CCP Order in the Sugar Industry Case: A Critique—II – Opinion
In theory, the exchange of information between competitors can either simply be a means of monitoring compliance with a previously concluded anticompetitive understanding, agreement or practice, or, on its own, be sufficient to anchor strategies collusive selling and pricing given the circumstances of the industry or sector concerned.
In its judgment, the Commission (Competition Commission of Pakistan) presented no factual basis or reasoning to demonstrate the plausibility of either assumption with respect to the periodic sharing of stock and production data. by sugar refineries at the PSMA level.
The famous ‘Dole test’, derived from EU case law, which the Commission has sometimes applied to assess anti-competitive outcomes, is only satisfied if, on the basis of the facts and circumstances, it can be demonstrated confident that the offending information exchange is: (i.e.) designed to eliminate or reduce competitive risk; or (ii) pursues conduct with an anti-competitive purpose; or (iii) seeks to engage in or facilitate anti-competitive practices. Otherwise, as appears to be the case here, the Dole test fails – particularly if it can be shown that there are other valid grounds for the exchange of information.
With regard to the sugar refineries, the information provided to PSMA was essential for the latter to play its duly appointed role on the Sugar Advisory Board. To me, it is crystal clear that only thorough and focused data collection and analysis of the sugar industry could have allowed the Commission to come to a true conclusion whether or not a solid antitrust case can be made. Unfortunately, this is what the Commission has not done.
Read the first part here: CCP Order in the Sugar Industry Case: A Critique – I
I might add that in my opinion, the exchange of information between competitors is a subjective and sensitive area of competition enforcement; it does not fall directly within the scope of Article 4 of the law; and the onus is on the Commission to demonstrate conclusively that the information shared goes far beyond what is usually available in the public domain and has the potential to cause an offense covered by Article 4.
I would now like to turn to the second pillar of the Commission’s determination of the anti-competitive culpability of the sugar industry, namely the assertion that the sugar industry colluded (over the period 2012-2020) to obtain the permission to export large quantities of sugar with the aim of raising the domestic price of sugar to the desired level. Unless I missed something, the thesis presented here appears considerably weaker compared to the Commission’s assertion regarding the exchange of information by sugar companies.
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 the opposite happened, that is- i.e. prices have fallen. Of course, looking at retail prices for impact (which was actually done!) made no sense since the product goes through various intermediate hoops.
However, I see that even ex-factory prices had no direct correlation to exports and did not really increase due to large exports by factory owners. Also, the desired price level that was targeted is unclear and I cannot find any evidence in this regard to rely on. Maybe there are things that weren’t disclosed or that I couldn’t get my hands on. Otherwise, as it stands, it’s an enigma.
Second, there appears to be nothing in the record (or inferred from the conduct observed by the Commission) to show that the PSMA or any of its constituents actually used the weight they had to persuade the government to make decisions about sugar exports in accordance with their wishes. It goes without saying that the decisions of a professional association such as the PSMA must: (i) be in accordance with its mandate; and (ii) can only be taken in accordance with established procedure. It is clear from the record that no decision regarding sugar exports was taken by the PSMA.
To the best of my knowledge, neither the minutes of the PSMA’s Annual General Meetings relating to the years in question nor those of any relevant PSMA committee record a decision by the association to seek government authorization relating to the export of sugar.
The role of the PSMA with respect to sugar exports is limited at a minimum to its participation in the Sugar Advisory Board (SAB), a wide-ranging body composed of representatives of federal and provincial governments, cane growers, cane commissioners, the State Bank and several other stakeholders, in which PSMA is but one voice. The SAB’s recommendation to government regarding sugar exports is a consensus view that emerges from deliberations within the SAB and as a result, PSMA’s suggestions regarding exports are very often significantly reduced and at best only partially accepted.
There are two subsidiary charges on which the PSMA and its member companies have been found guilty under Section 4 of the Competition Act. One is for sharing sales, inventory, and production data at the zonal level to “monitor and control” quantities sold, and the other is for “fix and split” tenders for procurement. in sugar issued by the Utility Stores Corporation (USC). In both cases, the evidence provided is scanty, incomplete or perhaps even misleading.
In the first case, the information provided, as it was, not only assisted the PSMA in its deliberations within the SAB, but also this information was made available to each sugar mill directly to the Cane Commissioners through which it was provided to various federal agencies and provincial agencies and was therefore freely available in the public domain. The “monitoring and control” element is simply non-existent and non-obvious.
In the second case, i.e. with respect to the USC tenders at issue, there is clear recognition that the bidding was properly conducted for each tender, thereby properly establishing a competitive price. — and it was only then that the successful bidder shared the supply obligation with other suppliers at the price determined by competition.
On the face of it, no violation of the law was committed in either case. It should be noted that an agreement or collusive arrangement is also conspicuous by its absence in both cases. In these circumstances, it was incumbent on the Commission to have diligently ascertained all the relevant facts and then to have carried out an analysis based on the “rule of reason”, cause and effect, to determine the competitive harm caused in each case. . Only then could the Commission possibly have prosecuted the companies involved on reasonable grounds.
Fundamentally, the strengths of a competition or competition agency are its unwavering commitment: first, to be fair and unquestionably of integrity; and second, to facilitate the functioning of the market at all levels by curbing anti-competitive behavior. If widely recognized for these qualities, the agency would be efficient and a boon to the economy.
Since all economic agents are vulnerable to exploitative or exclusive behavior by counterparties, an efficient agency becomes the friend of the market. It should not worry too much about the fight against prices which are at best an indicator or a symptom but not the discomfort to be treated. When I was Chair of the PCB, I adopted a political creed consisting of the following four pillars which I would strongly recommend that the Commission consider implementing again:
adopt an enlightened and progressive approach encouraging business growth without which Pakistan would not be competitive in a globalized and privatized world;
facilitate and help resolve issues related to compliance with the law — a business-friendly attitude;
strive to be fair, just and transparent while respecting the confidentiality of sensitive business information; and
strive to be efficient by reducing both the costs of applying the CCP and the costs of compliance for businesses.
Notwithstanding my comments on the CCP sugar industry order, I would like to express my appreciation that the Commission has, through considerable effort, succeeded in discharging its responsibilities under the most difficult circumstances of today.
Furthermore, the current President has shown a good degree of dynamism and focus which deserves to be commended. Surprisingly, the friend who drew my attention to CCP’s sugar order and who praised the rather “hard” line taken by it, also asked the question whether, in my opinion, the Commission was influenced in any way. My answer was short: “I don’t think so, but if it were, I would like to shoot myself in the head, provided that suicide is not a sin!” After all, CCP is my baby — several Commission members and senior executives cut their teeth and were mentored and trained under my tutelage in the not-too-distant past.
(The author is a former Chairman of the Competition Commission of Pakistan. The views expressed in this article are not necessarily those of the newspaper)
Copyright Business Recorder, 2022