The Wire, April 16, 2020
By Pradeep S. Mehta and Udai S. Mehta
Over the past few weeks, the coronavirus has grown from being just a problem for China to a global one, hitting the prevailing global supply chains very hard and causing major economic disruptions amidst an uncertain future.
This provides the perfect opportunity for India to take stock of how to proceed with economic governance so as to ensure ease of running business and maintenance of existing jobs.
The crisis has erased trillions of dollars from the stock markets globally and small businesses will suffer more because of their size. This will adversely impact livelihoods of vast numbers of the economically impoverished daily wage earners.
In many countries, governments have announced a lockdown, which effectively means most businesses will be closed, except only those outlets for essentials, such as food and medication. In cities, it is mainly supermarkets and other retail outlets that remain the key interface point with consumers during this period.
However, in order to ensure that access to essential commodities is assured for everyone, there is a strong need for coordinated behaviour among retail operators, especially supermarkets, as it is possible that some products could be overstocked in one geographic area while being under-stocked in other regions.
Given this, the Australian Competition and Consumer Commission (ACCC) has granted interim permission to retailers such as Woolworths, Coles, Metcash and Aldi to share sales and stock level data in order to improve supplies during the COVID-19 crisis.
In general, coordinated behaviour among competitors is per se illegal under competition laws, as this would be tantamount to cartelisation. As companies address these concerns, there will be important implications and lessons that will emerge from the perspective of competition enforcement over a longer period of time.
This brings about a dilemma: should activities that involve coordinated behaviour among competitors that are designed for the benefit of consumers during the COVID-19 period and beyond be prosecuted or should they be exempted? The Competition Act of India provides such exemption for joint ventures if they increase efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services. The main challenge is that most competition laws did not provide or foresee any circumstances where collusion and coordinated behaviour among competitors can be justifiable, including during pandemics such as the COVID-19.
This issue has already surfaced in the United Kingdom, where supermarkets have asked the government for the suspension of competition law during this trying period, so as to allow them to co-ordinate supplies across all areas with a view to reducing shortages. In response, the Competition and Markets Authority (CMA) indicated that it will not take action against coordinated behaviour among competitors during this period as long as this behaviour is solely motivated by the need to address concerns arising from the current crisis and will not last any longer than necessary.
While the decision of the CMA makes sense and is justifiable, it brings a number of questions up for discussion. First, are there instances where coordinated behaviour by competitors can be in the interest of consumers? This question arises mainly because coordinated behaviour under competition law is mainly seen as contrary to consumer interest. Second, are there any assurances that during the time of crises, that businesses can be trusted to act in consumer interest, away from their general profit orientation? This is mainly due to the fact that exemptions are given based on trust, as competition authorities believe that the retailers are genuinely seeking to enhance consumer welfare.
Third, are competition authorities adequately positioned to monitor the arrangements, so as to be able to draw a line and identify whether business is acting on, or contrary to, consumer interest, even when such guidelines are not provided for in the competition laws? Fourth, if such exemption is extended only for the smoother supply of essential items, how will the coordinated activity be dealt if it is also extended to non-essential items, which can also be distributed simultaneously?
Another dimension also comes out from a definition perspective – what are essential services? While food and medical supplies would indeed be essential, can services such as transport, housing, insurance, and social security also be covered under essential services to help the public ride over the crisis? We are aware that reverse migration on foot is happening across India and people are at huge risk – could coordination among transport and housing providers not be termed essential in this period to ensure these people reach home safely.
Furthermore, we also know that the country has limited testing facilities, could coordination between different labs not be allowed to ramp up testing facilities in the country? In other words, once supermarkets and retailers are given an exemption, who would be left out? Will it therefore be advisable to suspend competition law enforcement for a predetermined period rather than doing it piecemeal and then review its extension?
The issue is very important and real which would certainly require attention of policy makers at the highest level. At the same time, businesses would also need to show highest level of trustworthiness and ethics. Competition laws at this extraordinary times will have to make sense with the need of the hour i.e. to what extent are they ensuring availability and movement of goods and services in core areas while harmful anti-competitive practices are also addressed. The Ministry of Corporate Affairs can provide the relief under the Competition Act.
COVID-19 will certainly result in several competition and consumer related issues in near to medium term. Thus, a coordinated response is needed, which can be made easier if a National Competition Policy is adopted, as it would provide for the necessary structures and guidance among regulators.
Pradeep S. Mehta and Udai S. Mehta work for CUTS International, a leading global public policy research and advocacy group.
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