Relation between Competition Law and International Trade Law
This article intends to analyze the Relation between Competition Law and International Trade Law.
This article intends to analyze the Relation between Competition Law and International Trade Law. It first discusses the development and functioning of Competition law in the Indian context, and then moves on to the global presence of International Trade Law. After extensively discussing International trade law in the context of foreign jurisdictions and the World Trade Organization, this article goes on to explain the concept of anti-dumping laws in India. Anti-dumping is a small...
This article intends to analyze the Relation between Competition Law and International Trade Law. It first discusses the development and functioning of Competition law in the Indian context, and then moves on to the global presence of International Trade Law. After extensively discussing International trade law in the context of foreign jurisdictions and the World Trade Organization, this article goes on to explain the concept of anti-dumping laws in India.
Anti-dumping is a small but essential part of international trade law. The article discusses the role of the Competition Commission of India as well as the International Competition Network at length, to see how it impacts the relationship between competition law and international trade law.
Introduction and Development of Competition Law in India
India adopted its first competition law in 1969 as the Monopolies and Restrictive Trade Practices Act (MRTP). The Monopolies and Restrictive Trade Practices Bill was introduced in the Parliament in the year 1967 and drafted by the Monopolies Inquiry Commission, constituted in 1964, which observed the economic concentration of power and found that the then licensing policy in the country had enabled big business houses to secure a disproportionately bigger share of licenses resulting in pre-emption and foreclosure of capacity.[1]
MRTP Act, 1969 came into force, with effect from, 1 June 1970 and the MRTP Commission was set up in August 1970.
The MRTP Act was amended – first in 1984 and then in 1991. Comprehensive reforms on the economic front can be observed from 1991 onwards. With changes in the monetary, fiscal, and trade policies, a shift in approach towards privatization and globalization had taken place. Thus it was only natural that one of the key moves of the 1991 liberalization process was to remove those sections of the MRTP Act that required large undertakings to seek permission from the government before initiating any activity.[2]
However, the MRTP Act was still, to a large extent, ill-formed with respect to monopolistic practices as the definition of monopolistic trade practices in section 2(1) was susceptible to a wide interpretation and when read with Chapter IV brought almost every business activity within the per se illegal ambit of Chapter IV.[3]
In October 1999, the Government of India constituted the Raghavan Committee under the Chairmanship of Mr. SVS Raghavan to recommend a more equipped competition law framework for the country in line with international developments which may entail a new law or suitable amendments in the MRTP Act, 1969. The Raghavan Committee presented its report to the Government in May 2000.
The MRTP Act did not define important terms such as abuse of dominance, cartels, collusion, price-fixing, bid-rigging, boycotts, refusal to deal and predatory pricing, had no extraterritorial jurisdiction and the MRTP Commission could only direct a ‘cease and desist’ notice to a respondent I case of breach of law and could not impose any penalty on the respondent. The Raghavan Committee suggested the enactment of a new competition law instead of making further amendments to the MRTP Act.
The committee inter alia noted:
“Although significant steps have been taken to increase competition in various sectors of the economy, a number of important things need to be done that are essential for competition policy. There is the need for a Competition Law Tribunal (Competition Commission of India) that will act as a watch-dog for the introduction and maintenance of competition policy. It will promote the introduction of the required changes in the policy environment and once this is done, it will perform a pro-active advocacy function for competition.
Competition Law should deal with anti-competitive practices, particularly cartelization, price-fixing and other abuses of market power and should regulate mergers. It is important to ensure that such legislation does not itself become anti-competitive and this is a real danger. For this, it is necessary to ensure that the law is precise and discretion is kept at a minimum”[4]
Based on the recommendations of the Raghavan Committee, the Monopolies and Restrictive Trade Practices Act, 1969 was repealed and was replaced by the Competition Act, 2002, with effect from 1 September 2009. While the main objective of the MRTP Act, of 1969 was to prohibit monopolistic, restrictive and unfair trade practices, the Competition Act, 2002 was enacted to promote competition. While the focus of the MRTP Act, 1969 was to restrict dominance in trade, the Competition Act focused more on restricting the abuse of dominance by enterprises.
The Competition Act, 2002 also introduced provisions for regulations of mergers and acquisitions, the imposition of penalties for violations under the Act, and provided extraterritorial jurisdiction with the Act, all missing in its predecessor. A point of paramount importance differentiating the two acts is that the Competition Act mandated advocacy for the Competition Commission of India (CCI) while provisions for advocacy of the MRTP Commission were absent in the MRTP Act. The preamble of the Competition Acts reads as stated below:
“An act to provide, keeping in view of the economic development of the country, for the establishment of a Commission to prevent practices having an adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India…”
The Functioning of The Competition Act 2002
The Competition Act has been drafted in quite general terms and regulates or prohibits (i) under Section 3, agreements which are anti-competitive in nature, (ii) under Section 4, abuse of dominant position, and (iii) under Sections 5 and 6, a combination of (i) and (ii).
Section 7 of the Competition Act deals with the establishment of the Competition Commission of India (CCI), which is a quasi-judicial body bound by the principles of the rule of law in giving decisions and the doctrine of stare decisis. The main function of the CCI is to regulate competition and effectively administer and enforce competition laws and policies. It consists of a Chairperson and not less than two or more than six other members appointed by the Central Government.
The Commission inquires into the alleged contravention of the provisions of the Act either on its own or on the receipt of the information by any person or a reference made to it by the Central Government, State Government or statutory authority.
When the Commission is of the opinion that a prima facie case exists, it directs the Director General (who is regarded as the investigative arm of the CCI) to investigate the matter and submit its report. The DG does not have the power to investigate suo motu and can only look into the complaints received by the CCI under Section 26 and, if required, must submit the report of findings on the issues received to the CCI.
On the basis of the DG’s report, the Commission invites objections or suggestions from the Central Government or the State Government or the statutory authority or the parties concerned, as the case may be, on such report of the Director-General. If the CCI agrees with the report of the DG, it closes the matter and if the CCI is of the opinion that further investigation is required, it shall direct the DG to do so or proceed with further inquiry.
In case of a combination (which essentially means an acquisition or a merger) any party entering into such a combination should notify the Commission disclosing the details of the proposed combination. The Commission’s approval to the combination will depend on its opinion whether it will have an appreciable adverse effect on competition or not.
The orders of the CCI passed under the specified sections mentioned under Section 53A of the Act can be appealed in the National Company Law Appellate Tribunal (NCLAT), and the orders of the NCLAT can be appealed in the Supreme Court.
The Nexus between Competition Policy and International Trade on a Global Level
The interaction between international trade and competition laws was first observed in the General Agreement on Tariffs and Trade (GATT) in 1947 with the purpose of liberalizing trade laws. Its successor, the World Trade Organization (WTO), was introduced to reduce or eliminate trade barriers. However, competition law was largely outside the scope of the WTO.
For a long period of time, competition policies were considered to be a domestic issue. That era is gone and today, most competition laws across the globe include an international aspect. Price fixing, abuse of dominance in the tech industry, cross-border mergers, and market-sharing agreements, amongst other instances, easily spill over from one jurisdiction to another.[5]
Developments regarding the reduction of monopolization, liberalization and privatization of certain sectors as well as the rapid technological changes and the opening up of international trade, have unleashed unprecedented economic forces, which in turn impact across different jurisdictions in myriad ways.[6]
There is an undeniable need for stronger mechanisms of international cooperation if issues of jurisdiction and spillovers are to be resolved. It must be emphasized at this point that the anti-competitive practices explained below are detrimental to international trade. Convergence in competition laws is desirable because it ensures trading nations are in a position to reap the benefits of trade liberalization.[7]
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Cross-border Mergers
A cross-border merger especially becomes a cause for concern when there is a possibility of conflicting decisions by the competition authorities of the two (or more) jurisdictions. Different rules of laws or different analyses of rules by the authorities in the two areas, different market situations and resulting conditions of competition or simply, different authorities reaching different conclusions based on the facts are all situations wherein there is a scope for disagreement between competition authorities which would lead to substantial costs being incurred by the enterprises.
In Western Digital/Viviti[8], authorities in the U.S., EU, Japan, and Korea approved the transaction subject to Western Digital’s divestiture of certain production assets to Toshiba, while MOFCOM additionally required Western Digital to hold separate the Viviti business with the opportunity to apply for a waiver after two years.
In the case of Google/Motorola Mobility, while the EU and the US unconditionally cleared the case, MOFCOM found that Google has a dominant market position in the smart mobile terminal operating system market in China and could leverage such a dominant position when competing in the downstream market of the smart mobile terminal market through Motorola Mobility.
Certain behavioural remedies were imposed on Google as a result. The case was cleared conditionally three months after the action by the US and the EU.[9] In contrast, the Bayer/Monsanto merger is an example of effective cooperation between different jurisdictions, which one should pay close attention to. Initially filed in 30 jurisdictions, this merger required the divestment of assets worth approximately $9 billion in the US and well over €6 billion in the EU.[10]
While reviewing the merger, both the European Commission and the Department of Justice cooperated very closely with a number of other competition authorities, including their Australian, Brazilian, Canadian, Chinese, Indian and South African counterparts.[11]
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International Cartels
International cartels are usually responsible for activities such as horizontal price-fixing and collusive agreements within a country or for the division of areas to practice monopoly. A steady increase in the number of fines imposed and the length of prison sentences are some of the policies adopted by many national competition agencies to deal with international cartels.
This approach, however, becomes problematic at the international level if the cartel does not adversely affect the economy of one of the countries involved. Another issue which would be tedious to resolve is the case of export cartels since it becomes very difficult to find evidence for the countries where the imported goods are delivered.
In situations such as the case of selling of beer in Africa, where the beer producers have themselves divided the entire continent and enjoy a monopoly in their respective zones, no national laws become operative against them. The concept of the ‘effects doctrine’ provides a useful option in such situations. Under this principle, domestic competition laws are applicable to firms and arrangements based outside of the domestic market when they have effects that are felt within the domestic territory.[12]However, it must be noted that extraterritorial jurisdiction of competition law is a problematic idea and requires proper coordination among countries.
International Competition Network (ICN), established in 2001, is the only global body devoted exclusively to competition law enforcement[13] and has become the leader in promoting international cooperation in competition law enforcement.
The ICN does not exercise any rulemaking function and only recommends the best practices and how to implement the same after reaching a consensus amongst its members. The Havana Charter, which recognized the importance of competition policy for international trade in 1948, never came into effect due to the US not ratifying the charter and the issue of competition policy being dropped from the Doha Round of Multilateral Trade Negotiations in 2001, the WTO members have failed to reach a consensus on uniform competition policy.
The contribution of soft laws on the issue by the ICN provides a strong foundation for the development of concrete laws. The Competition Commission of India has joined the ICN Framework on Competition Agency Procedures, designed to strengthen procedural fairness in competition law enforcement, effective as of August, 2019.
Competition laws restrict practices that are harmful to the competitive practices- like the ones abovementioned- and are largely based on domestic legal principles intended to maximize economic efficiencies. Trade laws, by contrast, are aimed at public behaviour, whereby governments create anti-dumping measures, tariff and non-tariff market barriers, and thereby protect domestic producers at the expense of foreign competitors. Unlike competition laws, trade policy is aimed at opening markets to exporters and protecting domestic industries, not at optimizing marketplace efficiencies and consumer benefits.[14]
Competition laws are mostly based on domestic legal principles intended to augment economic efficiencies and sanction the conduct of enterprises that could be harmful to the competitive process, such as collusive or exclusionary agreements, anticompetitive mergers and abuse of dominance. Competition laws are enforced in courts and usually do not involve trade negotiation diplomacy and are more direct and partisan.
In the case of trade laws, unlike competition laws, governments generally impose specific limitations in the form of tariff and non-tariff market barriers aimed at protecting domestic producers at the cost of foreign competitors. In contrast to competition laws, trade policies are aimed at opening markets to exporters and safeguarding domestic industries, not at increasing the efficiency of the economy or the benefits enjoyed by the consumers. Trade laws and policies often involve diplomatic solutions and comprise of government representatives who are engaged in continuous bilateral and multilateral relationships and have to work alongside one another even after a dispute is resolved.
Trade liberalization opens up new opportunities for exchanging commodities and services of enterprises. The increased competition from international goods and services increases the efficiency in the domestic market which benefits the consumers. If domestic enterprises are able to stifle new entrants through anti-competitive practices, the consumer ends up bereft of those benefits and indicates the importance of competition laws in trade regulations.
The Concept of Antidumping Laws in India
While there is the possibility of anti-competitive practices on the part of domestic players, the same is also possible for international players. Large-scale international corporations can indulge in the practice of dumping and selling their goods at a price below their price in the domestic market. While there is nothing illegal about dumping, given prices vary with variations in demand and supply, antidumping laws come into action when dumping causes material injury to domestic players.
Dumping occurs when the item is imported into India at a price lower than its normal value. Normal value is the comparable price at which that item is sold in the domestic market. Section 9A of the Customs Tariffs Act prohibits any form of price discrimination between two countries and not simply predatory pricing.[15] On the contrary, the Competition Act only prohibits price discrimination if it can be proved that there was an abuse of a dominant position under Section 4.
The concept of ‘predatory pricing’ is only brought into the fold under the Competition Act if the motive behind reduced prices was the reduction or elimination of competition.
Anti-dumping policies cause two major causes of concern:
- it affects the end-user by reducing competition due to increased rates of import, and
- it creates an economic environment where the domestic enterprise does not need to regularly improve its efficiency as there is reduced scope for competition.[16]
Conclusion
Competition law and International trade law have different objectives and have had different evolutions as well. Competition law has been limited within the national economic situation. In contrast, International trade law has performed in global spheres to help relax governmental measures which regulate and restrict cross-border trade. These two fields of law interact in different kinds of economic situations and behave in a complementary manner with each other.
For instance, as seen above, we use a traditional trade law mechanism of anti-dumping to resolve the issue of low-priced sales, which creates a problem under competition law[17]. Although India has had limited contribution to International Trade law, on a global level, it has affected certain competition law policies in our country.
[1] Mehta Pradeep S; Competition and Regulation in India – Leveraging Economic Growth Through Better Regulation
[2] Jaivir Singh, Monopolistic Trade Practices and Concentration of Wealth: Some conceptual problems in MRTP Act, Economic and Political Weekly, Vol. 35, No. 50 (Dec. 9-15, 2000), pp. 4437-4444.
[3]Competition Law In India (Nishith Desai Association 2013), Available Here
[4]Report Of SVS Raghavan Committee On Competition Policy, Available Here
[5] Anderson R, Competition Policy, Trade and the Global Economy: existing WTO elements, commitments in regional Trade Agreements, current challenges and issues for reflection (World Trade Organisation 2018), Available Here
[6] Richard Whish and David Bailey, Competition Law (Oxford, 8TH Edition, 2015), p. 4
[7]Jenny F, “Domestic Competition, International Trade and Economic Development”, International Business Lawyer, Vol 23 No 10, Nov 1995, 474.
[8] OECD, International Cooperation in Competition Law Enforcement, 6-7 May 2014, p.4. Available Here
[9] John Jiang, Wu Peng and Scott Yu, Zhong Lun Law Firm, Dealing with the PRC merger control regime: case studies and guidance, Available Here
[10] European Commission, Press release: Mergers: Commission clears Bayer’s acquisition of Monsanto, subject to conditions, 21 March 2018, Available Here
[11] DOJ Press release: Justice Department Secures Largest Negotiated Merger Divestiture Ever to Preserve Competition Threatened by Bayer’s Acquisition of Monsanto, 29 May 2018, Available Here
[12] WTO, Available Here
[13] What is the ICN? International Competition Network, Available Here
[14] Julian Epstein, The Other Side of Harmony: Can Trade and Competition Laws Work Together in the
International Marketplace?, Available Here
[15] U, India- Rethinking Anti-Dumping Duties: A Competition Law Perspective, Kluwer Competition Law Blog, Available Here
[16] Hora N, ‘Competition Law And Antidumping Law: Understanding Overlaps And Conflicts – Ipleaders’, Available Here
[17] The Role of Competition Law as an International Trade Law Remedy in the Context of the World Trade Organization/Hein Online/ Kluwer Law International Journal Library