Questions

Answers

The dynamics of law has changed substantively; primarily the distinctions include:

•  As opposed to MRTPO, the Ordinance does not seek to curb or reduce a dominant position but prohibits the abuse of dominance. Although it provides a threshold in terms of market share beyond which there is presumption of dominance, it does not rule out either dominance or abuse thereof at lower level of market share.

•  Unlike MRTPO, which prohibited only "restrictive" trade practices resulting in unreasonable lessening of competition the Ordinance prohibits any agreement that reduces competition within the relevant market whether or not it is "unreasonably restrictive". Furthermore, Commission has power to grant block exemptions on grounds of efficiency or economic merit which did not exist earlier.

•  The Ordinance stipulates mandatory procedure for review and clearance of mergers and acquisition meeting the thresholds specified by the Commission. The Ordinance also forbids unfair trading practices.

•  Under the Ordinance, the requirement of registration of agreement has been done away with thus, eliminating unnecessary transactions or compliance costs.

•  In order to create awareness regarding competition issues Commission has to engaged itself in advocacy. Holding of open hearings publicly on matters affecting the state of competition in Pakistan and to issue a non-binding opinion or edict in this respect is another important aspect in which Ordinance differ from MRTPO.

•  Unlike the MRTPO, the power to enter forcibly and search any premises and to grant leniency or a reprieve as may be merited under the Ordinance also considerably strengthens the investigative capacity of the Commission.

•  To preserve independence of the CCP a certain degree of protection from arbitrary removal and security of tenure is given under the Ordinance.

•  Tied sources of funding to meet operational needs has been catered for without resort to subventions from the Federal Budget, MRTPO had no such provision and MCA was wholly dependant upon allocation of budget.

•  Penalties under the Ordinance are much higher than MRTPO to make implementation effective. Recovery powers are also not restricted to recovery as arrears of land revenue but it can now be through attachment, and appointment of receiver.

•  Orders of the MCA were appealable to the High Court under the Ordinance an order by a single member or an authorized officer can be appealed before an Appellate Bench (consisting of at least two members). However, judicial redress can always be sought against the final orders of the Commission .

Q-2 What is the role assigned to Competition Commission of Pakistan (the "CCP")?

The CCP is established as a quasi judicial, quasi regulatory, law enforcement agency having a specialized umbrella jurisdiction over the economy as a whole. It has the responsibility to ensure free competition in all spheres of commercial and economic activity and of endeavoring to prevent or eliminate anti-competitive behaviour in order to promote economic efficiency and to protect the rights of the general public.

Q-3 What is CCP's position viz-a-viz sector specific regulators?

The CCP is not to be viewed as usurping the important functions of sector specific regulators. Consistent with its legislative mandate and also consistent with contemporary best practices in the extant civilized world- the Commission role is confined to enhancing economic efficiency by acting as a bulwark against anti-competitive practices in all sectors of the economy. It needs to be appreciated that on the aspect of competition the Competition Ordinance, 2007 is the special law. Under sector specific laws it could be difficult to deal with cross sector anti-competitive conduct, an example being a bundling of services across different sectors.

A small consultative group has already been set up comprising of 12 to 15 members drawn primarily from sectors specific regulators, relevant professional bodies and the private sector. This forum will meet periodically to consider any concerns and suggestion and to get informal feed back and guidance for CCPs on going activities and proposed initiatives.

Q-4 Whether all the merger parties are required to seek clearance from the Commission of the intended merger through individual or joint applications or the Commission may make necessary orders in favour of all the parties even if such application has been made by any one or some of them?

The onus to seek clearance has been placed on all parties under the Competition (Merger Control) Regulations, 2007 (the "CMC Regulations")and is not specific to the acquirer alone. However, it is not mandatory that all the merger parties make individual pre-merger applications. The undertaking, which intends to acquire the shares or assets of another undertaking or it intends to merge the whole or part of the business of other undertakings into it, may apply for clearance from the Commission. The parties can even make joint application, if they so like.

Q-5 A party does not make a pre-merger application to the Commission on the understanding that the intended merger would not substantially lessen competition in the relevant market and/or the intended merger does not meet the prescribed thresholds under Section 11(1). What is the legal position?

If the concerned undertakings meet the thresholds prescribed by the Commission under the Regulation 4(3) of the CMC Regulations, it shall submit a pre-merger application to the Commission as soon as they agree in principle or sign a non-binding letter of intent to proceed with the merger and in any event before giving effect to the merger. Since, Pakistan is a mandatory and not a voluntary regime for seeking clearance, it is not for the parties to decide whether the intended merger substantially lessens competition or not as such determination is to be carried out by the Commission upon filing of the clearance application by the merger parties. Section 11(1) does not provide any threshold it only sets out the prohibition. In accordance with Section 11(2) the pre-merger notification thresholds is prescribed under Regulation 4(3) read with Regulation 4(4) of the CMC Regulation.

Q-6 What is the object of "first phase review" and "second phase review" by the Commission in terms of section 11 of the Ordinance?

•  First phase review: The main object of the first phase review is to determine through an order of the Commission as to whether or not intended merger meets the thresholds of dominance. The Commission shall complete the first phase review within a period of 30 days of the receipt of pre-merger application. Failure to make a determination within the prescribed period shall mean that Commission has no objection to the intended merger.

•  Second phase review: If dominant position is determined then the Commission shall initiate a second phase review. The Commission shall proceed to carry out a more detailed assessment as to whether it substantially lessens competition by creating or strengthening a dominant position in the relevant market and shall give its decision on the proposed transaction. The Commission is required to complete the second phase review and give its decision within 90 working days of furnishing the requisite information.

Upon completion of second phase review the Commission may allow consummation of intended merger; approve the intended merger subject to the conditions; or it may give its clearance without conditions.

Q-7 Describe the term "merger" in the context of the Ordinance and the regulations made thereunder?

"Merger" means the merger, acquisition, amalgamation, combination or joining of two or more undertakings or part thereof into an existing undertaking or to form a new undertaking; and expression "merge" means to merge, acquire, amalgamate, combine or join, as the context may require;

"Merger " shall be deemed to have occurred if --

•  two or more undertakings, previously independent of one another, merge into a new undertaking and cease to exist as separate legal entities; or

(b) one undertaking is absorbed by another with the latter retaining its legal entity and former ceasing to exist; or

(c) one or more persons or other undertakings who or which control one or more undertakings or acquire direct or indirect control of the whole or part of one or more other undertakings; or

(d) one or more persons or other undertakings acquire direct or indirect control of the whole or part of one or more other undertakings; or

(e) the result of an acquisition by one undertaking (the first undertaking) of the assets (including goodwill), or a substantial part of the assets, of another undertaking (the second undertaking) is to place the first undertaking in a position to replace or substantially replace the second undertaking in the business or, as appropriate, the part concerned of the business in which that undertaking was engaged immediately before the acquisition; or

(f) a collaborative arrangement by which two or more undertaking devote their resources to pursue a common objective; provided that such arrangement must be:

(i)subject to joint control;

(ii)perform the functions of an autonomous entity; and

(iii) on a lasting basis.

Q-8 Do the joint venture agreements (JVAs) fall within meaning of the term, Merger? Explain.

A joint venture is also a form of merger. A merger shall be deemed to have occurred if a collaborative arrangement by which two or more undertaking devote their resources to pursue a common objective; provided that such arrangement must be:

•  subject to joint control;

•  perform the functions of an autonomous entity; and

•  on a lasting basis.

Q-9 By whom the application jointly made by the merger parties would be signed?

If a joint application is made, the application shall be treated having been made by or on behalf of all the parties, and a joint representative shall be appointed as authorized to act on behalf of all the joint applicants.The joint representative so appointed shall sign the joint application.

Q-10 How the Commission may assess whether or not, a merger situation is likely to substantially prevent or lessen competition in the relevant market?

When determining whether or not the merger situation is likely to substantially prevent or lessen competition, the Commission shall assess the strength of competition in the relevant market, and the probability that the merger parties in the market, after the merger, will behave competitively or co-operatively, taking into account any factor that is relevant to competition in that market, including but not limited to-

•  the actual and potential level of import competition in the market;

•  the ease of entry into the market, including tariff and regulatory barriers;

•  the level and trends of concentration, and history of collusion, in the market;

•  the degree of countervailing power in the market;

•  the dynamic characteristics of the market, including growth, innovation, and product differentiation;

•  the nature and extent of vertical integration in the market;

•  whether the business or part of the business of a merger party or merger has failed or is likely to fail; and

•  whether the merger situation will result in the removal of an effective competitor.

Q-11 If a pre-merger application is made by one of the merger parties, whether other parties should also have notice of it? If so, how?

Where a party to an intended merger wishes to make or makes an application seeking clearance from the Commission, it shall give notice to all other parties to the intended merger, with a copy endorsed to the Commission.

If the applicant is unable, despite the exercise of due diligence, to contact other parties or persons as required under this regulation, the Commission may, if it considers appropriate, require the applicant to notify such other parties or persons in such mode and manner as the Commission may specify.

Q-12 What is the fee to apply for approval of merger?

Following is the rate of fee which is required to be submitted to the CCP along with an application for approval of merger:

Turnover of the applicant Amount of fee

Undertaking(s)

i). Up to 500 million Rs.25,000/-

ii). More than 500 million but Rs.400,000/-

not exceeding 750 million

iii). More than 750 million but not Rs.500,000/-

exceeding 1000 million

iv). Exceeding 1000 million Rs.750,000/-

Q-13 For how long a favourable decision of the Commission made with respect to pre-merger application, would remain effective?

Where the Commission makes a favourable decision, it may impose conditions on the concerned undertaking for carrying out the merger and shall give notice of the decision to the concerned undertakings. The Commission may also place the favourable decision on its website.

The Commission may, at the time of issuing a favourable decision for any intended merger, specify the validity period of the decision within which the intended merger must be carried into effect. The Commission will not take further action if the intended merger is effected within the validity period. In specifying the validity period, the Commission will consider that generally one year is sufficient period for merger parties to act on the favourable decision and to carry the intended merger into effect. However, the Commission will take account of the circumstances of each merger situation when specifying the duration of any validity period.

Q-14 What is the mode of issuing an unfavourable decision with respect to pre-merger application?

Where the Commission is proposing to issue an unfavourable decision, it will issue a notice of the proposed unfavourable decision to the merger parties. The notice will state the facts on which the Commission relies upon, as well as the objections which the Commission proposes to take.

When the Commission makes an unfavourable decision, it will give notice of the decision to the merger parties and will also place the decision on its website. The Commission may also issue directions to remedy, mitigate or eliminate the adverse effects arising from the merger situation.

Q-15 What action, the Commission may take, if it concludes that the intended merger is likely to substantially lessen competition in the relevant market?

If the Commission concludes that the situation prevails or may prevail, which substantially lessens competition in the relevant market, the Commission may give such directions as it considers appropriate to remedy, mitigate or prevent the adverse effects to competition caused by the merger situation.

The directions envisaged as above, may include the following:-

(a) Prohibiting an intended merger from being carried into effect or requiring a merger to be dissolved or modified in such manner as the Commission may direct;

(b) requiring the merger parties to enter into such legally-enforceable agreements as may be specified by the Commission to prevent or lessen the anti-competitive effects which have arisen;

(c) requiring the merger parties to dispose of such operations, assets or shares of such undertaking in such manner as may be specified by the Commission; and

(d) providing a performance bond, guarantee or other form of security on such terms and conditions as the Commission may determine.

The directions must be in writing and may be given to such person(s) as the Commission considers appropriate.

Q-16 What are the legal rights of the parties other than merger parties, if they suffer loss or damage arising from a merger that substantially lessens competition in the relevant market?

Parties suffering loss or damage directly arising from a merger that substantially lessens competition in the relevant market are entitled to commence a civil action seeking relief against the relevant undertakings. Such rights shall only arise after the Commission has made a decision that a merger has infringed the relevant provisions of the Ordinance and the appeal period has expired or, where an appeal has been brought, upon determination of the appeal.

Q-17 What can be the legal consequence, if an undertaking has consummated the merger without seeking clearance from the Commission?

Subsection (12) of Section 11 of the Ordinance particularly envisages a situation where merger is consummated without seeking prior approval. It empowers the Commission to make appropriate orders under Section 31 after giving an opportunity of being heard to the concerned parties. Section 31(1)(d) in effect envisages same procedure i.e. it can either authorize the merger (in the first phase) or if it has doubts as to the compatibility of merger, it shall open a second phase review. However, after giving the undertaking an opportunity of being heard, the Commission may make an order to undo the merger, besides penal action as provided under section 38 of the Ordinance.

Q-18 What is the objective of advocacy under the Competition Ordinance?

Advocacy is often referred to as compliance without enforcement, thus, competition advocacy and enforcement are mutually complimentary. Commission advocacy responsibilities include: conducting studies for promoting competition, creating awareness about competition issues and creating a competition culture, holding of public hearing on matters affecting the country's commercial activities or state of Competition in Pakistan and giving its non binding opinion.

Q-19 What does leniency mean under the Competition regime and how it is addressed under the Ordinance?

Globally, the experience of several Competition Authorities is that leniency program has been of great benefit in facilitating effective investigation in cartel. Leniency provision enables Competition Authorities to grant full immunity or reduction in penalties that would be otherwise imposed on a participant (generally in cartel case) in consideration of volunteering disclosure of information.

The Commission may, if it is satisfied that any undertaking which is a party to a prohibited agreement and is alleged to have violated prohibition under the Competition Ordinance has made a full and true disclosure in respect of the alleged violation, impose penalty on such undertaking for an amount lesser than that provided in section 38 of the Ordinance. Subject to the conditions laid down in Competition (Leniency) Regulations, 2007, the Commission may grant the benefit of total immunity to an undertaking from any financial penalty, an undertaking may benefit from a reduction in the financial penalty for an amount of upto 100% or a reduction upto 50% in the level of financial penalties.

Leniency regulations have also been prescribed by the CCP providing the procedure for requesting immunity and the grounds to be taken in the account while granting reduction in financial penalty. Generally the factors that govern the reduction in penalty aspect are: the stage at which the undertaking comes forward; the evidence already in the Commission's possession; and the quality of the information provided by the undertaking.

Q-20 To what extent the Commission has the power or is responsible to fix or control the prices of products and commodities?

It is not within the domain of the Commission to fix or control the prices of products and commodities. However, as a result of action by the Commission against abuse of dominant position or cartels, the prices of products and commodities may come down through inter-action of the normal forces of the market.

Q-21 Whether conduct of enquiry is mandatory in all cases of violations of the Competition Ordinance or the Commission is competent to initiate proceedings against the alleged defaulters, without going into the process of enquiry?

If the Commission is satisfied that a prima facie contravention of Chapter II of the Ordinance has been committed or is likely to be committed, it has the power to proceed under section 30 of the Ordinance, without conducting the inquiry. However, where the Commission receives a complaint in writing which appear to constitute a contravention, further probe and enquiry may be conducted and if the Commission of the opinion that findings are such that it is necessary in the public interest so to do, it shall initiate proceedings under Section 30 of the Ordinance.

Q-22 Does the Competition Ordinance apply to foreign undertakings?

Yes, it does; it shall apply to all undertakings and all actions or matters that take place in Pakistan and/or distort competition within Pakistan .

Q-23 "Refusing to deal" is one of the examples of abuse of dominant position. What does it exactly mean?

In general, businesses may decide for themselves with whom they wish to deal. Whether or not refusal to deal shall constitute breach of the Ordinance shall depend on the effect the refusal has or would have on competition in the market concerned and each of the practices enumerated in sub-section 3 are to be read subject to sub section (2) of section 3 i.e such practices must "prevent , restrict, reduce or distort competition in the relevant market" therefore, mere refusal to deal per se does not constitute an offence and the onus to discharge is on the person who alleges such dealing.

As a general guide, the more unique or special the product, and the more powerful the supplier, the more likely it is that competition will be affected.

Q-24 What is "predatory pricing" in the context of abuse of dominant position?

Merely temporary price cuts or low pricing is not considered as anti-competitive practice. Generally, low pricing coupled with the intent to eliminate competition constitutes predatory pricing.

Predatory prices. as such are prices deemed to be a threat to the survival or entry of efficient competitors, because they are set at a level that can only be explained by the purpose of eliminating equally or more efficient competitors or deterring their entry. The classical example of predatory prices are prices below average variable costs,

However, there may be valid reasons for price cuts, for example, to sell slow moving stock, to promote trial of new or existing products or to clear inventory ahead of innovation etc. Such an action would not fall within the definition of "predatory pricing".

Q-25 Distinguish horizontal agreements from the vertical agreements.

A horizontal agreement is an agreement between competing undertakings in the same industry, which may result in reduced competition. Subjects of such agreements may include, common pricing polices, common production quotas and information sharing etc.

Vertical agreement is a term used in competition law to denote agreements between undertakings up or down the supply chain from one another. For instance, between a manufacturer and the retailer, franchising, agreements which are signed by the suppliers and buyers i.e. by the raw material providers and the manufacturers using that material.

Q-26 How do the individual exemptions differ from block exemptions?

•  Individual exemptions : -- No undertaking is allowed to enter into any agreement which has the object or effect of preventing, restricting or reducing competition within the relevant market unless exempted under section 5 of the Ordnance.

Section 5 deals with the individual exemptions and it provides that the Commission may grant individual exemption to an undertaking from prohibited agreements with respect to a particular practice or agreement, if request for an individual exemption has been made to it by a party to such agreement or practice.

Hence, exemption to the prohibited agreements may be granted through individual exemption.

(ii) Block exemptions .-- Block exemption applies to a defined category/class of agreements and if granted, all such agreements falling within that defined category, will benefit from such exemption. Another feature of block exemptions is that they generally apply to vertical agreements that have not hard core restraints.

Q-27 How the Commission may enforce its directions issued with reference to granting or refusing exemption?

If an undertaking fails, without reasonable cause, to comply with a direction of the Commission it may-

(a) require such undertaking to make good its default within the period specified in this behalf; or

(b) cancel the exemption in respect of the agreement;

(c) proceed to impose the penalty ; or

(d) initiate proceedings in a court of competent jurisdiction.

Q-28 What is the concept of "intervention" in the context of proceedings of the Commission against the defaulters?

Any person may be permitted to intervene and participate, subject to the conditions noted hereunder or as the Commission may deem appropriate, in any proceeding if such person satisfies the Commission that such person has sufficient interest in the outcome of the proceedings:-

(i) A request for intervention shall be accompanied by proof of payment of fees, as prescribed.

(ii) the amount of fee presently prescribed is Rs. 50,000/-.

(iii) A request for intervention shall contain -

(a) name of the person making the request;

(b) address in Pakistan for service of notice/documents;

(c) telephone number, facsimile number and electronic mail address, if available;

(d) the mode of service of notice/documents to be used;

(e) a concise statement of the matters in issue in the proceedings which affect the person making the request; and

(f) a schedule, listing all documents/affidavit/evidences in support of the statement.

Q-29 What is the legal status of commitments made by the parties involved in activities leading to prevention or distortion of competition?

The Commission may, at any time before making a decision as to whether a situation has arisen or is likely to arise which shall mitigate, prevent, restrict or distort competition in the relevant market, accept commitments from the concerned persons that remedy such situations.

Before accepting any commitments, the Commission may ensure that the commitments are sufficient to clearly address the adverse effects to competition which have been identified. Upon failure to honour such commitments the same shall be liable to penalty under Section 38 of the Ordinance.

Q-30 What remedies are available to an undertaking or a person aggrieved by an order passed by the Commission?

An appeal shall lie to an Appellate Bench of the Commission comprising of two or more Members in respect of an order passed by any Member or authorized officer of the Commission within 30 days of the passing of such Order. Furthermore, any person aggrieved by an order of the Commission comprising two or more Members or of the Appellate Bench may within 60 days of the communication of the order; prefer appeal to the Supreme Court.

Q-31 What checks exist for the Commission to exercise its power of forcible entry?

Like various other jurisdictions such as UK , Singapore , Canada and South Africa , power of forcible entry without warrant has been kept in the Ordinance in view of its effectiveness. The law provides an in built mechanism of how this power is to be exercised. First, the officer to enter and search premises must be authorized by Commission. Next, if the undertaking refuses to allow Commission to exercise the power, without 'reasonable cause', a deliberation process is provided. The investigating officer is required to obtain a written order signed by two members of the Commission, before entering the premises by force. Further comfort may by drawn from the fact that this provision is akin to Section 31 of Securities and Exchange Commission of Pakistan Act, 1997. Hence, such provision is not only in line with international practice but also finds support from municipal law.

Q-32 Why are deceptive market practices included in the purview of the competition law?

The power given to the CCP to prevent deceptive marketing practices completes the picture as it is a natural corollary to it mandate and aims to protect consumers' interest and enhance consumer welfare. The consumer protection mandate is in line with the international trend followed by inter alia Canada , US, Australia and New Zealand .

It may also be relevant to add the various other laws have their distinct and restrictive scope whereas the Ordinance would deal with such practices as a whole. Enforcement would be more effective by CCP as the penalties under these other laws are nominal varying from Rs.5,000 up to maximum of Rs.200,000 in contrast to penalties up to Rs.50 million or upto 15% of the annual turn-over as may be decided by the Commission under the Ordinance.

Q-33 Anti-competitive behavior is not prevalent in all industries and sectors. Why should the Government introduce a cross sector competition law, rather than regulate only those sectors where there are serious competition problems?

Anti-competitive conduct may occur in any sector, there are no strong grounds for targeting only certain individual sectors or industries for regulation. Globally, the current competition policy does not discriminate between sectors but applies equally to all. If the application of law is restricted only to certain sectors it would be difficult to define clearly the exact scope of many individual sectors and therefore, to put effective regulatory mechanisms in place.

Q-34 Does the introduction of competition law impose unnecessary constraints on businesses and practices of undertakings in particular SMEs?

The purpose of competition law is to maintain free competition, not to restrict business models and practices. A competition law could benefit both big and small enterprises. In particular, it could protect by deterring bigger companies from adopting abusive or other anti-competitive practices. In concrete terms, competition law could make it difficult for big companies to impose artificial entry barriers to the various markets, thereby helping them to enter the markets and trade more freely.