India's Competition Policy: An Assessment

Author(s): Aditya Bhattacharjea

Source: Economic and Political Weekly, Vol. 38, No. 34 (Aug. 23-29, 2003), pp. 3561-
3563+3565-3574
Published by: Economic and Political Weekly
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 Special articles

India's Competition Policy

An Assessment
Even as it is confronted with the likelihood of negotiations on competition policy after the
Cancun Ministerial of the WTO, India is in transition between its Monopolies and
Restrictive Trade Practices (MRTP) Act and the new Competition Act. This paper undertakes a
detailed analysis of various aspects of this situation. It first reviews a series of recent
judgments of the Supreme Court that have set aside orders of the MRTP Commission,
depriving it of extra-territorial jurisdiction and the power to restrict imports, and curbing its
tendency to adjudicate 'fair' prices. Section II examines the Competition Act, especially severa
amendments that were introduced as it was being passed, including one that explicitly arms
the Competition Commission with the authority to impose import restrictions, and several
others that will be self-defeating or difficult to implement. While these two sections employ
standard economic theory and comparisons with contemporary international practice,
Section III adopts a more historical approach, examining the political economy of
competition policy in various countries, and its limited scope for serving distributional
objectives in the Indian context. Section IV argues that the case for a WTO agreement on
competition policy is greatly overstated, and that India should ally with other developing
countries to block such an agreement. On a more positive note, while amendments to the
Competition Act are implied by the analysis of Section II, the two succeeding sections
develop criteria for exemptions from its provisions.

ADITYA BHATTACHARJEA

In an earlier paper in this journal, I had drawn attention to using insights from modern industrial organisation theory as well
the (mis)use of the Monopolies and Restrictive Trade Prac- as current international practice. Section III adopts a historical
tices (MRTP) Act by Indian industries to protect themselves perspective in order to examine broader issues of political economy
against cheap imports, and to the many inconsistent interpreta- and income distribution. Section IV assesses India's position at
the likely WTO negotiations, and also critically evaluates some
tions of the concepts of predatory pricing and the 'public interest'
advanced by the MRTP Commission and various official com- recent arguments that are being bandied about to induce deve-
mittees dealing with competition policy.l In a second paper, loping
I countries to sign onto an agreement that will supposedly
had examined the draft Competition Bill which was to replace bring them tremendous benefits by curbing the activities of
international cartels. Section V summarises and concludes.
the MRTP Act, evaluating it in the context of the (ambiguously-
worded) decision by the 2001 Doha Ministerial meeting of the
WTO to put trade and competition policy on the agenda for
negotiations after the Cancun Ministerial in September 2003.2
The Supreme Court Verdict
In the past year, two important developments have seriously
complicated the situation. In July 2002, the Supreme Court setI begin by summarising the two cases that were before the
aside the MRTP orders in two of the cases I had discussed, butSupreme Court (see my 2000 article for details and excerpts from
the MRTP orders). In September 1996, on a complaint by the
went much further in interpreting the Act in a manner that would
Alkali Manufacturers' Association of India (AMAI), the MRTP
have made it extremely difficult to take action against restrictive
Commission granted an ex parte interim injunction order against
trade practices (such as cartels) involving foreign suppliers. Then,
in December 2002, the Competition Bill was passed with several the American Natural Soda Ash Corporation (ANSAC), restrain-
changes, one of which explicitly arms the new Competition ing it from exporting soda ash to India. This was confirmed by
Commission with the power to take action against such practicesthe commission in March 2000. Meanwhile, in September 1998,
by restraining imports, and several other amendments that are All India Float Glass Manufacturers' Association (AIFGMA)
the
filed a somewhat similar complaint against three Indonesian
unfortunate, to say the least. In Sections I and II of this paper,
I propose to discuss each of these developments sequentially, companies. This time the commission's two-member bench was

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divided, and the matter was decided in favour of the complainant implications of this judgment in respect of the issues discussed
by a third member in February 2000, again resulting in an in my earlier EPW articles: predatory pricing, foreign cartels, and
injunction against imports. Both cases went in appeal to the judicial interpretations of the 'public interest' in competition
Supreme Court, the appellants being ANSAC in the first case, policy.
and Haridas Exports (the Indian importer of the float glass In these earlier articles, I had cited several conflicting inter-
consignment) in the second. Both cases involved allegations of pretations of the public interest by the MRTP Commission and
predatory pricing, although that part of the complaint was not the various official committees set up in recent years to examine
pressed by AMAI, which based its arguments mainly on the Indian competition policy. Particularly noteworthy was the
allegation that ANSAC was a cartel. In the float glass case, on pronouncement in the float glass case itself by the then chairman
the other hand, the question of predatory pricing was central. of the commission, who quite clearly identified the public interest
As it turned out, the Supreme Court did not go into either of as that of the investors and workers in the Indian float glass
these allegations. Instead, its judgment in Haridas Exports vs industry. This interest, he said, should always prevail over
All India Float Glass Manufacturers' Association,3 which also consumer interests, so much so that "people of this country can
subsumed the ANSAC vs AMAI case, set aside both the injunc- very well afford payment of about 12 per cent higher cost of
tions on the grounds that the MRTP Commission lacked juris- float glass production manufactured and marketed by Indian
diction. In the float glass case, the importers had contended that companies rather than allowing them to go for that imported from
the AIFGMA complaint was essentially one of 'dumping' of Indonesia".6 This, of course, goes against the very rationale for
exports, for which there was a specific remedy under the anti- trade liberalisation, and if the Supreme Court were to uphold
dumping provisions of the Customs Tariff Act. The commission such a position, it might as well give an injunction against the
therefore had no jurisdiction. Counsel for AIFGMA responded entire policy of economic reforms. But in deciding in favour of
by setting out the differences between the two pieces of legis- the importers, while again emphasising the public interest test,
lation, arguing that the anti-dumping laws did not implicitly it gave a very different interpretation, which is worth quoting
repeal the relevant provisions of the MRTP Act, nor oust the at length. In respect of the float glass case, the Court declared:
jurisdiction of the Commission. They further invoked the 'effects ...mere manipulation of prices or conditions of delivery would
doctrine', widely used in other countries and also enshrined in not be a restrictive trade practice under Section 2(o)(ii) unless it
Section 14 of the Act, to argue that the Commission had juris- is done in such a manner as to impose on the consumers unjustified
diction over that part of a trade practice initiated outside India costs or restrictions. Lowering of prices cannot be regarded as
which had effects in India. The Court partly upheld the AIFGMA imposing on the customers unjustified costs or restrictions
contention regarding jurisdiction, setting out with admirable (para 42).
clarity (in para 52 of the judgment) the significant differences What seems to have happened here is that the monopolistic Indian
undertakings are now having to face competition. The quantum
between the MRTP and anti-dumping laws to show that they
of import in the present case is a small fraction of the total float
operated in distinct spheres with no conflict between them.
glass which is manufactured and sold in India. The reduction in
However, that did not help AIFGMA, for the Court also held
prices of the Indian importer is-to the benefit of the Indian customer.
that the MRTP Act had no extra-territorial operation, and the It is only if there is an agreement between the Indian importer
effects doctrine became applicable only with respect to a restric- and the foreign seller which has such an effect that the production
tive trade practice (RTP) after the goods were imported into India. in India of float glass by an efficient Indian industry would have
The only remedy available to Indian industry against goods being to stop and such stoppage is considered prejudicial to the public
exported to India at predatory prices was an anti-dumping duty. interest, can an order under Section 12-A or Section 37 be passed
The Court further held that the Commission could not issue (para 54).
injunctions against the importation of goods or the foreign Import of material at prices lower than prevailing in India cannot
per se be regarded as being prejudicial to the public interest. If
exporter's price, although it could impose post-import restric-
the normal or export price of any goods outside India is lower
tions to prevent an RTP taking place in India.4
than the selling price of an indigenously produced item then to
In the soda ash case, too, the Supreme Court decided in favour say that the import is prejudicial to the public interest would not
of the appellant on the basis of jurisdiction. The Court ruled that
be correct. The availability of goods outside India at prices lower
the Ccommission's reach could not extend to the formation of
than-those which are indigenously produced would encourage
a foreign cartel, unless a member of the cartel carries out business
competition amongst the Indian industry and would not per se
in India. In any case, before granting an injunction the commis- result in eliminating the competitor, as was sought to be submitted
by the respondents (para 55).
sion had to satisfy itself that the cartel was engaging in a practice
prejudicial to the public interest or the interest of any class of in relation to the soda ash case, the Court further emphasised
And
traders.5 While expressing no opinion as to whether ANSACthis waspoint:
a cartel, the Court turned the tables on AMAI: "prima facie, the
It is to be borne in mind that public interest does not necessarily
allegation of the appellant [ANSAC] that it is the respondents
mean interest only of the industry. Unless and until it can be
[AMAI] which have formed a cartel and do not welcome any
demonstrated that an efficient Indian industry would be forced
competition does merit consideration, perhaps in another case" to shut down or suffer serious loss resulting in closure or unem-
(para 78).
ployment, the commission ought not to pass an injunction restrain-
This verdict was based on a particular reading of various ing an Indian party from importing goods from a cartel at predatory
sections of the MRTP Act in determining its jurisdiction, parti- prices. Importing goods at a price lower than what is available
cularly its definition of 'goods' as being goods already imported in India is not per se illegal. We have provisions under the Customs
into India and not merely intended for export to India. Obviously Act which enable the government to impose anti-dumping duties
I am not competent to comment on the Court's legal inter- with a view to protect the Indian industry. Nevertheless, the era
pretation. I wish to draw attention, however, to some of the of protectionism is now coming to an end. The Indian industry

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 has to gear up to meet the challenges from abroad. If the cartel predatory pricing is unlikely to involve an agreement with a
is selling goods to India and still making profit then it will not distributor. Our hypothetical IT could claim that he is not selling
be in the interest of the general body of the consumers in India
at a loss, while the FC is beyond the reach of the Act, and both
to prevent the import of such goods (para 74).
would therefore escape the charge. Third, suppose the predatory
A further observation made by the Court in the context of the FC sells directly to the IC. It would appear from the judgment
soda ash case is actually more relevant to the float glass case. that this would go through without challenge, even if it had
Apart from subordinating the Indian consumers' interest in cheaper identical anti-competitive effects as compared to a transaction
imported glass to that of the domestic manufacturers, the MRTPC involving an agreement with an IT. Finally, in the case of a price-
chairman had also chastised the importers for 'profiteering' by raising FC, the judgment gives the commission jurisdiction with
importing it at such a low price.7 Without explicitly mentioning respect to stage (2), but again' only if some IT is party to an
this stricture, the Supreme Court seems to have exonerated them: agreement involving an RTP. If there is no IT, or if he acts quite
"The Indian importer obtaining goods at a low price does not independently of the FC, the cartel would have a free run. The
contravene any law. He has obtained a good bargain" (para 76). judgment thus appears to focus on the marketing arrangements
On the whole, the judgment is to be welcomed because it of foreign firms, rather than their impact on competition.
overturned orders of the MRTP Commission that could have set The problem, clearly, lies in the bad drafting of the MRTP
a dangerous precedent which could have been exploited by other Act and its insistence on agreements involving an Indian party.
industries threatened with import competition. Although the But effectively, by depriving the MRTP Act of extra-territorial
Court refrained from deciding on the question of predatory operation, the verdict in Ha.ridcas made it almost impossible to
pricing, the excerpts given above do enunciate a criterion (pricing
take action against anti-competitive conduct involving imports,
below costs so as to drive out a rival) that are closer to the and foreign cartels in particular. This would have made it very
international practice, even though it stopped far short of applying
difficult for India to participate in the emerging international
the kind of market structure tests that are common in Europe consensus regarding the need to take action against such cartels.
and the US, as discussed in my earlier article. In denying the It would also result in an unfortunate situation in which RTPs
commission's power to restrain imports, the Court also estab- by foreign firms exporting to India would be virtually immune
lished the salutary economic principle (although on purely legal to challenge, while Indian firms indulging in the same practices
grounds) that preventing import competition is an inappropriate in the Indian market would be vulnerable. Of course, we now
remedy for a regulatory body that is meant to promote compe- have a new Competition Act that restores the competition
tition. I return to this in the next section, in discussing the new
authority's ability to interdict imports. This is discussed in the
Competition Act. next section. But since the relevant sections of the new Act will
There are some problems, however, with particular aspects of apparently come into effect only after a year of purely educational
the Court's formulation. Consider the following scenario. Aactivities, and according to its Section 66, all pending RTP cases
foreign cartel (FC) engages in an RTP, whether predatory pricing
will continue to be decided under the MRTP Act, the points made
or the more usual cartel behaviour of raising its price, selling
above are still relevant.
goods to one or more Indian traders (IT), who sell them to Indian
consumers (IC) at a profit. This can be represented schematically Other Cases
as follows:
Before turning to the Competition Act, I would like to men
(1) (2) some other recent MRTP cases that reveal a certain trend. In a
FC " IT - IC
1999 order that I quoted in my 2000 article, the commission (again
According to the Haridas verdict, no action can be ontaken against
a complaint by AMAI) fixed a 'fair market value' for soda
the FC since the MRTP Act does not confer extra-territorial ash exports to India from a Chinese company. Presumably this
jurisdiction. Nor can stage (1) of the transaction be interdicted,
too would now be unsustainable in view of the Supreme Court's
since imports come under the Customs Act. There does seem verdict in Haridas Exports. Even before that judgment, the Court
to be one exception, however. In the lengthy excerpt from paragraph
had established a sound economic principle in setting aside other
74, the judgment seems to acknowledge that the commission ordersmay of the MRTP Commission on alleged restrictive trade
block imports if predatory pricing by the FC results in 'an efficient
practices, even though it did so using a purely legal interpretation
Indian industry' being faced with closure or unemployment, of the Act. The commission had passed orders against a private
whereas elsewhere in the judgment (notably paras 49 and 57-60),school for charging a security deposit of Rs 500, and a state
housing authority for delaying the handing over of a residential
it quite firmly ruled out this possibility. The only way in which
these statements can be reconciled is with reference to para- flat. These had been held to be RTPs under Section 2(o)(ii) of
graph 54, which requires as a prerequisite for an order that there
the Act, which deals with practices that tend to "bring about
be an agreement between the FC and an IT to sell at predatory manipulation of prices, orconditions of delivery.. .in such manner
prices. But the sections referred to there empower the Commis- as to impose on the consumers unjustified costs or restrictions".
sion to order that an RTP be discontinued, or an agreement On appeal, the Supreme Court held that this clause could only
relating to an RTP be modified or made void. It is not clear be read in conjunction with the main clause of 2(o), which
whether import restrictions can be ordered. requires proof that the impugned practice prevents, restricts
Even if 'an efficient Indian industry' is to be saved, several
or distorts competition.8 Clearly, neither of the cases met this
questions arise. First, how is efficiency to be judged'? Is it to
standard.
be what economists call allocative efficiency, dynamic efficiency,In a more recent case that has not yet been finally decided,
or X-efficiency? These are three distinct concepts, requiring quite
in 2002 the MRTP Commission terminated an enquiry against
different (and difficult) techniques to evaluate them. Second, ten chemical manufacturers who had allegedly formed a cartel,

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on the grounds that there was absolutely no evidence of the broader context by Anant and Singh.10 Applying their framework
essential ingredients of a cartel as laid down in an earlier Supreme to the present issue, judicial bodies have neither the executive's
Court judgment. But the commission also decided that in respect technical expertise to gauge the gains and losses to different
of a second charge, pertaining to an abnormal increase in prices sections of society that result from interfering with the market
without a significant change in sales or costs of production, the mechanism, nor the legislature's prerogative of representing
enquiry was maintainable as there was a "strong inference in society's preferences. Unfortunately, in the MRTP Act, the door
regard to manipulation of conditions of delivery or prices leading to such judicial activism, and to variant interpretations, was kept
to distortion and restriction of the competition in the market", invitingly open by two props: the 'price manipulation' clause
bringing it under Section 2(o)(ii). The commission order itself of Section 2(o)(ii), and that malleable construct, 'the public
mentions that there were 42 producers of the concerned products interest'. While the Supreme Court's verdict in the Rajasthan
in India, and it will be interesting to see how this increase in Housing Board case (see n 8) has removed the first prop, the
prices can be held to be an RTP with no evidence of collusion.9 second is still in place. Although the Haridas verdict upheld the
Taken together with Haridas Exports, these cases show that principle of competition, it simultaneously insisted on a public
the MRTP Commission has displayed a tendency to issue orders interest test: recall the excerpts from paragraph 54 and 74 above.
against business practices or prices that it regards as 'unfair'. More generally, after reviewing various sections of the act, the
However, the proper role for a competition authority, as rightly Court declared:
enunciated by the Supreme Court in setting most of these orders
The impact of reading of the provisions together is that what is
aside, is to restrain business practices that endanger competition.
sought to be targeted in relation to restrictive trade practice is not
The commission has undoubtedly been performing a vital func- the nature or the factum of the restriction but such restriction should
tion in vigorously enforcing a separate chapter of the MRTP Act not be prejudicial to the public interest (para 71).
dealing with 'unfair' trade practices such as misleading adver-
tisements and prize schemes, and with deficiency in the quality This could lead to more conflicting judgments. As I showed
of goods and services. But far too much of its time was spent in my earlier articles, the public interest means very different
on such cases, and the Competition Act rightly transfers this role things to different individuals, even amongst the few who have
to the consumer courts so that the new Competition Commission dealt with it in the context of Indian competition policy. The
can concentrate on the preservation of a competitive market new Competition Act removes the public interest criterion al-
structure. Price regulation may be necessary where technological together from the adjudication of cases by the Competition
conditions result in limited competition (such as telecom- Commission, but as I show below it reappears in new guises.
munications) or where basic needs that might be regarded as And the act instead empowers the government to issue policy
fundamental rights are not being met (foodgrains and essential directives to the commission, to supersede it, or to exempt
drugs, where the Supreme Court has recently intervened). The particular sectors, all in the public interest. I do not intend to
modalities of such interventions, however, are best left to belittle the important questions of social policy that go into the
specialised government bodies, with the superior courts laying public interest test, but using competition policy to deal with them
down broad public interest guidelines, ensuring procedural fairness, is fraught with difficulties. I address this issue more fully in
and enforcing compliance. It is not the job of a competition Section III, which also shows that this difficult balancing of the
authority to adjudicate on 'fair' prices, unless the pricing behaviour conflicting objectives of competition policy involves a debate
is such as to undermine competition, as with predatory prices. that has been taking place in developed countries for decades.
The real cause for concern is that the Supreme Court has had
to set aside orders of the MRTP Commission in which it has II
ventured into the terrain of 'fair' pricing, and the very funda- The Competition Act, 2002
mental differences that evidently exist between these two august
bodies in regard to the nature of competition and the proper With several reservations, in my 2001 EPW article I had
welcomed the new Competition Bill as a move in the right
functioning of a market economy. This is brought out very sharply
in the contrasting excerpts from the verdicts of the MRTPC direction. I had called for its swift passage and implementation,
so as to permit the regulation of mergers and more vigorous
chairman and the Supreme Court in the float glass case. Which-
ever view one supports, this is not a good sign. Apart fromprosecution of RTPs by foreign firms. This would have strength-
unnecessary legal costs and delays, this kind of fundamentalened both India's technical skills in the enforcement of a modern
disagreement generates uncertainty for those contemplating long- competition law, and also our bargaining position at the up-
term investments. It is one thing for such differences within thecoming WTO negotiations. The bill was introduced in parliament
in August 2001, and was referred to the standing committee on
legislative and executive branches of government to result in flip-
flops on privatisation and regulatory policy, rollbacks in an- home affairs. The committee submitted its report in August 2002,
nounced taxation measures and utility charges, and proliferating but because parliament was not in session, it was not tabled in
exemptions and adjustments in tariff schedules. These, after all,parliament until November 21. Thereafter, the government moved
reflect the deep divisions in society over the distributive con- with alacrity: an amended bill was passed by the Lok Sabha on
sequences of economic reforms, and are inevitable in a democ- December 16, by the Rajya Sabha on December 20, and the
racy. It is quite another matter for such reversals to come aboutresulting Competition Act 2002 received the presidential assent
due to conflicting judicial interpretations of the same statute. on January 13, 2003. Then the pace slackened: the act provides
Such episodes add another source of uncertainty to the businessfor only a chairman and one member to be appointed during the
first year of the commission's existence, which has been ear-
environment, which can only further depress investment, and can
marked for education and advocacy activities, but the member
be regarded as examples of the kind of inappropriate judicial
activism commented on recently in these columns in a much was appointed only in July, and the chairman is to take over only

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in September. We would have been much better placed had this whether a combination affects competition are technical issues.
process been completed about a year ago. Sections 19(4) and 20(4), into which these 'development' clauses
Having discussed the original bill in my 2001 article, I shall have been inserted, each list a dozen or so criteria to guide that
focus here on the amendments introduced during its passage, determination. Quite distinct from these is the question of whether
while raising certain issues I had overlooked in my earlier appraisal. there can be a justification for allowing an anti-competitive
A careful comparison of the final text of the Act with the 2001 action. As I point out in A2 and B I below, other exceptions/
draft shows that several crucial changes have been made. I Some justifications were inserted into Sections 3 and 4, which define
are good, some bad, and some ambiguous because they will and prohibit anti-competitive agreements and abuse of domi-
depend on how they are implemented. I shall mention a few in nance. respectively. If parliament wanted to make an ill-advised
each category. 'developmental' justification available for abusive conduct and
for combinations, it should have been included likewise in
The Good Sections 4 and 6, which contain the relevant prohibitions. It
seems, therefore, that the developmental clauses are redundant,
The unambiguously positive amendments can be summed upthey in no way help to determine the impact on competition,
since
in a single paragraph. The age limit for the chairperson haswhich been is the purpose of the sections into which they have been
reduced from 70 to 67 years, although it could have been reduced inserted. Or so it seems to someone with no legal training; no
much further. The chairperson and members of the Competition doubt, lawyers will have a field day debating the relevance of
Commission are now debarred from employment with any these clauses.
enterprise that has been a party to a proceeding before A2: the The 'efficiency' defence: An amendment to Section 3 ex-
commission for a year after they leave office, as againstcludes six efficiency-enhancing joint ventures from the prohibition
months in the draft. A phrase has been inserted so that, apart of 'horizontal' anti-competitive agreements (i e. those between
from the hierarchy of "additional, joint, deputy or assistant competitors). This superficially resembles similar provisions in
directors general" mentioned in the draft bill, "other advisers, otherjurisdictions. A 'block exemption' has been available since
consultants or officers" can now be appointed to assist the the mid-1980s in the EU for joint ventures devoted to research
commission, enabling it to draw upon external expertise. Sen- and development, subject to certain conditions. In the US, the
sibly, the threshold size of business groups subject to merger 1984 National Cooperative Research Act allowed such ventures
review now applies to the acquiring group rather than the to group
be treated under a 'rule of reason', allowing offsetting effi-
to which the target firm belonged. (However, the reservations ciency benefits to be considered, unlike other arrangements that
expressed in my 2001 article about the lack of expertise restrict to competition, which are treated as illegal 'per se'. (These
evaluate mergers are still relevant.) And finally, provision twohaslegal approaches are crucial in the competition laws of most
been made for the commission to enter into arrangementscountries, with and will be referred to frequently below.) Research
foreign agencies; this is vital for dealing with cross-borderjoint RTPs.ventures have also been allowed more recently to engage
More generally, the language of the bill has been tightened in up,
joint production to allow commercial exploitation of the fruits
and redundant clauses deleted. of such efforts.12 Certain 'vertical' agreements (i e, those be-
tween firms at different stages in the chain of distribution) are
The Ambiguous also given conditional block exemptions in the EU, and Article
81(3) of the EU Treaty (reproduced almost verbatim as Section 9
These amendments require more detailed analysis, precisely of the UK Competition Act of 1998) permits exemptions for other
because they can be interpreted in diverse ways. efficiency-enhancing agreements and concerted practices, pro-
Al: The 'development' criterion: The list of objectives prefacing vided that they allow consumers a fair share of the resulting
the Act has been amended to include the phrase "keeping in viewbenefits, do not impose restrictions that are unnecessary to the
of the [sic] economic development of the country". Correspond-efficiency objective, and do not allow for substantial elimination
ingly, the following new clause 19(4)(1) has been inserted intoof competition.
the list of criteria for determining whether a firm enjoys a In contrast, the new exemption in the Indian Competition Act
dominant position: "relative advantage, by way of the contri-is too broad, in that it is neither limited to R and D, nor imposes
bution to the economic development, by the enterprise enjoyingany other conditions. It is simultaneously too narrow, in that it
a dominant position having or likely to have an appreciable is available only to inter-firm cooperation in one particular legal
adverse effect on competition". A similar clause 20(4)(m) has format, that of a joint venture. Other kinds of agreements might
been inserted into the list of criteria for determining whether abe covered by Section 19(3), which lists certain possible defences
combination (i e, a merger or acquisition) would have an adverseincluding benefits to consumers, improvement of production and
effect on competition. Since 'development', like 'the public distribution of goods and provision of services, and promotion
interest' is a matter of subjective perception, these provisionsof technical or economic development by means of production
can be used to exonerate blatantly anti-competitive activities by or distribution of goods. As in the case of the 'development'
large corporations that purport to be promoting development.criterion, these justifications appear incongruously in a section
Section 38 of the MRTP Act at least listed specific circumstancesthat supposedly lists criteria for judging whether an agreement
(the so-called 'gateways') that could be adduced to rebut the has an adverse effect on competition. But the more relevant point
presumption that a particular RTP was against the public interest; here is that, unlike the Article 81(3) provisions of the EU, these
the amended Competition Act leaves it entirely to the commission's are permissive rather than mandatory conditions. It is also not
subjective understanding of 'development'. clear whether they can override Section 3, according to which
On the other hand, such an interpretation may not be sustain- certain 'hard-core' cartel agreements are presumed to have an
able, for the following reason. Whether a firm is dominant or adverse effect on competition, which would make such agreements

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illegal per se.13 In short, the door has once again been kept wide undertaken this and other restrictive measures under pressure
open to subjective case-by-case interpretations. There also does from import competition (in fact, from ANSAC).14
not seem to be any scope for EU-style block exemptions for Second, an offer to meet the competition can also serve as
specific RTPs in the Act. Section 54 allows exemptions only for 'facilitating practice' to support collusion by producers. The
"any class of enterprises" in the public interest, or for enterprises reasoning is as follows. Price-fixing cartel arrangements give
performing sovereign functions, or for only those specific each firm an incentive to 'cheat' in the form of offering secre
practices and agreements that may arise out of any obligation discounts. If the cheating is detected, and if'rival firms retaliate
assumed by the government in an international agreement. Thus,a 'price war' results, undermining the cartel. Collusion survives
ironically, an RTP can be exempted if a WTO agreement requireson both these conditions not being met. (This is another reason
it to be exempted, but not if the government of India desires anwhy modern economics looks benignly on unsystematic pric
exemption. discrimination, since it allows cartels to unravel throug
Even as regards efficiency-enhancing joint ventures, much cheating.) A discriminatory offer to 'meet the competition', on
depends on how the commission evaluates 'efficiency' in prac- the other hand, means that the seller promises to match any lowe
tice. Note that even ANSAC had argued that it was not a cartel price offered by a rival for the same product. This apparentl
at all, but an independent trading company or joint venture, consumer-friendly offer actually supports the collusive price
promoting efficiencies that it shared with its customers. It made since it creates both an incentive for consumers to report discount
similar claims (which were rejected) in cases in Europe and South offered by rivals, and also a binding commitment by the firm
Africa. If such arguments are accepted by the Competition to retaliate. Firms employing such a clause are actually discour
Commission, ANSAC need not fear the reimposition of an import aging cheating and thereby propping up the cartel. Although th
restriction consequent on the amendment to be discussed underis properly the subject of Section 3 of the act, rather than Section
B2 below. And since the efficiency defence has long been where the amendment has been inserted, it might be wrongl
available in the EU, their firms will have much greater experience
regarded as innocuous in a cartel case, if the commission lack
in invoking it in their favour, without having to meet the con- the technical expertise to understand the subtle difference be-
ditions that would be required in the EU itself. tween actually meeting the competition (which can be a legitimate
defence) and promising to do so (which should be regarded a
The Bad an offence).
B2: Import restrictions redux: In what seems to be a direct
Each of the unambiguously negative amendments also response needs to the Haridas judgment, a new subsection 33(2) has
to be dissected in greater detail. been inserted, allowing the commission to issue temporary
B1: The 'meeting the competition' defence: An 'Explanation' has
injunctions to restrain any party from importing goods, if the
been inserted into Section 4 (which deals with the abuse of a import is likely to contravene the Act's sections on anti-com-
dominant position) so as to exclude from its purview unfair or petitive agreements, abuse of dominance, or combinations. Such
discriminatory conditions or pricing if they are adopted to 'meetinjunctions can be given without hearing the other party. This
the competition', i e, to match rival offers. In the first place, amendment will reinstate the licence-permit raj in another guise.
modern economics does not regard price discrimination as It will come as a boon for domestic producers hankering for the
necessarily bad: discrimination allows producers to cross-subsidisegood old days of import control when they could shut out import
low income consumers who might not be served otherwise, andcompetition altogether thanks to the requirement that a prospec-
can be welfare-increasing. If, despite this, discrimination is to tive importer produce a certificate to prove that the product was
be made an offence, then perhaps it is sensible to allow pricing not available in India. A similar power, of course, on different
to meet the competition as a defence. But the wording of thegrounds and only with respect to imports from particular sources,
Explanation explicitly includespredatorypricing, which is definedwill now be vested in the Competition Commission, which need
in a subsequent 'Explanation' to the same section as pricing not hear the importer at all. Paragraphs 56 and 72 of the Haridas
below cost "with a view to reduce competition or eliminate the judgment required notice to the respondent, an enquiry to prove
competitors". The "meet the competition" defence, in conjunc- an RTP, as well as a public interest test, as prerequisites for
tion with this cost test, will legitimise predatory pricing by firms granting injunctive relief under the MRTP Act. Sections 3 and 4
with 'deep pockets': the financial resources to incur losses in of the Competition Act, in contrast, make certain types of collusive
order to drive out more efficient producers. Such a defence is agreements and abuse of dominance illegal per se. This is subject
not admissible in Europe; it seems to have been taken from the to the ambiguous exceptions discussed in A2 and B 1 above, but
American Robinson-Patman Act, which has been little used in even these cannot be effectively considered at the injunction stage
the last 30 years. if the opposite party is not given a hearing.
While the preceding point makes the amendment appear prob- Even if a prima facie case can be established, an import
lematic in principle, two other objections could be innocuous prohibition would not be appropriate. Imports might be targetted
or disastrous, depending on how it is interpreted in practice. First, for being priced too high (e g, by a foreign merger or cartel),
a publicly-announced commitment by a firm to meet the com- or too low (by a dominant foreign firm engaged in predatory
petition is actually anti-competitive. A dominant firm making pricing). If the former, then further restricting competition by
this commitment can deter small potential entrants since it can shutting out imports amounts to cutting off one's nose to spite
offer consumers a low matching price only on its marginal sales, one's face. The threat of an import restriction might be useful
while the entrants must incur it on their entire sales. The European for compelling foreign defendants to cooperate with the investi-
Commission imposed a fine of 20 million euros on the chemical gation and to pay the fine if the case is decided against them,
giant Solvay for engaging in this exclusionary practice in its sales but to shut out their goods for the entire duration of the case
of soda ash, even though it acknowledged that Solvay had is self-defeating. As the two cases that were finally decided in

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Haridas illustrate, the injunction can remain in force for several world of IO and contemporary practice to more historically-
years during the regular hearing, the review hearing, and the informed research, one is forced to recognise a much greater
appeal to the Supreme Court. There is no way the exporters, the diversity of practices and objectives. Frederic Scherer, a leading
importers, and the ultimate consumers can be compensated for IO theorist with a historical bent of mind, has shown that during
the losses they have suffered in the meanwhile. Requiring the the late 19th and early 20th century, restrictive agreements were
posting of a bond or cash deposit (as in the case of provisional legal in Britain and France, and actually enforceable by the courts
anti-dumping and countervailing duties), to be adjusted against in Germany, while cartels were promoted by the state in both
the fine in case the verdict goes against the cartel and refunded Britain and Germany in the 1930s. Other historical accounts make
otherwise, would be better than denying market access. similar points. 17 Active prosecution began in these countries only
If, on the other hand, the impugned practice is predatory pricing, in the last fifty years, but Britain continued to allow exemptions
then an import restriction will probably be held to be inconsistent in the public interest; while in the 1970s the European Community
with Article VI of the GATT and the Uruguay Round Anti- (as it was called at the time) itself encouraged cartels to 'wring
dumping Agreement, which lay down a procedure for dealing out excess capacity' in some industries.18 Rationalisation agree-
with low-valued imports, and require domestic laws to be brought ments are even now covered by a block exemption in the EU,
into conformity with that procedure. As pointed out in my earlier and crisis cartels can be considered under the 81(3) exemption
articles, in 2000 the WTO Dispute Settlement Body held that discussed above. Although 'efficiency' is the touchstone for
the US 1916 Anti-dumping Act was inconsistent with these granting such exemptions, they would usually soften the impact
requirements, and could not be exempted on the grounds that of recessions on employment. As the World Bank has pointed
it was a national competition law. Ironically, India included itself out, 'In contrast with US legislation, the EU's competition regime
as a third party in that case, on the side of the complainants, emphasises equity objectives as well, such as employment and
the EU and Japan.15 The US can get away with defying such measures that encourage cooperation among small and medium
rulings, but India is likely to be hit by retaliatory tariffs. As the enterprises'.19 It is ironic that the EU is now leading the charge
Haridas verdict also pointed out, the appropriate remedy for low- to impose uniform competition principles on other countries as
priced imports is an anti-dumping duty, which the commerce part of a WTO agreement.
ministry seems quite ready to impose. Unlike an import prohi- In order to appreciate the relatively recent arrival of the 'ef-
bition, this brings revenue to the government while maintaining ficiency' standard in the developed countries, it is instructive to
some price discipline on domestic producers - which is why the examine in greater detail the experience of the UK and US. The
latter will always prefer the prohibition. The drawback of an anti- protean concept of the 'public interest' in competition policy was
dumping case, of course, is that the buyers of the imported product first articulated in Britain's 1948 Monopolies and Restrictive
do not get a hearing. Practices Act, which involved a procedure that was very different
B3: The amnesty scheme: A new Section 46 allows for imposition from the Indian MRTP Act. Stephen Wilks' history20 is illumi-
of a reduced penalty on a participant in a cartel who makes a nating in this respect. The British Monopolies Commission
full disclosure of having violated the Act. I would have gladly conducted inquiries that led to reports, not cases that led to
included this in the list of positive amendments (I had suggested verdicts. These inquiries were conducted by panels of five part-
something similar in my 2001 article) - except that it provides time members, drawn from the legal profession, the civil service,
that such reduction is available only to the first participant who industry, finance, trade unions and academic economists, with
comes forward, and is not possible if any proceedings or even technical support from staff provided by the commission. Each
an investigation have already commenced. Where such provi- panel used its own criteria, bound neither by guidelines nor
sions have been made abroad, they give investigators the precedents. This permitted a nuanced understanding of the 'public
ability to offer leniency to more than one participant, and at interest' in each case. But the recommendations of the panels
various stages of the proceedings, in exchange for evidence that were not binding, the idea being self-regulation by industry.
can be used to prosecute co-conspirators. In fact, the amnestyAccording to Wilks, this was very much part of the political
scheme in the US was largely ineffective for the first 15 years economy of the 'post-war settlement' between capital and labour
mainly because it did not apply after an investigation had begun. in the UK, based on accommodation and mediated by bureau-
It was amended in 1993 to guarantee complete immunity to cratic a and political discretion. After the 1956 Restrictive Trade
firm that provided evidence to commence an investigation, and Practices Act, RTPs were subject to a separate judicial procedure,
discretionary amnesty during the investigation. Consequently, while monopolies and mergers remained within the purview of
the number of applications multiplied from about one a year the commission. But the public interest test was enshrined in
to over 20 a year. In 2002, the EU modified its scheme alongSection 10 of the act, which laid down several 'gateways' that
similar lines.16 could be pleaded by the defence, including protection of em-
ployment and exports.
Ill In this setting, promotion of competition was, ironically, not
a priority of British competition policy until the 1980s. Wilks
Broader Issues: History and Political Economy
emphasises that it is important "to appreciate that the machinery
Thus far, I have employed the analytical toolkit of modern of government was designed as much to restrict competition as
industrial organisation (IO) theory, and current practice in the to encourage it" (p 25). Efficiency was not a major objective;
EU and US, to assess India's old and new competition regimes. other goals that were given greater priority at various times
This framework privileges 'efficiency' as the sole criterion for included export promotion via building 'national champions',
evaluating outcomes. I had dealt briefly with other objectives full employment, balanced distribution of industry, technical
in my earlier articles, but here I would like to address them at improvement and price control. The 1973 Fair Trading Act was
greater length. Once one moves away from the model-driven a 'shotgun marriage' in which "two pieces of draft legislation

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- on competition and on consumer protection - were hastily guidelines in the American laws, "the economic approach emerges
stapled together" (p 184). (In an Indian remake of this episode as the natural, the feasible and the legitimate guide to interpreting
eleven years later, the square peg of Section V B on Unfair Trade the antitrust statutes" (p 27).
Practices was forcibly inserted into the round hole of the MRTP Lack of space precludes a full assessment of Posner's argu-
Act, and kept there despite the enactment of the Consumer ments against the populist position, some of which (such as his
Protection Act with overlapping provisions two years later.) assertion that very large personal incomes in the US have little
Burdened with so many objectives, it is not surprising that UK to do with monopoly power) are quite unacceptable. Two others
competition policy has been judged by most commentators to are somewhat persuasive, but ultimately do not support his
have been largely ineffective. As Wilks writes: "Economists have position. He first argues that once one takes into account the
been critical of the politicisation of competition policy, the effects of monopolisation in raising the demand for producers
diverse criteria allowed by the public interest test, the apparent of substitute goods and for the inputs used in the monopolisation
incompatibility of the reasoning on different reports and the process itself, the effects on income distribution are "complex,
divergences from the prescriptions of welfare economics" (p 335). ramified and unpredictable" (p 23). This is true, but the Theory
But these criticisms, he argues, are beside the point: until the of the Second Best tells us that the same is true of the impact
1970s, "the policy more or less did what it was intended to do. on allocative efficiency, once one admits the presence of market
It allowed government to address episodic problems, it provided imperfections ('distortions') other than monopoly. By this logic,
a facade of control and it allowed industry, on the whole, freedom there would be no 'economic' case for antitrust policy either.
to operate in a context of reasonable self-regulation. It did not Posner also challenges the populist belief that antitrust policy
deliver economic efficiency or consumer welfare, but then it was can promote small firms, correctly pointing out that they are
never intended to" (p 340). It "has made a minor contribution actually benefited by the 'price umbrella' held up by dominant
to the efficiency of the economy, but a major contribution to firms or cartels in their industry. But he stretches the argument
the legitimacy of the market" (p 346). With the market presumably too far, concluding that "the best overall antitrust policy from
having being legitimised by the events of the 1980s and 1990s, a small-business standpoint is no antitrust policy" (p 26). This
the new UK Competition Act of 1998 abandoned this messy is sheer hyperbole. First, it ignores other antitrust policies, such
balancing of objectives and adopted a clear focus on competition. as those governing predatory pricing and abuse of intellectual
Arguably, the Indian MRTP Act, a product of Indira Gandhi's property rights, which can protect small firms from large ones
leftward lurch, sought political legitimacy of a very different kind. (and poor consumers from large corporations). Whether these
But here too, the government exercised similar political discretion measures involve an unacceptably high sacrifice in terms of
in monopoly and merger cases, which it could refer for inquiry efficiency is a separate issue. Second, the umbrella argument is
to the MRTP Commission, whose reports it could ignore. Few inapplicable in markets that are dominated by one or a few large
such references were ever made. In RTP cases, on the other hand, players, without any small fry. In such a context surely antitrust
the commission could initiate cases and pass its own orders. policy can be used on behalf of small firms that are buyers of
Section 38 of the Indian MRTP Act, listing the 'gateways', was
the product. And finally, even where there are small firms that
taken almost verbatim from Section 10 of the UK RTP Act. But could benefit from such an umbrella, then it can be deployed
in the British Act the 'public interest' was restricted to defensive
without throwing out the entire law, by giving selective exemp-
arguments on behalf of the respondents, whereas in India it came
tions to activities that can be shown to promote small enterprises,
to pervade the entire Act. In both the cases that were decided
or those owned by historically disadvantaged persons. The new
in Haridas Exports, for example, losses in employment caused
South African Competition Act is an interesting experiment in
by import competition were accepted by the MRTP Commission
this respect.22
as arguments against the respondent foreign suppliers. These arguments against Posner overlap in one particular
Offsetting gains in employment that would have been encour-
situation that is of considerable relevance in developing coun-
aged by cheaper inputs for the industries using the products were
tries. Where there is already monopoly or monopsony power on
not considered. one side of the market which cannot be touched, allocative
In the US, the Sherman Act was a product of late 19th century efficiency is not necessarily diminished, and equity is likely to
animosity towards big business, and the procedure remains abe promoted, by allowing collusive behaviour on the other side.
Many developed countries provide exemptions in sectors
judicial one. Here it is appropriate to discuss the views of Richard
Posner,21 who uniquely combines the roles of sitting judge,characterised by unequal bargaining power, such as labour markets,
trained economist and legal scholar, and whose judgments and agriculture, fisheries, and small firms that have to deal with large
academic writings have contributed substantially to the growing ones.23
influence of an 'economic' approach based on an allocative On the whole, however, although I take distributional goals
efficiency criterion in American antitrust jurisprudence. As in more seriously than most writers on this topic, I have reservations
the UK, this has occurred only in the last 30 years. Posner showsabout using competition policy for meeting them. Not because
how until well into the 20th century, American antitrust legis- I believe that market outcomes are benign, or in the mythical
lation was motivated by 'populist' concerns about income distri- lump-sum taxes and transfers that economists use to dodge the
bution and the survival of small businesses. But the legislatureissue, but because it is difficult to redress the many inequities
gave no explicit guidelines for incorporating these goals into the of the market with a law intended to promote competition. If
actual working of the laws; according to Posner such guidelines anything, in requiring recourse to an expensive judicial process
would have been incoherent and unworkable, resulting in serious which allows for only 'win/lose' outcomes, competition policy
damage to the economy. He combines a fervent belief in the is inevitably tilted against the less well off. In the Indian context,
efficiency criterion with a critique of the internal consistency ofthe potentially redistributive competition policies mentioned in
the populist position to argue that, given the absence of specific the preceding paragraphs will be difficult to implement via the

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Competition Act, since the 'meet the competition' defence industries, in contrast, leaves it to them to work out their own
effectively legitimises predatory pricing, while authority for solutions.
preventing abuse of intellectual property rights has been reserved
for the Patents Act. There is little that the Competition Act can
IV
do to serve distributional objectives except by exempting small
producers and particular sectors, through the power available to WTO Negotiations on Competition Policy
the government in Section 54. For the first few years after it was set up at the 1996 Singapore
It is important, however, that as far as possible these exemptions Ministerial Conference, discussions at the WTO Working Group
be granted in advance on the basis of sound criteria, rather than on Trade and Competition Policy ranged widely over all manner
to applicants who have the resources to lobby for them. A focus of issues, with little progress towards a consensus on any of them.
on the bigger players is already mandated by the thresholds for Despite this, at the 2001 Doha Ministerial, the European Union
merger review, and implicit in the criteria defining dominant made a strong bid to bring competition policy onto the WTO
positions. The exemptions would therefore bc needed mainly for negotiating agenda. It continues to interpret the ambiguous wording
anti-competitive agreements. As in the EU, a blanket exemption of the Doha Declaration as a commitment by all WTO members
could be given to agreements involving firms that have a certain to commence negotiations after the Cancun Ministerial in Sep-
maximum turnover and market share. Additional exemptions tember this year, leading up to a multilateral agreement which
could be given to particular industries, and in order to limit the would allow for cross-sectoral retaliation in case of deliberate
effects of political patronage in choosing them, let the rules be or unwitting violation. The Declaration also narrowed the Working
written to exempt defensive cartelisation by only those domestic Group's mandate in the run-up to Cancun, directing it to study
firms facing international competition without significant tariff only (a) the applicability of the core WTO principles such as
protection, and either dealing with highly concentrated buyers non-discrimination, transparency and procedural fairness; (b)
or sellers, or holding a price umbrella over small competitors modalities for voluntary international cooperation; and (c) pro-
and ancillary suppliers. These are verifiable criteria, unlike the visions on 'hard core' cartels. I had argued in my 2001 article
nebulous 'public interest' test. The first criterion will ensure that that India could subscribe to a limited agreement that would target
bid-rigging by suppliers of non-tradables such as construction international cartels, and in order to gain valuable experience
services does not get exempted. It will also ensure that for and strengthen our bargaining position, the new Competition Act
tradables, import competition will impose 'market discipline' on should be vigorously enforced against mergerS and cartels in-
domestic producers and prevent serious anti-competitive effects. volving foreign firms, while going slow for the time being on
Even if there is a trade-off between efficiency and equity, there Indian firms which needed time to restructure in the wake of
is no particular justification for insisting on a corner solution. deregulation and import liberalisation.
The approach suggested here is a pure 'safety net'. It does not I am now much more sceptical, however, about the benefits
attempt to replicate the EU's 81(3) exemption, because the Indian of an agreement. The long delay in passing the Act and con-
Competition Commission will not have the technical competence stituting the commission has meant that an opportunity has been
to evaluate claims to efficiency for the foreseeable future. Nor lost for building the institutional capacity to engage the developed
does it amount to promotion of particular industries chosen by countries on more equal terms. In the meanwhile, discussions
the government. In particular, I am not endorsing the argument, at the Working Group indicate that the EU is going to insist that
popular in some circles and frequently raised in India's submis- the WTO principle of 'National Treatment' (NT), i e, non-
sions to the WTO Working Group, that competition policy should discrimination between domestic and foreign suppliers, be part
be subservient to east Asian style industrial policies, with state- of a WTO agreement on competition, which mear.s that it will
nzandated mergers and cartels. This naively ignores the historical have to be incorporated into national competition laws.25 India,
and institutional specificity of the east Asian example, and also on the other hand, advanced several reasons in its communication
the new research that has questioned the merits of that strategy.24 to the Working Group as to why the arguments that make NT
In any case, the Indian government did not lack the authority vital in respect of trade in goods cannot be extended automatically
to carry out such a strategy. The 1984 amendment to the MRTP to competition policy. It also pointed out that since developing
Act inserted a new 'gateway' under which restrictive agreements countries lack the resources to prosecute the anti-competitive
could be condoned if they were specifically authorised by the practices of firms located abroad, domestic firms will in practice
government, which already had (and continues to have) the bear the brunt of a 'non-discriminatory' competition law.26 But
power, under Section 396 of the 1956 Companies Act, to bring just a few months later; parliament passed the Competition Act,
about mergers in the public interest. I am not aware of these which is silent on the question of discrimination, thereby con-
powers ever being used for industrial development policies of ceding de jure NT, which is what the EU wants. The EU sub-
the east Asian kind, or even for supporting declining industries. mission leaves open the possibility of de facto discrimination
In the Indian context, is there a single example of the state in the form of discretionary implementation, but this is likely
(a) correctly identifying industries in which collective action to be a potential area of conflict.
would result in better outcomes, (b) getting large business Furthermore, the Competition Act contains what amounts to
houses to agree to take such action against their wishes, and a per se prohibition of exactly the kind of 'hard core' cartels
(c) enforcing performance requirements imposed on them? targeted by the EU (and more broadly, the OECD).27 The 'public
Whether one considers traffic rules, building codes, common interest' gateways of the MRTP Act will no longer be available.
effluent treatment facilities or restrictions on water use, the state's Although I have been critical of the way in which this construct
ability to promote collective action and enforce much less complex was employed, a blanket prohibition on cartels has equally serious
laws on even small businesses and ordinary citizens has been consequences. One can imagine a situation in which highly-paid
visibly deteriorating. Granting exemptions to import-competing lawyers representing the EU dairy industry argue before the

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Competition Commission that Amul, for example, is a price- imports, and the replacement of arbitrary anti-dumping barriers
fixing cartel, paving the way for massively subsidised European to their exports with more stringent predatory pricing rules.30
exports which have destroyed unorganised small-scale dairy The latter is most definitely not on the agenda of the WTO, being
farmers in many developing countries. (Agricultural cooperatives opposed by both the EU and the US.31 On the former, while
are exempted from provisions of the competition law in most evidence of international cartel activities is now plentiful, the
developed countries.) The case for exemptions is equally strong case for a WTO agreement is questionable. A recent WTO
in the case of certain manufactured exports, such as garments Secretariat study by Simon Evenett, a consultant appointed by
and footwear, that are supplied to large 'oligopsonistic' buyers the Working Group, offers estimates of the huge amounts that
in developed countries. Allowing organisation of exporters will developing countries have lost on account of the operations of
go some way to level the playing field. Even in other industries, some of the forty-odd international cartels that have been pros-
an unfamiliar and complex legal regime disproportionately burdens ecuted in the US and EU in recent years. This is based on a study
small firms with the costs of compliance, placing them at a by Margaret Levenstein and Valerie Suslow commissioned by
competitive disadvantage relative to larger foreign rivals in a the World Bank, and also Evenett's own finding (in joint work
manner that has nothing to do with 'efficiency'. This only with Julian Clarke) that the overcharges of the notorious vitamins
strengthens my argument in favour of exemptions for small firms
cartel were higher in countries with no effective cartel law. He
participating in anti-competitive agreements in tradable sectors.argues in the WTO study that the amount that developing coun-
Selective exemptions might be required even for the large-scale
tries could save by a crackdown on such cartels would amount
industrial sector that should be the prime target of competitionto a significant share of their total imports and dwarf the ex-
policy. Here there is a further dissonance between the Act andpenditure that they would have to incur in setting up the necessary
India's submission to the Working Group. Pointing to deep- regulatory bodies.32 Although commissioned at the request of
rooted imperfections in the markets for land, labour and capitalcountries like India who are opponents of a WTO agreement on
that impede the reallocation of resources in the face of importcompetition policy, the study ends up endorsing the idea.
liberalisation, and the absence of social safety nets for those Developing countries should not allow themselves to be enticed
displaced, India had argued for a permissive attitude towardsinto an agreement by calculations of this kind, for if one delves
domestic mergers and rationalisation cartels to allow for orderlyinto the methodologies adopted, one begins to recognise the
restructuring and downsizing.28 But while the 'failing firm de-frailty of the results. An updated version of the Levenstein-
fence' of a merger is recognised in Section 20(4)(k) of the Suslow study makes several relevant points.33 First, to the extent
Competition Act, the per se prohibition of cartels in Section 3 that producers in developing countries benefited, whether in their
does not seem to allow for rationalisation cartels. As we saw own or export markets, from the price umbrella of the foreign
in the preceding section, most developed countries have allowed cartels, any calculation of costs based only on losses to consumers
several exemptions from the cartel prohibition on this and is other
exaggerated. Second, Levenstein and Suslow only report the
grounds. Presumably, the government could still use itsdeveloping power countries' imports of the products affected by the
to grant exemptions. But this would also involve confronting knownthecartels, being careful to acknowledge the methodological
controversial NT principle, and could by hijacked by lobbying problems involved in comparing the product descriptions with
pressures. those of SITC data on trade flows. The latter are broader in many
The EU Trade Commissioner was recently quoted as sayingcases, even at the 4-digit level, resulting in an overestimate of
that India's opposition to a WTO agreement on competition isthe value of cartel-affected imports. What the authors do not
"only tactical because India's investment regime and competition acknowledge is that looking at developing countries' total imports
law are already WTO-plus-plus".29 By enshrining both de jure of the relevant products ignores the possibility that a significant
National Treatment and a per se prohibition of hard core cartels, proportion could have been supplied by exporters who were not
the Competition Act concedes the EU's main objectives even cartel members. These exporters might have raised their own
before negotiations begin. A multilateral agreement at the WTO prices under the cartels' umbrella, but they might equally well
will lock in these provisions, and make it difficult to revise themhave tried to undercut it. China seems to have played this role
in the light of experience, since any departures will then become in a couple of the case studies in the paper. Ignoring the behaviour
subject to dispute settlement and retaliation. The reintroduction of such 'maverick' suppliers would again overestimate the cartels'
of import restrictions as a remedy for foreign anti-competitive effects.34
practices, apart from being self-defeating, is probably WTO- The WTO study does not mention any of these problems, and
incompatible and further complicates the situation. calculates losses to developing countries as 20 to 40 per cent
of the Levenstein-Suslow import figures. This percentage con-
No Gains from an Agreement forms roughly to the range of price increases found in the EU
and US cartel cases. But there seems to be a simple arithmetical
India's gains from a multilateral agreement are also likely toerror involved here: price increases of this magnitude will
be illusory. The Competition Act being already WTO-compliant correspond to overcharges of 20/120 to 40/140, or roughly 17
in the eyes of the EU means that we have no bargaining chips, to 29 per cent, of the post-cartel value of imports. Using the
except an offer to bind these provisions in a WTO agreement 20-40 per cent range results yet again in an overestimate. And
before we wake up to their implications. Nor is an agreementin any case, assuming the same markups for all countries ignores
likely to affect the behaviourof firms and governments in developedthe fact of international price discrimination, or 'pricing to
countries in meaningful ways. In one of his rare writings on market', which is well established in the empirical international
development, Scherer opined that the principal benefits accruingtrade literature. Levenstein and Suslow's case study of the graphite
to developing countries from a multilateral agreement would beelectrodes cartel, for example, shows that the cartel ulncerpriced
the control of international cartels that overcharge them forits exports to India, attracting anti-dumping duties.

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 The Clarke-Evenett paper avoids some of these problems by parties.38 With no promise of effective international cooperation,
econometrically estimating the impact of the vitamins cartel on developing countries are being asked to set aside financial and
the value of vitamin imports of individual countries from coun- human resources to set up competition agencies and crack down
tries where the cartels were known to operate, controlling for on their own cartels, in pursuit of the mirage of the supposedly
other determinants of bilateral trade flows and for vitamin exports huge gains that will accrue to them once international cartels are
from China, which were an important competitive influence.35 magically brought to heel.
This is a promising advance, but the dummy variable they use Even developing countries that already have competition
to capture the effectiveness of a country's competition policy agencies in place, and some experience of their working, are likely
is rather crude: a country reporting any action taken against a to lack the relevant enforcement capability. The kind of WTO
cartel to the OECD Global Forum on Competition Policy in 2001 agreement being proposed would merely require members to
or 2002 is classified as having 'active cartel enforcement' for enact non-discriminatory anti-cartel laws. If that is all that is
all the years since 1985, or the year its national cartel law came needed to deal with the problem of cartels, then India's MRTP
into force, whichever is later. By this criterion, India is classified Act, the relevant sections of which were taken almost verbatim
as not having active enforcement, which is probably an accurate from the UK RTP Act, would have been a powerful weapon (at
characterisation. But had India reported the MRTP injunction least until the Haridas ruling divested it of extra-territorial
that was then in force against ANSAC, it would have been jurisdiction). But India's track record in prosecuting even domestic
classified as having an active policy since 1985! Similar non- cartels is quite dismal, and in this respect the classification in
reporting might have resulted in misclassification of some of the the Clarke-Evenett study is accurate. Only 1 per cent of MRTP
65 other countries categorised as not having active cartel enforce- cases reported during 1991-98 involved Section 33(1)(d), which
ment; conversely, a country reporting a stray case of enforcement covers price-fixing and bid-rigging.39 Since then, only three
(to impress the OECD Forum?) would be classified as having further cases have been decided by the MRTP Commission under
an active enforcement record. this section (all in 2002), and none of these involved the successful
uncovering of a conspiracy. Two complaints were dismissed for
Even if we grant that international cartels are a serious problem,
will a multilateral agreement help in curbing their activities?want
In of evidence, and the third (fixation of service charges by
an earlier published paper, Evenett, Levenstein and Suslow havethe Indian Banks' Association) was disposed of on the grounds
themselves shown considerable scepticism about a WTO agree- that the Reserve Bank of India had already given instructions
to discontinue the practice.40 We now have ambiguous anti-cartel
ment being able to deliver the goods, for three cogent reasons.36
provisions in the Competition Act (A2 above), a leniency clause
First, they present evidence that once cartels are detected, they
that will probably be ineffective (B3 above), an inexperienced
take other forms such as mergers, joint ventures, and technology
licensing agreements - and there is no proposal for an inter- Competition Commission, and the MRTP Commission's legacy
of importing non-competition concerns into competition policy,
national agreement that will cover all these. Second, the widely
diverging practices in member countries will be difficult all to of which will make it difficult to engage the competition
reconcile in a way that can be codified in an agreement subjectauthorities of developed countries on their own terms and obtain
their assistance, even if they should be willing to extend it.
to WTO dispute settlement. Third, they cite a standard result from
cartel theory according to which the gains from cartelisation of For all these reasons, domestic as well as international, I now
firms that compete in many markets exceed their gains from believe that India should resist a multilateral agreement on
competition. As a fallback position, in return for concessions
cartelising in each individual market. This means that fines based
in other areas such as TRIPS, a limited agreement could be
on the latter (which is the most that a WTO agreement will arrive
at, since it leaves enforcement to national agencies) will negotiated
be that (a) provides for a prolonged implementation
period to allow capacity building and informal international
insufficient to deter cartels that operate in many countries. They
conclude that "For all these reasons a WTO agreement is,cooperation;
at (b) is confined to measures that actually restrict
trade, provided it is even-handed as between export cartels and
present, unlikely to remedy the deficiencies of national anti-cartel
enforcement". import cartels that could countervail them; and (c) allows for
To these arguments, one can add several more. Prosecution exemptions of sectors, practices and core principles like NT,
of foreign cartels requires cooperation from the authorities perhaps
in by adopting the 'positive list' approach of GATS, which
allows only certain sectors to be bound by multilateral disciplines,
their countries to obtain evidence. But such cooperation is lacking
even between the member countries of the OECD, amongst whom with the option to exclude NT for some of them. These privileges
a fair amount of communication and institutional convergence could be demanded under what is known in WTO parlance as
has occurred on antitrust matters. A recent official review has 'flexibility and progressivity', if not 'special and differential
expressed disappointment about restrictions imposed by varioustreatment', for developing countries. Ideally, any agreement
members on sharing even non-confidential information obtained should be plurilateral and outside the WTO Single Undertaking,
in the course of an inquiry.37 Moreover, the EU and US will allowing members to sign in when they are prepared and to sign
not contemplate a WTO agreement that would require them outtoif they find it too costly, without prejudice to their rights
extend cooperation on anything other than a voluntary basisunderto other agreements. Another option being talked about very
recently is a 'soft' agreement that would provide a forum for
the competition authorities of other countries. They also oppose
consultation, voluntary cooperation, capacity building, and peer
the extension of the WTO's MFN principle (prohibiting discrimi-
review of national policies, without any binding obligations.
nation between members) to the bilateral cooperation agreements
Better still, such an agreement could be outside the WTO frame-
they have entered into with each other and some selected partners.
The US also insists that its export cartels will continue towork
be altogether.
exempted from antitrust scrutiny, and that its laws do not allow Several recent developments are propitious for confronting on
the EU on this issue. Having lost a string of WTO disputes,
for prosecuting firms that have adverse effects only on foreign

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including several with the EU, and even though it refuses to the obsession with allocative efficiency that colours the debate
comply with adverse rulings, the US is now much less enthusiastic is of relatively recent origin, there is little that competition policy
about the WTO. It is less likely to sign on to a new agreement can do to secure distributional objectives in the Indian context,
that limits its options, especially on a subject on which it has except through selective non-implementation. I suggested an
far greater experience than any other country. Its interventions empirical criterion for such exemptions, to minimise the chances
in the Working Group have been decidedly sceptical.41 On the of political favouritism and of excessive damage to competition.
other side, India's negative position has been supported by the Finally, I argued in Section IV that the legacy of the MRTP Act,
representatives of Venezuela, Malaysia, Cuba, Hong Kong, and the imperfections of the Competition Act, and the intransigent
- repeatedly and emphatically - by Pakistan. While Indonesia stand of the US and EU on important issues, will adversely affect
and Korea did not oppose an agreement, they argued strongly India's ability to benefit from a possible WTO agreement on
for the right of members to grant exemptions.42 This degree of competition policy, which could also impose onerous costs of
solidarity is significant. After differences appeared between compliance on Indian firms. Such an agreement should therefore
developing countries at both the Singapore and Doha Ministerial be resisted or at least severely circumscribed by a prolonged
Conferences, voices were raised in India calling for aggressive implementation period and scope for exemptions.
pursuit of the 'national interest', abandoning outdated notions The note on which I would like to conclude this paper is with
of third world unity. While it is true that there are inherent a plea for greater economic input into the formulation and
conflicts of interest between developing countries on various enforcement of competition policy. At a minimum, given the
issues, going it alone will only play into the 'divide and rule' limited expertise that is available, economic analysis can suggest
strategy of the more powerful members. Developing countries screening devices based on empirically verifiable aspects of
have good reason to be wary: the Uruguay Round resulted in market and product characteristics that will help to narrow down
agreements whose implications they did not fully comprehend, the list of cases for investigation and prosecution. Then, given
forcing them to reduce their own trade barriers and subsidies that antitrust enforcement worldwide has moved away from
while leaving loopholes for developed countries to exploit, often holding certain practices illegal per se, economics can provide
with devastating consequences.43 The same is likely to happen one kind of reasoning to support 'rule of reason' judgments. Ex
with an agreement on competition policy, on which there is scope post, economic (and even statistical) analysis of judgments can
for putting together a 'coalition of the unwilling'. help to highlight systemic failures. Analyses of this kind (such
as those by Scherer and Posner) show that even in developed
V countries, competition policy is not always consistent, based on
economic logic, or immune to politics. Economic inputs can also
Summary and Conclusions contribute to the formulation of amendments to the law. The
This paper has shown that on the vital question of the appli- Patents and Companies Acts have been repeatedly amended in
cation of competition policy to international trade, India has recent years, and it is obvious from my analysis in Section II
swung from one extreme to the other and then back again. First, that the Competition Act needs the same treatment. Apart from
the MRTP Commission imposed injunctions on imports. As amendments, economic analysis can suggest guidelines for
discussed in Section I, the Supreme Court's verdict in Haridas enforcement, operationalising the multiple criteria in the act.
Exports rightly overturned these, but also made it difficult to take These guidelines should be widely publicised and replace sub-
any effective action against anti-competitive practices originat- jective case-by-case interpretation. This would reduce uncer-
ing abroad. Then, one of the many amendments to the Compe- tainty, delays and legal costs. The insights provided by modern
tition Bill (discussed in Section II) again permitted injunctions economics into strategic behaviour by firms can help to prevent
on imports, a measure which I argued in B2 above is self-defeating unintended outcomes, such as those discussed in B 1 above, even
and in probable violation of WTO rules. The other amendments, if its efficiency criterion is not adopted as the sole method of
too, create more difficulties. In my 2001 EPW paper (see n 2), judging them. G
I had expressed concern that even the many progressive features
of the new law could be undone by the lack of suitable technical Address for correspondence:
expertise to interpret it, and that our experience with the MRTP [email protected] or [email protected].
regime left much to be desired in this respect. While the Com-
petition Act does allow for phased implementation, involvement
Notes
of outside experts, and a year of purely educative activities, the
amendments (especially those discussed under Al, A2 and B1 [I would like to thank T C A Anant and Jaivir Singh for comments on an
above) put an even greater burden on the commission's ability earlier draft of Sections I and II, N K Prasad for helpful discussions on some
to make reasoned judgments based on quite complex technical aspects of the Competition Act, and Swati Dhingra for painstaking research
assistance. None of them should be held responsible for the views expressed
criteria. In regard to cartels, the penalties have been substantially
here, or for any errors that remain.]
hiked, but the new leniency provision, as I argued in B3 above,
is likely to be ineffective. Furthermore, some of the amendments [NB: All WTO documents cited here (those numbered WT/WGTCP/...) can
will work in favour of foreign firms, for example in allowing be accessed from the web site. www.wto.org.]
an efficiency defence without the conditions that would be
imposed in their homejurisdictions; or the 'meet the competition' 1 'Predation, Protection, and the Public Interest', EPW, December 8, 2000.
See also C Satapathy, 'Under-Valued Imports and Public Interest', EPW,
defence even in cases of predatory pricing, which will help firms
February 3-10, 2001.
with financial deep pockets. 2 'Competition Policy: India and the WTO', EPW, December 22, 2001.
Section III of the paper examined broader issues of political I have attempted a more comprehensive analysis of the past and future
economy, governance, and income distribution to show that while of Indian competition policy, in light of the prospects for a WTO

Economic and Political Weekly August 23, 2003 3573

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 agreement, in my essay 'Trade, Investment and Competition Policy: An mitigating criteria in Section 19(3) relative to this prohibition is unclea
Indian Perspective' in Aaditya Mattoo and Robert M Stern (eds), India 28 WT/WGTCP/W/216.
and the WTO: A Strategy for Development, forthcoming from Oxford 29 'FDI behind India's Stance: Lamy', Business Standard, March 15/16,
University Press. 2003, p 2.
3 (2002) 6 SCC 600. 30 'International Competition Policy and Economic Development' in
4 Id, paras 33, 34, 40, 42-46, and 57-61. F M Scherer (ed), Competition Policy, Donlestic and International,
5 Id, paras 71-73. Edward Elgar, Cheltenham, 2000. Unusually for an American economist,
6 All India Float Glass Manufacturers 'Association vs P TMulia Industrindohe also expresses sympathy for cartelisation of exporting industries in
and Others, 2000 CTJ 252 (MRTPC), para 21 of the chairman's order, developing countries.
quoted at greater length in my 2000 EPW article. 31 India has emerged in the last few years as a major user of anti-dumping,
7 Id. and most of its own actions would fail the tests required in predatory
8 Principal, Apeejay School vs MRTP Commission, (2001) pricing
8 SCCcases,
702; so it is probably quite willing to go along with this.
Rajasthan Housing Board vs Parvati Devi, (2000) 6 SCC 104.
32 WTO Secretariat, op cit, (WT/WGTCP/W/228), paragraphs 293-304.
9 Director General (I and R) vs Modi Alkali and Chemicals33Ltd and Ors,V Suslow and L Oswald, 'International Price-Fixing
M Levenstein,
1I (2002) CPJ 19 (MRTP). Quotation from para 16. Cartels and Developing Countries: A Discussion of Effects and Policy
10 T C A Anant and Jaivir Singh, 'An Economic Analysis of Judicial Remedies', PERI Working Paper 53, University of Massachusetts,
Activism', EPW, October 26, 2002. Amherst, 2003. (Available from www.umass.edu/peri).
11 I have compared the draft bill with the gazetted act posted on the web site34 On the other hand, Levenstein and Suslow's sample included only those
of the Department of Company Affairs, www.dca.nic.in. I have also cartels which were successfully prosecuted in the EU or US, and excluded
referred to the official proceedings of the Lok Sabha for December 16, from that list cartels in the services sector and those for which no
2002 when the amendments were moved, available at http:// reasonable match could be found in the trade data. These omissions would
164.100.24.208/debate/debtext.asp. lead to an underestimate of the losses inflicted by cartels. With such
12 F M Scherer, Competition Policies for an Integrated World Economy,
large errors in both directions, the WTO study gives a false sense of
Brookings. Washington, 1994, pp 60, 102. Scherer cautions that these
precision in comparing these estimated losses to magnitudes such as
agreements might actually retard innovation. developing countries' imports, competition agency budgets, aid receipts,
13 These are defined in various EU and OECD documents as collective and gains they would obtain from liberalisation of agricultural policies
by the developed countries.
agreements involving price-fixing, market-sharing, output restriction and
35 J L Clarke and S J Evenett, 'The Deterrent Effects of National Anti-
bid-rigging. These are precisely the types of agreements listed in Section
Cartel Laws: Evidence from the International Vitamins Cartel',
3(3) of the Competition Act which are presumed to be anti-competitive,
and anti-competitive agreements are prohibited. Washington, DC: AEl-Brookings Joint Centre for Regulatory Studies
14 See commission decision COMP/33.133-C: Soda ash - Solvay, Official Working Paper 02-13, 2002.
Journal of the European Communlities, January 15, 2003, especially36 S J Evenett, M C Levenstein and V Y Suslow, 'International Cartel
paragraphs 24-35, 49 and 63-66. As mentioned above, the commission Enforcement: Lessons from the 1990s', Tihe World Economy 24(9),
also ruled against ANSAC in a separate case. September 2001, pp 1221-45. Working paper version accessed from
15 See also C Satapathy, 'WTO Panel Rulings on Anti-Dumping: I', EPW, papers.ssrn.com.
November 25, 2000. 37 See Hard Core Cartels, OECD, Paris, 2000, pp 18-19.
16 See Fighting Hard Core Cartels: Harmt, Effective Sanctions and Leniency
38 See the country positions stated in the report of the Working Group
Prograimmnes, OECD, Paris, 2002, pp 12 and 59-69. Available at meeting of July 2002, in WT/WGTCP/M/18.
www.oecd.org. 39 R Basant and S Morris, Competition Policy in India: Issues for a
17 F M Scherer. op cit. pp 23-27; Stephen Wilks, In the Public Interest: Globalising Economy, Indian Institute of Management, Ahmedabad,
Competition Policy and the Monopolies and Mergers Commission, 2000, p 157.
Manchester University Press, 1999, pp 11-12. See also Ha-Joon Chang,40 This is based on an investigation of all RTP cases reported in the
Kicking away the Ladder: Development Strategy in Historical Perspective, Consuiter Protection Journal from 1999 to 2002. The handful of cases
Anthem Press, London, 2002, pp 91-92. This remarkable and wide- reported under Section 33(1)(g), which relates to output restriction or
ranging little book shows that the policies and institutions that today's market sharing agreements, all turned out to be cases against single firms
developed countries are trying to impose on developing countries are rather than cartels.
very different from the ones that they themselves adopted at a comparable41 See the sharp exchanges between the EU and US representatives at the
stage of development. I summarise and critically appraise Chang's book February 2003 meeting of the WTO Working Group, WT/WGTCP/M/
in the Indian Economic Review, 38(1), January-June 2003, pp 126-29. 21, paras 28-31 and 82-83.
18 Scherer, p 53. For legal reasons, the EU is still known as 'the European 42 WT/WGTCP/M/18, paras 35-39.
Community and its member states' in the WTO; for simplicity 1 refer 43 For a carefully documented and compellingly written account of the
to it as the EU throughout. developed countries' hypocrisy on trade agreements and what it has
19 World Bank, World Development Report 2002: Building Institutions for meant for developing countries, see Rigged Rules and Double Standards
Markets, OUP, New York, 2002, p 141, citing E M Graham and (London: Oxfam, 2002), available from www.maketradefair.com or
J D Richardson, Global Competition Policy. Institute for International www.oxfam.org.uk.
Economics, Washington, DC, 1997.
20 Wilks, op cit.
21 R A Posner, Antitrust La, University of Chicago Press, 2001, especially
chapters 1 and 2.
22 See WTO document WT/WGTCP/W/220.
Economic and Political Weekly
23 See the useful compilation in S Khemani, Applications of Competition
Law: Exemptions anld Exceptions UNCTAD/DITC/CLP/Misc.25, available from:
UNCTAD, New York and Geneva, 2002, available from www.unctad.org.
Khemani believes that although some exemptions can be justified on Ritz Hotel Book Stall
economic grounds, many of them represent special interests, and calls Ritz Hotel
for them to be time-limited and subjected to periodic review.
J T Road
24 See WTO Secretariat, 'Study on Issues Relating to a Possible Multilateral
Framework on Competition Policy'. WT/WGTCP/W/228, Part I. Churchgate
25 WT/WGTCP/W/222. Bombay-400 020
26 WT/WGTCP/W/216.
27 See n 13 above. As discussed under A2 above, the status of the possible

3574 Economic and Political Weekly August 23, 2003

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