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ANNEXURE D
2nd NRG Meeting of India
Brief
Report of Proceedings
I.
Inaugural Session
Dr.
Kirit Parikh, Member, Prime Minister’s Economic Advisory Council, New Delhi,
was the keynote speaker in the inaugural session. The other persons who spoke at
the inaugural session were Mr. S Sundar, Distinguished Fellow, TERI, New Delhi,
Mr. S Ahluwalia, Finance Secretary, Government of U. P., Lucknow, Mr. Pradeep
Srivastava, Chief Economist, NCAER, New Delhi and Mr. Pradeep S Mehta, Secretary
General, CUTS, Jaipur. The highlights of the session are as follows:
1.1
Pradeep S Mehta, Secretary General, CUTS, Jaipur
Mr.
Mehta gave introductory remarks and emphasised the interlinkage between
competition, investment and regulation. He also threw light on some of the
distinct features of the two major ongoing projects of the CUTS-CITEE: 7-Up, and
Investment for Development (IFD). The 7-Up Project is a comparative study of the
competition regimes of seven developing countries of the Commonwealth- India,
Pakistan, Sri Lanka, Kenya, South Africa, Tanzania and Zambia, while the IFD
project involves fact-finding and advocacy work on investment regimes in seven
developing and transition economies, namely, Bangladesh, Brazil, Hungary, India,
South Africa, Tanzania and Zambia.
He
further emphasised the importance of consumer organisations in the regulatory
mechanism and put forward a very radical idea to institutionalise the National
Development Council (NDC), which has so far been functioning as an ad
hoc body.
Following
are the highlights of his presentation:
§
One of the main purposes of this
seminar is to educate and involve civil society.
§
In the area of economic
regulation, the capacity of consumer organisations is lacking. It is
essential to enhance their capacity so that they can effectively take part in
the regulatory
mechanism.
§
On the issue of the WTO, he said
that though it is an unequal treaty, it is the best bet for
developing and poor countries. In the WTO, the concerns of developed countries
are better
protected.
§
A large portion of the domestic
trade agenda is linked to the developments which are taking
place at the international level. The Union Minister of Commerce, in his brief to the
Parliament
after the recently concluded WTO Doha Ministerial Conference, mentioned that the whole
domestic agenda
has not been addressed so far.
§
In the post-Doha scenario, the
issues of competition and investment have moved to the
“frontburner” rather than the “backburner”.
§
Services are a part of the
in-built agenda but at the same time there is a greater role for
regulation
in this area.
§
Coalition politics has come to
stay in India. This has resulted in India becoming a truly federal
country.
§
The National Development Council
(NDC) has so far functioned more like an ad
hoc body rather
than a
complete institution. It has been proposed that the NDC should be made a
permanent
institutional body and truly a body of the states. It is now high time that
states realised their
ownership of economic reforms, which are taking place both at the national and
at the
international level.
§
The NDC, which at present is run
by the Council of Union Ministers, should function under the
aegis
of the “Council of Chief Ministers”.
§
It is very important to create a
forward-looking strategy for civil society.
1.2
Dr. Kirit Parikh, Member, Prime Minister’s Economic Advisory Council
Dr.
Parikh highlighted the importance of competition in improving quality,
increasing efficiency and production, reducing prices and ultimately enhancing
consumer welfare. He further emphasised the importance of information technology
in reaping economies of scale. On the issue of regulation he said that the word
‘regulation’ is not appropriate. Instead, there should be an issue based
competition commission rather than various regulatory commissions. As regards
the WTO, he reiterated that it is our best bet, though the power balance is
disproportionate at present. We should welcome investment, even at the cost of
driving out some domestic firms. In the case
of India, foreign investment of US$10bn would result in increasing the gross
national product by 1%.
Some
of the highlights of his presentation are as follows:
§
Globalisation is a fact and not a
choice. We can neither escape from it nor shun it. Now the
question is when, how and what should be liberalised.
§
The nature of the world economy
is changing rapidly. The world is fast liberalising and
globalising.The obsolesence of products is really very fast. The product cycle
has become
smaller
and a larger market is required to face this challenge.
§
Today, information technology
gives a large advantage. Its role is very important in reaping large
economies of scale, as the cost of IT is the same everywhere.
§
Competition is good for consumers
but as regards multilateral agreement on competition, at
present
it is unfair in the sense that some countries have undue advantage. We need to
have a
set of
inputs, which would help in defining a level playing field.
§
We should have minimal
regulation. The word regulation is an unfortunate term. We need to
guard against all possible misuses.
§
Reforms in the judicial system
are essential if civil society organisations are to participate
effectively. We need to evolve a proper system, appropriate procedures and
efficient institutions.
§
Fairness is required at the
international level. The WTO is our best bet. Real free trade is good
for
both capital and labour.
§
On intellectual property rights
we have a lot of potential in our country. We have a real advantage
in art,
films, literature and software. But in order to have some safeguards we need to
establish
an
appropriate IPR regime.
§
At present the patent period is
too long. It does not make sense when the product cycle is so
short.
Compulsory licensing is really very important in this context.
1.3
S Sundar, Distinguished Fellow, TERI, New Delhi
Mr.
Sundar first complemented CUTS for taking up the three issues together. So far
each one had not really impacted and influenced the other. According to him the
word regulation was carefully chosen. There is no other cohesive and well
thought out appropriate word to use in place of regulation. But we need not
enhance regulation in order to promote competition.
He
compared the Telecom Regulatory Act (TRA) of 1997 with TRA of 2000. The TRA 1997
had the provision of facilitating competition but in TRA 2000, its role has
become merely recommendatory on competition.
He
recommended the adoption of sector specific regulatory commissions as in UK,
where, such commissions have concurrent powers with the competition commission.
1.4
S Ahluwalia, Finance Secretary, Government of UP, Lucknow
Mr.
Ahluwalia started his presentation by recognising the fact that today, consumer
organisations are in much better
shape than they were five years ago. He emphasised the role of the State in
providing infrastructure services and said that right from “pink” to
“white” newspapers, there are no discussions on infrastructure provision,
though it has been identified as a core area of continued government
functioning.
Following
are the other highlights of his presentation:
§
So far, a narrow view of economic
growth has been taken. Adequate provisioning of infrastructure
service is critical
for economic growth.
§
Despite general disenchantment
with government on its role in economic affairs, infrastructure is
identified as one
of the core areas of continued government functioning.
§
The role of the state is very
important in providing infrastructure services.
Some form of state support,
direct or indirect,
is essential.
§
Regulatory commissions are
forums. The important thing is that “regulation” gets reflected in the
functioning of
these forums. The role of these forums is crucial.
§
The independent regulators should
listen to the voice of the people in a much better way.
§
A contestable market is required
but in the case of the infrastructure sector, the preconditions for
competition do not
exist.
§
Competition in the infrastructure
sector is merely an ideology. We may actually end up by hurting
consumer interests
rather than furthering them.
II. Awareness on
competition issues among stakeholders in India
The
session was chaired by Dr. S. K. Sarkar of Tata Energy Research Institute. Dr.
Pradeep Srivastava of the NCAER gave a brief presentation on awareness among the
stakeholders on competition issues. Mr. K. C. Ganjwal of the Monopolies and
Restrictive Trade Practices Commission (MRTPC) was the commentator for the
session.
2.1
The presentation was based on the findings of a survey conducted under the 7-Up
Project. The speaker began the
presentation by giving a brief introduction of the existing competition regime
in India. But as a new competition regime is in the offing, the existing
competition authority, i.e., MRTPC has become a lame-duck organisation and is
waiting for its imminent winding up.
2.2
In the survey, a brief questionnaire was sent to about 100 stakeholders, but
only 14 of them responded. All of them are quite familiar with both competition
and consumer law in the country. Nearly everybody is also of the opinion that
the country needs a competition law. However, an overwhelming majority felt that
the existing legal provisions were not adequate to deal with the existing
competition concerns. When it comes to cross-border competition concerns, even
more people feel the inadequacy. But interestingly, nobody felt that the
existing laws in this regard are enforced effectively.
2.3
When it comes to the prevalence of several anti-competitive practices, the
awareness level seems to be on the lower side. At first glance may not seem so,
but considering the fact that the sample was targeted and questionnaires were
sent only to stakeholders, one would expect a higher level of awareness. About
80 percent of the respondents were aware of the cement cartel and 64 percent
believed in the existence of cartels in the pharmaceuticals sector. But only 36
percent thought that cartels were operating in shipping and road haulage.
However, cartelisation in this sector is quite rampant at different levels. Real
estate/building, banking and food & beverages are the other sectors that
were mentioned in this regard. Bid rigging is also quite common in government
contracts as per their perception.
2.4
People complained that the problem of exclusive dealing existed, especially in
the consumer durables sector. This also exists in government purchases, mainly
due to its policies.
2.5
Abuse of dominance is visible in food & beverages, cosmetic products,
pharmaceuticals and more importantly in the insurance sector which until
recently was exclusively in the domain of the public sector.
2.6
As against domestic competition concerns, awareness on cross-border issues is
much lower. About 43 percent of respondents knew about the infamous vitamin
cartel, but most of them did not know about any other international cartel.
Awareness on international mergers is of course on the higher side. Very few
people knew about the soda-ash export cartel although it generated quite a lot
of heat and was in the media.
2.7
As regards abuse of a dominant market position by a foreign firm, half of the
respondents mentioned the banking and pharmaceutical sectors as the main
affected areas. However, they also mentioned fertiliser, petroleum products,
agro-chemicals and insurance. This is a bit confusing since there is no
possibility of a foreign firm being dominant in most of these sectors, except
pharmaceuticals and agro-chemicals. Bid rigging by foreign firms is not so
prevalent, according to the respondents.
2.8
However, a high proportion of the respondents is aware of dumping in several
sectors, especially by Chinese manufacturers of electrical goods and toys. But
interestingly, none of them thought that government had taken any action on it
despite the fact that India is one of the most frequent users of anti-dumping
measures.
2.9 Discussions
One
obvious question that came out from the discussion was why the response rate was
so low i.e., questionnaires were sent to about 100 persons but only 14 of them
replied despite the fact that the questionnaire was very simple and did not
require more than 10 minutes to fill up. One plausible explanation could be that
the level of awareness on the issue itself was very low and hence people did not
bother to respond. Secondly, the country is in a transition phase as far as the
competition regime is concerned since a new competition law is in the offing. It
was also argued that the existing competition authority did not do enough to
draw people’s attention to these matters.
Regarding
the MRTPC not doing enough, it was pointed out that the MRTP Act was framed in a
totally different context where the entire economy was regulated. But things
changed with the onset of economic reforms in the country as well as the
appearance of the WTO in the international economic scenario. Hence there was a
need to have a new or amended law in the mid-nineties. However, the law was
diluted in 1991 and this process still continues. Some people felt that the
MRTPC did not even do what could be done under the existing legal provisions.
For instance it was much more active in the eighties and early nineties than
now.
Moreover,
there was no provision of advocacy by the MRTPC. This has been rectified in the
proposed competition law. In the existing regime MRTPC issues only periodic
press releases which do not create much awareness.
It
was pointed out that India has got several problems: not only that it is a
country with high rate of illiteracy, but it is also a multi-lingual country.
Hence it would be necessary to involve consumer
groups with grass-roots outreach to create awareness on the issue.
It
was also pointed out that in India, with its long history of a socialist type
economy and short supply in the market, consumers were really at the receiving
end and hence did not have much exposure to competition, and awareness about
their rights was also very low. Consumers were used to accepting
anti-competitive practices as facts of life.
III.
The New Competition Bill: Has it Covered the Gaps?
The
session was chaired by Mr. Pradeep S Mehta. Mr. Ujjwal Kumar, a legal researcher
and Mr. G. R. Bhatia, Additional Director General (Investigation &
Registration), MRTPC spoke on the proposed competition bill in India. Ms. Reena
George, an advocate with the Supreme Court of India was the commentator for the
session. Following are the highlights of the presentations and discussions in
the session.
3.1
In the year 1999, a High Level Committee was formed and it came out with a
report in May 2000. Another committee headed by Dr. S. Chakravarthy came out
with a Concept Bill and in the year 2001, the Bill has already been placed in
Parliament and is being discussed at the Standing Committee headed by Mr. Pranab
Mukherjee.
3.2
This was a good step and the new Bill has filled the gaps to a great extent.
However a few changes are still required. Among the gaps
that still exist, the following need serious attention:
·
Independence of the Commission is likely to be under threat, as it would
be required to adhere to policy guidelines from Central Government from time to
time.
The Bill appears to be soft on serious competition abuses like hardcore
cartels.
·
Competition abuses that might take place due to intellectual property
rights have not been addressed at all. On the contrary, an exemption has been
given in this regard.
·
The provision of a high retirement age for the Commission Members and
Chairperson is a cause for worry, as it may become a resting ground for retired
bureaucrats and judges, as in the past.
·
Exemptions from the Act (Bill) have been left to the discretion of
Central Government without any guidelines and thus leave room for confusion as
well as misuse.
·
Dominance criterion has not been defined in the Bill.
·
There is no provision for the compounding of offences. This should be
introduced in the bill.
3.3 A few positive points highlighted
by the speakers were:
·
Education and accounting have been included under the term ‘Services’
and are subject to the jurisdiction of the Competition Commission.
·
It has been recognised that abuse of dominance and not dominance per
se is bad for the market and the consumers. This is the same direction that
the rest of the world is moving in this regard.
·
Cartels and bid-rigging have been explicitly dealt with in the Bill.
3.4
Discussion
Competition
Commission should be focussed as an Institution because effectiveness becomes
doubtful when a single institution deals with all sorts of issues.
An
existing dilemma is the choice between Technical and Judicial persons to serve
as members of the commission. Society would be benefited by the combination of
Judicial and Technical knowledge in the Competition Commission.
MRTPC
is a pro-consumer body but this is an unhappy situation for businesspersons. It
must strive towards a balance of interests between consumers and the business
community.
Regulatory
Authorities may strive to bring competition in different areas.
Temporary
Injunction Provisions need to be included, otherwise anti-competitive practices
continue to operate pending adjudication.
There
is a need for regular Competition Audits of the important sectors of the
economy.
Shares
before allotment should be included within the definition of ‘goods’.
There
should be right to access to the Competition Commission for every Consumer
Organisation.
The
salary structure for members of the commission must be revisited to attract
talent.
Delays
are generally observed in decision-making in cases where the judiciary is
involved. Administrative bodies can decide faster.
The
major flaw is lack of research to show the inadequacy of the MRTPC and the new
Bill has been drafted without such research backing.
There
is reluctance on the part of the Department of Law to include various issues
such as IPR in the Competition Act due to their lack of understanding of
economic issues.
There
should be some mechanism to ensure that competition prevails even at the
grassroot level, as it will not be possible for the Competition
Commission even with regional offices to deal with competition abuses at the
grassroot level. It was also pointed out that the Consumer Protection Act
(COPRA), with its enforcement organs upto district level, can and does deal with
such issues.
A
well-strengthened consumer movement is very important for the effective
implementation of the laws.
IV.
Cross-border Competition Issues in India
The
session was chaired by Mr. Gajendra Haldea of NCAER.The speakers were Ms. P. L.
Beena also of NCAER and Mr. G. R. Bhatia of MRTPC. Mr. Surendra Kanstiya of
Consumer Guidance Society of India (CGSI) was the commentator. The major points
that emerged during the presentation and subsequent discussions are given below.
4.1
The cross-border competition issues that affect India are international mergers,
international cartels, export cartels, cross-border predatory pricing or
dumping, cross-border abuse of intellectual property rights and transfer
pricing.
4.2
There has been a steep increase in M&A activities, both domestic and
cross-border. Although most of them take place in developed countries, they
create ripple effects all over the world including in India where the M&A of
Indian subsidiaries impact the market.
4.3
Indian competition law does not control M&As and as a result many M&As
have taken place in recent times, most of which caused serious erosion of
contestability in the market.
4.4
Many international cartels have been in existence and many still exist in
several products. Most of these cartels have been busted especially in the US
and the EU. There is no doubt that they had an impact on the Indian market as
well but no action has been taken here.
4.5
Action was taken by MRTPC against American Natural Soda Ash Corporation (ANSAC)
for acting as a cartel. This is an example of an export cartel that was pulled
up in other jurisdictions as well, including the EU.
4.6
In a global tender floated by a public sector undertaking it was found that 10
Japanese suppliers of steel quoted identical prices and uniform terms and
conditions of supply. The MRTPC initiated a case but no adverse order was passed
for collusive tendering as the Indian suppliers quoted different prices and
terms.
4.7
There is a need to strike a balance between intellectual property rights and
their abuse. The MRTPC has held in the case of Pherumal vs. Godfrey Phillips
Ltd. and again in the case of Manju Bhardwaj vs. Zee Telefilms Ltd. that it has
jurisdiction to deal with IPR related cases if the abuse affects competition.
However, the proposed law precludes the Competition Commission from dealing with
such cases.
V.
Multilateral Competition Policy at the WTO
The
session was chaired by Dr. Subir Gokarn of NCAER. Mr. Pradeep S Mehta and Mr.
Nitya Nanda, both from CUTS were the speakers. Mr. Rohit Bansal, a well-known
journalist, was the commentator for the session. A brief description of the
presentations and discussions in the session follows.
5.1
History of the WTO: In 1948, the Havana Charter called for setting up of the
International Trade Organisation (ITO) but inspite of the adoption of the
Charter by 50 countries, the ITO never came into existence. Later on GATT was
agreed upon by the international community. It was largely based on the Havana
Charter. Thus the idea of a multilateral competition policy (MCP) is not a new
one.
5.2
It is generally presumed that large business houses have a greater influence on
WTO. Unfortunately, consumers have no power to influence international trade
policy making. MCP could be visualised to discipline big business and rectify
the persisting business-consumer imbalance in the WTO.
5.3
The number of cross-border competition concerns is increasing daily with the
emergence of globalisation and to deal with them the domestic competition regime
alone is not sufficient, especially for developing countries.
5.4
Formation of Cartels undermines the benefits of healthy competition by creating
barriers to entry for other producers. A recent World Bank Study estimate that
in 1997, developing countries imported goods worth US$81.1bn from firms which
had seen a price-fixing conspiracy during 1990s. Discovering and proving the
existence of international cartels and then tackling them is extremely difficult
and outside the realm of domestic competition law.
5.5
A MCP could consider the anti-competitive impact of cross-border mergers in
developing economies and impose conditions to address competition concerns on a
country-by-country basis.
5.6
Anti-competitive practices involving the use of IPRs could take the form of
horizontal restraints or vertical restraints. Further, licensing agreements
limiting the manufacture or distribution of products in a particular country
could be a global competition concern. In the absence of clear-cut international
rules on parallel imports, different countries are following different
practices. A MCP could strengthen countries that permit parallel imports against
attacks by exploiting brand owners.
5.7
The WTO is the best platform to facilitate a MCP since it is an international
competition regulator. A MCP is necessary to check anti-competitive practices
and WTO is the only forum for consideration. Most developing countries are
against WTO since it is perceived to be governed by big business houses and to
overlook the interests of small firms.
5.8
Co-operation from the EU and the US is very important to control cross-border
anti-competitive practices and to regulate global monopolies. The US and the EU
should offer unilateral positive comity to developing countries so that they can
check cross-border anti-competitive practices impacting their markets. This
would help to remove the apprehensions of developing countries and instill
confidence in them.
5.9
Discussion
There
is no doubt that a multilateral competition policy is highly desirable. But what
is desirable is different from what is feasible. We must consider the drawbacks
of an MCP. Also, the key issues that were discussed in Doha did not include
Restrictive Trade Practices, which show a lack of concern by the WTO.
The
WTO and UNCTAD should together come out with a policy or tool to address the
problems and bring harmony.
Some
corrections in the WTO policies with regard to MCP are necessary, as there is
always scope for further innovation.
The
experience with TRIPs and other agreements demonstrate that once an agreement is
reached, it is extremely difficult to go back and modify it. Therefore it is
very important for developing countries to be proactive and force their agenda.
Capacity building of the negotiators on competition issues is also important.
Though
the media acts as a catalyst, the issue of competition has not hit the media.
People in the media need to be sensitised on this issue so that they deal with
it appropriately.
VI.
The Way Ahead
6.1
This session was devoted to discussions on the suggestions and recommendations
that came out of the meeting. Participants were given draft recommendations
emerging out of the deliberations highlighting several action points that need
to be addressed by the policy makers and other stakeholders. A
final version will be drafted, adopted and would be taken forward at appropriate
levels after receiving participants’ feedback.
6.2
The following is the draft of suggestions
and recommendations that came out in the meeting.
General
- Institutionalise
the National Development Council: headed by a council of chief ministers
- Globalisation
is a fact, you cannot shirk it and so learn to accept it – demystify
issues and disseminate it for easy understanding of all.
Competition
Information
Dissemination
·
Consumer
organisation, governments and regulators to undertake the task of disseminating
information relating to competition in a simple manner. More participation by
civil society also required.
Competition
Bill 2001
·
Penalty
structure needs reconsideration; criminal liability should be there in case of
cartelisation coupled with leniency programme and protection to whistle blowers.
·
Unfair Trade
Practices (UTPs) should not be transferred from Competition Law to COPRA. There
may be concurrent jurisdiction.
·
Interface
issues such as competition vis-à-vis regulatory commissions should be clearly
identified and the competition law should have appellate jurisdiction in this
area, drawing from the UK experience.
·
The IPR
provisions in competition law need reconsideration; flexibility provided under
TRIPs could be optimally used through competition law.
·
Provision in
the competition bill regarding policy intervention from the central government
should be withdrawn.
·
Exemptions and
exceptions from the competition law should be well debated and should not be
used as a populist measure by the government.
·
The Competition
Authority should have a mix of technical and judicial people
·
Competition Law
should balance between consumer interests and business interests
·
Definition of
consumers in the competition law should be broadened; education and accounting
should be included in services; shares before allotment should be considered as
goods
·
Two bodies
could be set up for implementing competition law; one for
investigation/prosecution and the other for adjudication like the South African
or U.K model, in order to separate administrative & prosecutorial and
judicial functions
·
There should a
compulsory and regular competition audit in different sectors
Multilateral
Competition Policy
·
Enhance
bi-lateral cooperation with relevant competition authorities in order to combat
cross-border
abuses
·
Give more teeth
to the competition authority vis-à-vis M&As having international spill
overs, and other cross-border competition abuses
·
Multilateral
competition rules are needed with our without WTO to curb cross-border abuses
where bi-lateral arrangements fail or are difficult to enter into
Regulation
Information
Dissemination and promotion of people’s participation in the reform process
·
Greater
participation by civil society in the regulatory process required.
·
Funds to be
made available to build capacities of consumer organisations to understand and
comprehend issues related to infrastructure regulation.
·
Consumer
organisations to disseminate information to grassroots to ensure greater
involvement of people in the reform process and to create a questioning society
to ensure transparency in the system, leading to better governance.
·
Need to
sensitise all stake holders inclusive of bureaucrats and politicians on the
issue to ensure some degree of unanimity vis-à-vis the reform process and to
ensure that populist policies are avoided.
Policy
Issues
·
We should have
cohesiveness in our policies – state and national
·
While large
scale privatisation is required to ensure investments in the system, an
environment needs
to be created to instil confidence of the investors; independent
regulatory framework, reductions in theft
of power, improvements in plant load factor etc.
·
Quality of
services to be addressed – consumer satisfaction survey to determine standards
of services.
·
Telecom Sector:
Tariff increase must be linked to quality of services
·
Remove barriers
to competition
·
Not free but
reliable electricity
All regulatory laws should have a common approach with defined consumer
interest as an object and
purpose
Common
Issues
·
Regulatory
authorities should not be a resting ground for retired judges and bureaucrats.
Better compensation to attract
suitable talents to the regulatory authority be considered
Services
- Free
flow of Movement of Natural Persons to be allowed in order to remove
asymmetries in the commitments between different modes of supply.
- Remove
barriers for the free flow of natural persons on the ground of `economic
need’, `recognition of degree’ and other administrative problems such as
`restrictions in visa’.
- Respect
autonomous liberalisation
- Respect
negotiating guidelines and procedures
- India
should strengthen its endeavour to increase the export of services through
electronic commerce
·
For better
negotiations at the WTO, qualified persons and civil society representatives
should involved on a wider basis.
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