BEYOND WISHFUL THINKING

LIST OF NOTIFICATIONS REPRODUCED IN THE <!--[if gte mso 9]> BEYOND WISHFUL THINKING [Looking at commerce and the law of competition which regulates it: Pakistan s perspective] By Tayeb Ahsan Siddiqi, Advocate The laissez faire is an economic doctrine that opposes Governmental regulation of or interference in commerce beyond the minimum necessary for a free‑enterprise system to operate according to its own economic laws. Most capitalistic economies employ this doctrine to regulate the market forces in commerce. This doctrine of prudence has proved beneficial over time. Pakistan employs this doctrine approach. But whether it is rational to leave the market forces to reach equilibrium? Whether proactive legislation is required to curb anomalies or excesses? Whether Autonomous bodies are there as watchdogs to ensure the ideal free enterprise? Laissez faire axiom elaborates that competition is healthy and minimum interference is needed, more than minimum requirement would prove detrimental to the market and free enterprise. Wishful, perhaps, in theory but experience around the world has shown a different perspective. Legislation is needed to monitor and make certain that the market operates between laid down parameters to ensure competition. In America the champion of Capitalistic thinking, the Congress realized that Government intervention is needed. In the 1890's America saw that despite free enterprise some companies attained such size that it manipulated and to a degree controlled competition. The Rockefeller's "STANDARD OIL" and Carnegie's, "CARNEGIE STEEL" alerted the nation to monopolies which operated above their free enterprise doctrine. The Congress passed in 1890 the Sherman Antitrust Act. This piece of legislation ensured that these monopolies do not prevail in the market and are broken down. Judge Hand said: "That possession of unchallenged economic power deadens initiative, discourages thrift and depresses energy: that immunity from competition is a narcotic, and rivalry a stimulant to industrial progress, that the spur of contrast stress is necessary to counteract an inevitable disposition to let well enough alone: (U.S. v. Aluminum Co. of America 148 Fed 2nd 416 (1945) at pp.427‑428)." Antitrust legislation has been a prudential measure to ensure the continuance of the doctrine of laissez faire. In Pakistan, legislation was enacted to ensure monopolies are prevented from controlling the market. The Monopolies and Restrictive Trade Practices (MRTP) Ordinance, was promulgated on 26th February, 1970. The preamble of the Ordinance is the synopsis of the excesses that might afflict the free‑market. The preamble is: "To provide for measures against undue concentration of economic power, growth of unreasonable monopoly power and unreasonably restrictive trade practices." The Ordinance promulgated an autonomous body, Monopoly Control Authority (MCA) which oversaw the market and ensured free competition in the market. The MCA has to ensure social justice and consumer protection. The Authority looks at different cases of mergers or acquisitions and if the merger complies with law, lets the merger or acquisition to proceed. Chapter II elicits different instances where abuse of the market forces may occur. Section 3 is a prohibition clause which explains that no undue concentration of economic power, unreasonable monopoly power or restrictive trade practices will be tolerated. In Ismail Dossa v. MCA PLD 1985 Karachi 315 it was held: "The MRTP imposes restrictions on trade, commerce and business. It also discourages such trade practices which prevent, restrain or lessen competition ....These economic evils are specified in the Ordinance have been considered detrimental to public interest therefore, the Ordinance has provided measures to regulate, check or eliminate them. This Ordinance is an economic legislation intended to create an economic system which would not result in the concentration of economic power, monopolization and creating unreasonably restrictive trade practices." The objective of the law is regulation and prevention of unreasonable monopoly power, section 5. This section illustrates three instances in which monopoly power can be established .... (1) Section 5 (1) (a). Associated undertaking in the same line of business together having not less than one‑third share in the market. (2) Section 5(1)(b): Acquisition or mergers resulting in creating unreasonable monopoly power which lessens competition. (3) Section 5(1)(c). Banks or insurance companies granting loans, directly or indirectly to their associated undertakings at softer terms. The proposed merger companies have been granted cushion in the preceding section by which their merger can proceed if they satisfy the MCA that:‑‑ (1) Section 5(2)(a).‑‑‑The merger or acquisition contributes to the efficiency of the production or distribution of goods or of the provision of services or to the promotion of technical progress or export of goods. (2) Section 5(2)(b).‑‑‑The efficiency or promotion could not have been achieved. by means of less restrictive of competition. (3) Section 5(2)(c).‑‑‑The benefits of such efficiency out weighs the adverse effect of lessening the competition. These provisions have been called the Gateway provisions as they provide a gateway to rationalize and ` substantiate the merger. The MCA can pass various remedial orders in their discretion to ensure the market is free from adverse influences. The orders are as follows: (1) Break the association. (2) Limit the total loans and investment in any undertaking. (3) Undo the merger or acquisition. (4) To take the necessary steps to restore the competition in the market. The MCA has been given financial powers to assert its order. It can penalize for non‑compliance and for providing false information. The penalty is Rs.1,00,000 and an additional Rs.10,000 per day. All the orders passed by MCA are appealable to the High Court. The MCA can institute proceeding suo motu after getting information from a reliable source. It can also act after a reference from the Government. Section 10 provides that if the concerned undertaking asks for advice proceeding can be instituted. A complaint from at least 25 persons can also trigger MCA's action. (Section 14). The Islamic view on the regulation of competition was validated by the Federal Shariat Court in PLD 1985 FSC 193. "Object of Ordinance: Wealthy does not become wealthier in a mariner that as a result of which poor becomes poorer and companies after acquiring monopoly in any field are able to increase prices so as to control market and restrict supply. Ordinance advances Sharia principles and not repugnant to Sharia." The Ordinance though aims to eliminate economic evils which affect the public interest but there are many aspects which need to be brought under the ambit of this law. Further legislation is required so that these instances do not escape MCA's cognizance. The following areas need to be legislated upon: (1) The scope and objectives of the Ordinance need to be broad‑based and comprehensive. The public companies and services should be brought under the purview of MCA. (2) The MCA should act like other regulatory bodies such as SECP to ensure smoother working and free market. It should be made an independent body. (3) Vertical mergers are not actionable and should be under the jurisdiction of MCA. (4) `single firm' monopoly cases are not covered in the substantive provisions and only associated undertaking are covered. (5) There should be a mandatory pre‑merger notification provision. (6) The Authority should be given more powers to assert its jurisdiction and decision. (The Cement case highlights the lack of powers of MCA to assert its judgment). (7) Provisions should be inserted for public hearing as its operations affect the consumer and public. (8) The funding of MCA should be increased to establish its sources of data, qualified personnel and to offset institutional limitations. More than 30 years have lapsed since the promulgation of the Ordinance, the economic environment has changed. Globalization of economy aimed at eliminating barriers of trade, investment, commerce and the WTO rule based market mechanism has made it imperative for an exhaustive review of the law so that the modern and contemporary economic norms and State obligations be reconciled.