Cartel Regulation : India in an International Perspective
The word ‘cartel’ inspires horror among the defenders of free trade. In their view, only a competitive economy in which enterprises compete, erect no barriers to entry, and in which prices are determined arm’s length, i.e. by the forces of demand and supply, can ensure growth and maximise welfare. Cartels engage in nefarious practices such as price fixing, collusive arrangements, market allocation, and behave in other ways to restrict trade with intent to get undue advantage.
The war against cartels has gone on for more than a century. The legendary Sherman Act was passed in the U.S. in 1890. It had its primary objective in protecting consumer interests. In the halcyon years, the U.S. authorities broke up the rail road and oil cartels. It was truly historic when the ATT’s monopoly was broken up in 1983. However, in recent years, U.S. has been soft towards conglomerates striding the globe.
It is difficult to argue that anti-trust (monopoly) regulation has created a more competitive economy. Attempts made by the U.K. and Australia to “criminalise” cartels did not meet with success. This is, in part, because the nature of technology and manufacturing has changed beyond measure as also the size and scale of operations of modern corporations. R&D efforts entail high risk, large value investments which small companies can ill afford. Further, intellectual property rights (IPR) create monopolies by shutting out the entry of rivals. Very high rates of growth in the post-war years in Japan, South Korea and China were achieved by promoting large corporations with public investment and/or directed credit. It is also intuitive that there is a trade-off between growth and competition. Thus, each country has to decide its national objectives and adopt competition regulation (laws) suited to its level of development. Perforce, it has to take into account the structure of its industries, including ownership.
Cartel regulation however is not easy. Laws and regulations get complex and messy. Some jurisdictions like the U.S. adopt the per se approach, i.e. cartels deserve to be condemned ipso facto. Others follow the rule of reason to test the adverse effects of cartels. In most jurisdictions what we observe is a combination of both. While Article 101 of the Treaty of the Functioning of the EU prohibits agreements restricting competition, Article 101(3) provides exemptions to soften the ‘hard’ core approach to cartels. These are based on the need to promote efficiency, innovation and consumer benefits. Developing countries provide more exemptions while drafting their national regulation. A World Bank paper (Cartel Exemptions in Developing Countries: Recent Work from the World Bank Group, Graciela Miralles and Murciego, 2013) said, “The need to balance competition policy objectives with those of other public policies can be especially significant in developing countries. A well-functioning framework to implement cartel exemptions should offer a mechanism to perform such assessment while warranting transparency, fairness and legal certainty.” These are better said than achieved in the real world.
Given these complexities and nuances, even the caveats, required to handle cartel regulation issues, it is naive to take a fundamentalist or narrow legalistic stand. Competition or cartel regulation is better viewed from a broader socio-economic perspective than through a narrow, legalistic lens. The book under review fails by this test. Indeed, it provides an elaborate analysis of the concepts of ‘cartel’ and ‘trade restraint’, etc. by leaning heavily on legal documents, literature and judicial pronouncements. There is hardly any analysis of the economic dimensions attached to the growth of global conglomerates and the paradigmatic changes which have come about as a result of revolution in technology in manufacturing. Most authors, economists as well as jurists, failed to grapple with latter-day trends in industrial organisation or technology and applied traditional rules and norms. It was left to the genius of Prof. Jean Tirole to capture the big picture and set new norms for regulation. No wonder, he was awarded the Nobel Prize for Economics this year. As Tirole showed, “traditional rules may work well in certain conditions, but do more harm than good in others.”
This book’s author notes in the introductory part that “competition law of different jurisdictions will have different goals that may range from the economic to the political.” She also explains that compulsions of the domestic economy will shape competition law. However, while dealing with the E.U. or Indian regulation, she applies narrow legalese for analysis.
In chapter 3 that examines U.S. regulation, she offers the historical background. U.S. approach is based on per se approach and condemns all acts to restrain trade as illegal. There are leniency and amnesty provisions which soften the blows somewhat. The U.S. Supreme Court has rejected the rule of reason approach.
The EU regulation is analysed in the next chapter. The analysis of Article 101 along with exemptions provided under Article 101(3) is perfunctory and wrong. The EU regulation attempts to foster EU growth and this could not have come about without the application of “exemptions” to promote the growth of EU companies, especially to face U.S. competition.
There are two long chapters on Indian regulation. One deals with the MRTP phase which ended with the passing of the Competition Act of 2002; the other, with the post-MRTP phase. On the whole, the author bemoans the fact that there has been no proper law or regulation to control or prevent the emergence of cartels.
During the MRTP phase the whole endeavour of the MRTP Commission was to deal with “concentration” of economic power and not with cartels restraining trade. Indeed, during this period, the Supreme Court had insisted on the application of rule of reason. The author lists a number of deficiencies faced by the Commission and how cartels could comfortably coexist or even flourish alongside the commission. According to her, the Commission lacked the expertise in detecting cartels and even if detected, it lacked the power to punish them.
The penultimate chapter examining the post-MRTP phase is factual and interesting. It offers an insight into the views of the Raghavan Committee which went into the drafting issues and how there was no consensus among the members. Finally, she analyses the provisions of the Act and explains how they are infirm. Power to make ‘exemptions’ is given to the government and the concept of ‘public interest’ implicit in exemptions may be abused. The penal provisions are also weak. More interestingly, Ms. Dasgupta analyses some of the recent decisions of the Competition Commission of India (CCI) and how it fails to act against cartels for want of concrete evidence about collusive arrangements. Though she does not say it, perhaps the CCI falls back on traditional Criminal Law precepts and the fear that if they are not so based, its decisions may be overruled by higher courts. However, she adds, “The cases decided by CCI show that in highly complex matters, the CCI fumbles and has failed to define important concepts like appreciable adverse effect.” She also faults the CCI for failing to define the relevant market in the case involving cartels and feels that the failure is grave.
In the concluding chapter, she lists her recommendations which are, by and large, legalese and based on traditional (if outmoded) anti-trust laws embodying the U.S. approach. The bibliography lists haphazardly, and perhaps selectively, without conforming to standard editorial styles and leaves out a rich crop of academic work on both sides of the Atlantic.
