Competition Law Concerns for Trade Associations and Businesses
Consumers want goods or services from businesses at competitive prices. Competitive business enterprises come together to form trade associations in the hope of furthering their common interests. But can these trade associations exploit this unity by restricting businesses from making independent business decisions? Or by creating entry barrier for new entrants? How far market can regulators like Bangladesh Competition Commission curtail and control such activities? This article explores some avenues of these queries.
To regulate abusive practices of businesses, parliaments around the world enact competition laws aimed at ensuring a fair and competitive marketplace for businesses. Such legislations around the world make it imperative for trade associations to ensure they are not creating scope for businesses to engage in anti-competitive conducts. That does not mean businesses are prohibited from participating in trade associations. Rather, businesses are required to take measures to be compliant with the competition regime of the respective jurisdictions.
Competition legislations are usually backed by a national competition policy setting the priority sectors where competition laws would be enforced strictly, and where competition laws would be enforced lax. Such laws equally apply to giants in the sector as well as the small and medium enterprises. As anti-competitive activities cannot always be detected by the watchdogs due to their secrecy, these laws prescribe extremely harsh financial penalties to deter people from engaging in such conducts in the first place.
Trade associations serve an important purpose in the economic ecosystem. The business owners convene in these bodies to discuss broader issues of government policies, laws, and influence regulatory changes by lobbying with the government as a single unit of the entire industry. In doing so, they discuss various types of information. Such meetings are not per se anti-competitive. But when they engage in arrangements of specific nature, e.g., fixing prices, restricting supply and distribution, collection and dissemination of market information resulting into cartelisation among competing business owners, it violates the Competition Act 2012.
In addition, membership in certain trade associations may itself provide competitive advantages to its members. Any restriction on requirement of membership at such associations attracts scrutiny of their byelaws by the Bangladesh Competition Commission. In one case, the Bangladesh Competition Commission declared a provision of the constitution of Chittagong C&F Association invalid for fixing the floor price resulting into a cartel. Such cartelisation is problematic for the market because the business enterprises cannot independently make business decisions, rather the competitors collude with each other to manipulate the price of goods or services. The Commission directed them to amend the provision in their constitution within 90 days. Although the Commission did not impose any fine on them, it had all the lawful authority to harshly penalise them.
Participating in trade associations, and membership therein, are often a trade imperative for business organisations. But the representatives of the businesses need to be very cautious about their activities therein. It is the responsibility of the directors of the enterprises to ensure they are not engaging in anti-competitive activities. They cannot stray beyond what is permitted. Therefore, the company directors or their representatives must not engage in any discussion or disclosure of data, documents relating to commercially sensitive matters which impact independent decision-making of other business enterprises.
The Competition Act prescribes that if found guilty, the Commission can impose a fine of 10% of their turnouts in the last three years or thrice of the amount of profit from such anti-competitive activity. In our neighboring jurisdiction India, the competition regulatory body regularly penalises company directors for engaging in cartels through trade associations and they are required to pay huge amount of fine for such action. The Bangladeshi competition law provides for the same penalty, and the Bangladesh Competition Commission is absolutely able to impose such fines for non-compliance.
So, what can these trade associations do to be more competition compliant? The competition law does not prescribe that all kinds of activities of trade associations are anti-competitive. Rather, it imposes a responsibility on the trade associations and the members thereof to be competition compliant. Therefore, as much as the Commission is expected to be vigilant about anti-competitive activities in the trade associations, care must be taken to ensure they are able to distinguish between pro-competitive and anti-competitive agreements.
It is important for the trade associations to get relevant information about the businesses to further the common goal of the enterprises. But these associations should have separate data release mechanism separate from direct participation of their members to be competition compliant. The associations themselves need to be cautious whether they are being a host of such cartelisation process. The only concern is whether such proactive actions hurt their commercial interest? The answer is no. This might mean they are offering products at competitive prices and customers are increasingly able to choose the better product at cheaper rate. Thus, the companies investing in research and development can outperform those who are not doing as such.
What can the business representatives at the meetings of the trade associations do to be compliant? They can review the agenda of the meetings in advance and if such discussion does not violate competition law imperatives, they can attend these meetings. In case the discussion of the meeting suddenly turns to a discussion on exchange of information which are prohibited, the business representative must register his/her protest and immediately leave asking the meeting minutes to reflect that.
Some examples of red flags are discussion on costs, prices, terms and conditions, customer base, territory covered, future expansion plans and any other confidential or proprietary information. He/she must not conceal such incident rather report it to the Bangladesh Competition Commission for taking prompt action. In case there is any possibility to work together with competitors, they must review such agreements by their respective lawyers to assess whether such agreement would be compliant or not with the competition regime.
The competition watchdogs in other parts of the world regularly circulate advocacy materials for trade association. They have separate guidelines for different sectoral trade associations. Bangladesh Competition Commission is yet to make any such guidelines and policies about exchange of information among competitors. Right now, the government of Bangladesh is eyeing at more and more foreign direct investments in Bangladesh. But if there is no fair marketplace here, it is difficult to imagine that foreign businesses would be interested to pursue their businesses here in bulk.
It is understandable that strictly enforcing competition law can be challenging and sensitive at times. The bigshot businesses are heavily influential in and outside the market. They often use it to create pressure on the consumers and the government. However, for ensuring a fair business climate in Bangladesh it is high time that the Competition Commission takes a proactive watchdog role. As such, business should endeavor to become compliant with competition law as soon as possible.
The writer is a Lecturer at the Bangladesh University of Professionals, and a Consultant at A.S & Associates, a full-service law firm. He is also a Non-Government Adviser (NGA) to Bangladesh Competition Commission.