Challenges to enforcement of Competition Act

Framing a social enterprise law
March 1, 2019

http://today.thefinancialexpress.com.bd/26th-anniversary-issue-3/challenges-to-enforcement-of-competition-act-1544435592

The Bangladesh Parliament on the 21st June 2012, passed the Competition Act, 2012 repealing the previous Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970 (the “MRTP,1970”). The MRTP, 1970 although aimed at regulating monopolistic, restrictive and unfair trade practices within Bangladesh, was never fully implemented. With the introduction of the Act, anti-competition agreements and abuse of dominant positions have been recognized and defined, and combinations (i.e. amalgamations or acquisitions, etc.) which cause an adverse effect on competition in the market of goods and services has been prohibited. The objective of the Act is “to make provisions to promote, ensure and sustain a congenial atmosphere for the competition in trade, and to prevent, control and eradicate collusion, monopoly and oligopoly, combination or abuse of dominant position or activities adverse to the competition”.

The introduction of the Act came as a much awaited and welcome news in Bangladesh, but six years since its enactment, implementation of the provisions still remain a challenge. Although the Act established the Bangladesh Competition Commission (the “BCC”), to be headed by the Chairman, and consist of up to four members, the BCC got its first Chairman four years after enactment - in 2016. The BCC currently constitutes of a Chairman, a Director, a Secretary, three Deputy Secretaries and an Accounts Officer. In addition to the operational set-back faced due to the delay in appointment of the Chairman, there are certain inherent structural drawbacks which serve as a challenge to implementation of the Act. First, the Act is unclear and ambiguous as to what constitutes effective ‘competition’ and how adverse impact on competition is to be measured. As a result, in the absence of set standards, there is a lack of clarity as to when an act is to be considered to have an anti-competitive effect. Second, the independence of the BCC, as a competition regulator may also be brought into question due to the institutional framework within which it functions and operates under the Act. Furthermore, with the provisions of the Act being in addition to any other relevant laws currently in force, the question of co-ordination between the BCC and other government agencies, which directly or indirectly monitor competition in specific sectors, and the role of the BCC in such sectors, remains elusive.

Measuring effective competition: According to the Act, it is the duty of the BCC to eliminate practices having an adverse effect on competition in the market, but the question remains when do we say that a market is competitive, or there is effective competition in the market or lack thereof? How do we measure the competitiveness of a relevant market? When we think of competition, our first assumption may be that it means low prices for goods and services due to many players in the market competing against each other, but competition is more than that. It is naive to assume that customers only care about low prices, and not innovation, quality and freedom to choose. According to Sir Derek Morris, former Chairman of the UK Competition Commission, “Competition is, to an important extent, a mechanism by which new ideas emerge and the best ones survive, only to be superseded by other still better ones.”

In order for the effective implementation of the Act, we need to first understand what effective competition is, which the Act fails to address. Although the Act sets out when an agreement would be said to have an adverse effect on competition, and when an enterprise will be deemed to abuse its dominant position in the market, however things become vague when it comes to the effect of acquisitions, mergers, take-overs, or amalgamation, which together have been defined as ‘combination’ in the Act.

The Act merely states that combinations which “causes or is likely to cause an adverse effect on competition in the market of goods or services shall be prohibited”, but what standards are to be used by the BCC for determining the effect of a combination on the market is unclear. There are multiple ratios for measuring the competitiveness of a relevant market, such as Company Concentration Rate (CRn), Herfindahl - Hirschman Index (HHI), Lorenz Curve, Gini Coefficient, Rosenbluth Index, Entropy Index, Linda Index, Horwath Index, Lerner Index, etc., each ratio factors in different indicators for measuring competition.CRnis one of the most common and widely used methods due to its simplicity and ease of calculation, while Lerner Index may be important for regulated industries since it factors in dominance (generally defined as high market shares) and market power (European Commission defines ‘market power’ as the power “to behave to an appreciable extent independently of competitors, customers, and ultimately consumers”) of players in the industry, which are important factors for determining competitiveness in such controlled sectors. There are of course arguments against using ratios that factor in dominance as a determinant, since higher market shares may just be a sign of the firm’s greater efficiency and innovativeness, as compared to other players in the relevant market, and may not necessarily be averse to healthy competition.

Therefore, as is clear, in order to make the Act operational and increase the capacity of the BCC, we need to first determine what is effective competition for any relevant market, and how to measure and assess such competitiveness. This can be done by enacting relevant rules and/or regulations, the power for which has been given to the government and the BCC, respectively, under the Act. For example, in Pakistan, if an “undertaking intends to acquire the shares or assets of another undertaking, or two or more undertakings intend to merge the whole or part of their business”, they must apply to the Competition Commission for clearance if they meet the pre-merger threshold as set by the Commission in its regulations. The method for measuring effective markets should be a key component of the competition policy in any country, and for Bangladesh it continues to remain unclear and ambiguous as to how the BCC would measure competition and what standards and thresholds it would use, since each method would entail different policy implications, in the absence of which the BCC enjoys wide discretionary powers.

Independence of competition commission: There is an extensive consensus among the ‘competition community’ that competition authorities should not only be independent of the business community but also from the executive branch of the government. Under the Act, the Chairperson and members of the BCC are to be appointed by the government, specifically, the Ministry of Commerce and the BCC is accountable to the government in discharging its duties. Furthermore, the government has the power to remove the Chairperson on the ground of abuse of his position in such a way that it renders his continuance in office in the opinion of the government to be prejudicial to the public interest, among other grounds for removal. The BCC is to submit its budget to the government for the next financial year, and the government retains the power to approve such budget; the BCC need not take prior approval of the government before spending from such approved budget, as long as it is being spent in the approved and specified head; and the Comptroller and Auditor General of Bangladesh shall audit the accounts of the BCC every year and submit a copy of the same to the government. It may be interesting to note here that according to the BTI 2018 Country Report on Bangladesh, the BCC was provided only BDT 1.1 million to maintain its office. The BCC, under the Act, is also “bound by the directions of the government on questions of policy relating to implementation”. These provisions in the Act raise concerns regarding the independence of the BCC. It is understandable that complete independence may not be a possibility, but the question is whether the BCC holds enough power for competition advocacy?

If we compare the BCC with other government agencies such as the Bangladesh Securities and Exchange Commission (“BSEC”), we see that the power to formulate respective rules, the appointment of necessary officers and employees lies with the BSEC under the relevant laws and not with the government. BSEC has the freedom to make rules for the purpose of implementing the respective law, by notification in the official gazette, prior to which BSEC has the obligation to take the opinion of all people concerned by publishing the same in a daily newspaper. The government does not have any role in the process, except when the rules are regarding the terms of service, for which prior approval of the government will be necessary.

According to Frédéric Jenny, Chairman of the OECD Competition Committee, having an independent agency in charge of competition policy of a country is reflective of the credibility of the government’s commitment to pursue competition policy as opposed to administration by a non-independent part of the executive branch, which is important for international trade. Interference from the government in the decision making of the BCC, or the BCC’s attempt to please the government, which holds its purse strings, may have adverse consequences if wrong decisions are given or proper action is not taken when required, including discouraging investments.

Independence from the government for a country’s competition authority such as the BCC would mean structural, operational and functional independence. Structural independence means complete separation from ministries of the government, for example, the US Federal Trade Commission, which reports to the US Congress and is structurally independent; in the absence of which undue influence may be assumed. On the other hand, the freedom to investigate and take appropriate actions indicates operational independence of a competition authority, while indicators for functional independence would include the procedure for appointment and dismissal of the head and other members of the competition authority.

Co-ordination between the Competition Commission and other laws and regulatory bodies: First, the provisions of the Act are complementary to other special laws relating to trade practices currently in force, such as the Essential Articles (Price Control and Anti-Hoarding) Act, 1953, Special Powers Act, 1974, etc. under which anti-competitive agreements are punishable as well. There is inadequate research regarding the compatibility of the Act and such other laws.

Second, in relation to controlled sectors that have regulators of their own, the role of the BCC is unclear. Whether the function of the BCC is complementary to such sectoral regulators is yet to be answered. Sectoral regulators, such as the Bangladesh Telecommunication Regulatory Commission (BTRC), Bangladesh Energy Regulatory Commission (BERC), and even the BSEC, have predetermined function of approving mergers or amalgamations in their respective sectors. It is interesting to note that in the recent High Court Division case of Robi Axiata Limited v. Registrar of Joint Stock Company (Company Matter No. 231 of 2015) for sanction of the scheme of amalgamation under the Companies Act, 1994, although the BTRC played a major role in the case, including answering issues regarding competition and consumer protection raised by Consumers Association of Bangladesh, the BCC did not play any part in the decision making since it was not yet fully operational when the judgment was handed down. In the future, whether or not the BCC would be made a party to a case filed under Sections 228 and 229 of the Companies Act, 1994 for approval of schemes of amalgamation by the High Court Division, and whether or not it would have any authority to approve or reject such scheme on the ground of it being averse to competition in the market, is yet to be seen.