclusion of

jurisdiction in respect of export

Inquiry not necessarilypursuant to investigation

by DG Suo-motu power of

investigation vested in DG

(I&R)

DG does not have powers

of a Civil Court

Competition Act, 2002 MRTP Act, 1969(contd.)

POWERS OF COMMISSION


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>Cease and desist order

> Penalty up to 10% of average turnover for last threepreceding financial years

> In case of cartels, penalty up to 10% of turnover or threetimes of cartelized profit, whichever is higher.

> Compensation ( damages)

> To declare agreement having AAEC as void

> Order can modify agreement

> In case of Combination can be approved, approvedwith modification, or refused approval.

> In case of dominant enterprise order can recommend

Central Government for division of dominant enterprise.

PRESENT ACTIVITIES


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OF CCI Competition Advocacy (including Awareness

creation and Training).

Professional Work (preparatory and foundational). Capacity building & administrative work. Inquiries and regulation of combinations not

commenced; concerned sections not yet notified.

Present work is preparatory and foundational;objective is to commence inquiry and regulatorywork after notification of sections, without furtherdelay at that stage, and to build CCI into highly

professional organization. Commission has been working with a small team of

officials

PRESENT ACTIVITIES


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COMPETITION ADVOCACY Advocacy with central government ministries:-

Advocacy with state governments

Over 50 Seminars, workshops across the country

Interaction with industry chambers, associations, professionalinstitutions, etc.

Advocacy literature Website, Advocacy booklets etc.

Advocacy with about 150 universities/institutions.

PRESENT ACTIVITIES


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S C S

PROFESSIONAL WORK Draft regulations.

Market studies/research projects Preparation of reference materials

Study of economic, legal concepts

Competition Forum 39 sessions

Close networking with experts through AdvisoryCommittees etc

PRESENT ACTIVITIES CAPACITY


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BUILDING

Training of staff.

Implementation of capacity building projects.

Study on Organisational Structure.

Library

Website

DISCLAIMER


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This presentation provides only an introduction to

competition law, and should not be relied on as asubstitute for the law itself.

Further, this presentation is subject to anyamendments which may be made in the competition law

at anytime in future.


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Thank you

THANK YOU

Website:

www.competitioncommission.gov.in

presentation on evolution of competition in india

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