We know that competition law and policy are fundamental in improving consumer welfare and increasing economic efficiency. But it is time to ask the question whether that tells the whole story in a country like ours. The POSCO conflict over land acquisition in Orissa sharply highlights the competing interests of business and development in India. This is even more important now, as we are dealing with the post-financial crisis situation, when the world is moving towards reregulation.
A cursory look at India’s competition law will show that it is largely based on the European Union (EU) model of competition. The EU approach is different from the US approach because it provides for greater intervention in markets to address anti-competitive behaviour. The US approach finds its basis in the Chicago school of economics, in that free markets are generally self-correcting.
Our urge to replicate is understandable, as we see that it is an approach that has already worked effectively for someone else. Since our statute is based on EU law, it is logical that their law and decisions would have great persuasive value for us while drafting decisions, leading to universal norms. But the question then becomes whether such convergence of laws is desirable at all as a normative goal.
Contemporary scholarship highlights the importance of context in designing laws. Prof Eleanor Fox of New York University poses the question by asking, “If the principal economic problem of a country is deep systemic poverty, aggravated by corruption, cronyism, selective statism, weak institutions, and often unstable democracy, then is it sensible to choose a law that places reliance on liberalisation and free enterprise?”
She argues for a law with a foundational principle that centrally takes account of opacity, blockage and political capture of markets, and includes some measure of helping to empower people economically to help themselves. It is important to remember that this argument is not for curbing market forces from operating freely but to remember that when the market has embedded inequalities, it is important to create a level playing field through regulation.
The Competition Act, 2002 addresses the three areas that all modern competition laws provide for — anti-competitive agreements, abuse of dominance and merger control. The provisions on anti-competitive agreements and abuse of dominance were enforced in May 2009, whereas merger control provisions have been enforced as late as June this year.
Despite the late start, there has now been a spate of investigations taken up by the Commission in several sectors such as insurance, stock market services, computer software, etc. It is particularly encouraging that the possibility of horizontal agreements or cartels in sectors like agriculture, steel and paper are being examined by the Commission.
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The Competition Act, 2002 starts by stating that it is an Act “keeping in view the economic development of the country” but on examining the Act as a whole, it usually applies the same standards as applied by the European Commission. When competition law looks only at aggregate efficiency and wealth, it ignores the economic conditions in developing countries as these tend to favour the already privileged groups in the market. At this point, it is illuminating to look at the experience of other developing countries in their approach to competition policy.
The South African Competition Act, in its purpose, includes development objectives such as protection of small and medium-sized enterprises and promotion of employment and welfare of South Africans. Similarly, the Competition Act in Malawi holds that a merger shall be advantageous to Malawi if it increases employment, lowers prices for consumers or improves technological advancement. The Zambian Competition Commission makes a strong case for using competition law for poverty reduction through intervention in sectors where the poverty levels are high (as demonstrated by intervention in the poultry, horticultural sector and beef industry in Zambia).
This is not an argument for greater intervention in markets by the competition authority but for it to be rooted in a principle that takes into account the nature of markets that they are dealing with. Simon Roberts, who is part of the Competition Commission of South Africa, argues that states have, at a minimum, the ability to collect and analyse information on the trajectory of the economy in order to anticipate likely outcomes and the impact of government strategies to alter that outcome. This is why, for small and concentrated markets like South Africa has, it is important to take into account that the decisions of large corporations affect its economic outcomes.
India has a large and disaggregated informal sector with no political clout and it is impossible to ignore the power of large corporations to affect government policy. In the absence of explicit guidance under the Competition Act, the burden falls upon the Commission to be sensitive to market realities and use competition law to allow smaller firms to be able to compete free from foreclosing restraints created by powerful firms.
This does not imply protection of inefficiencies, but a more nuanced approach combining sensitivity to the nature of the market and protection of its independence. While competition law itself might be similar in developed and developing countries, developing countries must apply a different lens that factors in their concerns in application of the law.
The author is a lawyer who was a researcher with the Competition Commission of India