Nov 22, 2009

Collusion against a law

Constitution requires the government to regulate trade, commerce and industry in the interest of free competition and public interest. Will the parliament and the government act in public interest or fall prey to manoeuvrings of the strong cartel lobbies?

By Asad Jamal

While the whole nation is held hostage to a non-debate on NRO, there is a risk that other important ordinances and institutions established under them may also become prey to the prevailing political environment. The Competition Ordinance, 2007 (the Ordinance) is one such legislation which established Competition Commission of Pakistan (CCP). The commission may meet a pre-mature and unnatural death, unless the ordinance is re-enacted on its expiry on Nov 28, (the cut-off date set out by the Supreme Court in its Order of 31 July, 2009). The Ordinance was promulgated under Article 89 of the Constitution on 3 October, 2007, replacing the outdated Monopolies and Restrictive Trade Practices Ordinance of 1970 (MRTPO). It was given so-called status of a permanent law under the Provisional Constitution Order (PCO) imposed by Gen. Musharraf, which has been declared unconstitutional by the apex court.

The Competition Commission of Pakistan in its short existence has done some commendable work in the interest of the people of Pakistan. It has successfully taken on strong vested interest which holds back the national economy and works to the disadvantage of ordinary citizens. Examples include the cartels in the cement, sugar and banking sector. The commission has also taken on cellular phone companies and other businesses which indulged in unfair and anti-competitive trade practices.

The success of the commission has been made possible due to various provisions of the Ordinance (it is drafted in accordance with the prevailing international best practices of competition legislation) which established a powerful institution coupled with a competent team led by Khalid Mirza, its Chairman. Today, the Competition Commission figures prominently among the few good institutions we have. On a recent visit to India, one heard praise for the work the Commission has done so far.

Taking on strong vested interest has also earned the Commission the ire of the elements involved in anti-competitive and anti-people activities. There have been efforts to influence the government to dilute the powers of the Commission. For instance, amendments reportedly concerning the quantum and basis of penalties prescribed in the ordinance for various violations have been under consideration to be placed before the Senate.

Sensing the urgency and necessity of the work of the Commission, the government placed the law for consideration before the National Assembly's Standing Committee on Finance a few days ago. However, this step provided just another occasion to somehow manoeuvre to dilute the strength of the law which gives the Commission wide powers including that of search of business premises and impounding of records, to initiate enquiries into cartels and other anti-competitive behaviour and unfair trade practices, and to penalise delinquent businesses by imposition of fine up to Rs50 Million or 15 per cent of annual turnover to deter them and others from future violations along with security of tenure to the members of the Commission. The Chairperson of the Standing Committee on Finance has confirmed to journalists that there was a lot of pressure exerted from various stakeholders to reconsider the draft Competition law. Lobbying in the parliament and with the government circles has reportedly forced the speaker National Assembly to send the Competition bill back to the concerned Standing Committee for reconsideration.

It has also been reported in the press that the Karachi Stock Exchange (KSE) in letters addressed to the Sindh Government as well as other relevant quarters in the federal government, has raised several questions regarding the Commission's constitutional status as well as the commission's several powers. It may be recalled that the Commission earlier this year had imposed fines (on the lower side) upon the stock exchanges of the country including KSE for anti-competitive practice of fixing of minimum price on the trading of listed securities in violation of Section 4 of the Ordinance which prohibits agreements that lessen competition in relevant market. The letter was circulated while the vires of the ordinance have already been challenged by KSE and some cement companies in superior courts.

Among the various questions reportedly raised by KSE and others, the most important concerns the federal parliament's competence to enact a law on the subject of competition and cartels. It is the most important question because it goes to the very basis of the law's existence. But, it would appear, that this is the weakest objection. It is argued that the subject is mentioned neither in the Federal nor in the Concurrent Legislative List (subjects mentioned in these two are within the competence of the parliament for legislation). Any legislation on competition, therefore, should be left to provinces. It needs to be emphasised that any scheme of law concerning competition in a federation must transcend provinces. Provinces or states in any federation anywhere in the world face constitutional inability to act on any such scheme. For the sake of making the matter simple, consider: How is the Government of Punjab supposed to act against a company based in Sindh, which is indulging in a behaviour contrary to the public interest of the people of Punjab and vice versa?

The objection to the parliament's legislative competence is flawed as the article 151 (2) of the 1973 Constitution clearly empowers the parliament to enact a law to "impose such restrictions on the freedom of trade, commerce or intercourse between one Province and another or within any part of Pakistan as may be required in the public interest". And even before that sub-article 1 of Article 151 says "(1) Subject to clause (2), trade, commerce and intercourse throughout Pakistan shall be free". Article 301 of the Indian Constitution is comparable to our 151. The Indian Supreme Court has held in Jindal Stainless Steel case [Jindal Stainless Ltd. v. State of Haryana, AIR 2006 SC 2550], that freedom (in Article 301 of Indian Constitution) means freedom from laws which go beyond regulation. Therefore, Article 151 means freedom from laws which burden and thus envisage regulation.

Article 151(2) read with item no. 27 of the Federal Legislative List (…inter-provincial trade and commerce, trade and commerce with foreign countries;…) is comparable to the popularly known Commerce Clause (Article 1, Section 8, Clause 3) of the US Constitution which empowers the Congress "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes". Similarly, Section 91(2) of Canada's Constitution Act (1867) empowers the Canadian parliament "Legislative Authority" over "The Regulation of Trade and Commerce."

Similar examples can be found elsewhere in other federal constitutions where parallel constitutional provisions exist. While the jurisprudence on the subject indicates that there is a tendency to limit the federation's general power to legislate on matters concerning interstate/province trade and commerce but the constitutional inability of the provinces/states, jointly or severally, to enact such a law and the need for national rather than provincial/state regulation if a scheme is to be meaningful and effective are two criteria, among others, which the courts are inclined to examine while considering the vires of a federal statute relating to interstate commerce and trade.

Therefore, there is now a general agreement in federally structured states that competition is a subject within the competence of the federation as, inter alia, the provinces/states, jointly or severally, are constitutionally incapable of enacting an effective legal scheme concerning competition.

Reportedly, an argument has also been tried at, based on constitutional provisions of the abrogated constitutions of 1956 and 1962. While the 12956 constitution had a specific item on the federal legislative lis concerning industrial monopolies; the 1962 constitution had no reference to the subject, neither in the substantial provisions nor in the legislative lists. We should not forget that the former anti-monopoly law MRTPO of 1970 (which was promulgated after the 1962 Constitution had been abrogated in 1969) was given protection under the Constitution of 1973. Therefore, any argument on the basis of previous constitutional provisions also does not hold. Any reference to the Indian constitutional scheme in support of the ultra vires argument on the basis that it has a specific item on its concurrent legislative list is also non-productive, which may not be discussed here due to space constraint.

The amendment under consideration by the federal government regarding the quantum of penalty also needs to be considered carefully. The Ordinance provides (subsection 2 of section 38) that Commission may impose fine on any enterprise found guilty of violating its provisions, a fine of Rs50 million or 15 per cent of its annual turnover, leaving discretion with the Commission. The amendment proposes insertion of words 'whichever is less' for imposition of fine from the two amounts. This is clearly at the behest of powerful cartel lobbies in the country and is intended to reduce the quantum of penalty which will substantially take out the sting out of the powers of the Commission. This should not happen. In this regard, it may also be mentioned that international best practices prescribe that penalties be linked to turn over. At this juncture of the development of law and competition regime, it would be best to leave the discretion with the Commission. It can be strongly argued that this is important to deter increasing cartelisation in Pakistan.

Simultaneously, voices have been raised to make penal provisions of the ordinance even stricter by criminalising certain offences under the Ordinance. This may prove to be premature. Investigation and enquiry into cartelisation is a highly complex and difficult task. In jurisdictions where competition offences have been criminalised, it was done after the competition regime had worked for some years and significant expertise had been obtained by lawyers and economists to investigate cartelisation. Corporate and individual criminalisation of offences will give powers in the hands of the Commission for which it may not have the requisite experience. However, any such provisions, if introduced, may be envisaged to come into force at an appropriate future date a few years from now after taking stakeholders on board.

However, certain other objections raised concern the provision of Supreme Court as a forum for appeals against the decisions of Appellate Tribunal of the Commission (section 42) and Commission's powers for search of business premises and seizure of records without obtaining warrants from an independent judicial body (sections 34, 35). The search and seizure powers, without obtaining permission from an independent body, are contrary to international best practices. The law must be amended in this regard by involving a judicial body in the mechanism. The Supreme Court as the direct appellate forum from the Commission's decisions appears on the face of it somewhat problematic and needs to be debated in terms of the Articles, among others, 185, 175 and 212 of the Constitution.

However, such considerations need time which is short at present, as the law must sail through the parliament or promulgated as an ordinance on its expiry on Nov 28 as prescribed by the apex court. Khalid Mirza, the Chairman of the Commission, has reportedly said that in case the law is not passed with all the existing powers, he might resign. The stakes are high, indeed. The Constitution requires the government to regulate trade, commerce and industry in the interest of free competition and public interest. Will the parliament and the government act in public interest or fall prey to manouvrings of the strong cartel lobbies?

No comments:

Post a Comment