The Competition Commission Ordinance 2007 A Critical Analysis


By Amber Darr, Khozem Haidermota, Munib Akhtar, Karachi 1

++Table of Contents++

II.The New Regulator versus the Old39
III.Scope of powers of the New Regulator40
(a) Who does the Commission regulate?40
(b) What does the Commission regulate?42
(i) Regulating market position42
(ii) Monitoring certain agreements43
(iii) Preventing Deceptive Market Practices44
(iv) Approving Mergers44
(c) How does the Commission regulate?46
(i) Enforcing the Ordinance47
(ii) Imposing and recovering penalties49
(iii) Making rules and regulations50
IV.A Critique of the Ordinance51
(a) The genesis of the Ordinance and the Pakistani Constitution51
(i) The Promulgation of the Ordinance51
(ii) The Content of the Ordinance and its Promulgation52
(b) Circumventing the High Courts54
(c) Overlapping powers: the Commission and Pakistani regulators55
(i) The Commission and the State Bank of Pakistan55
(ii) The Commission and PTA56
(iii) The Commission and PEMRA57
(iv) The Commission and the Registrar of Trademarks57
(v) Impact of Overlapping Powers58
(d) Unclear Concepts58
(i) "Refusing to Deal"59
(ii) "Dominant Position'60
(iii) "Prohibited Agreements"61
(iv) "Relevant Market"62
(e) The Rigidity of pre-merger thresholds63
(f) Other issues of concern65
(i) Variation of penalties through executive action65
(ii) A meaningless distinction between rules and regulations65
(iii) Excessive powers of investigation66
  1. This paper has been jointly prepared by Amber Darr, Khozem Haidermota-both partners in the firm Haidermota & Co.---and Munib Akhtar, partner in the firm Khalid Anwer & Co., Advocates. Amber Darr is the principal draftsperson of this paper. The authors acknowledge the research support provided by Haya Zahid and Sahar Mehdi, who were interns at Haidermota & Co., while this paper was being drafted. The views expressed in this paper, as well as any errors or omissions in stating these views, are those of the individual authors.

V. Conclusion 66

I. Introduction

  1. The Competition Ordinance, 2007 (L11 of 2007) ("the Ordinance") was promulgated by the President on 2nd October 2007. It repeals the Monopoly and Restrictive Trade Practices (Control and Prevention) Ordinance 1970 (V of 1970) ("the Monopoly Ordinance") and dissolves the erstwhile Monopoly Control Authority ("the Authority")2 to replace it with the Competition Commission of Pakistan ("the Commission").

  2. Whereas the Monopoly Ordinance had focused on "providing for measures against undue concentration of economic power, growth of unreasonable monopoly power and unreasonably restrictive trade practices" the ostensibly more progressive Ordinance seeks "to provide for free competition in all spheres of commercial and economic activity, to enhance economic efficiency and to protect consumers from anti competitive behaviour".

  3. The aim of this article is twofold: firstly to introduce the new regulator as created by the Ordinance and to demarcate the scope of its powers (particularly as distinct from that of the Authority) and secondly, to critically analyse the provisions of

  4. The Ordinance, section 59: Repeals and Savings.

the Ordinance to determine their constitutionality and the extent to which these achieve the Ordinance's avowed objective of promoting competition and enhancing economic efficiency in Pakistan. The article concludes with a note on the appropriateness of such an Ordinance in the Pakistani legal and economic environment.

II. The New Regulator versus the Old

  1. The Ordinance creates the Commission as an autonomous body corporate with perpetual succession.3 The Commission is distinct in this regard from the Authority, which had been set up as a part of the Federal Government ("the Government") and did not have an independent legal identity.

  2. Whereas the Authority had three (3) members, the Commission comprises a maximum of seven (7) and a minimum of five (5) members ("the Members").4 In case of the Authority, the Government had the power to appoint the members at its discretion, however in the case of the Commission, the Government may appoint members only if they meet the criteria stipulated in the Ordinance, i.e. if they are persons known for their integrity, expertise, eminence and experience in a relevant field including industry, commerce, economics, finance, law, accountancy or public administration.

  3. Whereas there was no restriction in the Monopoly Ordinance on all members of the Authority being in the service of the Government, under the Ordinance only a maximum of two (2) Members of the Commission may be employees of the Government^6^. As in the case of the Authority, the Government appoints the Chairman of the Commission from amongst the Members.

  4. The Government had appointed members of the Authority for a term of five (5) years or, in case they were Government employees, for such time as they remained in service. A member of the Authority could not be reappointed. In contrast, the tenure of members of the Commission is three (3) years and members may be reappointed provided they are no more than sixty-five (65) years of age.

  5. The Ordinance, section 12: Establishment of Commission.

  6. The Ordinance, section 14: Composition of Commission.

  7. A member of the Authority could only cease to continue in office if he acquired any financial or other interest likely to prejudicially affect his functions as a member of the Authority. However, the grounds on which a Member of the Commission may be removed from office by the Government are wider in scope: he may be removed if he is convicted of an offence involving moral turpitude, has been adjudged insolvent, is incapable of discharging his duties for medical reasons, absents himself from three (3) consecutive meetings of the Commission without the leave of the Commission, fails to disclose any conflict of interest within the time specified in the Ordinance or is deemed incapable of discharging his duties for any other reason.

  8. Members of the Commission have the right, as did members of the Authority, to resign from office at any time during their term. However unlike members of the Authority, Members of the Commission are restrained for a period of one (1) year from the date of ceasing to hold the office of the Member, from accepting any employment in any undertaking, which has been party to any investigation under the Ordinance.

  9. The Commission is run by the Chairman, who is also designated the Chief Executive of the Commission, and together with the Members is responsible for the day-to-day management of the Commission. Members of the Commission while they are in office are to serve the Commission on a full time basis.

III. Scope of Powers of the New Regulator

(a) ++Who does the Commission regulate?++

  1. The Ordinance empowers the Commission to regulate all "undertakings". An undertaking has been defined in clause (p) of subsection (1) of section 2 of the Ordinance as a "natural or legal person, governmental body including a regulatory authority, body corporate, partnership, association, trust or other entity in any way engaged, directly or indirectly, in the production, supply, distribution, of goods or provision or control of services and shall include an association of undertakings". By including natural persons within the purview of an "undertaking", the Ordinance casts the net of the Commission wider than that of its predecessor whose authority extended only to concerns, institutions, establish ments or enterprises.5

  2. The already wide net of the Commission is rendered even wider by the absence of what may be referred to as "an excluding section". The Monopoly Ordinance had carved out from within its ambit, undertakings which were owned by the Federal or the Provincial Government, undertakings which were owned by a body corporate established by the Government or whose chief executive was appointed by the approval of the Federal or a Provincial Government, anything done by any person or undertaking in pursuance of an order of the Federal or the Provincial Government, anything done by a trade union or its members for carrying out its purpose and any activity or functions of an undertaking as are regulated, prescribed, determined or required to be approved by a Regulatory Authority.6

  3. The Ordinance does not contain a comparable excluding section. It only excludes from its purview, trade unions (or its members) functioning in accordance with the Industrial Relations Ordinance, 2002.7 The Government however, reserves the power to exempt from the application of the Ordinance, or any provision thereof, a class of undertakings if it considers such exemption to be necessary for the interest of security of the State or public interest or an undertaking which performs a sovereign function on behalf of the Federal or Provincial Government or any practice or agreement arising out of and in accordance with any obligations assumed by Pakistan under any treaty, agreement or convention with any other State Or States.8

  4. Monopoly Ordinance, section 2(1)(m): Definitions.

  5. The Monopoly Ordinance. section 25: Ordinance not to apply to certain undertakings. For the purposes of this section "Regulatory Authority" meant NEPRA, PTA, PTA, OGRA and any other regulatory authority as the government may specify by a notification in the official Gazette. This exclusion was in accordance with the Government's privatization policy and facilitated sale of sizable assets.

  6. The Ordinance, Section 53: Act not to apply to trade unions.

  7. The Ordinance, Section 52(a) and (c): Power to exempt.

  8. The Ordinance therefore reverses the position under the Monopoly Ordinance. Under the Monopoly Ordinance certain undertakings and certain activities were excluded from its ambit unless otherwise stipulated by the Government. Under the Ordinance however, no undertakings or activities are excluded from the purview of the Ordinance (with the exception of trade unions) unless specifically exempted by the Government in accordance with the criteria for exemption stipulated therein.

(b) ++What does the Commission regulate?++

  1. The Monopoly Ordinance regulated concentration of economic power, monopoly power or restrictive trade practices, and specified the parameters for determining when each of these may be deemed to be prohibited or unreasonable as the case may be.9 The areas of regulation of the Commission arc considerably wider and may be broadly divided into four categories: regulation of dominant position, monitoring certain agreements, preventing deceptive market practices and approving mergers each of these areas of regulation is examined at length in the following paragraphs.

(i) ++Regulating market position++

  1. The Commission, in exercise of its powers under section 3 of the Ordinance, prohibits any person from abusing its dominant position. In terms of clause (e), subsection (1), Section 2 of the Ordinance, "dominant position" of one undertaking or several undertakings in a relevant market10 exists if such undertaking or undertakings have the ability to behave to an appreciable extent, independently of competitors, customers, consumers and suppliers. There is a rebuttable presumption of a dominant position of an undertaking if its share of the relevant market exceeds forty per cent (40%).

  2. Monopoly Ordinance sections 3, 4, 5, 6 and 7.

  3. "Relevant market" has been defined in Clause 2(1)(k) of the Ordinance as the market which shall be determined by the Commission with reference to a product market and a geographic market and a product market comprises all those or services which are regarded as interchangeable or substitutable by the consumer by reason of the products characteristics, prices and intended uses. A geographic market comprises the area in which the undertakings concerned are involved in the supply of products or services and in which the conditions of competition are sufficiently homogenous and which can be distinguished from neighbouring geographic areas because, in particular, the conditions for competition are appreciably different in those areas.

  4. This dominant position is deemed to have been abused if the undertaking is involved in "practices" which prevent, restrict reduce or distort competition in the relevant market.11 terms el^.^ subsection 3 of section 3 of the Ordinance, such practices include but are not limited to (a) limiting production, sales and unreasonable increase in price or other unfair trading conditions; (b) price discrimination by charging different prices for the same goods or services from different customers in the absence of objective justifications that may justify different prices; (c) tie-ins where the sale of goods or service is made conditional on the purchase of other goods or services; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which by their nature or according to commercial usage, have no connection with the subject of the contracts; (e) applying dissimilar conditions to equivalent transactions on other parties placing them at a competitive disadvantage; (I) engaging in predatory pricing driving competitors out of a market, preventing new entry and monopolizing the market; (g) boycotting or excluding any other undertaking from the production, distribution or sale of goods or the provision of any service, or (h) refusing to deal.

(ii) ++Monitoring certain agreements++

  1. In exercise of its powers under section 4 of the Ordinance, the Commission prohibits undertakings or associations of undertakings from entering into any agreement or from taking any decision in respect of the production, supply, distribution, acquisition or control of goods or the provision of services which have the object or effect of preventing, restricting or reducing competition within the relevant market (collectively, such agreements are referred to as "Prohibited Agreements").

  2. Prohibited Agreements include but are not limited to (a) fixing the purchase or selling price or imposing any other restrictive trading conditions with regard to the sale or distribution of any goods or the provision of any service; (b) dividing or sharing of markets for goods or services, whether by territories, by volume of sales or purchases, by types of goods or services sold or by any other means; fixing or setting the quantity of production, distribution or sale with regard to any goods or the manner or means of providing any services; (c) fixing or setting the quantity of production, distribution or sale

  3. The Ordinance, section 3: Abuse of dominant position

with regard to any goods or the manner or means of providing any services; (d) limiting technical development or investment With regard to the production, distribution or sale of any goods or the provision of any service; or (e) collusive tendering or bidding for sale, purchase or procurement of any goods or service; (f) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a disadvantage; and (g) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.12

  1. The Commission has the power to grant either individual or block exemptions with respect to a particular practice or agreement provided that the concerned undertaking (i.e. an undertaking which is a party to the agreement or who meets the criteria specified in section 9 of the Ordinance) makes the request. The exemption may be for a specified period and on such conditions as the Commission may deem fit. The Commission also has the power to vary or cancel the exemption.13

(iii) ++Preventing Deceptive Market Practices++

  1. The Commission has the power under section 10 of the Ordinance to prevent undertakings from engaging in "deceptive market practices".

  2. Deceptive market practices are identified as: (a) distribution of false or misleading information that is capable of harming the business interests of another undertaking; (b) the distribution of false 'or misleading information to consumers, including the distribution of information lacking a reasonable basis, related to the price, character method or place of production, properties, suitability for use, or quality of goods; (c) false or misleading comparison of goods in the process of advertising; or (d) fraudulent use of another's trademark, firm name, or product labelling or packaging.

(iv) ++Approving Mergers++

  1. Approving mergers is the culmination of the regulatory powers of the Commission and is directly related to its power to regulate a dominant market position addressed in paragraph 16 above.

  2. The Ordinance, section 4: Prohibited Agreements.

  3. The Ordinance, sections 5, 6, 7, 8 and 9.

  4. The Ordinance expressly prohibits a merger14, which may substantially lessen competition by creating or strengthening a dominant position in the relevant market. The Commission therefore requires any undertaking proposing to Merge with another and which meets the pre-merger notification thresholds stipulated in the Competition (Merger Control) Regulations, 2007 ("the Merger Regulations") to obtain clearance from the Commission by submitting a pre-merger application to the Commission, prior to the proposed merger.

  5. In terms of the Merger Regulations15 an undertaking is required to obtain clearance from the Commission if it meets any of the following thresholds (a) the value of its gross assets (excluding the value of its goodwill), is not less than Rupees Three hundred million only (Rs.300,000,000.00), (b) the combined value of the undertaking and the undertaking(s) the shares of which are proposed to be acquired or the undertakings being merged, is not less than Rupees One billion only (Rs.1,000,000,000.00), (c) the annual turnover of the undertaking in the preceding year is not less than Rupees Five hundred million only (Rs.500,000,000.00), (d) the combined turnover of the undertaking and the undertaking(s) the shares of which are proposed to be acquired or the undertakings being merged is not less than Rupees One billion only (Rs.1,000,000,000.00).

  6. The Commission may give clearance to a merger within thirty (30) days of receiving the pre-merger application, or it may determine that the intended merger "meets the thresholds" (paragraph 25 above) and the presumption of dominance as determined in section 3 of the Ordinance (paragraph 16 above)15. If the Commission arrives at the latter conclusion it

14^"^merger" has been defined in section 2(1)(h) of the Ordinance as 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. Acquisition, as used in the definition of merger has been defined in section 2(1)(a) of the Ordinance as any change in control of an undertaking by way of acquisition of shares, assets or any other means.

  1. Regulation 4 in particular.

  2. Failure to make a determination within the prescribed period of thirty days for the first phase review shall mean that the Commission has no objection to the intended merger (Section 11(7) of the Ordinance).

initiates a "second phase review" 17 of the merger and may require the undertaking to provide such further information as the Commission deems necessary for the purposes of the review.

  1. If at the end of the second phase review (which the Commission must complete within ninety (90) days) the Commission is of the view that the intended merger will operate to lessen competition, or create or strengthen a dominant position then the Commission may either prohibit the merger or allow it to proceed subject to such conditions as the Commission may deem fit provided that the Commission is of the view that (a) it contributes substantially to the efficiency of the production or distribution of goods or to the provision of services, (b) such efficiency could not reasonably have been achieved by a less restrictive means of competition, (c) the benefits of such efficiency clearly outweigh the adverse effect of the absence or lessening of competition, (d) it is the least anti competitive option for the failing undertaking's assets when one of the undertakings is faced with actual or imminent financial failure.

  2. Where the Commission grants conditional approval to a merger, it may, after the expiry of a period of one (1) year, and either on its own or on the application of either party to the merger, review the conditions on which the merger was approved if it is satisfied that the market conditions then prevailing in the relevant market warrant such a review. As a result of such a review the Commission may modify the conditions on which the merger had been approved or revoke the merger.

  3. If an undertaking proceeds with a merger without obtaining a pre-merger clearance from the Commission, the Commission may, after providing the undertaking an opportunity of being heard, pass such orders against the undertaking as it deems fit. 18

(c) How does the Commission regulate?

  1. The Commission has extensive powers of regulation. The Ordinance gives the Commission the mandate to strictly enforce the provisions of the Ordinance, to impose substantial penalties on the concerned undertakings as well as on third parties and

  2. The Ordinance, see section 11(6)

  3. The Ordinance, section 11(12).

to make such further rules and regulations as may be necessary for achieving the objectives of the Ordinance. This section examines the powers of the Commission in each of these areas of regulation.

  1. It is important to highlight at the outset that the powers of enforcement of the Commission are bolstered by the fact that appeals against its orders may, within thirty (30) days of the order, first be filed before the Commission's Appellate Bench (comprising not less than two Members) and from an order of the Appellate Bench directly to the Supreme Court of Pakistan. In a stark departure from the provisions of the Monopoly Ordinance, and indeed from most other laws that create specialised Tribunals, the High Court as the judicial forum of first resort has been entirely circumvented.

(i) ++Enforcing the Ordinance++

  1. The powers of the Authority vis-a-vis the undertakings it regulated and within its area of regulation were limited to the registration of undertakings, individuals and agreements, conducting enquiries into the general economic conditions, conducting enquiries into the affairs of particular undertakings, giving advice to undertakings, making recommendations to the Government, passing such orders as it deemed necessary for achieving the objectives of the Monopoly Ordinance, giving undertakings an opportunity of being heard and then passing such orders against them as it deemed fit19. The Commission has retained each of these powers20 and has the further power to carry out "competition advocacy"21 for the promotion of competition in the country.

  2. Unlike the Authority, however, the Commission has the power to proactively deal with contraventions of the provisions of the Ordinance. Therefore, the Commission may proceed against an undertaking even if it merely suspects a contravention and may penalise the undertaking after providing it a reasonable opportunity of being heard. Any order passed by the Commission in such proceedings is to take effect notwithstanding anything to the contrary contained in the Articles arid Memorandum of Association of the undertaking,

  3. Monopoly Ordinance, sections 10 and 11.

  4. Ordinance, section 28: Functions and powers of the Commission

  5. Ordinance, section 29: Competition Advocacy.

any contract entered into by the undertaking or any other law for the time being in force.22

  1. As the Authority before it23, the Commission has all the powers of a civil court while trying a suit, including but not limited to the power to summon and enforce the attendance of any witness, order the discovery or production of any document, accept evidence on affidavits and requisition any public record.24

  2. Unlike the Authority however, the Commission has additional powers to enter and search premises, to have full access to any premises, place, accounts, documents or computer, to make copies of or to impound any accounts or documents25. In the event that an undertaking refuses access to the Commission, the Commission has the further power to make a forcible entry26. The Commission also has the power to call for information from an undertaking, notwithstanding anything contained in any other law for the time being in force27 and may institute enquiries on its own motion or upon reference to it by the Government.28

  3. In any proceedings instituted against an undertaking, either on the Commission's initiative or otherwise, the Commission may pass orders commensurate with the nature of the contravention:29 where the Commission is of the view that an undertaking is abusing its dominant position, it may require the undertaking to take all necessary steps to restore competition; in case of an undertaking having entered into a Prohibited Agreement the Commission has the power to annul the agreement or require the undertaking to amend the

  4. Ordinance, section 30: Proceedings in cases of contravention

  5. Monopoly Ordinance, section 15.

  6. Ordinance, section 33: Powers of the Commission in relation to a proceeding or enquiry.

  7. Ordinance, section 34: Power to enter and search premises.

  8. Ordinance, section 35: Forcible Entry

  9. Ordinance, section 36: Power to call for information relating to undertaking.

  10. Ordinance section 37: Enquiries and studies.

  11. Ordinance section 31: Orders of the Commission

agreement and to desist from entering into such agreements in the future; in case of deceptive marketing practices it may require the undertaking to take necessary actions to restore the previous market conditions or confiscate, forfeit or destroy any goods having a "hazardous or harmful effect."; in case of a merger it may allow the merger to proceed or review the conditions and circumstances of merger and prohibit the merger. The Commission also has the power to pass interim orders in any proceedings pending before it.30

(ii) ++Imposing and recovering penalties++

  1. In contrast to the Authority, the Commission has, while passing orders in any proceedings before it, the power to impose penalties not only on the undertaking but also its concerned directors, officers or employees.

  2. Before imposing such penalties the Ordinance requires the Commission to have formed the view that the undertaking or its director, officer or employee has (a) been engaged in an activity prohibited under the Ordinance, or (b) failed to comply with an order of the Commission, or (c) failed to supply information or documentation requested by the Commission, or (d) has knowingly furnished false information or the information submitted is found to be inaccurate, or (e) has knowingly obstructed the process of the Commission.

  3. The Commission may impose these penalties within the limits prescribed in the Ordinance 31: the penalty for the contravention of the provisions relating to abuse of dominant position, prohibited agreements, deceptive marketing practices and approval of mergers may not exceed Rupees Fifty million only (Rs.50,000,000.00) or fifteen per cent (15%) of the annual turnover of the undertaking; the penalty for non compliance with an order, notice or requisition of the Commission and the penalty for providing false or inaccurate information may not exceed Rupee's One million only (Rs.1,000,000.00). In case of a continuing contravention the Commission may impose a further penalty extending to Rupees One million only (Rs. 1,000,000.00) for each day the contravention continues. The Commission also has the power to vary the rates of penalties by notification in the official Gazette.

  4. Ordinance section 32: Power to issue interim orders.

  5. The Ordinance, section 38: "Penalty"

  6. If the undertaking etc. does not pay the penalty, the Commission may recover penalties by attachment of immovable property and appointment of a receiver, sale of movable property (including bank accounts) of the relevant person or undertaking, or as arrears of land revenue32.

  7. The Commission also has the power to direct a third party who owes, or may owe money to the penalised undertaking etc., or who holds or controls or may subsequently hold or control the receipt or disposal of any money belonging to the undertaking or on account of the undertaking or is responsible for payment of any sum to the undertaking, to deduct the amount of penalty from such sums. If any bank, receiver, District Revenue Officer or undertaking on whom a notice to deduct or recover the amounts is served by the Commission, fails to comply with the directions of the Commission, the Commission has the power to declare it a "defaulter and independently penalise it under the Ordinance.

  8. The penalties recovered by the Commission are credited to the Commission Fund33 and are utilised by the Commission to meet charges in connection with the functioning of the Commission including payment of salaries and other remuneration to the Chairman, members, officials, experts advisers and consultants of the Commission.

(iii) ++Making rules and regulations++

  1. The Commission has the power to make rules, with the approval of the Government, for all or any of the matters in respect of which it is required to make rules for the purposes of the Ordinance. Further, except for the first occasion on which these regulations are made, the draft rules are required to be published in the official gazette for eliciting public opinion for a period not less than thirty (30) days from the date of publication.

  2. The Commission also has the power to make regulations to carry out the purposes of the Ordinance. The approval of the Government is not required for making these regulations. However, except for the first occasion on which these regulations are made, the Commission may make regulations only after having first published the draft in two newspapers for a period of not less than thirty (30) days before the regulations are actually made.

  3. The Ordinance, section 40: "Recovery of Penalties"

  4. The Ordinance, section 20: Commission Fund

IV. ++A Critique of the Ordinance++

(a) ++The genesis of the Ordinance and the Pakistani++++Constitution++

  1. The Ordinance may be open to constitutional challenge both for the manner in which it has been made as well as to its content.

(i) ++The promulgation of the Ordinance.++

  1. In terms of the Constitution of the Islamic Republic of Pakistan, 1973 ("the Present Constitution"), laws in Pakistan are to be made in accordance with the legislative procedure prescribed in Article 70. According to this procedure, a bill may be introduced in either House 34 of the Parliament and if passed by that House may be transmitted to the other House. If also passed by that House without amendment, the Bill may be presented to the President for his assent. This procedure allows a bill to be debated by members of the Parliament and ultimately to reflect their concerns and points of view.

  2. Promulgation of an Ordinance is a departure from the mainstream legislative procedure. In terms of Article 89 of the Present Constitution, promulgation of an Ordinance by the President is permissible when "the National Assembly is not in session" and if the President is satisfied "that circumstances exist which render it necessary to take immediate action".

  3. The President had promulgated the Ordinance on 2nd October 2007 in exercise of his powers under the aforesaid Article 89 of the Present Constitution. At that time the tenure of the National Assembly had not expired and a session of the National Assembly was imminent. Furthermore there were no circumstances-nor has the Government advanced any by way of justification---that warranted the immediate promulgation of the Ordinance.

  4. As a consequence of the procedure adopted by the Government, the Ordinance has arrived on the Pakistani legal scene without having been scrutinized, debated or approved by members of the National Assembly and the Senate. It is therefore merely the reflection of the will of the Government and not indicative of the concerns of the people.

  5. Article 50 of the Present Constitution: the Parliament to comprise two Houses, the National Assembly and the Senate.

(ii) ++The content of the Ordinance and its Promulgation++

  1. Even if it is assumed, for the sake of argument, that the Ordinance has been validly made as far as the legislative procedure is concerned, the subject-matter of the Ordinance is such as may leave it open to constitutional challenge.

  2. The legislative powers of the Federation and Provinces are distributed according to the Federal Legislative List and the Concurrent Legislative List35. In terms of Article 141 read with 142 of the present Constitution, the Parliament has the authority to make laws for the whole or any part of Pakistan in respect of any matter in the Federal Legislative List or the Concurrent Legislative List whereas the Provincial Assemblies have the power to make laws for the Provinces or any part thereof in respect of any matters listed in the Concurrent Legislative List or not listed either in the Federal Legislative List or the Concurrent Legislative List.

  3. An Ordinance promulgated under Article 89 is subject to the same restrictions as the Parliament in exercise of its legislative powers. The Ordinance, therefore, could only validly have been made in respect of an item listed in the Federal Legislative List or the Concurrent Legislative List. It is interesting to note that the Present Constitution confers a~.~ fundamental right on citizens of Pakistan to conduct any lawful trade or business, and envisages "the regulation of trade, commerce or industry in the interest of free competition therein36". However, the regulation of competition does not seem to fall under any of the entries of either the Federal Legislative List or the Concurrent Legislative List. If so, this would mean that the Parliament would not be competent to legislate for competition and an Ordinance cannot be promulgated in this regard. Historically, there was a relevant power enumerated in the Concurrent Lists of the Indian Constitution (Entry 21) and the 1956 Constitution (Entry 10), which read as follows: "Commercial and industrial monopolies, combines and trusts". However there is no such entry in the Constitution.

  4. Furthermore, the power conferred on the Commission by the Ordinance to prevent deceptive market practices appears to be similar in scope and content to the regulatory powers

  5. Fourth Schedule to the present Constitution.

  6. Clause (b) of Article 18 of the present Constitution

conferred on the relevant authorities under the Balochistan Consumer Protection Act, 2003, the Punjab Consumer Protection Act, 2005, the North West Frontier Province Consumers Protection Act, .1997 and the Sindh Consumer Protection Ordinance, 2007 to deal with unfair trade practices or false or misleading representations. It is generally accepted that the Provinces have enacted the provincial consumer protection laws in the exercise of the "residuary" powers, i.e., powers that are not listed in the Federal or Concurrent Legislative Lists. If so, then the matter relating to deceptive trade practices would seem to fall within the "residuary" powers which, as noted above, are beyond the legislative competence of the Parliament. This may be another basis on which the constitutionality of the Ordinance may be open to challenge.

  1. This analysis may raise questions about the vires of the Monopoly Ordinance. It is therefore important to note that at the time of promulgation of the Monopoly Ordinance the Constitution then in field (the 1962 Constitution) had been abrogated (by General Yahya Khan's martial law) and the country was governed by a Proclamation of Emergency. That Proclamation however stipulated that notwithstanding the abrogation, the country was to be governed as nearly as may be by the provisions of the 1962 Constitution.

  2. The 1962 Constitution as distinct from the present Constitution had only one list, contained in its Third Schedule, which enumerated legislative powers vesting exclusively in the Centre, as it was then called. Although there was no entry in that Schedule which empowered the Centre to promulgate the Monopoly Ordinance and the Centre did not have the power to make laws in respect of a matter not enumerated in the Third Schedule, Article 131(2) of the 1962 Constitution provided that if at any time the national interest of Pakistan so required, inter alia, in respect of^-^the "economic and financial stability" of the country, then the Centre could also make a law in respect of a matter not enumerated in Third Schedule.

  3. It was in the exercise of this power that the Monopoly Ordinance was promulgated by the Centre and not by the provinces, and indeed, the third recital of the preamble to the Monopoly Ordinance expressly provided that the "national interest of Pakistan in relation to the economic and financial stability of Pakistan requires Central legislation in the matter".

  4. The fact that the Ordinance has been promulgated without the benefit of the relevant entry in the Federal and Concurrent Legislative Lists raises a distinct possibility that it may be open to challenge. Given that complex constitutional

questions are involved, it cannot be stated with certainty how a Court may view and decide the foregoing issues.

(b) ++Circumventing the High Courts++

  1. Section 42 of the Ordinance provides for a direct appeal to the Supreme Court from a decision of the Commission's Appellate Bench (See paragraph 31 above). Given the fact that appeals to the Supreme Court lie only on points of law, it appears to be the intention of the legislature that the Commission is the final arbiter in all factual positions.

  2. The Supreme Court draws its appellate jurisdiction from Article 185 of the present Constitution, which states "the Supreme Court shall have jurisdiction to hear and determine appeals from judgments, decrees, final orders or sentences of a High Court." [Emphasis addedl37. The Legislature may enhance the jurisdiction of the Supreme Court only "to such extent as is expressly authorized by or under the Constitution."38

  3. The only direct appeals that lie to the Supreme Court from a Court or Tribunal other than the High Courts are appeals from the Services Tribunals and appeals from the Federal Shariat Court both of which are regulated by express provisions in the present Constitution. The appeal provisions of the Ordinance may therefore be held unconstitutional in purporting to confer an appellate jurisdiction on the Supreme Court, which is not envisaged by the Present Constitution, and in denying to the aggrieved party access to a constitutionally constituted tier of the judicial system.

  4. The Ordinance may also be unconstitutional as it denies the High Court the supervision and control of the Appellate Bench, which is a tribunal subordinate to the High Court and is therefore constitutionally required to be under its supervision39. The Supreme Court has, on more than one occasion,

  5. Article 160 of the 1956 Constitution permitted the direct filing of appeals to the Supreme Court from the judgment of any court or tribunal. There is no parallel provision in the 1973 Constitution.

  6. Item 55 on the Federal Legislative List

  7. Mehram Ali v. Federation of Pakistan PLD 1998 SC 1445. See also, Article 203 of the present Constitution and Liaquat Hussain v. Federation of Pakistan PLD 1999 SC 504.

emphasized that all courts and tribunals must be under the administrative control and supervision of the High Court. In the case of Khan Asfandyar Wale 40, the Supreme Court went as far as to direct that the National Accountability Ordinance, 1999 ("NAO") be amended to bring within the High Court's jurisdiction, the accountability courts set up under the NAO.

(c) ++Overlapping powers: the Commission and Pakistani++++regulators++

  1. The powers of enforcement of the Commission are wider and more invasive not only than the erstwhile Monopoly Authority but also of other Pakistani regulators such as the State Bank of Pakistan. The powers conferred upon the Commission also overreach the powers recommended for Competition Authorities in the UNCTAD Model Law on Competition41 ("the Model Law") whose authority in any event does not extend to "acts of enterprises or natural persons which are compelled or supervised by the State or by local governments or branches of government acting within their delegated powers". There are several instances where the powers of the Commission encroach upon those of other regulators, thereby creating regulatory overlap, ambiguity and potential uncertainty.

(i) ++The Commission and the State Bank of Pakistan++

  1. The Commission has the power (see paragraph 41 above) to direct any person (which term includes all legal persons, including banks) to deduct the amount of the penalty from any amounts lying to the credit of the penalised undertaking or person or by attaching the bank accounts. Furthermore, the Commission has the power to declare any person (and therefore a bank) a "defaulter" if it fails to comply with a notice of deduction issued by the Commission and to impose upon it a penalty that may extend to Rupees Fifty million only (Rs.50,000,000.00). In exercising this power it is not incumbent upon the Commission to consult or inform the State Bank of Pakistan---let alone to seek its permission.

  2. This power is intrusive upon the powers of the State Bank and potentially disruptive of the banking sector. It is also beyond any powers recommended for a Competition Authority

  3. PLD 2001 SC 607.

  4. UNCTAD Model Law on Competition United Nations, 2004, ISBN 92- 1- 112633- 9

in the Model Law, in terms of which sanctions imposed by a Competition Authority extend to the regulated entities and not to third parties.

Press reports indicate that the State Bank has approached the Ministry of Finance for exempting the banking sector from the purview of the Ordinance. The Commission however, is resisting the grant of such an exemption.42 This suggests that policies of the State Bank---which strongly favour consolidation of banks---and the Commission, may be at variance.

The State Bank of Pakistan Act, 1956 ("the SBP Act") was amended in 1997 to bolster the status of the State Bank as the primary regulator of the banking sector. Section 46-B 43 inserted in pursuance of this amendment restricted any body other than the State Bank from issuing directives to banks. The powers of intervention provided to the Commission under the Ordinance however, are apparently in conflict with section 46-B of the SBP Act. It is important to highlight, that even the National Accountability Bureau is not permitted such intrusion without prior reference to the Governor of the State Bank.44

(ii) ++The Commission and PTA++

  1. In terms of the Pakistan Telecommunication (Re organisation) Act, 1996 ("Telecom Ordinance"), the Pakistan telecommunication Authority ("PTA") is responsible for "regulating competition in the telecommunication sector" and protecting consumer rights45 and for maintaining "fair competition" in the telecommunication sector46.

42 "application of Competition Ordinance: banking sector exemption not in country's interest", Business Recorder, February 6, 2008.

  1. The SBP Act, section 46-B: Inconsistent directives not to be issued.

No governmental or quasi-governmental body or agency shall issue any directive, directly or indirectly, to any Banking company or any other financial institution regulated by the Bank which is inconsistent with the policies, regulations and directives issued by the Bank pursuant to this Act, the Banking Companies Ordinance, 1962 (XLVI of 1962) or any other law in force.

  1. The National Accountability Ordinance, 1999: Section 31D: Inquiry, investigation or proceedings in respect of imprudent bank loads, etc,

  2. The PT Act 1996: section 4(1)(m)

  3. The PT Act 1996: section 6(e)

  4. An instance of the PTA's exercise of its powers is the "interconnection agreements" entered into between service providers in accordance with the Pakistan Telecommunication Rules, 2000 ("the Rules"). In order to regulate competition in the telecommunication sector, PTA also has the power to determine a telecom operator as a significant market power ("a SMP Operator"). If PTA determines a licensee as to be a SMP Operator in a relevant telecom market, the licensee is required to comply with regulations made by PTA to promote competition. Further, the PTA also strictly monitors the revenue structure and the tariffs charged by SMP Operators. In the fixed line sector, PTA has classified PTCL as a SMP Operator and in the mobile sector it has classified Pakistan Mobile Communications Limited (Mobilink) as a SMP Operator.

  5. With the promulgation of the Ordinance these powers have now also been given to the Commission. However, the criteria for determining dominant position and relevant market prescribed in the Ordinance are distinct from those stipulated in the Telecom Ordinance.

(iii) ++The Commission and PEMRA++

  1. In terms of the Pakistan Electronic Media Regulatory Authority Ordinance, 2002 ("the PEMRA Ordinance") "No person shall be entitled to the benefit of any monopoly or exclusivity in the matter of broadcasting or the establishment and operation of broadcast or CTV stations ....". Further, in granting the licence PEMRA is required to "ensure that, as far as possible, open and fair competition is facilitated ....".

  2. PEMRA has framed Pakistan Electronic Media Regulatory Authority (Media Ownership and Control) Regulations, 2002 in exercise of its powers under the PEMRA Ordinance. These regulations expressly govern matters relating to undue concentration of media ownership, circumstances constituting unreasonable monopoly power and restrictive trade practices. They also provide penalties for failure to comply with the same. As in the case of the Telecom Ordinance, the manner in which the Ordinance and the PEMRA Ordinance deal with monopolistic practices is dissimilar.

(iv) ++The Commission and the Registrar of Trademarks++

  1. The powers of the Commission vis-a-vis deceptive market practices also conflict with the regulatory powers conferred on the Registrar of Trademarks under the Trademarks Ordinance, 2001.

  2. The deceptive practices listed in the Ordinance (see paragraphs 21 and 22 above) are substantially the same as detailed in section 67 of the Trademarks Ordinance, 2001^47^. Therefore the Registrar of Trademarks as well as the Commission may potentially penalise companies for the same violations of the law.

(v) ++Impact of Overlapping Powers++

  1. The Monopoly Ordinance was amended in 2002 to facilitate privatisations. Accordingly, undertakings licensed by NEPRA, PTA, OGRA (as well as other regulatory authorities as the Federal Government may notify) were excluded from the ambit of the Monopoly Ordinance. Although the Ordinance does not have a similar exclusion provision, various statutes, and rules and regulations thereunder, which address monopolistic practices, have not been brought in line under the Ordinance.

  2. In this situation, conflicts may arise between the Commission and other regulatory authorities, which regulate monopolistic practices in their sectors particularly because most of the relevant legislation contains a non-obstante clause, which provides that it shall have effect notwithstanding any other law for the time being in force.

  3. An analysis as to which law will prevail in these circumstances, is beyond the scope of this paper. It may however be stated that conflicts in such cases are not necessarily resolved on the basis of which law was enacted subsequent in time but also by applying the principle of interpretation which gives a special enactment precedence over a general enactment48.

(d) ++Unclear concepts++

  1. The Ordinance introduces a number of concepts for which there are no judicial precedents in Pakistan. The Ordinance either does not explain these concepts at all or does so only unsatisfactorily and at variance with the Model Law.

  2. Had the Ordinance not circumvented the High Courts altogether it may have been possible to argue that these unclear concepts would be clarified by judicial pronouncements. In the

  3. The TO 2001: section 67 "Definition of unfair competition and provisions relating thereto"

  4. AIR 1990 SC 1563: p.1575

present scenario however, an aggrieved party would have no recourse other than to approach the Commission on a case-by case basis to understand the scope and applicability of these provisions. The concepts of "refusing to deal", "dominant position", "prohibited agreements" and "relevant market" are examples of concepts which are likely to have significant economic impact but which are not satisfactorily explained in the Ordinance.

(i) "++Refusing to deal++"

  1. In terms of section 3 of the Ordinance, "refusal to deal" is listed as a practice which, if reduces competition in the market, may be an instance of the abuse of a dominant position by an undertaking. The Ordinance however does not explain the term "refusal to deal". In the absence of defining parameters and an explanation, a large number of agreements consequent of which a party "refuses to deal" with another are susceptible of falling within the ambit of a practice that creates a dominant position. This is unduly restrictive and may be contrary to the economic interests of undertakings.

  2. In terms of the Model Law "refusing to deal" on an enterprise's commercial terms, is considered an abusive practice only if it is not for "ensuring the achievement of legitimate business purposes, such as quality, safety, adequate distribution or service".

  3. The Indian Competition Act, 2002 ("the Indian Act") also employs the term "refusing to deal" however, only as one instance of an agreement which may have an adverse effect on competition if it is entered into "amongst enterprises at different stages or levels of the production chain in different markets, in respect of the supply, distribution, storage, sale or price of, or trade in goods or provisions". "Refusing to deal" is also statutorily explained as including "any agreement which restricts or is likely to restrict, by any method the persons or classes of persons to whom goods are sold or from whom goods are bought."

  4. The provisions of the Indian Act are in accordance with the internationally recognised "Colgate Doctrine"49 which preserves the right of manufacturers and traders to freely select their counter parts in business contracts provided that there is "no purpose to create a monopoly".

  5. United States v. Colgate & Co. 250 US 3000 (1919).

"In the absence of any purpose to create a monopoly, manufacturers and traders are free to exercise their own independent discretion as to the parties with whom they will deal and, may announce in advance the circumstances in which they may refuse to deal."

  1. The concept of "refusing to deal" as provided in the Ordinance is therefore deficient on at least two counts: firstly, it does not stipulate the specific circumstances in which "refusing to deal" may be prohibited and does not provide a statutory explanation for the term and secondly it does not take into consideration the "appreciable adverse effect" test of an agreement of refusal to deal and prima facie prohibits such agreements per se.

(ii) "++Dominant. Position++"

  1. The Ordinance presumes the existence of a "dominant position" if undertakings in a) relevant market have "to an appreciable extent" the ability to behave independently of competitors, customers, consumers and ' suppliers and presumes dominance if the concerned undertaking has more than forty per cent (40%) share of the relevant market (see paragraphs 16 and 17 above).

  2. This definition of "dominant position" is troublesome in two respects: it does not provide an explanation as to what may constitute "an appreciable extent" and adopts a simplistic numerical threshold for presuming dominance, making it incumbent upon the concerned undertaking to have the presumption of dominance rebutted.

  3. Market dominance is a complex issue, which cannot be accurately assessed by calculating a simple percentage share of a given undertaking. The Model Law describes dominance in terms of effect and not in terms of numbers. It states: "Dominant position of a market power refers to a situation where an enterprise, either by itself or acting together with a few other enterprises, is in e position to control the relevant market for a particular good or service or groups of goods or services." This definition combined with a more holistic definition of what constitutes a relevant market50 gives greater depth to the concept.

  4. "Relevant market" refers to the general conditions under which sellers and buyers exchange goods, and implies the definition of the boundaries that identify groups of sellers and of buyers of goods within which competition is likely to be restrained. It requires the delineation of the product and the geographical lines within which specific groups of goods, buyers and sellers interact to establish price and output. It should include all reasonably substitutable products or

  5. Similarly the Indian Act equivalent of this provision appears cognizant of the complexity of the concept and describes dominance as "a position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to (a) operate independently of competitive forces prevailing in the relevant market, and (b) effect its competitors or consumers or the relevant market in its favour".

(iii) "++Prohibited Agreements++"

  1. Section 4(1) of the Ordinance prohibits agreements "which have the object or effect of preventing, restricting or reducing competition within the relevant market". The list of prohibited agreements is provided in section 4(2) of the Ordinance. If an agreement is prohibited then in terms of section 4(3) it is void. These sections read together, can have potentially dire consequences particularly because the list of prohibited agreements is extremely wide and includes a number of agreements routinely entered into between companies. For example, Clause (a) of subsection (2) of section 4 states that such agreements may include agreements for "fixing the purchase or selling price or imposing any other restrictive trading condition with regard to the sale or distribution of any goods or the provision of any service". [Emphasis added] and has the effect of bringing most distributorship agreements within the ambit of the section.

  2. While there can be no cavil with prohibiting an agreement whereby two rival firms in the same market agree to fix prices for the purpose of driving out competitors, an agreement whereby for instance, a person selling a restaurant agrees not to open another similar restaurant within a one mile radius ought to be recognised as a. valid agreement. Section 4 however does not recognise such a distinction and upon a plain reading prohibits both such agreements. Due to the extensive scope of section 4 companies will be required to seek exemptions even in respect of contracts whose validity has not been doubted to date.

  3. While the Ordinance envisages individual and block exemptions for undertakings and for certain classes of agreements, an exemption oriented regulatory regime is likely to

services, and all nearby competitors, to which consumers could turn in the short term if the restraint or abuse increased prices by a not insignificant amount.

be perceived as being onerous and perpetuating "rule by exemption" rather than "rule by law".

  1. The Commission has recently issued an order51 ("the Order') in exercise of its powers under section 58 read with section 28(1)(f) of the Ordinance52 which states in material part that because section 59 of the Ordinance53 does riot "save" existing agreements (i.e. agreements in subsistence at the date of promulgation of the Ordinance) which may fall foul of section 4, therefore for the purposes of "removing the difficulty" arising out of the "ambiguity" in section 59, the Commission is pleased to give a period of 90 days to the concerned parties to apply to it for exemption under section 5.

  2. In passing the order, the Commission is, in effect, attempting to give retrospective effect to the Ordinance in a manner contrary to well settled principles of statutory interpretation. A statute can have retrospective effect only if it the language of the statute expressly allows such effect. In the absence of such language, section 4 can only apply to an agreement entered into after the promulgation of the Ordinance.

  3. There are numerous judgments of the superior courts which have consistently held that any legislation which affects existing rights and obligations cannot be given retrospective effect unless expressly and clearly so provided for. There is no "ambiguity" whatsoever in this regard, which would enable or require the Commission to exercise its powers under section 58. In other words, a difficulty must exist for it to be removed---in the present case there is no such "difficulty" in the case of existing agreements, which are in any event outside the scope of the Ordinance.

(iv) "++Relevant Market++ "

  1. The definition of "relevant market" which is one of the key concepts of the Ordinance is also rather unclear. The corresponding definitions in the Indian Act are clearer. Furthermore, in the Indian Act the terms "relevant geographic

  2. Published in the official Gazette as S.R.O.51(I)/2008 dated 15.01.2008

  3. Section 58 empowers the Commission to make an order to remove any difficulty in giving effect to the provisions of the Ordinance, and section 28(1)(1) empowers it to take all actions for carrying out the purposes of the Ordinance.

  4. Which deals with repeals and savings.

market" and "relevant product market" are defined separately, and the term "relevant market" is defined as being the market determined with reference to either the relevant geographic market or relevant product market or both. In contrast, the Ordinance contains one omnibus definition of "relevant market" which provides that the relevant market is to be determined with reference to a product market and a geographic market. In other words, while determining the relevant market both must apparently be taken into account at all times.

  1. Moreover, .the Indian law defines a relevant geographic market as being one in which, inter alia, the prevailing "conditions" can be "distinguished" from those existing in the neighbouring areas. In contrast, the definition in the Ordinance requires that in a geographic market, the "conditions of competition" in the neighbouring areas be "appreciably different". It is arguable therefore that the definition of "relevant market" in the Ordinance may be held to be more narrowly defined than the Commission appears to envisage, and in some cases, it may for all practical purposes become impossible to determine the "relevant market". Obviously, a deficiency (or at least ambiguity) that lies at the heart of the regulatory framework is not desirable.

(e) ++The Rigidity of Pre-Merger thresholds++

  1. The regulation of mergers comprises a large part of the Commission's sphere of responsibilities. This is further extended by the very definition of mergers, which extends to acquisition, amalgamation, combinations or joining of two undertakings or part thereof into an existing undertaking or to form a new undertaking. In terms of the Ordinance and the Regulations, any undertaking entering into a merger which meets the pre-merger notification thresholds prescribed in the Regulations is required to obtain pre-merger clearance from the Commission. If the undertaking meets the pre-merger thresholds and the presumption of dominance, the Commission has the right to review and potentially block the merger (see paragraphs 23 to 29 above).

  2. An undertaking that meets the pre-merger thresholds is required to make an application for clearance to the Commission as soon as the merging undertakings agree in principle or sign a non-binding letter of intent to proceed with a merger54. Making an application to the Commission at the time

  3. The Ordinance, section 11(3).

of signing a letter of intent is premature as undertakings would

not have had the opportunity to carry out the necessary due

diligence and because the application is likely to reveal sensitive and confidential information to the Commission. Although the Regulations provide for the protection of confidential information55, such protection is not adequate from a business point of view. The Commission has the power not only to demand further information but also to share it with third parties if it considers it necessary to determine the impact, of the proposed merger.56 Release of premature information to the Commission is not only likely to damage the legitimate business interests of undertakings proposing to enter into the merger but may also create the risk of share market manipulation.

  1. The Regulations set forth what initially seems like a broad based pre-merger test under Regulation 4(1) whereby merging entities are required to apply for clearance of a merger if the merger "may" substantially lessen competition by creating or strengthening a dominant position in the relevant market57. Regulation 4(3), however stipulates that undertakings must make an application if they meet the financial thresholds set out in Regulation 4(2). The contradiction in these two Regulations creates ambiguity and uncertainty amongst the undertakings seeking to obtain the necessary clearance.

  2. Furthermore, given the importance of pre-merger thresholds and prior notification, it is important that these be flexible instruments, which can take into account the market realities of different economic sectors. The Model Law for instance, recommends a more flexible approach and requires a pre-merger notification not merely on the basis of an undertaking meeting certain general thresholds but in situations where the "resultant market share in the country, or any substantial part of it, relating to any product or service, is likely to create market power, especially in industries where there is a high degree of market concentration, where there are barriers to entry and where there is a lack of substitutes for a product supplied by firms whose conduct is under scrutiny."

  3. Competition (Merger Control) Regulations, 2007, section 19: Confidential Information.

  4. Competition (Merger Control) Regulations, 2007, section 20: Confidentiality.

  5. Competition (Merger Control) Regulations, 2007, section 4 (1): Thresholds.

  6. The Indian pre-merger thresholds are also flexible and take market realities into account. These thresholds are extremely wide ranging, covering national and cross border "combinations"58. The Indian Act also allows the Indian thresholds to be updated every two years59. Although the Pakistani thresholds take into account the value of gross assets and the combined value of undertakings the thresholds are set too low.

(f) ++Other issues of concern++

(i) ++Variation of penalties through executive action++

  1. The Ordinance authorises the Commission to vary the rates of penalties by notification in the official Gazette: The constitutionality of this power is doubtful, because it allows an executive order, rather than the law, to deprive a person of property beyond the limits prescribed in the parent legislation, i.e. the Ordinance.

  2. This power may have passed the test of constitutionality had the Ordinance prescribed the maximum penalty and merely allowed the Commission to vary the penalties and fines within this maximum.

(ii) ++A meaningless distinction between rules and regulations++

  1. The Ordinance does not demarcate areas to be regulated by rules from those, which may be regulated by regulations. In the absence of this demarcation the Commission may potentially regulate entirely through regulations, and therefore without the approval of the Government. In these circumstances, retaining the requirement of Government approval for rule making is rendered meaningless.

  2. While the promulgation of rules and regulations require previous publications for eliciting public opinion, it is interesting to note that the requirement of previous publication has been dispensed with for the first rules and regulations made under the Ordinance. Consequently, there has been no stakeholder input in the pre-merger thresholds prescribed by the Commission.

  3. The Indian Act uses "combination" in place of merger.

  4. Indian Act section 5. This is in accordance with the practice in the US where thresholds are updated annually according to inflation.

(iii) ++Excessive powers of investigation++

  1. The powers of investigation granted to the Commission -particularly the power to forcibly enter premises (see paragraph 35 above)---are excessive as compared with international norms and best practices. The Model Law for instance, recommends investigation through examination of documents and by testimony and does not advocate more stringent investigative methods. There may also be a plausible argument that such powers are unconstitutional, being invasive of the right to life enshrined in the Present Constitution.

V. Conclusion

  1. While it is undoubtedly desirable to have a check on monopolistic practices in Pakistan, we are of the view that the Ordinance is marred by constitutional flaws and the manner in which the Ordinance purports to impose these checks may be at variance with the peculiarities of the Pakistani economy.

  2. The Ordinance draws its inspiration from the Treaty of Rome, 1957 and from the UK Competition Act, 1998. While such inspiration itself is not an issue of concern, the fact that this law is not sufficiently "indigenised" may be a cause of unease amongst the very persons the Ordinance seeks to regulate. It is a well known fact that the Ordinance was drafted and promulgated without even the most minimum of public consultation---even the other regulators whose domain the Ordinance impinges upon, were not consulted in this process---and without the scrutiny of the legislators.

  3. The result of this exercise is an Ordinance, which confers extensive powers on the Commission but does not sufficiently define the parameters within which these powers are to be exercised. It is vague in its key concepts and rigid in its applicability thresholds. Where the Ordinance is vague it purports to regulate not by law but by exemptions and where it is rigid it will end up regulating by fiat. Neither situation educates or develops the regulatee of the 'Ordinance to become more aware of competition pitfalls and to safeguard itself accordingly. The regulatee is in fact likely to remain dependent upon the Commission as it develops concepts on a case-by-case basis in its capacity as the final arbiter on all factual matters pertaining to matters within the purview of the Ordinance. Not only is the process likely to be slow and laborious it is also likely to be riddled by the problems faced in the context of courts and the US Competition laws, which have been captured in the words of Richard Posner:

There are federal antitrust statutes, and they are quite brief and readable compared to the Internal Revenue Code. But their operative terms-'restraint of trade,' 'substantially to lessen competition', 'monopolize'---are opaque; and the congressional debates and reports that preceded their enactment, and other relevant historical materials, only dimly illuminate the intended meaning of the key terms. The courts have spent many years interpreting, or perhaps more accurately supplying, their meaning, but the course of judicial interpretation has been so marked by contradiction and ambiguity as to leave the law as they in an exceedingly uncertain and fluid state."60

  1. It is a further cause of concern that although the Ordinance confers extensive powers on this Commission, it does not and indeed cannot, equip the Commission to perform all its duties. The Commission will require time to build its capacity both in terms of the man power as well as the technical expertise to understand the particular exigencies of the wide ranging sectors it has been authorised to regulate and to regulate these efficiently.

  2. Given the necessary time required for the Commission to bolster itself as a competent regulator, it may have been prudent for the Ordinance to carve out from the ambit of the provisions of the Ordinance, certain service activities---such as those regulated by the State Bank, OGRA, PEMRA, NEPRA or by PTA.

  3. In view of the preceding, it is recommended that the Ordinance be debated upon by the elected assemblies and be enacted as an Act of Parliament, after holding stakeholder deliberations and after following due process. Debates on the Commission may particularly focus on the following issues:

(a) whether constitutional infirmities highlighted in this paper have merit and how should these may be rectified;

(b) whether EU competition legislation is an appropriate model for Pakistan;

  1. Posner, Richard. A; "Antitrust Law. An Economic Perspective" The University of Chicago Press, Chicago, 1976.

(c) whether the Ordinance needs to be modified in light of the lessons learnt from enforcement of competition laws in other countries61;

(d) whether entities that. are already within the purview of a regulatory authority that is responsible for ensuring free competition and restraining deceptive market practices be excluded from the purview of the Ordinance;

(e) whether it is advisable to render prohibited agreements ipso facto void;

(f) whether opaque terms such as "to behave to an appreciable extent independently of competitors"; "restrictive trading conditions", "refusing to dear need be specifically defined;

(g) whether merger thresholds need to be made more flexible and should there be different thresholds for different industries and services; and

(h) whether Commission's clearance for mergers (which includes acquisitions) be mandatory if thresholds are met or should it be on a voluntary basis.

  1. An Ordinance that is made with due process arid that addresses and answers the aforementioned issues would strengthen the hands of the Commission and bolster its identity as the apex competition regulator in. Pakistan.

  2. In this regard observations of a very influential scholar of US antitrust law in this book "The Antitrust Paradox, a policy at war with itself (Basic Books, Inc. Publishers, 1978) ought not to be ignored. On page 7 the author states "A consumer-oriented law must employ basic economic theory to judge. which market structures and practices are harmful and which beneficial. Modern antitrust has performed this task very poorly".

On page 135 the author states "If the principles of law made by the courts were consistently applied, not only would competition be outlawed, but a modern (or almost any) economic system would be impossible. This has not happened, of course, hut the law is saved from demanding impossible results only by applying its principles erratically and inconsistently. Vigorous and consistent enforcement of present antitrust doctrines would be a national disaster".

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