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Food For thought: Implementation of Competition Law during the COVID-19 pandemic
Will a certain industry perform better if justified coordination is permitted between the market participants to facilitate sustainability?
The current COVID-19 pandemic has affected economies worldwide and redefined the benchmark for what is normal. The impact of the pandemic is high in some key sectors of the economy and it has forced these sectors to completely change ways of doing businesses.
Competition regulators worldwide have attempted to ease the hardships and disruptions caused by providing exemptions and relaxations. These relaxations are issued for a short duration and renewed as per requirement.
These authorities have taken decisions and initiatives discussed below to cope with issues faced in the last few months.
The Competition Commission of India
On April 19, 2020, the Competition Commission of India (CCI) had issued an Advisory to Businesses in Time of COVID-19. The Advisory specifically stated.
"To cope with significant changes in supply and demand patterns arising out of this extraordinary situation, businesses may need to coordinate certain activities, by way of sharing data on stock levels, timings of operation, sharing of distribution network and infrastructure, transport logistics, R&D, production etc. to ensure continued supply and fair distribution of products (e.g. medical and healthcare products such as ventilators, face masks, gloves, vaccines
etc. and essential commodities) & services (e.g. logistics, testing etc.)....Businesses are, however, cautioned not to take advantage of COVID-19 to contravene any of the provisions of the Act."
Measures taken by anti-trust authorities in other jurisdictions
Competition and Markets Authority (UK)
The UK government’s Dairy Produce Order of May 1, 2020, temporarily relaxed the application of UK competition law to certain types of cooperation in the dairy sector between dairy produce suppliers or dairy logistic service providers during the pandemic. The Dairy Order temporarily excluded the application of the Chapter I prohibition of the UK Competition Act 1998 against anticompetitive arrangements. As a result, dairy produce suppliers and dairy logistics service providers were able to collaborate (for a limited period) by, for example, collecting and sharing
information on limited matters, such as surplus milk quantities and stock levels, to address supply chain issues caused by COVID-19. This Order expired on August 2, 2020.
The UK Groceries Order temporarily relaxed the application of the Chapter I prohibition in the grocery sector to allow UK retailers to cooperate in order to help meet demand during the COVID-19 pandemic. This may allow retailers to share data with each other on stock levels, cooperate to keep shops open, and to share distribution depots and delivery vans.
Additionally, the Competition and Markets Authority issued a statement offering reassurance that, "the CMA has no intention of taking competition law enforcement action against cooperation between businesses or rationing of products to the extent that this is necessary to protect consumers – for example, by ensuring security of supplies."
However, the CMA stated that it will not tolerate unscrupulous businesses exploiting the crisis as a "cover" for non-essential collusion, including exchanging information on longer-term pricing or business strategies, where this is not necessary to meet the needs of the current situation. At the same time, the CMA made it clear that it will keep vigilant and it may seek more legal powers on an emergency basis to tackle competition law infringements by companies during the coronavirus pandemic.
The European Commission
The European Commission on May 4, 2020 announced the decision to allow certain types of cooperation in the following sectors: milk and milk products, potatoes, and live plants and flowers as part of a wider package to support the agro-food industry during the ongoing COVID-19 pandemic. The adopted measures enable farmers, farmers’ associations, producer organizations, and other market participants to enter into agreements and make common decisions to cope with the severe drop in demand caused by COVID-19.
The Australian Competition and Consumer Commission
The Australian Competition and Consumer Commission has granted a number of interim authorisations to organisations in particular industries, which allow them to cooperate during the coronavirus pandemic. The list of interim authorisations granted so far includes those permitting:
Supermarkets to coordinate to maintain grocery supply;
Shopping centre owners to coordinate to develop rent relief measures for small to medium tenants;
Banks to coordinate on providing supplementary relief packages for individuals and businesses;
Gas and electricity providers to coordinate to ensure a stable energy supply and the integrity of wholesale markets;
Medicine wholesalers to coordinate to ensure the distribution of essential medicines and pharmaceutical products;
Airlines to coordinate to develop flight schedules for ten regional flight routes; and
Private health insurers to coordinate on returning excess profits to members and on extending cover to certain other procedures (such as telehealth).
The way forward
As we know, the pandemic continues and restrictions in the form of health advisories are still to be followed. Further, many sectors of the economy like tourism, airlines and hotel industry etc have been adversely impacted. During the course of the next few months, there might be few sectors that need to cooperate to ensure seamless delivery of essential products and services.
Airline companies that have taken a major hit because of the pandemic may wish to allocate routes and areas to survive. Most importantly, pharmaceutical companies may collaborate and cooperate to develop a suitable vaccine. Once the vaccine is ready, these companies may further work in partnership on packaging and storage solutions. Logistics companies may have to coordinate and allocate territories to meet the needs of the varied locations that will be distributing the vaccine. The travel and hospitality sector is impacted as well.
In consideration of the ongoing pandemic, can exemptions that allow coordination in certain sectors be implemented in the short run? If yes, the coordination need not be on pricing alone, but rather to maintain availability of stock or maintain travel on important routes. Assuming the exemptions are permitted, can we go a step further and expect exemptions in the short run for market allocations. Though these exemptions may help maintain seamless delivery of products and services at least till the pandemic is over, they can be initiated for a few months and then renewed as per requirement.
It may be said that the purpose of all these exemptions is not to impede competition law or encourage any dilution of its enforcement. The purpose is to help adversely affected sectors of the economy that are crucial to economic recovery. Special measures during such times by way of exemptions/concessions can prove to be a boon for them, especially for those sectors which provide basic essential services.
We wish to raise certain questions to the readers for further thinking. Will a certain industry perform better if justified coordination is permitted between the market participants to facilitate sustainability? Presumably, it might be prudent to do so, to help in reviving that sector. But another question is whether the same concession should be allowed to other sectors as well? Further, has the pandemic resulted in enormous benefits to certain industries, giving them an unpredicted boost/leverage such as digital industry especially online education, e-commerce platforms, games, data consumption?
It was reported in an article,
“The pandemic has turned out to be a huge opportunity for Indian e-commerce players, with sales expected to double compared with the previous year. As per business growth data elicited from brands, e-tailers, e-commerce enablers and analysts, Indian e-commerce, a $27-billion market in calendar 2019, is all set to achieve 40 per cent growth in 2020, compared to 23 per cent growth in 2019”.
It is also found that as a result of the pandemic, there is an increase in annual online shopping and online penetration as a percentage of total retail spend.
Is there another side of the story in terms of concentration in certain industries due to unforeseeable circumstances that have arisen in the last one year? Further, is there need for competition regulators to give particular attention to these sectors for evaluating prospective novel disputes?
During the pandemic, new markets with fresh challenges have been introduced. Some of these markets are unique in characteristics and evaluating such markets required specialized skills. Until a proper understanding of the functioning of such markets is reached, one has to proceed with caution to avoid unintentional market distortion.
To conclude, keeping the above discussions in mind and in the current set of circumstances, any regulatory decision requires a rational and balanced consideration of both sides of the story.
Anuj Verma is Deputy Director (FA), CCI and Ikleen Kaur is a Research Associate (Law) at CCI.