Antitrust Laws with respect to India and China

ANTITRUST LAWS WITH RESPECT TO INDIA AND CHINA

Author: Abhinav Srivastava , Faculty of Law, University of Delhi.

INTRODUCTION

The antitrust policy of the government regulates the monopolies, in order to ensure fair trade practices and maintain healthy competition so as to benefit the consumers and promote economic growth. The term ‘Anti-Trust’ has its origin from The Sherman Anti-trust Law, passed by Congress of the United States in 1890. It has been passed to curb the concentration of power of monopolies and to maintain economic competitiveness. Since then it has set an example for other developed and developing countries. India and China are not the exceptions that these two countries had not worked on regulating the monopolies. In India, the unregulated practices of the market used to govern by ‘Monopolies and Restrictive Trade Practice, 1969’ and later on it has been replaced by ‘Competition Act, 2002’. On the other hand, China introduced the ‘Anti-Monopoly law’ in 2008. It is the first regulated law of China in regulating monopolies.

This article will look into India’s Competition Act and China’s Anti-monopoly law and try to elaborate on the nature of both laws.

INDIA’ COMPETITION LAW

In the light of Article 39 (which talks about certain policies shall be made by the state for the welfare of state) of Directive Principle of State Policy of the Indian Constitution, Parliament enacted Monopolies and Restrictive Trade Practice Act, 1969 (hereinafter MRTP). The objective of MRTP is to promote competition by restricting the dominant position of monopoly on one hand. However, in the post-liberalization period, this act proved to be inadequate to match the exigency of anti-competitive measures. Mergers and acquisitions were happening between firms which enlarged their size and resources and were making the market more competitive. Along with all this, customers would be prone to deception and the new firms would-be victims of predatory pricing. The wholesome act was needed for the hour, so in 2002 ‘Competition Act’ came into the picture.

This act was enacted keeping in mind these following prerequisites[1]-

·         Economic growth of the country

·         Restriction on practices, which adversely affect the market

·         Healthy competition in market and promotion of market

·         Interest of consumers should not be disregarded.

To eliminate the malpractices in the market, the Competition Act, 2002 has also established Competition Commission of India as a chief regulatory body.

Key components of Competition Act[2]-

a)      Prohibition of anti-competitive agreements (Horizontal and Vertical),

b)      Prohibition on abuse of dominant position,

c)      Regulation of ‘combination’, if it adversely affects the competition in India.

Horizontal Agreements

These agreements are the type of agreement where competitors (same entities) agree to function mutually and manipulate the other competitors in the market. Section 3 of the Competition Act, 2002, talks about Anti-competitive agreements and the term ‘horizontal agreement’ has not been specifically stated in the section, however, section 3(3) states, that any agreement between persons/association of persons, and enterprises/association of enterprises, (cartels also included) having similar trade, which adversely affects the competition by –

·         Determining sale prices directly/indirectly,

·         Controlling/limiting the market, supply, or production,

·         Sharing market and production,

·         Doing bid-rigging directly/indirectly.

An exception has also been stated that, if the agreement is for the purpose of the joint venture then this section is not applicable.

Vertical Agreements

Section 3(4) of the Competition Act, talks about vertical agreement, where it states that the agreement between persons/persons of association, and enterprises/association of enterprises at different levels of the production chain. These types of agreement are mostly for those individuals who are unable to derive outcomes individually.

Agreements which are restraint under this section are-

1.      Tie-in agreements in which purchaser is required to purchase other goods, because of the condition.

2.      Exclusive supply agreements in which restriction has been put on purchasers from acquiring or dealing with any other goods.

3.      Exclusive distribution agreements in which limitation or restriction has been put on disposal or sale of goods in any particular area.

4.      Refusal to deal is the condition where selling and buying of goods from any particular person or group of persons, restricted.

5.      Resale price maintenance puts a condition on the prices of the goods that have to be sold by resale price, which has to be stipulated by the seller.

Section 3 of the Competition Act, which prohibits the anti-competitive agreements, is not applicable to[3]-

·         Conditions which are reasonable for protection of Intellectual property rights under specific law,

·         Agreements that are exclusively related to the control, production, distribution, or supply of goods for export.

PROHIBITION OF ABUSE OF DOMINANCE POSITION

According to section 4 of the Competition Act, the dominant position means where enterprises enjoy a position of strength in the market of India by-

·         Operating independently of competition in market

·         Affecting competitors, consumers, or markets in its favour.

Conditions which amounts to an abuse of dominance position according to section 4-

1.      Imposition of unfair or discriminatory practices, directly/indirectly

2.      Limiting/restricting production of goods or development of technical/scientific goods

3.      Indulges in practice/practices which results in denial to access to market

4.      Make such a contract that imposes supplementary obligations (having no connection with the subject of such contract) on other parties.

5.      Usage of dominant position in entering or protecting the relevant market.

To regulate or control such abuse of dominance position, the Competition commission according to section 27 of the Competition Act, directs any such enterprises to discontinue/modify such agreement as the commission deems fit. Competition commission may impose penalty also for not more than ten percent on average turnover.

REGULATION OF COMBINATION

Section 5 of the Competition Act elaborated the term combination, according to which it is the merger between two or more enterprises or acquisition of enterprises by persons/firms, vis-a-vis.

Section 6 laid down the procedures for combination, and it prohibits such combination which adversely affects the competition in the market. After the approval of the proposed merger or amalgamation by the board of directors, such enterprises within thirty days need to give notice (disclosing the details of combination) to the commission.[4] After notice, the commission will examine the nature of the combination.[5] It is also mentioned that until one hundred and twenty days have passed, there shall not be any combination for which the notice has been given.[6] Not every merger and acquisition has been covered under the act, only those mergers and acquisitions are covered which crosses specified assets and turnover as according to the act.

To redress the loopholes of the MRTP Act, the Competition Act, has been enacted and the same proved to be regulatory enough to mitigate the unhealthy market competition with the view of a welfare state.

Now it is interesting to look into China’s Anti-monopoly law which has been passed years after India’s Competition Act, and how far it managed to regulate or control the market competition.

CHINA’S ANTI-MONOPOLY LAW

The Anti-monopoly Law (hereinafter AML) was enacted on August 30, 2007, after thirteen years of debates and discussions.

Three reasons had been stated by the legislators which urged Anti-monopoly bill, they are[7]-

1.      Abuse of dominance jeopardizing the interest of consumers and competitors, which hinder the country’s development.

2.    Regulated law is the need of the hour so as to guide the active role of mergers and acquisitions.

3.      China being a market economy needs a competition law so as to provide business, an open, and transparent legal framework.

Provisions of antitrust law from the United States, Europe, and Germany have also been included in AML.[8] One interesting part of AML is that it also prohibits the abuse of power by administrative agencies considered as ‘administrative monopoly’.[9]

Like Competition law of India, AML also have three key components, they are –

1.      Monopolistic Agreements are prohibited,

2.      Abuse of dominant market position is prohibited, and

3.      Controlling and regulating mergers and acquisitions.

MONOPOLISTIC AGREEMENTS ARE PROHIBITED

According to article 1 of the AML, the purpose of the law is to prevent/restrain monopolistic conduct, enhancing and protecting fair competition in the market with economic efficiency, protecting and safeguarding the interest of consumers, and developing a healthy socialist market economy.

Now coming to the foremost part of the law, which is the prohibition of monopolistic agreements. China’s AML like India’s Competition law separated horizontal agreements and vertical agreements. Horizontal agreements which are prohibited under article 13 of AML, are those agreements which[10]-

1.      Fixes or changes the price,

2.      Limits the sales of product,

3.      Allocates the sale or purchasing markets,

4.      Limits the purchase or development of new technology,

5.      Boycotts transactions jointly, and

6.      Other monopolistic agreement, identified by the authorities.

Article 14 of AML prohibits those vertical agreements which-

1.      Fixes the resale price,

2.      Restricts the resale lowest price, and

3.      Other monopolistic agreement, identified by the authorities.

Unlike India’s Competition law, AML only recognized these three kinds of agreements and is less elaborate than India’s Competition law.

Some exceptions on monopolistic agreements are also given under article 15, which covers those agreements which are made to improve, research, and develop new technology, made to improve quality of the product and to improve the efficiency of small and medium enterprises, and made to deal with economic depression. These agreements are exempt from articles 13 and 14 of AML.

ABUSE OF DOMINANT POSITION IN MARKET

Chapter 3 of AML talks about the prohibition of abuse of a dominant position in the market. Article 17 states that those businesses which hold the position of dominance in the market are prohibited to abuse their position if they-

1.      Sells/buys commodities at unfairly high/low prices

2.      Sells commodities below the cost

3.      Refuses to trade with parties

4.      Requires its party to trade exclusively

5.      Imposes unreasonable conditions for trade

6.      Apply different pricing with other counterparties

7.    Conduct such practice which results in abuse of their dominant position, identified by the authorities.

If the business holds a relevant market share of 1/2 or above, or businesses jointly hold a market share of 2/3 or above, or three businesses jointly hold a relevant market share of 3/4 or above, then it is assumed that the business/businesses hold the dominant position in the market.[11]

CONTROLLING AND REGULATING MERGERS AND ACQUISITIONS

Unlike India’s Competition law, AML used the term ‘concentration’ instead of ‘combination’.

According to article 20, concentration refers to-

1.      Mergers

2.      Acquisition by purchase of assets

3.      Acquisition of control either by contract or other means

No particular notification criteria are given for concentration but the same is to be stipulated by the State Council, and that notification needs to be notified in advance with the authorities.[12] Concentration Notification will not be entertained by the authorities in the following situations[13]-

1.      If a party to the concentration exercises more than half of the voting rights of the other party.

2.     If a party other than a party to concentration exercises more than half of the voting rights of the concerned party.

Article 23 prescribed the documents which are necessary to notify the authorities about the concentration and if the necessary documents are incomplete then the time will be given, stipulated by the authorities. The authorities then review the notified concentration, preliminarily, and will inform the parties within 30 days that they are proceeding with the review according to article 25. Some factors are also taken into consideration while reviewing the concentration, like a market share of parties and their controlling power, and influence over the market, consumer, and economic development.[14]

The authorities may put some restrictions/obligations on the concentration to ensure that such concentration will not harm the economic environment of the market.

CONCLUSION

In the end when one looks at the antitrust laws of both countries, one may find that India’s Competition law is more elaborative and more clear in regulating or controlling the economic market. China’s AML lacks clarity and has a limited effect on China’s market. China being one of the largest economies needs the more guided implementation of AML, because economic globalization will hamper its economy sooner or later. Still, the enactment of AML is in itself a milestone for the country.

India’s Competition law, on the other hand, adopted an ‘economic approach’ for formulating the law for the Indian economic market, with the framework of the welfare state. With time, Competition law shifted focus from consumer interest to the public at large and became punitive in nature. The main objective of the Competition Act is to maintain and generate economic efficiency by not overlooking consumer welfare.

Now it is interesting to look at these two antitrust laws in future, that how much they are consistent with economic globalization.

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[1] Kabir Altamas, “Competition Laws and the Indian Economy”,  National Law School of India Review, vol. 23, no. 1, 2011, pp. 1–8, available at:  www.jstor.org/stable/44283735.

[2] B.S Chauhan, “INDIAN COMPETITION LAW: GLOBAL CONTEXT.” Journal of the Indian Law Institute, vol. 54, no. 3, 2012, pp. 315–323, available at: www.jstor.org/stable/44782475.

[3] Rajat Sethi, and Simran Dhir. “Anti-Competitive Agreements under the Competition Act, 2002,” National Law School of India Review, vol. 24, no. 2, 2013, pp. 32–49, available at: www.jstor.org/stable/44283760

[4] The Competition Act,2012, s.6(2)

[5] Id., s.30

[6] Id., s.6(2A)

[7] Yong Huang, “PURSUING THE SECOND BEST: THE HISTORY, MOMENTUM, AND REMAINING ISSUES OF CHINA’S ANTI-MONOPOLY LAW,” Antitrust Law Journal, vol. 75, no. 1, 2008, pp. 117–131, available at: www.jstor.org/stable/27897571

[8]  Xiaoye Wang, “HIGHLIGHTS OF CHINA’S NEW ANTI-MONOPOLY LAW,” Antitrust Law Journal, vol. 75, no. 1, 2008, pp. 133–150, available at:, www.jstor.org/stable/27897572.

[9] Anti-monopoly law, chp, 5

[10] Id., art.13

[11] Id., art.19

[12] Id., art.21

[13] Id., art.22

[14] Id., art.27