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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
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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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Competition Act, 2002 MRTP Act,
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..
Competition Act, 2002 MRTP Act,
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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..
Competition Act, 2002 MRTP Act,
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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..
Competition Act, 2002 MRTP Act,
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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