Critical analysis of the Competition Act in Pakistan

Introduction

Competition law, also known as antitrust law, was first introduced in Pakistan in the 1970s through 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. Consequently, the Government of Pakistan, in collaboration with the World Bank and the UK Department for International Development (DFID), initiated a program to modernize competition law. This eventually resulted in the promulgation of the Competition Ordinance 2007, which later evolved into the Competition Act 2010 (Competition Act). The Act established the Competition Commission of Pakistan (CCP) with expansive powers to regulate anti-competitive behavior and enact subordinate legislation. Since its inception, the CCP has actively promoted and protected competition across Pakistan. The law in its current state consists of the Competition Act playing the overarching role of prohibiting or restricting certain types of anticompetitive behavior in Pakistan and subordinate legislation which provides a framework of procedural rules to implement those prohibitions and restrictions [1].

Scope and Applicability of the Competition Act

The Competition Act applies to all individuals, businesses, government bodies (including regulators), companies, partnerships, associations, trusts, or any other entities involved in producing, supplying, distributing goods, or providing and managing services—whether directly or indirectly.

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 [2]. In Pakistan, competition law is enforced by the Competition Commission of Pakistan (CCP). The CCP, as an independent quasi-regulatory and quasi-judicial body, enforces competition laws by prohibiting abuse of dominant positions, anti-competitive agreements, and deceptive market practices [3].

Research Department (CRPD)

The Competition Policy and Research Department (CPRD) plays a key role in studying market trends and promoting free competition. It supports the Commission’s work by conducting research, enforcing laws, providing guidance, and raising awareness about fair business practices.

The Competition Commission of Pakistan (CCP) works to prevent unfair market practices. Through enforcement and awareness efforts, the CCP encourages businesses to follow competition laws and helps build a fair business environment. It was first established under the Competition Ordinance 2007 [4], which later became the Competition Act 2010 [5]. The Competition Act gives the CPRD the authority to research and review policies.

1. Section 28: The Commission must conduct studies to promote competition in all economic sectors.
2. Section 29(b): The Commission can review policy frameworks to encourage competition and suggest improvements.

Key Concepts in Competition Law

This section outlines some of the key concepts used in competition law in Pakistan. Under Section 2(1)(k) of the Competition Act, the term ‘relevant market’ is defined as market which shall be determined by the Commission concerning both product market and a geographic market [6]. A product market encompasses goods and services that consumers regard as interchangeable or similar based on their features, prices, and intended use. Conversely, a geographic market refers to a defined area wherein undertakings engage in commercial activities under homogenous competitive conditions, thereby distinguishing it from other regions where the competitive dynamics differ.

For instance, in the case concerning Pakistan International Airlines, the CCP determined that PIA’s imposition of a rescheduling fee within 48 hours of a flight constituted price discrimination, thereby amounting to an abuse of its dominant position. The Commission concluded that the relevant product market comprised scheduled commercial domestic air transportation services provided by carriers licensed in Pakistan, while the relevant geographic market encompassed the entire territory of Pakistan [7].

The Competition Act has three main rules, all intrinsically linked to the concept of “relevant market.” A company is only considered to be abusing its dominant position if it harms competition in that market. Likewise, agreements between businesses are only banned if they reduce or restrict competition in that market. The broad definitional scope, thus enables the CCP to undertake a case-specific assessment, ensuring flexibility in enforcement [8].

According to section 4(1) of the Competition Act, undertakings are prohibited from entering into agreements or making decisions concerning 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 [9].’

The authority vested in CCP to prevent deceptive marketing practices is a natural corollary to its mandate and aims at protecting consumer interests and enhancing consumer welfare. The law explicitly enumerates certain practices as constituting deceptive marketing, given that such conduct is not easily avoidable by consumers and is likely to inflict substantial harm. While other statutes may also address such practices, their scope remains comparatively narrower and distinct. Furthermore, the enforcement provisions in the Act are far more effective, as the CCP is empowered to impose significant penalties as opposed to nominal and non-deterring penalties under alternative laws. Notably, the imposition of stringent penalties as a deterrent against deceptive market practices is not an anomaly. Jurisdictions such as the European Union and Canada have conferred even broader enforcement powers upon their respective regulatory authorities. In furtherance of its consumer protection objectives, the CCP has established the Office of Fair Trading, specifically tasked with enforcing Section 10 of the Act [10].

Why shouldn’t we be part of the progressive majority? Numerous jurisdictions, including Argentina, Brazil, South Korea, Canada, France, Germany, Israel, Japan, South Africa, the European Union, and the United States, have already adopted compulsory notification mechanisms. The United Kingdom is also transitioning from a quasi-voluntary system to a fully mandatory framework. The introduction of compulsory notification enhances legal certainty and mitigates transactional risks for undertakings contemplating mergers, which is why most countries have adopted this system.

Enforcement action and Legal Precedents

In the matter of Institute of Chartered Accountants of Pakistan (ICAP), in October 2012, the Competition Commission issued a show cause notice to the Institute of Chartered Accountants of Pakistan (ICAP) on the grounds that ICAP had promulgated a rule prohibiting its members and chartered accounting firms from providing training to non-ICAP accounting students. The Commission found that this restricted competition by blocking non-ICAP students from gaining training and making it harder for them to enter the accounting field. This violated Section 4 of the Competition Act. As a result, in January 2013, the Commission fined ICAP PKR 25 million [12].

In the matter of the Pakistan Banking Association and Others (April 2008), the Competition Commission of Pakistan (CCP) levied a fine of PKR 30 million on the Pakistan Banks Association (PBA) for contravening Section 4 of the Competition Ordinance 2007. Additionally, each member bank of the PBA was fined PKR 25 million for engaging in cartel-like behavior. The Commission found that the PBA and its member banks had reduced competition by collectively determining profit rates and other deposit account terms. Through the introduction of the Enhanced Savings Scheme (ESA), deposit account holders maintaining an average balance of PKR 20,000 were granted a 4% annual return, whereas those with higher balances received standard rates. Furthermore, interest-free savings accounts were unilaterally converted into interest-bearing accounts with a guaranteed 4% return, without obtaining consent from the account holders. This measure effectively eliminated the availability of interest-free savings accounts for small-scale depositors, thereby violating Section 4 of the Ordinance. By capping the qualifying balance at PKR 20,000, the PBA discouraged small savers from maintaining higher balances in their accounts. The Commission classified this conduct as cartelization, wherein competing banks colluded rather than making independent business decisions [13].

In the Matter of Bahria University, the Competition Commission investigated Bahria University (BU) following a news report alleging that BU compelled newly admitted students to purchase laptops imported by the university, potentially infringing Section 3(3)(c) of the Competition Act. Adopting the ‘rule of reason’ approach derived from EU and US jurisprudence, the Commission examined five key factors to assess the legality of BU’s conduct. The Commission established that a tie-in arrangement existed, as BU mandated the purchase of laptops as a condition for enrollment. Additionally, BU occupied a dominant position within its educational programs, affording it the ability to enforce such a policy. The Commission further determined that students were coerced into purchasing the laptops since this requirement was not disclosed at the time of admission. Moreover, BU controlled approximately 30% of the laptop market, having sold 3,649 laptops within a single year, generating revenue of PKR 178 million. The university also had a direct financial interest in selling these laptops before they became technologically obsolete. Consequently, the Commission prohibited BU from engaging in the sale of laptops, and BU agreed to issue refunds to affected students. Given the remedial actions undertaken, no additional financial penalty was imposed. Nonetheless, the Commission, exercising its authority under Section 38 of the Competition Act, imposed an immediate and permanent ban on BU’s sale of laptops [14].

The determination of whether an undertaking holds a dominant position in a relevant market involves the consideration of various factors, including market structure (such as the number and relative size of competitors), product characteristics and quality, and the overall competitive landscape.

For instance, in the matter of the Show Cause Notice issued to M/s Cinepax Limited (Cinepax), the Competition Commission issued a Show Cause Notice to the company, which operated Pakistan’s only multiplex cinema in Rawalpindi. The high-quality experience, services, and ticket prices made Cinepax different from other cinemas. The Commission found that Cinepax had a dominant position because it offered a unique product, and other cinemas in the city did not compete in the same category. This meant that Cinepax’s market was separate from other cinemas in the area [15].

In the matter of Pakistan Steel Mill (PSM), the Commission imposed a fine of PKR 25 million as it concluded that PSM had abused its dominant position in the low carbon steel market by refusing to deal with customers. The Commission imposed a moderate penalty and refrained from imposing a higher penalty which ordinarily would have been appropriate, taking into account the fact that the abuse occurred for a period of three months and related to a specific type of billet, which comprises of a very small portion of the annual production at PSM [16].

Steps to improve market functioning

The Competition Commission of Pakistan (CCP) can take several steps to improve market functioning in the country:

1. Focus on Key Sectors: It should enforce laws in essential sectors that drive economic growth and stability.
2. Hire Experts: The CCP team should include professionals with expertise in economics, finance, law, commerce, and public administration, rather than just bureaucrats.
3. Capacity Building: CCP should collaborate with research institutes to work on market competition issues. Faculty and students can conduct economic research to improve CCP’s investigations.
4. Limit Government Interference: Reducing unnecessary regulations can encourage more people to invest in businesses.
5. Monitor Pricing: CCP should watch for price-fixing by private, government, and semi-government businesses to ensure fair pricing in the market.

REFERENCES:

[1] RIAA Barker Gillette, Competition Law in the Asia- Pacific (2023),   <https://riaabarkergillette.com/pk/assets/uploads/2023/07/Competition-Law-in-the-Asia-Pacific.pdf> accessed March 4, 2025

[2] Competition Act 2010, Section 1(3)

[3] Karim Khan and Ahmad Fraz,  Chapter 1: ‘Market Regulations, Competition Policy, and the Role of Competition Commission of Pakistan (CCP)’, (Pakistan Institute of Development Economics, 2023) <https://file.pide.org.pk/uploads/book-48-chapter-1-market-regulations-competition-policy-and-the-role-of-competition-commission-of-pakistan.pdf>

[4] The Competition Ordinance, 2007 (Published in the Gazette of Pakistan Extraordinary, Oct. 02, 2007).

[5] The Competition Act, 2010, Act No. XIX of 2010 (Published in the Gazette of Pakistan Extraordinary, Oct. 13, 2010).

[6] Competition Act 2010.

[7] COMPETITION COMMISSION OF PAKISTAN IN THE MATTER OF Pakistan International Airlines (File No. 14/DIR(M&TA)/PIA/CCP/09)<https://appadminccp.cc.gov.pk/ccporders/bcd1f7ee-21f4-420d-b3c1-fc926>,accessed 3, November 2009

[8] RIAA Barker Gillette, Competition Law in the Asia- Pacific (2023),    <https://riaabarkergillette.com/pk/assets/uploads/2023/07/Competition-Law-in-the-Asia-Pacific.pdf> accessed March 4, 2025.

[9] Competition Act 2010.

[10] Karim Khan And Ahmad Fraz,  Chapter 1: ‘Market Regulations, Competition Policy, and the Role of Competition Commission of Pakistan (CCP)’, (Pakistan Institute of Development Economics, 2023) <https://file.pide.org.pk/uploads/book-48-chapter-1-market-regulations-competition-policy-and-the-role-of-competition-commission-of-pakistan.pdf> accessed March 4, 2025.

[11] Competition Commission of Pakistan, Order in the Matter of Institute of Chartered Accountants of Pakistan (ICAP) (F.No:1(52)/ICAP/C&TA/CCP/2012.

[12] Muhammad Aahmad, Pakistan Banks’ Association (PBA) Represents The Pakistan Banking Industry (2010),< https://www.scribd.com/document/45994984/Banking-Law# >, accessed March 4, 2025.

[13] Competition Commission of Pakistan, Order in the Matter of Bahria University (File No. 05/Sec-3/CCP/08) < http://www.cc.gov.pk/images/Downloads/order/Bahria%20University.pdf > accessed March 4, 2025.

[14] Competition Commission of Pakistan, Order in the Matter of Cinepax Limited (File No. 07/CINEPAX/CMTA/CCP/10).

[15] Competition Commission of Pakistan, Order in the Matter of Pakistan Steel Mills (PSM) (File No. 3/DIR (M&TA)/PSM/CCP/09).