CCP’s order in sugar industry case: a critique—II

Hypothetically, information exchange between competitors can either be simply a means to monitor compliance with a previously concluded anti-competitive understanding, agreement, or practice, or alternatively, it could, in and of itself, be sufficient to anchor collusive sales and pricing strategies given the circumstances of the concerned industry or sector.

In its judgement the Commission (Competition Commission of Pakistan) has not come up with any factual basis or reasoning to demonstrate the plausibility of either hypothesis in regard to the sharing of stock and production data on a periodic basis by the sugar mills at the level of the PSMA.

The famous “Dole Test”, derived from EU jurisprudence, which the Commission has occasionally applied to assess anti-competitive outcomes, is satisfied only if, based on facts and circumstances, it can be safely demonstrated that the impugned information exchange is: (i) designed to eliminate or reduce competitor risk; or (ii) is in pursuit of conduct with an anti-competitive goal; or (iii) seeks to put in place or facilitate anti-competitive practices. If not, as seems to be the case here, the Dole Test fails — particularly if it can be shown that there are other valid grounds to justify the information exchange.

Insofar as the sugar mills are concerned, the information provided to PSMA was vitally needed by the latter to play its duly anointed role in the Sugar Advisory Board. To me, it is crystal-clear that only an in-depth as well as focused data gathering and analysis of the sugar industry could have enabled the Commission to faithfully conclude whether or not a solid antitrust case can be made out. Unfortunately, that is what the Commission has not done.

Read the first part here: CCP’s order in sugar industry case: a critique—I

I might add that in my view information exchange among competitors is a subjective and vexed area of competition enforcement; it does not directly come within the scope of Section 4 of the Act; and the onus is on the Commission to conclusively demonstrate that the information shared is way beyond what is ordinarily available in the public domain and with the potential to cause an offence covered by Section 4.

I would now like to move to the second pillar of the Commission’s determination of anti-competitive culpability on the part of the sugar industry viz the assertion that the sugar industry had (over the period 2012 to 2020) colluded to procure permission to export of large quantities of sugar with the goal of raising the domestic price of sugar to the desired level. Unless I have missed something, the case made out here appears considerably weaker as compared to the Commission’s assertion vis-a-vis exchange of information by the sugar undertakings.

First, empirically, the data does not stack up — most of the time, periods of high exports did not coincide with higher prices, in fact often just the opposite occurred, i.e., the prices fell. Of course, looking at retail prices for impact (which is what was actually done!) did not make any sense since the commodity passes through various intermediary hoops.

However, I find that even ex-factory prices did not have any direct correlation with exports and did not really rise as a consequence of large exports by the factory owners. Also, there is no clarity as to the desired price level that was targeted and I do not find any evidence in this connection to rely on. Perhaps, there is some material that has not been disclosed or I have not been able to lay my hands on it. Otherwise, as it stands, this is an enigma.

Second, there appears to be nothing on record (or could be deduced from conduct observed by the Commission) to show that PSMA or any of its constituents actually used whatever clout they had to prevail upon the Government to take decisions regarding sugar exports as per their wishes. It goes without saying that the decisions of a trade association like PSMA must: (i) conform to its mandate; and (ii) can only be taken in accordance with the established procedure laid down. From the record, it is obvious that no decision with respect to sugar exports was taken by PSMA.

As far as I can see, neither minutes of the annual general meetings of PSMA pertaining to the years in question nor those of any relevant committee of PSMA record any decision of the association to seek any government authorisation relating to sugar exports.

The role of PSMA with regard to sugar exports is minimally confined to its membership of the Sugar Advisory Board (SAB), a wide ranging body comprising representatives of the federal and provincial governments, the sugarcane growers, the cane commissioners, the State Bank and several other stakeholders, in which PSMA is only one voice. SAB’s recommendation to the Government regarding sugar exports is a consensus view that emerges from deliberations within SAB and, as a consequence, PSMA’s suggestions regarding exports are very often substantially curtailed and at best only partially accepted.

There are two subsidiary charges for which PSMA and its member undertakings have been held culpable under Section 4 of the Competition Act. One relates to sharing of sales, stock and production data at the zonal level in order to “monitor and control” quantities sold, and the other relates to “fix and divide” tenders for supply of sugar issued by the Utility Stores Corporation (USC). In both cases, the evidence adduced is scanty, incomplete or perhaps even spurious.

In the first case, the information supplied, such as it was, not only assisted PSMA in its deliberations in SAB but also this information was made available by each sugar mill directly to the Cane Commissioners through whom it was supplied to a variety of Federal and Provincial agencies and was thus freely available in the public domain. The element of “monitor and control’ is simply non-existent and not evident.

In the second case, i.e., regarding the USC tenders in question, it is clearly acknowledged that the bidding was properly carried out in respect of each tender thereby duly establishing a competitive price — and it was only thereafter that the winning bidder shared the supply obligation with other suppliers at the competitively determined price.

On the face of it, no violation of the law has occurred in either case. It is noteworthy that a collusive agreement or understanding is also conspicuous by its absence in both instances. Under these circumstances, it was incumbent upon the Commission to have diligently ascertained all the relevant facts and then carried out a “rule of reason”, cause and effect, analysis to determine the competitive harm caused in each case. It is only then that the Commission could have possibly proceeded against the undertakings involved on reasonable grounds.

On a fundamental note, the strengths of a competition or anti-trust agency are its unwavering commitment: firstly, to be fair and unquestionably aboveboard; and secondly, to facilitate the functioning of the market at all levels by curbing anti-competitive behaviour. If it is widely recognised for these qualities, the agency would be effective and a boon for the economy.

Since all economic agents are vulnerable to exploitive or exclusive conduct by counter parties, an effective agency becomes a friend of the market. It must not be overly concerned with tackling prices which at best are an indicator or symptom but not the malaise to be cured. When I was serving as CCP’s chair, I adopted a policy creed consisting of the following four pillars which I would strongly recommend the Commission should consider implementing once again:

• adopt an enlightened and progressive approach encouraging business growth without which Pakistan would not be competitive in a globalising and privatising world;

• facilitate and assist in resolving problems in relation to compliance with the law — a business-friendly stance;

• strive to be fair, just and transparent albeit respect the confidentiality of business-sensitive information; and

• endeavour to be efficient reducing both CCP’s enforcement costs as well as compliance costs for businesses.

Notwithstanding my observations with respect to CCP’s sugar industry Order, I would like to record my appreciation of the fact that the Commission has through yeoman efforts succeeded in discharging its responsibilities in the current most trying circumstances.

Also, the current Chairperson has displayed a fair degree of drive and focus which deserves to be commended. Surprisingly, the friend who drew my attention to CCP’s sugar order and was pleased with regard to the rather “tough” line taken by it, also asked the question whether in my opinion, the Commission was in any way influenced. My reply was short: “I don’t think so, but if it was I would like to shoot myself in the head, provided suicide was not a sin!” After all, CCP is my baby — several Commission members and senior staff have cut their teeth and have been mentored as well as trained under my tutelage in the not too distant past.

(Concluded)

(The writer is a former chairman of Competition Commission of Pakistan. The views expressed in this article are not necessarily those of the newspaper)

Copyright Business Recorder, 2022