Overview – Legislation and regulatory authorities
Pakistan competition law regime
Competition law in Pakistan was first introduced in the 1970s in the form of the Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance 1970 (MRTPO). However, this ordinance was found to be ineffective at regulating an increasingly modern economic environment.
As such, the Government of Pakistan launched a program to modernize competition law in Pakistan in collaboration with the World Bank and the UK Department for International Development (DFID). This eventually promulgated the Competition Ordinance 2007, which ultimately took the form of the Competition Act 2010 (Competition Act).
This new regime established an independent body corporate known as the Competition Commission of Pakistan and gave it expansive powers to police various kinds of anti-competitive behaviour. The Competition Act further gave the Commission the power to enact subordinate legislation. Since its inception, the Commission has proven to be a vigilant organization which has protected and promoted competition throughout the country. The law in its current state consists of the Competition Act playing the overarching role of prohibiting or restricting certain types of anticompetitive behaviour in Pakistan and subordinate legislation, which provides a framework of procedural rules to implement those prohibitions and restrictions.
Scope of application – entities
The Competition Act applies to any natural or legal person, governmental body, including a regulatory authority, body corporate, partnership, association, trust or any other entity in any way engaged, directly or indirectly, in the production, supply or distribution of goods or provision or control of services.
Scope of application – extraterritoriality
Section 1(3) of the Competition Act provides that it applies to all actions or matters that take place in Pakistan and distort competition within Pakistan.
Regulatory authorities
Competition law in Pakistan is enforced by the Competition Commission of Pakistan (the ‘Commission’). The Commission is a body corporate with regulatory and quasi-judicial functions. It is designed to be administratively and functionally independent from the Federal Government. The Commission has been given a wide array of powers with which it can ensure that competition law is complied with and any infringements of the law are punished.
The Commission has a Competition Policy and Research Department (CPRD), which is responsible for research and analysis of the markets and has remained a key component of the Commission’s efforts to promote free competition, to complement active law enforcement, consultations and advocacy.
The Competition Act empowers the CPRD to conduct research and review policies as stated in the following sections of the Competition Act:
- Section 28 requires the Commission to conduct studies for promoting competition in all sectors of the economy; and
- Section 29(b) empowers the Commission to promote competition by reviewing policy frameworks for fostering competition and making suitable recommendations.
The department’s research and market studies programme helps identify anti-competitive factors/actions and propose appropriate remedies for specific policies/sectors of the economy. Its major activities include focusing on competition policy and conducting sectoral research.
Competition Impact Assessments
The CPRD conducts Competition Impact Assessments which are based on extensive efforts to gather first-hand knowledge from relevant stakeholders covering aspects including market dominance, entry barriers, the effect of international developments on the national market, and the regulatory mechanism. CPRD’s approach is primarily to look at various sectors from a competition standpoint and identify competition vulnerabilities, government interventions that may be distorting incentives, information failures and anti-competitive elements within the industry structure. Market studies serve as a diagnostic tool that enables the Commission to evaluate how competitive the markets are, and work out steps to improve the state of competition in particular sectors.
Key reference table of anti-competitive conduct prohibitions
The following table provides an overview of the primary anti-competitive conduct prohibitions under the Pakistani competition law regime.
Overview of fundamental concepts
Introduction
This section outlines some of the key concepts used in competition law in Pakistan.
‘Relevant Market’
Section 2(1)(k) of the Competition Act defines the term ‘relevant market’ to mean the market which shall be determined by the Commission with reference to a product market and a geographic market.
A ‘product market’ consists of those products which are regarded as interchangeable or substitutable by consumers by reason of the product’s characteristics, prices and intended use. 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 of competition are appreciably different in those areas.
By way of example, In the matter of Pakistan International Airlines (File No. 14/DIR(M&TA)/PIA/CCP/09), Pakistan International Airlines charged a fee (based on a percentage of the air fare) for the rescheduling of domestic reservations within 48 hours of a flight. The Commission had to consider whether this policy amounted to price discrimination among passengers holding reservations in a particular flight and cabin, constituting an abuse of a dominant position. The Commission concluded that the relevant product market was the scheduled commercial domestic air transportation services offered by carriers licensed in Pakistan, and the geographic market was the whole of Pakistan.
Relevant prohibitions
Three major prohibitions of the Competition Act rely on the concept of ‘relevant market’ (i.e. an abuse of a dominant position must be in relation to the relevant market, agreements between undertakings are prohibited only if they prevent, reduce or restrict competition within the relevant market and a merger only requires approval if it substantially lessens competition by creating or strengthening a dominant position within a relevant market).
‘Substantial’ (lessening of competition)
The term substantial lessening of competition has not been defined in the Competition Act. This appears to be intentional as it allows the Competition Commission of Pakistan the flexibility to decide whether mergers should receive approval on a case-by-case basis. The Commission has shed some light on the term through the Competition (Merger Control) Regulations 2007, which state that the strength of the competition in the relevant market and the probability that the merger parties will behave competitively or co-operatively after the intended merger are relevant factors in determining whether a merger substantially lessons competition. The Regulations further provides consideration in determining these factors, such as ease of entry onto the market or level of import competition. However, the definition of term is purposely kept vague for the same reasons as the Competition Act, which allows the Commission to decide what substantially lessens competition case-by-case.
Relevant prohibitions
The concept of substantial lessening of competition is relevant to the restriction on mergers under the Competition Act, which requires mergers to be approved if they substantially lessen competition by creating or strengthening a dominant position in the relevant market.’
‘Object’
The Competition Act, having been enacted in 2010, is still in its infancy. As such, the Superior Courts of Pakistan have not yet had the opportunity to interpret the concept of ‘object. Until such time the word ‘object’ is being given its ordinary definition (i.e. it refers to the purpose for which that agreement was entered into). By using the word object, the statute is ensuring that all those agreements which are intended to be anti-competitive, whether they achieve their desired goal or not, are regulated by the Competition Act.
Relevant prohibitions
Section 4(1) of the Competition Act prohibits undertakings from entering into agreements or making decisions with respect to 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.’
‘Effect’
The Competition Act, having been enacted in 2010, is still in its infancy. As such, the Superior Courts of Pakistan has not yet had the opportunity to interpret the concept of ‘effect. Until such time ‘effect’ is being given its ordinary definition (i.e. it refers to the impact of the agreement on the relevant market). As such, the statute regulates all such agreements, which may not be intended to be anti-competitive but nevertheless effectively curb competition in a relevant market.
Relevant prohibitions
The Competition Act prohibits undertakings from entering into agreements [‘Agreement’ pursuant to the Competition Act includes any arrangement, understanding or practice, whether or not it is in writing or intended to be legally enforceable.] or making decisions 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. To determine whether an agreement falls within the ambit of ‘prohibited agreement’ as set out in the Competition Act, the effect of the agreement with respect to preventing, restricting or reducing competition within the relevant market has to be taken into account.
‘Undertaking’
The term ‘undertaking’ is defined in Section 2(1)(q) of the Competition Act to mean, ‘any 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.’
‘Contract, arrangement or understanding’
The term ‘agreement’ is defined under Section 2(1)(b) of the Competition Act and ‘includes any arrangement, understanding or practice, whether or not it is in writing or intended to be legally enforceable.’
Under Pakistan law, a contract is a binding legal agreement reached between two or more parties. Generally speaking, a contract will be formed when an offer to enter into binding legal relations is accepted by another party accompanied by the exchange of valuable consideration. The words ‘arrangement’ and ‘understanding’ describe something less than a contract. While there is no precise definition of the words arrangement or understanding, they are taken to imply a meeting of two or more minds. In particular, they ordinarily require communication between the parties, with consensus as to what is to be done, rather than a mere hope or expectation as to what might be done or will happen. Moreover, the definition of ‘agreement’ in the Competition Act is not only restricted to arrangement or understanding and includes ‘practice’.
Relevant prohibitions
Agreements between undertakings that are likely to cause an appreciable adverse effect on competition within the relevant market are automatically void.
Thus any horizontal agreements (between undertakings engaged in identical or similar practices) or vertical agreements (between undertakings and suppliers of goods or services) that prevent, restrict or reduce competition are prohibited in Pakistan.
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