COLLABORATIONS AND CARTELISATION DURING THE COVID-19 PANDEMIC
This post has been authored by Shreya Mukherjee, a B.A. LL.B (Hons.) candidate at the Symbiosis Law School, Pune.
The ongoing COVID-19 pandemic has not only burdened the healthcare system but has also left a demonstrable economic impact across different sectors. It has bought various economic activities to a halt and has adversely impacted the global economy. Particularly, in India, the GDP contraction was estimated to be relatively worse than other big economies.[i]
This can be attributed to the changing pattern of demand in goods coupled with disruptions in supply chains have left various businesses in a tumultuous situation. To tackle the same, firms may collaborate to overcome the economic hurdles faced during the pandemic. Consequently, the possibilities of businesses indulging in anti-competitive activities to stay relevant in the market inter alia relating to anti-competitive collaborations and cartels become relatively higher.
While due regard may have to be had in creating conducive environments for businesses to prosper in the economic crisis, regulators may also have to consider the possibility of a long-term impact that such relaxations or environments may have on consumers and competition in the sector.
Competition regulators around the world are grappling with assessing the extent to which relaxation of regulatory mandates may propel economic growth. Considering both relaxations and need for maintaining competition in markets, various regulators have issued advisories to be followed while conducting business during the course of the ongoing pandemic.
a) United States of America: The Federal Trade Commission and U.S. Department of Justice and Antitrust Division issued a Joint Statement[ii] clarifying that collaborative activities with the aim to enhance health and safety response to the pandemic would be considered pro-competitive. Such conduct would not attract penalty as long as it is limited and necessary to tackle the challenges posed by COVID-19 and its aftermath. However, the Joint Statement did not specify the extent of after effects contemplated. Previously, the Department of Justice had issued similar guidelines after the Hurricane Harvey and Irma[iii] permitting collaborative efforts in certain sectors such as healthcare and telecommunication. Thus, the US authorities have been mindful of the difficulties posed by a crisis to businesses and adopted a flexible approach to the application of antitrust laws, while ensuring that competition in markets is maintained.
b) The European Competition Network (ECN) released a Joint Statement[iv] observing that the extraordinary situation created by the pandemic would require companies to cooperate to ensure the supply of scarce products. As a result, the authorities under ECN would not actively intervene in cooperation which are temporary and necessary in nature to meet the shortage of supply. However, the ECN clarified that it would be taking action against conduct amounting to cartelising. Despite post 2008 financial crisis when the European Commission adopted a view that crisis cartels are not beneficial in the long run[v], the ECN seems to have adopted a flexible approach to collaborations between firms, in proportion to the economic repercussions faced out of the pandemic.[vi]
c) The Competition and Market Authority of the United Kingdom took a similar stance and allowed for coordination between competing businesses provided that such coordination is necessary and only arises out of the efforts to tackle the pandemic to ensure the well being of consumers.[vii] Applying the same, the United Kingdom government allowed for the relaxation of competition regulations temporarily in the food sector by permitting supermarkets[viii] to collaborate in their functioning to meet the demand of the consumers.
Thus, regulators have considered the importance of collaborations and certain exceptions, but the general stance is that entities cannot come together under the pretext of the pandemic to exploit consumers.
Coordination between firms has to be permitted as long as they give rise to efficiencies and aid in overcoming the disruptions witnessed in demand and supply chains. However, the extent of such regulations and their impact have to be closely monitored. Most regulators have approved of collaborations which are necessary and temporary in nature. Albeit the uncertainty surrounding the implications of the pandemic, there is a need to define the general parameters that would constitute a collaborative action to be necessary and determine the estimate time period for the application of the same.
Indian Regulator’s Approach
Section 54 of the Act permits the Central Government to exempt the application of the Competition Act, 2002 (Act) in public interest. While the Competition Commission of India (CCI) may, in its discretion afford a lighter enforcement arm in light of the pandemic, the Central Government has not released any notification in line with this section due to COVID-19 and businesses continue to attract penalties under the Act for contravening its provisions.
Prior to the nationwide lockdown, CCI issued the Advisory to Businesses in Time of COVID-19[ix] (Advisory), dated 19th April 2020. The CCI observed that disruptions were caused in supply chains due to the pandemic and coordination among businesses will be required to cope up with the changing demand and supply patterns. Similar to its international counterparts the CCI permitted for conduct of businesses which are necessary and proportionate to address concerns arising out of COVID-19. It did not provide for any express exemptions and noted that the Act has inbuilt mechanisms, such as exemptions provided to joint ventures, to protect businesses from sanctions for certain coordinated conduct, provided such arrangements of entities result in increased efficiencies.
However, a more lenient approach to cartels has been adopted by CCI in its Order dated 10 July 2020.[x] The complaint arose out of railway officials alleging cartelization by parties responsible of supplying Composite Brake Blocks (CBB). The CCI found ten suppliers of CBB (Parties) to have engendered a bid rigging cartel based on the evidence available through emails and messages exchanged between the parties.
Despite the fact that Parties were indulging in cartelising activities for the period of 2009-17, CCI did not impose any monetary penalty in view of the cooperation extended by the parties in speedy resolution of the matter and the prevailing economic situation due to COVID-19. It issued a cease and desist order from indulging in such anti-competitive behaviour in the future.
CCI noted that the Parties included some Micro Small and Medium Enterprises (MSME). It opined that considering the prevailing economic conditions due to the pandemic along with the fact that there is need to support liquidity and credit needs of MSMEs, CCI deemed it fit not to impose any monetary penalties.
Such an approach may be welcome considering the given economic climate, but CCI should issue an official guideline as to how cartelisation will be dealt during the pandemic, in light of the Advisory released to ensure firms do no attempt to take advantage of the leniency expressed under the pretext of the pandemic.
While horizontal anti-competitive agreements and cartelisation have an adverse impact on competition, given the unprecedented implications of the pandemic, a strict per se rule might not be favourable to follow while evaluating collaborations during these times. The Advisory has mentioned provisions in the Act excluding certain agreements under Section 3. However, the Advisory is general in nature and did not provide for any special relaxations on a sector to sector basis on the account of the pandemic. Similar to its foreign counterparts, the CCI may consider providing special relaxations of competition law in markets which are especially vulnerable due to the pandemic, such as aviation or tourism.
Further, the Government has imposed a ban on the import of air conditioners, tyres and television sets.[xi] Such actions which support policy decisions like Atma Nirbhar Bharat may potentially play an important role in boosting production by Indian firms in particular markets. Further with the easing of restrictions imposed, consumer demand would also rise. As a result, CCI may have to dawn a vigilant role in monitoring the actions of firms in the particular market and ensure there are no anticompetitive agreements. Specific guidelines for collaboration between firms in such markets would prevent ambiguities in conducting of businesses and create favourable industry conditions.
CCI may also consider coordinating with other sectoral regulators such as Reserve Bank of India, Securities and Exchange Board of India etc. in harmonizing their regulatory exemptions to ensure a compatible environment for firms for ease-of-doing-business.
Thus, a balance has to be achieved such that the regulatory exemptions adopted ensures competitiveness in the market for a long run.
[i] COVID-19 has pushed the Indian economy into a tailspin. But there’s a way out, The Wire, available at: https://thewire.in/economy/covid-19-india-economic-recovery