Overview of Competition Law & Related Issues Some ASIAN Jurisdictions by Manas Kumar Chaudhuri, Additional Registrar Competition Commission of India 28 August, 2005

Need for Competition Law Competition: Increases efficiency Encourages innovation Enhances consumer welfare – wider choice, lower prices, better quality Conducive to economic and political democracy Apprehension of market failure has prompted 100 countries to enact modern competition laws

Competition Law Main features of Competition Act Prohibits Anti-Competitive Agreements Prohibits Abuse of Dominant Position Provides for Regulation of Combinations Mandates Competition Advocacy

Anti – Competitive Agreements Horizontal Agreements including cartels, e.g., price fixing, limiting production, sharing markets, bid-rigging Vertical Agreements e.g., tie-in, exclusive supply/ distribution, refusal to deal Cartel regarded most pernicious violation - heavy penalties - criminal offence (lysine, vitamins, graphite electrodes)

Abuse of dominance Not dominance, but abuse is illegal Dominance based, not on arithmetical formula, but on economic factors listed in Acts Abuse includes : discriminatory pricing, limiting production, denying access Examples : Microsoft (penalized Euro 497m)

Mergers Ex-post action Notification either compulsory or optional Strict time frame for decision Threshold limits Less than 5% merger applications are prohibited worldwide

Overview of Asian Competition Authorities 42 Jurisdictions 12 Jurisdictions have the law in place 05 are in the process of having it in place soon Japan and Korea are leading Competition Authorities of Asia closely followed by Israel, Indonesia, India and Taiwan

Where do authorities exist ? Azerbaijan India Indonesia Israel Japan Korea Singapore Sri Lanka Taiwan Bangladesh* Pakistan* Thailand * Not modern Competition Law but MRTP Ordinance of 1970

Where about to come up ? Bahrain Brunei Darussalam China Hong Kong Vietnam

Japan Assures the interest of consumers Democratic and wholesome development of the nation Promote free and fair competition Prohibit cartel Prohibit private monopolization Prohibition of unfair trade practices

Japan (contd. ) Independent of Cabinet Chairman and Commissioners are appointed by the Prime Minister with the consent of both Houses of the Parliament JFTC is under the supervision of Diet Total staff – 672 Number of Investigators – 331 Budget in – Billion Yen 7.82 (2004)

Japan (contd. ) Independent Administrative Agency Has quasi-judicial legislative power of enacting internal regulations Has quasi-judicial power of implementing hearing procedures [Identical to Indian Law section 7(2), 50, 51, 64 and Chapter IV]

Japan (contd. ) Cartels JFTC implemented cartel investigation as a result of that from 1079 cases in 1966 it has dropped to 15 in 2000 Detection by FTC – Investigation commences Decision at JFTC after investigation Appeal by way of Law suits

Japan (contd. ) Merger Control Mergers are regulated by Antimonopoly Act of Japan (AMA) Threshold – one partys assets/turnover of at least US $ 91.6 million and the other partys assets/turnover about US $ 9.2 million in Japan Notification is mandatory when thresholds are exceeded – all parties to notify jointly

Japan (contd. ) Merger Control Time taken by JFTC – 30 days During merger evaluation, the JFTC may conduct hearing with competitors JFTC may prohibit a merger, allow or modify Appeal lies within 30 days to Tokyo High Court Penalties up to US $ 18,313 and in breach in addition to penalty jail term up to 10 years

Japan (contd. ) Joint ventures Under Anti Monopoly Act, the founding of a separate joint venture company is evaluated under the 2004 Merger Guidelines

Korea To promote fair and free competition, to protect consumers, to prevent abuse of market-dominating positions by enterprises and excess concentration of economic power Has all contours of modern Competition Law Has Chairman, Vice Chairman and Secretary General, 3 Standing Commissioners, 4 Non-standing Commissioners [ Article 37 ]

Korea (contd.) KFTC is Ministerial level Central Administrative Organization Quasi-judicial body functions under the authority of the Prime Minister Independent of outside intervention Promoting competition Strengthening consumer rights

Korea (contd.) Case handling in two stages Examination Deliberation Examination Receipt a report of violation of the law Competition Bureau or Regional Office launches examination Includes investigation, taking statements of relevant parties, consultation with experts and conducting legal reviews

Korea (contd.) Opportunities are given to parties to voice view points Confidentiality is maintained If legal measures are decided to be taken – examiner makes a report and copy of the same is sent to the examinee (opposite party) for objections/comments Examiner sends his/her report together with the objections & comments of the examinee to the Commissioner

Korea (contd.) Deliberations Commissioner reviews the report and the objections of the examinee Examinee is notified of the date, hour, venue of the legal proceedings Process involves review of investigation, findings Examiners statement Examinees statement Investigation in to evidence Examiners final opinion Examinees final statement

Korea (contd.) Final Order passed by the Commission Can be cease and desist order Also fine Party aggrieved may file appeal before High Court

Korea (contd.) Recent decision on Cartel On 25 May 2005 KFTC imposed a corrective order of approx. 114 million US$ as surcharge on three telecom operators – KT, Hanaro Telecom and Dacom - for fixing price in local call market Hanaro received a 49% reduction in its surcharge for providing co-operation in cartel investigation

Israel The Israeli Antitrust Authority Headed by Controller Appointed by the Government on the recommendation of the Israeli Minister of Trade and Industry Comprises a Legal Department, Economic Department and Criminal Investigation Department It has broad powers to initiate and conduct criminal investigations of alleged violations of the RTPs, as well as to initiate administrative inquires Tribunal – acts a Court of Appeal

Merger Control in Israel Mergers and Acquisitions are regarded as RTP All mergers are notified and are reviewed by the Authority Thresholds Notifications are mandatory

Merger Control in Israel (contd.) Thresholds Acquisition of most of the assets of a company by another company More than 25% of the nominal value of the issued capital or voting power Right to appoint more than one-quarter of the directors; or Right to participate in more than one-quarter of companys profit Aggregate sales turnover of merging companies in the fiscal year preceding merger in Israel exceeding US$ 33 million and sales turnover exceeding US $ 2.2 million

Merger Control in Israel (contd.) Obligation to suspend – The parties are globally barred from closing or implementing the merger until approval is obtained from the Authority Timetable – Authority must review merger notifications within 30 days, commencing from the date of receipt by Authority; failure to do so will constitute approval of the merger notification

Merger Control in Israel (contd.) Remedies Criminal proceedings before District Courts Authority can initiate proceedings before Competition Tribunal for de-merger Aggrieved party may file appeal before Tribunal Tribunal may uphold the findings of the Authority, modify or set aside Appeal from Tribunal is available before the Supreme Court

Merger Control in Israel (contd.) Penalties Failure to notify, delay in notifying or failure to observe condition constitutes a criminal offence Three years imprisonment may become five years in case aggravating circumstances Fine up to about US$ 443,312 for an individual and double for a body corporate

Leniency Programme Section 46 of the Indian Law First information before commencement of investigation KFTC reduced surcharge to the tune of 49% in case shown in the previous slide – is an act of leniency Cartels are secret understanding between and among competitors in the same level of business to fix price and make unlawful profits Japan is considering leniency up to 100% [new amendment proposals of 2004]

Indian Evidence Act, 1872 Sections 133 and 114 (b) Accomplices evidence, evidence of co- accused, corroboration with material particulars in criminal cases Pardon granted to such co-accused or accomplice by courts Same principle applies in case of leniency towards co-accused in cartels Leniency concept

Quasi - judicial Body Statement of Objects and Reasons of the Indian Competition Act, 2002 at paragraph 3 states that the Commission will be a quasi- judicial body Japanese and Korean Commissions are also quasi-judicial bodies

Supreme Court of India in AIR (37) 1950 SC 185 at page 195 para 25 observed as to what constitutes a quasi-judicial body The Court held 1 Existing disputes between parties and presentation of the same 2 If dispute is a question of fact, ascertainment of fact by evidence/arguments 3 If dispute is of law then submission of legal arguments by parties 4 Decision on the dispute on the basis of facts, evidence and law of the land Quasi - judicial Body (contd.)

A quasi-judicial decision equally presupposes an existing dispute between two or more parties and involves 1 Existing disputes between parties and presentation of the same 2 If dispute is a question of fact, ascertainment of fact by evidence/arguments May involve 3 of previous slide but never the 4 th Stage – all stages i.e., 1 – 4 are stages of Judicial Bodies

Quasi-judicial body (contd.) All Competition Commissions receive complaint, reference, information etc. of a violation of some provisions of the Competition Act It immediately gives rise to a dispute between parties Parties submit respective facts in support of their contentions with supportive evidences Commission weighs facts, evidences and decides disputes The two basic ingredients, as decided by Supreme Court of India in 1950, are fulfilled

Cross border issues International Co-operation Implementation of effects doctrine Membership of international bodies for implementing co-operation agreements/arrangements Exchange of concepts for minimizing cross border violations – e.g. international cartels

Need for professional manpower Competition issues – mixtures of economics and law Investigation needs analysis of economic principles and tools, accounting methods, legal principles Japanese Competition Authority had over 1000 professional manpower in 2004 Associations of Indian Chambers of Commerce and Industry emphatically stress professional manpower for the Indian Competition Authority

Funding of Commissions Mostly through governments May affect autonomy and independents If affects, contradicts one of the basic ingredients of competition policy

Some Important Cases Graphite Electrode UCAR International Inc in 1995 took part in international price fixing conspiracy. Graphite Electrodes are used in manufacturing of steel. A federal jury of the Philadelphia convicted the Company and paid fine of US$ 110 mn after being pleaded guilty of price fixing

Some Important Cases Lysine Cartel All important Lysine producers of the world doubled the international price of Lysine for three years. Lysine is a feed additive for poultry. During the continuance of the conspiracy, the cartel raised prices on over US $ 1.4 bn in global sales, which implied overcharging of US $ 140 mn

Some Important Cases Vitamins Cartel Hoffmann-La Roche & Lonza AG, BASF, Degussa- Huls Agand Merck KGAA of Germany and Rhone- Poulenc of France led a global conspiracy to fix price of vitamins, allocate markets, supply contracts and sales apart from bid-rigging on several occasions. Majority colluding firms admitted the conspiracy. Roche agreed to pay US$ 500mn. Five executives of Lonza agreed to cooperate in the investigation and paid fine of US$ 10.5 mn. BASF paid a fine of US $ 225 mn but Rhone-Poulenc through leniency programme escaped punishment because it supplied most of the evidence

Important Observations Accountants have a very significant and major role in investigation Under Indian Law they have been statutorily allowed to present cases before Commission Their association, in a given case, would not end at the level of Commission but would continue till finally disposed of at the level of Appellate Court Accountants are eligible to become Members too – a challenging career opportunity

Thank you