Why is business afraid of a more efficient competition law?

Financial Express, July 05, 2013

By Pradeep S Mehta

Traditionally, business opposes any competition law around the world, because they fear that its application will bite into their bottom lines, which is an extremely misplaced fear. Perhaps, they are ignorant of the fact that a competition law actually builds up their balance sheets, as many studies have shown, by making them more efficient and regulating the anti-competitive practices of their competitors, input suppliers and distributors.

India adopted a modern competition law in 2002, but its implementation was delayed until 2009, with the introduction of provisions on anti-competitive practices i.e. those dealing with cartels and abuse of dominance etc. The provision on merger regulation was delayed until 2011, because of strong business lobbying. Their fears were set to rest when the application of the merger regulation was done in an efficient manner by the Competition Commission of India (CCI), so that majority of the mergers were cleared within a month rather than the statutory period of 210 days. More so, there is a two-speed process to enable merging companies to file for a summary procedure for being cleared in 30 days. A longer period is required if concerns show up which may require more rigorous analysis. Experience shows that CCI has lived up to this thus setting at rest misplaced fears. In spite of powers, it has not yet challenged mergers happening abroad, which have an impact in Indian markets.

In order to prevent possible misuse of the long statutory period of merger approval, a committee established by the government came up with many suggestions including reducing the statutory merger review period to 180 days. This provision applies to only large transactions which could result in companies’ assets crossing R1,500 crore or turnover crossing R4,500 crore in India and so on. There is more in terms of the financial muscles, but let me not bore the reader with technicalities. Suffice it to say that just about few hundred companies in India would be covered. The thresholds also deal with international dimensions, which is crucial.

The amendment proposals went through a round of consultation and ended up in an amendment bill which was placed in the Lok Sabha in December, 2012. It has since been referred to the Parliamentary Standing Committee on Finance which is yet to finalise its views.

Triggered by the takeovers of domestic pharma companies by foreign companies, which were below the financial threshold levels enshrined in the law, and the accompanying brouhaha one suggestion was to reduce the thresholds in certain cases through a government notification rather than a carte blanche. The brouhaha still reverberates and it also envelops turf issues, because the Department of Industrial Policy & Promotion wants to deal with it through the FDI policy, which is not really the best way.

The CCI is the most competent body to deal with them, and hence the need to empower it to do so even if they do not fall in its jurisdiction due to financial threshold levels.

If such a variable threshold level does not exist in the European Union or in the USA, it’s worth appreciating the fact that India is a developing country and a growing market with our own dissimilar democratic DNA and therefore we need to adopt practices which can comfort our citizens.

Today, it is pharma. Tomorrow it could be the multi-brand retail sector, where FDI is coming in as well. Foreigners would find it easier to acquire a domestic retail chain and in certain cases need not file for a review due to lower financial threshold. Big retail is another sensitive issue in India currently. Evaluating a retail merger needs more review parameters than pharma, because of physical location, procurement issues etc. For example if a retail chain operates only one store in a particular locality, then its takeover could mean stifling competition for the catchment area of the retail store, and consumers will be left with shrunk choices. Thus in similar cases the CCI may permit takeovers with conditionalities (conditions?). Similarly, in the pharma sector, CCI may need to impose conditionalities if the merged company ends up in a dominant or monopolistic situation for a particular therapeutic product line or decides to close the generic version of a drug so as to sell its patented drug (more about it in my next article).

Among other reported oppositions are to the delegation of the power of authorising dawn raids to the Chairman of CCI instead of a magistrate and joint abuse of dominance. The existing provision of seeking the approval of a magistrate is fraught with risks of leakage of information and could thus frustrate the purpose of the raid. Therefore, the need to change the legal provision to empower the Chairman to authorise the investigative staff to carry out the raids. In this matter, we need to note that we are a developing country and thus what happens in rich countries may not be applicable. It is worthy of noting that till now the CCI has not carried out any dawn raid.

Joint or collective dominance is covered under most competition laws of the world. Let me give an example, when the onion price crisis took place, the traders did not form a cartel, but exploited the market in view of shortages in a herd fashion i.e., collective dominance. CCI failed to find any sign of collusion. If mobile companies in India decide to impose standard conditions, by just following others, but do not necessarily agree on tariffs, then it would be collective abuse of dominance. If advertisers follow a pernicious pattern of slotting their ads on TV channels at the same time in all programmes so that the eye balls can only move from one ad to the other, but have not colluded to do so, then it is joint abuse.

The amendments also include some other useful amendments which should be good for businesses. For instance, currently if the CCI does not take cognisance of the DG’s report, no appeal lies against it. That will be corrected prospectively only unless the amendment expressly provides for retrospective operation. Companies charged with violations will also be heard on penalties to be levied, which does not exist in the current law.

Any law anywhere in the world is not static and changes are made depending upon the experience that is gained, so what’s wrong with the proposed amendment bill?.

The author is the Secretary General of CUTS International and had served as a member of the government committee which proposed the amendments.

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