Pakistan’s Competition Regime- Out of The Shadows, And in Lockstep with Best Global Practices

Anti-Trust Laws, more commonly referred to as Competition laws or Anti-Monopoly Laws, are imperative for an economy to promote a competitive business environment that safeguards investors’ confidence and creates conditions which are conducive to innovation and growth. Although the effects of anti-competitive practices are not easily quantifiable and therefore may not be obvious, the most common results of such practices are price increases in markets involving output-restricting or price-fixing cartels and dominant firms abusing their market power. In such cases, consumers are the ones who suffer directly from restricted competition.

Nevertheless, there is rising awareness among developing countries of the adverse effects of anti-competitive practices on their economies and in this regard, many developing countries have adopted or are in the process of enacting competition laws. In Pakistan, a regime regulating Competition was introduced in the 1970’s through the Monopolies and Restrictive Trade Practices Ordinance (MRTPO) of 1970 with the Monopoly Control Authority acting under its authority. However the scope of the MRTPO was severely constrained by the Economic Reform Order of 1972 which resulted in a broad nationalization process that affected the major part of the economy.

Among other limitations, the MRTPO was not applicable to state owned enterprises under §25 and in the fast changing global and national economic environment after the 1980s, the MRTPO was found inadequate to address competition issues effectively because of the incompleteness of the legal framework and the lack of professional expertise in the Monopoly Control Authority (MCA), the agency established for its implementation. Those deficits and Pakistan’s increased exposure to the challenges of global trade made it imperative to update the competition law and thus the Government of Pakistan completely overhauled its competition regime in 2007 by enacting a new legislation, namely, the Competition Ordinance of 2007, which became an Act of Parliament in 2010 – a modern competition law essentially grounded on European Legal principles.

The Competition Act 2010 seeks to ensure free competition for commercial and economic activities and aims at protecting consumers from monopolization, cartelization and other harmful practices. The Act applies to all undertakings in Pakistan regardless of their public or private ownership and to all actions or matters that can affect competition. Although essentially an enabling law, it sets out procedures relating to the review of mergers and acquisitions, enquiries, imposition of penalties, grants of leniency and other important aspects of law enforcement. Briefly, the competition law of Pakistan is based on the doctrine of ‘restraint of trade’ and therefore prohibits situations that tend to diminish, distort, or eliminate competition such as actions constituting an abuse of market dominance, competition restricting agreements, and deceptive marketing practices.

The Competition Commission of Pakistan (Commission) is an independent, quasi-regulatory, quasi-judicial body that is exclusively mandated under the Competition Act 2010 to ensure that competitive forces are unhindered in all spheres of commercial and economic activity to enhance economic efficiency and to protect consumers from anti-competitive behavior across Pakistan. Commission can take action against unjustified raises in prices, sale of products at prices below their cost, conditional sale of products or services, agreements or cartelization that affected the competitive environment, dissemination of false information to consumers, or false use of another firm’s trademark or packaging. Furthermore, the Commission has been given the powers to take suo motu action against businesses violating the competition laws and can impose fines up to Rs75 million or an amount not exceeding 10 percent of the annual turnover of the undertaking.

Moreover, since the drive to establish legal and institutional frameworks in order to fight anti-competitive practices has intensified in recent decades, the Commission has prepared a Voluntary Competition Compliance Code (Code) to serve as a guide for competition laws’ compliance. The Code stipulates a formal internal framework for undertakings and their employees to ensure compliance with the provisions of the Act and its associated rules and regulations. The Code also helps detect any violations at an early stage thus enabling appropriate and timely remedial action.

Despite playing such a crucial role towards anti-trust activities in Pakistan, the Institution encounters various difficulties in terms of financial autonomy and through the Courts of Law which inevitably affect its operations adversely. Since its inception the Commission has imposed over Rs.26.5 billion penalties however only except in a couple of cases, all parties have brought forth challenges against the Orders and obtained interim injunctions.  In such cases where fines and penalties are imposed by the Commission, the delay in verdicts helps businesses to continue with their unfair practices and therefore it is imperative for the Judiciary to uphold and recognize the decisions of the Commission and subsequently dismiss such frivolous cases at an interim stage.

Moreover, some capitalists who could be penalized for flouting the anti-monopoly rules, have challenged the Competition Act 2010 in court on the plea that the central government could not apply the law as it is a provincial subject after the passage of 18th Amendment. Surprisingly, the court has also consented to hear a petition about whether certain federal institutions have become redundant after the 18th Amendment and will determine the future of the Competition Commission of Pakistan and the penalties.

It is worth mentioning that if Commission is regularly challenged in courts for applying their constitutional authority, the consequences will be disastrous for businesses as well as the functioning of the state. Moreover, the merit in the argument that a province can have its own competition law is untenable for such a regime would leave a national cartel beyond the reach of Law, thereby complicating matters unnecessarily and may create many loopholes which could be abused by cartels and those willing to exploit the State. It could give rise to a situation where four businesses, in four separate provinces, fix prices while lowering the quality of their similar product through an understanding. Such a cartel would be impacting the entire national market, but since each of the cartel members would be operating from a separate province, it would be impossible to break the grouping if there is no central anti-monopoly institution. For this reason, the anti-competitive practices should be recognized as a national interest and hence the regulation of Competition Law shall be a subject matter of the Federal government, as is the case in many developed countries.

Nonetheless, even despite the challenges being faced, the Competition Commission of Pakistan has demonstrated its independence by adopting an aggressive approach and taking stringent action across all sectors. The Commission has taken notice of alleged cartels in Pakistan‚ especially in the cement industry and has also issued various show cause notices to business entities questioning the adoption of practices that tend to distort the principles of fair competition. The Commission when taken notice of an alleged collusion in the banking industry was faced with the preposition that the State Bank Act ousts the jurisdiction of the Commission in matters pertaining to the banking sector and established that the agreements or concerted practices relating to interest rates, charges and similar parameters of competition fall within the purview of the competition agency. Some of the most prominent achievements of the Commission, include the action against 18 companies involved in the cartel of power-distribution-equipment supplied involved in price-fixing and quota distribution on Rs.45billion worth of public sector contracts. Upon receiving show-cause notices alleging bid-rigging and collusion on public procurement tenders, Siemens Pakistan sought for leniency in exchange for a 100% disclosure. Suffice it to say for the present purposes that Siemen’s decision to comply and co-operate with the Commission has exposed the other 17 companies in the cartel to penalties and punishments, including Pak Elektron which has a 28.7% market share. Another ground breaking decision by the Commission has been to impose a fine of Rs20 million on a company that had copied the brand of another company. Currently, the Commission in investigating in the alleged ‘exorbitant increase’ in air fares by private airlines following the cancellation of a large number of flights by the Pakistan International Airline (PIA) recently.

Such decisions will go a long way in improving international trade practices in the country. The international market and investors keenly observe such fundamental issues that provide support and sustainable growth of their businesses and promote a culture of respecting fair competition in the country. Therefore it is about time that the Government and the judiciary recognize the need to prioritize matters of economic importance and harmonize governmental policies with the competition law. Primarily, competition assessment shall be made mandatory at the policy design stage. This would benefit enforcement by all economic regulators and contribute towards effective enforcement by regulatory bodies with less harm to competition.

As a major initiative to bring Pakistan at par with the global agencies, Ms. Rahat Kaunain, the former Chairperson of the Competition Commission of Pakistan requested the United Nations Conference on Trade and Development (UNCTAD) to undertake a peer review of Pakistan’s competition law and policy. The Peer review team assessed the state of competition law in Pakistan, the regulatory framework along with the achievements and challenges faced by the Commission and prepared a Peer Review Report under the supervision of many international competition experts. The Report concluded that the achievements of the Competition commission of Pakistan are internationally recognized by the world competition community as performing a crucial leadership role in taking the Pakistani economy forward to a greater level of confidence on a competition-based and a consumer-welfare oriented market system. Moreover the Report acknowledged that the Commission has country-wide recognition with an excellent reputation based on integrity, technical competence and governance and it is to be considered one of the best performing newly established agencies in the developing world. The report strongly recommended, amongst others, that the provision in the Act which stipulates that 3% of the revenue of the regulatory agencies of Pakistan should form part of the Commission Fund should be finally implemented thereby permitting the Commission to focus on implementing advocacy policy more effectively by expanding its outreach and establishing its regional offices.

In light of the above it is established that the Competition Commission of Pakistan has been an essential example for institution building in Pakistan, favoring not only the consistency and stability of institutions themselves, but also the legal certainty able to attract the inflow of investments. Therefore one can safely conclude that Pakistan’s competition regime is out of the shadows, and in lockstep with best global practices.

Hanya Haroon

Hanya Haroon

Associate at Ali & Associates

Email: [email protected]
Tel: +92 21 3453 4580