Co-operation is key to tackling cross-border competition

Pradeep S Mehta & Ujjwal Kumar

The existence of an international vitamin cartel and action against it by several rich countries like the United States, Canada, Australia, Japan etc. might not be news to many. But a developing country like Brazil initiating a proceeding against the same cartel might be news to some. The result of the proceeding, initiated in 1999, provided strong evidence that, in line with instructions from their global headquarters, the Brazilian subsidiaries of Roche, BASF and Rhone-Poulenc had made co-ordinated efforts to fix prices of bulk vitamins in Brazil and the rest of Latin America.

The result, however, is not the issue here, the focus is what prompted Brazil to initiate the proceeding. On the other hand, developing countries like India are still sleeping—knowing fully well that there is a cartel in bulk vitamins which has had an adverse effect on the economy. Newspapers in India regularly carried reports on the cartel and the action by the US Department of Justice, but the authority or the government never took any action.

Apparently, the US provided information to the Brazilian authorities due to the existence of a bilateral co-operation agreement on competition between them. The agreement is probably the first involving a developing country and a rich one. Another such agreement between Canada and Costa Rica was signed very recently. Canada already has an agreement with the US, too. Similarly, the US has a co-operation agreement with the European Union and Australia among others.

The rise in cross-border competition concerns and failure to tackle those within the domestic regime have increased the demand for such co-operation arrangements in today’s globalising economy. Global co-operation efforts in the area of competition law policy broadly cover:

* Co-operation aimed at avoiding conflicts between governments or facilitating enforcement against restrictive business practices; and
* Technical assistance for adopting, reforming or enforcing competition law and policy.

While the first is reciprocal in principle, the second is provided by countries that are more experienced in this domain (mainly rich countries) to those less experienced (mainly developing countries). International co-operation on competition matters could take place at various levels, viz. bilateral, regional, plurilateral and multilateral. While examples for the first three are readily available, a comprehensive multilateral co-operation arrangement is yet to be established.

However, the World Trade Organisation’s General Agreement on Trade in Services (GATS) has certain provisions with respect to anti-competitive practices that oblige members to co-operate. That said, co-operation could happen even without a formal agreement or arrangement on an ad hoc basis. However, much depends on the degree of proactivity on the part of the competition authority seeking information. For example, India had successfully prevented a US soda ash export cartel and, facing a similar situation, the South African Competition Commission sought information from India’s Monopolies and Restrictive Trade Practices Commission.

The case of the merger between two pharmaceutical giants, Glaxo Wellcome and SmithKline Beecham, by the South African competition body can be cited as one of the best examples to show that close co-operation between competition authorities is feasible and can be successful, despite the lack of a formal agreement.

In January 2000, the two pharmaceutical companies operating in South Africa made a pre-notification of their proposed merger to the Competition Commission. The commission initially prohibited the transaction inter alia on the basis that it substantially lessened competition in certain categories. At this juncture, it was aware that the European Commission also had problems in these categories. The parties agreed upon few conditions imposed by the EC, such as licensing to other manufacturers etc. Following this the merger was approved.

However, the question whether the action taken by the South African authority would have been more successful had they needed confidential information, still remains an issue. Here the importance of a formal co-operation agreement comes into play. Two factors that are crucial in reaching a co-operation agreement are ‘mutual benefit’ and ‘mutual confidence and trust’. It is the latter that is being projected as one of the main barriers in reaching an agreement between a developing and developed country, though there might be even lack of mutual benefit.

Like South Africa, India is considering a new competition law. However, the Bill, which has been introduced in Parliament, doesn’t contain any provision for either seeking or offering co-operation. Therefore, the following points are suggested to ensure that the new Indian competition law is effective in tackling cross-border competition abuses through co-operation:

* Build trust, which is primarily judged with respect to the effectiveness in keeping the exchanged documents confidential through a confidentiality law or otherwise, and then make efforts to develop co-operation agreements with countries that are likely to be the epicentre of anti-competitive practices affecting the Indian market and consumers.

* Seek ad hoc co-operation on case-to-case basis, in the absence of any bilateral or regional arrangements. Insert provisions empowering the Competition Commission of India to seek and share information with other competition
authorities.

* Incorporate restrictions on the disclosure of confidential information sought from other competition authorities much on the line of Clause 55 of the Competition Bill 2001 that provides for such restriction vis-a-vis confidential information obtained from enterprises.

* Amend the Bill to the extent that the proposed competition fund, which in the present form, would constitute only grant from the Indian government, can also receive grants from other countries if they commit to provide assistance under co-operation agreements.
Merely having an extra-territorial jurisdiction, as provided by Clause 32 of the Competition Bill, might not be enough to tackle cross-border anti-competitive practices. The law has to be given teeth with provisions encouraging co-operation with other competition authorities.

Most important, the proposed Competition Commission has to be proactive in seeking co-operation. This requires an international perspective both in terms of identifying anti-competitive behaviour, and in finding solutions to these challenges, something that is clearly beyond the scope of the existing authority a la Monopolies and Restrictive Trade Practices Commission.

The proposed regime cannot guarantee that Indian consumers’ expectations on this front will be fulfiled, but certainly constitutes cause for hope.

(The writers work with the Jaipur-based CUTS Centre for International Trade, Economics & Environment)