LAHORE: Non-competitive behaviour is a norm in developing countries. It is essential to create awareness about free and fair trade through advocacy.
Although a comprehensive competition law has been in place in Pakistan for over a decade, the country is still in search of an effective anti-trust regime.
Rahat K Hassan, who is currently the chairman of the Competition Commission of Pakistan, stated in May 2015 as member legal CCP that the commission has enforced competition law, but true test of CCP’s effectiveness lies in recognition and endorsement of its decisions by the courts.
Speaking at the annual CCP conference, she said, “The sooner we will have pending battles concluded in the courts, the better it will be for CCP and the undertakings and the consumers.”
Eleven years down the lane the nation is still awaiting that endorsement from the courts. The decisions by the courts would prove whether the CCP was right, or the companies slapped with penalties were wrongly indicted.
If there was a violation of competition law, the courts ought to decisively act against any violation of the competition law.
There is no doubt that the strong groups affected by CCP surveillance against non-competitive practices spread disinformation on competition law. Only the courts could confirm or deny this contention.
Rahat has assumed the office of Chairman CCP for the second time, but even her verdicts as member legal CCP dating back to over a decade are still pending.
Vested interests favour advocacy to create awareness about the competition law, but advocacy without enforcement of the competition law has made the competition regime toothless in Pakistan.
Goal of achieving sustained higher growth would remain elusive if the competition regime in the country is not strengthened. Monopolies are harmful for even those entities that take temporary benefit from it.
They tend to operate inefficiently, which encourages the foreign producers to market their products. Monopolies deny level playing field to prospective investors and the cartels that ensure smooth functioning of monopolies erect entry barriers for any new comer in their domain.
The drawback of lingering court fights is that it delays decisions on cartels. If the CCP indictment of cartels is upheld in the end, it gives violators of competition laws, particularly the cartels, freedom to operate for decades with greater care to avoid being caught again.
Another issue is that the fines announced more than a decade back looked stiff but now the impact of those penalties would be soft. The cement cartel for instance was slapped a cumulative fine of Rs7 billion in 2010, the value of which has greatly diluted in 12 years if we convert this amount into dollars or gold at current rates.
If the decisions are endorsed by the courts the fine would not bother the cartel as much as it would have had it been endorsed in six to 12 months after the CCP decision.
The impact of monopolistic policies can be judged by the fact that the cement production capacities have increased more than three-fold from 20 million tonnes in 2010 to 65 million tonnes now, but the number of cement units are almost the same.
Entrenched entrepreneurs increased capacities, while newcomers could not dare enter the domain of the cement cartel. The number of sugar mills has also remained stationary although the capacities have increased manifold.
The CCP was successful in some spheres where the government was involved. It issued numerous policy notes, most of which were accepted by the government.
The tenders issued to buy jute bags provided room for collusion between suppliers and it was stopped by CCP.
The commission successfully stopped the government from imposing capacity tax on beverage industry that results in gains for large scale manufacturers, who hold a major share in the market, use high speed fillers, and produce at higher rates of capacity utilisation (up to 80-100 per cent).
On the other hand, a small manufacturer who has less demand in the market and is producing less than half of its production capacity will also have to pay the same fixed rate of tax. Therefore, a fixed rate of tax would reduce the tax burden of large manufacturers and increase it for small manufacturers.
This imbalance of tax imposition is anti-competitive, as it puts small competitors at a cost disadvantage, resulting in unfair competition, and eventually could squeeze the small competitors out of the market.
Moreover, the capacity tax regime creates barriers to entry and exit. Under the given tax slabs, a potential competitor will be reluctant to increase capacity, as this would result in a higher incidence of tax in the earlier years of the usage of the machinery, when it is typically utilised below full capacity.
Even otherwise, it would be difficult for any new competitor to compete with the larger manufacturers who have a stronghold in the market and take the benefit of cost advantage (economies of scale) under the capacity tax.
But actual monopolies, barriers to entry and cartels operate in the private sector that has been successful in delaying the court proceedings against CCP orders inordinately.