Searching new laws to promote competition

The Economic Times, October 20, 2007

The competition agency will need to be proactive in its advocacy role, by generating awareness among all stakeholders, imparting training to build capacity in its staff and other actors, providing political education to policy makers, and building alliances with stakeholders in India and outside, say Pradeep S. Mehta

Recently, Microsoft lost a judicial appeal against the European Commission’s charge of abuse of dominance in bundling its operating software with other add-ons, such as media player.

There are other suppliers, but they get shut out by Microsoft’s exclusionary behaviour. This reduces customer choice and increases costs.

So after a nine-year battle, Microsoft has to pay a record fine of e497 million, as hopes of them getting a stay on that at the apex European court is rather dim.

Earlier, the US and UK competition authorities slapped British Airways with record fines of over half a billion dollars for running a trans-Atlantic cartel on passenger and goods fares in partnership with its arch rival Virgin. What do these two incidents have to do with India? Quite a lot!

Firstly, whatever happens in Europe or in the US has a spillover effect on markets and consumers all over the world, including India, where these two businesses operate. In India too they indulge in the same type of anti-competitive practice.

The Monopolies & Restrictive Trade Practices Commission (MRTPC) has tried to deal with Microsoft’s exclusionary behaviour in India, and against several cartels, but did not succeed as the MRTP Act is quite weak.

Therefore, after setting in motion the process of adopting a new and modern Competition Act in 1999, we adopted a law in 2002. In 2007, Parliament passed a revised version of the Act. It has taken eight years to do so. Despite the delay, the economy continued to grow at 8-9%.

Had thee revised law been in operation, the growth rate would have been higher by at least 2-3%. An effective competition law, along with other market regulatory laws, ensures that markets are orderly and economic democracy prevails.

Cartels and abuse of dominance in the goods and services sectors will be the two major areas for the new competition authority to engage in, with determination and skills.

How do we get these attributes, and where do we look for them? The 2002 Act was put on hold by the Supreme Court, because the person being appointed as chairman of the Competition Commission was not a judge.

The apex court reminded the government that it must respect the doctrine of separation of powers between the judiciary and the executive.

So, the government agreed to a trade-off with the court, by amending the Act to create two bodies: a regulatory commission headed by an expert, and an appellate tribunal headed by a judge. We hope to see a functioning competition authority soon.

It is not sufficient to have the law, which is only as good as the people who implement it. If we want an effective competition regime, we need to appoint capable persons as chairmen and members of the two new authorities.

A new selection committee has been spelt out under the law to hunt for such persons. It will comprise a Supreme Court judge as its head and the secretaries in the ministries of corporate affairs and law & justice, thus reducing the manoeuvring capability of retirees to smuggle themselves in. Procedures for selection have not been spelt out, but the committee can advertise and carry out due diligence in the appointments to attract the best persons in the country to apply.

There is a clear political will to implement the new law, which is better than what had existed for the MRTPA. This was evident from the very small budget that it had got to operate. That should be the next item on the agenda which needs to be done concomitantly. The new competition authorities will need to hire a large number of investigative and prosecutorial staff and that will require a large budget.

Assuming a gradual implementation of the new law, the annual outlay of the new authority should be at least 0.010% of the total plan expenditure of the government or Rs 20.51 crore in 2007-08.

In a cross-country study that we did in 2000-02, it was found that the MRTPC’s budget was 0.0009% of the total government plan expenditure, while the USA with its two competition authorities (Federal Trade Commission and the Antitrust Division of the Justice Department) jointly had a budget outlay of slightly over 0.01386%. The competition authorities require a substantial budget to perform their functions effectively.

Of course, there will be some tension between the competition authority and sector regulators, and even forum shopping, due to the overlapping nature of their jurisdiction in competition matters in the regulated sectors.

To remedy this, the competition agency can advocate on specific cases before the sector regulators and also build up a consensus on some type of ex ante resolution of conflicts. There are other ways to avoid friction, such as forming a co-ordinating body that can decide on the authority best suited to handle a particular case.

There will be problems in implementation, due to legal infirmities and attitudes, vis-a-vis independence, appointments and removal of commission members. Such problems will have to be documented and brought to the attention of the people and policymakers, so that the Competition Act, 2007 is amended to enable the independence of the commission.

The competition agency will need to be proactive in its advocacy role, by generating awareness among all stakeholders, imparting training to build capacity in its staff and other actors, providing political education to policy makers, and building alliances with stakeholders in India and outside.

These activities will have to be carried out scientifically, and some of it is already being performed quite well. These activities can be spread out extensively through alliances with educational and research institutions, media, civil society groups and business chambers. Another important advocacy function covers policy advice to government, whenever asked. However, even when not asked, it can be done through media effectively.

Finally, the most important role of the new competition agency will be enforcement. It will need to deal with myriad anti-competitive practices, such as the formation of cartels and abuse of dominance pointed out in the beginning. To begin with the agency should tackle winnable cases to build up public acceptance and raise the morale of its staff. It should then move ahead slowly and steadily, as in a marathon.

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