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Legal opinion: Competition through the ages: An ideal too far?

J Sagar Associates (JSA) associate Leena Levakumar offers a jurisprudential history of competition law.

Law must change with the times while containing an element of certainty. The quest for a wider product market, equal and better opportunities to trade and sustenance of a free and favourable economy have urged progressive law making over centuries to preserve and foster competition in the market.

From the enactment of the ‘Lex Julia de Annona’, by the Roman Republic in the 50th Century BC, to the formation of guilds in the middle ages, the enactment of the Sherman Act of 1890 in the United States of America (USA) during the industrial revolution, the competition policy guided by the General Agreement on Tariffs and Trade (GATT) and the World Trade Organisation (WTO) and the Treaties of Rome creating the European Economic Community (EEC) - progressive changes have been seen over time that have aided in creating today’s global competition regime.

A single factor that has remained unchanged despite these progressive changes in law is its certainty in objective and applicability. This oneness in vision immensely supported the expansion of markets and trade sans national boundaries.

The evolution of competition law in India has had a chequered history right from grappling with glitches brought on by the Monopolies and Restrictive Trade Practices Act 1969 (MRTP Act) to ushering a new competition regime with the Competition Act 2002 (Competition Act),. This was due to a shift in policy from a concentration of economic power in the hands of a few to promoting competition and protecting consumer interests. The law was refurbished to provide for more than just penalising monopolistic, restrictive and unfair trade practices. However, this overhaul, resulted in uncertainty in the working of the legal system and a long wait for an active competition law and policy.

Laws are enacted on the basis of a cardinal principle that they must meet the needs of the changing times, but a changing law does not mean a law which is in a state of constant flux.

The Competition Act remained in a state of a flux for a considerable time as it came into effect in phases. The provisions of the Competition Act 2002 pertaining to its core structure i.e. the definitions and formation of the Competition Commission of India (CCI) was first brought into effect in 2003. However, the CCI could still not attain functionality due to the filing of a writ petition before the Supreme Court of India (Brahm Dutt Vs Union of India AIR 2005 SC 730) and there continued to be a vacuum with regard to adjudication on disputes regarding anti-competitive agreements and abuse of dominant position by an enterprise/group.

In 2009 all the provisions of the Competition Act were brought into force by way of a comprehensive amendment except the provisions relating to combinations. The MRTP Act was repealed and the MRTP Commission was dissolved and the Competition (Amendment) Act 2007 was enforced effective 1 September 2009.

The intermittent periods of vacuum occurring after more than half a decade of coming into force of the Competition Act, caused uncertainty in the functioning of the law and failed to effectively regulate domestic markets.

Over the past few years while mergers, acquisitions and foreign collaborations have increased,, competition law in India on the aspect of combinations is still nebulous. The provisions on combinations are slated to come into effect next month in June 2011. The Competition Commission had on 11 May 2011 released on its website the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (Combination Regulations). The combination regulations are also slated to come into effect on 1 June 2011.

The combination regulations provide for the procedure to be followed by an enterprise which meets the threshold of assets and turnover mentioned in the Competition Act. Such an enterprise which meets the threshold is required to give a notice to the Commission regarding the combination it proposes to enter into. The combination regulations also prescribe the procedure to be followed by the CCI for determining the impact of the combination on competition in India and the procedure to be followed in the event of such finding. The notification of the combination regulations marks a positive change in the trend so far, but its effective functioning cannot be commented upon just yet.

India’s burgeoning economy is primarily service-based being heavily dependent on foreign investment. The domestic manufacturing and industrial markets are yet to achieve the status of being self-sustained. In such a scenario, uncertain competition laws would not only squeeze out competition in domestic markets, but would rather create volatile domestic markets and deter foreign investment in India.

In the global market India competes with contenders like China for attracting foreign investment and inviting foreign collaborations. The objective of China’s competition law is to counter unfair competition, safeguard wholesome development of socialist market economy, encourage and protect fair competition, curb unfair competition and protect rights and interests of businesses and consumers. Competition law in China stipulates that government or government agencies are prohibited from forcing other parties to purchase designated commodities from designated sources. The government or its agencies are also prohibited from preventing commodities from entering into the local market and preventing local commodities from flowing out of the market.

In practice, however, government or government agencies are seldom punished for their unfair practices as the objectives such as regional development, local government’s revenue earnings and employment generally prevail over the objective of competition protection in dealing with such cases, according to a report published by the Organisation for Economic Development and Co-operation (OECD). Unlike China, India enjoys the reputation of being a vibrant market backed by pro-competition governmental policies conducive for investment.

India’s competition laws therefore require certainty, continuity of purpose and operational consistency with the ability of continual and effective enforcement.

Older economies of the world such as the USA and Japan have expanded and reached their optimum economic growth with the help of firmly established competition law and policies. The Japan Fair Trade Commission (JFTC) in a presentation on ‘Japan’s Experience from over 60 years’ Development of the Antimonopoly Act’ stated that, “Vigorous competition in Japan’s market maintained by active competition law & policy has played a big role for the development of the Japanese economy.”

The Indian economy is expanding at a rapid pace with no finite external boundaries defining the scope of its potential. Competition laws should therefore not remain tentative for too long. In order to protect and promote domestic markets, invite foreign investment and maintain international competitiveness, India will need to continue the pursuit of a changing yet certain competition law.

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