November 17, 2009

Even though the merger provisions of the Competition Act, 2002 are yet to be enforced many sectors are clamouring for an exemption. This is bad and should not be entertained at all, says a press release from CUTS International, a premier economic policy research and advocacy group.

“One of the specious arguments being raised by sector regulators, such as the Reserve Bank of India and the Telecom Authority of India to exempt mergers in the banking and telecom sectors from the purview of the Competition Commission of India’s (CCI) scrutiny is that it is their exclusive domain”, says Pradeep S Mehta, Secretary General of CUTS International and a competition policy expert.

Indeed sector regulators are overseeing the relevant sector, but the CCI has an economy wide remit to enforce competition rules in all sectors. On the other hand, the Reserve Bank of India is a prudential regulator and does not have competition expertise. Similarly, the TRAI can oversee the telecom sector’s health, tariffs and service standards but may not be able to judge the outcomes of a merger as it does not have the expertise. If this trend continues, then there could be other service sector regulators, such as electricity or insurance or petroleum & gas which will come forth with similar arguments.

“That would be bad for the economy as well as the competition reforms which the country is pushing forward. The best way forward is to ensure that both the sector regulator and the CCI consult each other on a mandatory basis and take up cases which lie primarily on one’s domain rather than oust the jurisdiction of the CCI” asserted Mehta. “This it the approach followed by the European countries and has been working very well. It has also been thus recommended by the Planning Commission in its policy document: ‘Inclusive Growth’ adopted by the National Development Council in December, 2007”.

The end purpose is that regulation should be optimal and whenever needed, rather than be through a pre-determined tough approach. In sectors, such as telecom, where there is sufficient competition, sector regulation should be abandoned and competition distortions should be left to the CCI to deal with. For e.g, the Canadian telecom regulatory law has such a sunset provision.

“Another ludicrous demand is from the shipping sector to exempt its’ price fixing activity from being tested under the Competition Act, when world over such exemptions are being reversed” says Mehta. “It is a fact that in the past shipping liner conferences were exempt from the competition laws of many jurisdictions, but now the European Union has withdrawn the amnesty”.

In 2006, the EC introduced regulations which repealed the block exemption of liner conference agreements and allowed a transitional period of two years for the members to put their house in order. From October 2008, the liner conference price fixing cartels are now illegal.

Freight rates plunged following the repeal and calls by ship liners for a reprieve in the face of the current global crisis were not heeded. The US and Australia are also following the EC experience closely and they are likely to follow suit in the near future.

For further information please contact:

Pradeep S Mehta , +91 98290 13131;