CCP imposes sanctions on two major electronics makers – Pakistan

ISLAMABAD: Pakistan’s Competition Commission (CCP) on Monday imposed huge penalties on two major electronics makers for allegedly engaging in price-fixing and anti-competitive practices.

In this regard, the CCP issued an order against Haier and DEL/Dawlance for breach of section 4 of the Competition Act 2010 for entering into resale price maintenance (RPM) agreements with its dealers, which which is a form of price fixing under section 4(2)(a) of the Act and by object an anti-competitive practice. The bench was made up of the President, Mrs. Rahat Kaunain Hassan and the Member, Mujtaba Ahmad Lodhi.

CCP found that the violation constituted a hardcore restriction and a serious violation of competition law and imposed the following penalties:

(i) For DEL/Dawlance, in view of its change in management, which terminated the RPM agreement/practice, the fact that it voluntarily undertook to reimburse the penalties to its dealers and had an approach cooperative and compliance-oriented throughout, CCP has limited the penalty amount to Rs 100 million, not exceeding one percent of its annual turnover in the 2020-21 financial year. CCP therefore considered that the conduct, circumstances, approach and duration of the contravention did not warrant equal treatment for both parties.

(ii) Whereas Haier was “blowing hot and cold” throughout the proceedings. Nevertheless, although his conduct required a much higher and stricter sanction, since the violation is a first instance case for Haier and in order to promote a compliance-oriented approach, in good faith, CCP limited the amount from the sanction to 1 billion rupees, not exceeding three percent of its annual turnover in the financial year 2020-21.

Briefly, for information, the Commission had opened an investigation under Section 37(1) of the Act into the alleged violation of Section 4 of the Act by “manufacturers of electronic devices, distributors /dealers and their respective professional associations”. To gather evidence, searches and inspections were also carried out at the premises of Haier and DEL/Dawlance under Section 34 of the Act. CCP found evidence of dealer sanctioning price circulars and price control policies in place whereby Haier and DEL/Dawlance had prevented their dealers from selling below a certain price, provided discounts or packages and imposed penalties/sanctions to their dealers to monitor and implement their respective pricing policies.

The parties had also not obtained an exemption from the CCP for its RPM agreements under Article 5 of the law on grounds of effectiveness specified in Article 9 of the law, namely that the agreements contribute substantially to improving production or distribution, to promoting technical aspects or economic progress, while granting consumers a fair share of the resulting benefit, or if the advantages of the agreements clearly outweigh the negative effects of the absence or reduction of competition.

CCP observed that RPM agreements in any form, including the restriction of discounts and the imposition of minimum/maximum price levels, are by object anti-competitive and void under section 4 of the Act. In this regard, it has been observed that the choice to offer forms of discounts or packages is an important part of the negotiation process. Restricting the same with price fixing decreases the bargaining power of consumers. RPM can also lead to price increases for consumers. Moreover, the alleged pro-competitive effects could in no way be accepted and justified when the parties imposed penalties/sanctions on its dealers.

Alarmed by the potential likelihood of RPM agreements being widespread in any market in Pakistan as well as the possibility of dealers demanding to implement them, CCP has warned all retailers, suppliers, manufacturers, dealers and any other party in all sectors as follows:

The RPM agreements are anticompetitive “by object” in nature and constitute a violation of section 4(2)(a) of the Act. The Commission considers this to be a serious breach of competition law. Any party wishing to implement the same must notify such agreements/arrangements and first seek permission from the Commission through an exemption under Section 5 of the Efficiencies Act specified in article 9 of the law. In the absence of such an exemption, such agreements/arrangements are void.

Forms of RPM include the imposition of minimum and maximum price restrictions and discount restrictions.

iii. If a party has been involved in an RPM agreement, they can get leniency by coming forward and filing for leniency.

The parties may not, directly or indirectly, impose any sanctions, monitor compliance and/or bind other parties.

Copyright Business Recorder, 2022