A toothless Monopoly Control Authority was finally laid to eternal rest on October 2 this year by the Competition Ordinance 2007.

After three weeks of promulgation of this ordinance, a notification named five members of Competition Commission and spelt out a set of rules. Foreign investors are not happy with provisions of the ordinance and its rules which “give arbitrary powers to the commission’’, to quote a senior executive of a multinational.

“The law envisages wide-ranging powers with harsh penalties, as high as Rs50 million and with the commission officials authorised to conduct raids, without judicial warrants, on offices of the companies’’ he pointed out while sounding a warning that this would impact on expansion plans of many foreign companies.

The apex trade body, the Federation of Pakistan Chamber of Commerce and Industry is yet to study the impact of Competition Ordinance on business. A FPCCI committee headed by one of its managing committee member Mr Rehmatullah Javed has yet to make a critical analysis of the law with the help of company lawyers.

“There has to be some regulation on market, business and trade practices’’ a senior leader of a local trade association said who believes that the government is ‘’too biased towards foreign investors at the cost of local business’’. The Overseas Investors Chamber of Commerce and Industry prefers to maintain discreet silence but multinational executives do talk with reservation on the ordinance with a request of keeping everything ‘’off the record’’.

“We were not consulted at all in framing of this law’’, the head of the legal department of a multinational bank said. And when the government was engaged full time in addressing political issues, an ordinance was promulgated on October 2 which surprised the business professionals.

Business professionals agree that Monopoly Control Authority remained an ineffective body since 1971 when it was formed, in curbing bad trade practices. It failed to tackle effectively the market dominance behaviour of quite a few multinational pharmaceutical companies that thrived openly on transfer pricing practice. ‘’But what’s the justification in replacing an authority with virtually no effective powers with a commission that looks fearsome and tends to shy away the investors’’ remarked the boss of a small foreign trading house.

What makes investors uncomfortable is the provision of appeal against the commission’s verdict on any company’s conduct. The appeal will be heard by any two members of the commission. ‘’It is absolutely ridiculous that five members of commission give a verdict against any company and then any two of these five members will hear appeal’’. Under the law, the affected company can go to Supreme Court after it gets an unfavourable judgement from a two- member tribunal. The company is denied the access to High Court.

Dominant market share has been defined at 40 per cent or more that can attract commission’s attention. “Dominant share and dominant behaviour are two different things’’ argued a senior sales executive. He said dominant share acquired in an open market by any company by consistently offering good quality products to consumers and customers at affordable price is encouraged in all parts of the world. But dominant behaviour is restricting competition and fixing prices is discouraged. According to foreign investors the Competition law does not make an explicit and clear difference between dominant share and dominant behaviour in the market.

“This ambiguity is bound to create problems for us as the commission will demand full cost from the company or companies for carrying out market probe’’ the sale executive apprehends as according to him the budget does not provide any amount for the operation of the commission which is now functioning on a $10 million allocation from World Bank. Obviously, the commission will generate funds for itself and the government through fines and penalties from the defaulting companies.

What the foreign companies fear is that brunt of investigations of all dominant market shares will fall on them and all those who document their transactions.

The law stipulates the shares will be determined of ‘’relevant markets’’ but it is silent on definition of a relevant market and rules are yet to be framed for this purpose. As he explained a brand of potato chips with 40 per cent market share may deem to be having a dominant share. But many alternatives are available for potato chips being offered by the snack industry. The correct relevant market will be snack food industry. There are hundreds of such instances where relevant market can only be defined by the people in trade and industry.

Another ambiguity of the law is that it considers ‘’predatory pricing’’ a cause of curtailing competition. But it is silent on definition of a predatory pricing which gives wide powers to commission to take undue cognisance of any genuine price cut on any product or service by any company. Similarly, the provision of deceptive marketing practices is not well defined and leave many grey and borderline areas which can put many companies in distress.

But what is actually uncomfortable for the foreign investors is the authority given to the commission to conduct raids on companies without any judicial warrant. There are no rules with explicit conditions that warrant such raids by the commission. The ordinance is silent as to who would authorise this raid on the companies and under what circumstances.

“While, it is true that those who have nothing to hide has nothing to fear, it is not appropriate to hold business to under perpetual pressure of unreasonable intrusion’’ observed a senior executive. Therefore, his suggestion is for rules that should limit these raids to pre-defined circumstances with a clearance from appropriate authority which may perhaps give some comfort.

All these fears are now being expressed privately by business executives as their representative bodies have yet to give a critical look at the provisions of the law and offer a better workable alternative.