Competition law implications in

Policy formulation (Transport

Sector) &
reflections from Japan
By:
Amit Bhardwaj,
Dy. Adviser (Transport)
National Institution for Transforming India
NITI Aayog, Government of India
Brief about Competition law in India
• Youngest and most comprehensive Anti-trust legislation in World.
• Relevant Market is very clearly defined ( it may be relevant product
market or relevant geographical market)
• Three key principles of the Competition Act:
• Dominant position of enterprise is allowed but not its abuse
• Anti-Competitive Agreements is very clearly defined separately for
Horizontal and vertical ones.
• Merger & Combinations are being regulated in a crisp manner
• Over-arching regulator and can step in wherever anti-competitive
practice is being observed suo moto.
Pillars of Competition Act, 2002

• Prohibits Anti-Competitive Agreements (Section 3)

• Abuse of Dominant Position (Section 4)
• Regulates Combinations (M&A) (Section 5&6)
• Appreciable Adverse Effect on Competition (AAEC) (to establish
contravention of Section3)
Indian Railways and Competition issues
• Governed under Railways Act, 1989
• Other modes of transport (roads and IWT) can be effective
substitutes for rail services in both freight and pax markets
• Given the existence of intense inter-modal competition, the railways
may be termed as natural monopoly without absolute power
because consumers can switch to alternative modes if railways unable
to meet their expectations.
• In Europe, inter-modal is significant in all except a few rail markets
and the degree of competition is such that little or no regulation of
rail sector is required.
Some examples of anti-competitive practices
• For Container Operations, CONCOR is being incorporated and given
railway leased lands, preference in getting rakes, top & middle
management manned by railway officials on deputation.
• As a result, the other players who entered container operations after
CONCOR found a huge entry barrier for procuring land which is a very
complex process, track availability, etc.
• If new container operator want to use CONCOR owned ICDs to run
container trains, they have to pay access charges. The level of these
charges are considered high.
• A fair access policy for all ICDs developed by the incumbent on
railway land can promote competition where duplication of such
infrastructure may not be feasible.
Conclusion
• The CONCOR case highlights that certain factors are limiting the level
of competition in the container movements. Given the close
relationship between CONCOR and Railways, ensuring a level playing
field for the policy planners might be a demanding task.
• An independent regulator can create an enabling environment and
promote a level playing field. The establishment of independent
authorities operating outside the chain of command of the executive
power in the strict sense is essential as far as ensuring a level playing
field is concerned.
Railways procurements: Traditionally some cartels
prevalent and exploiting the procedure by:
• By illegally coordinating the bids amongst cartel members whereby the
cartel decided ex-ante the winning bidder. Or even if the bids are seemingly
competitive in price, then they are unacceptable because of other non-
price terms.
• By agreeing to share markets, whereby public procurement needs are
divided according to type or geographic location and competitors agree to
submit higher bids in markets assigned to other firms. Also they can share
a single market by bidding for less than the demanded quantity, thereby
sharing single order amongst them.
• Sometimes, one or more cartel members may file fabricated bid protests in
order to try to deny an award to non-cartel member
• Boycotting any attempts by the Railways to punish the defaulting firm (in
case of supply failure) by calling a new tender.
Ways to remove these anti-competitive
practices
• Improved designing procurement tenders
• Reducing barriers to entry and increasing bidder participation (RDSO)
• Reducing the frequency of procurement opportunities
• Role of CCI
• Modernising procurement – e-procurement
Other examples in Railways
• Preference to PSUs in case of wagon procurement
Implications in Ports sector – various aspects
examined
• Inter-port & Intra-Port Competition
• Combinations – M&As
• Agreement in the Shipping liner industry
• Port Concessions
• Port corporatisation Model
• Labour issues and Competition
• Regulation in Indian Ports
Combinations
• CCI has the mandate under Section 4(2)(C) of the Act to pass a
remedial order under which a dominant enterprise must share an
essential facility with its competitors. This is commonly known as
Essential Facilities Doctrine (EFD)
• Unlike sector regulator in electricity, the port sector regulator does
not have any competition related powers. The role of TAMP is limited
to only Tariff. It can only regulate anti-competitive behaviour of the
merged entity to the extent that its tariff-related powers allow.
• As a result, Cabinet note has already moved for abolition of TAMP.
Ports sector
• GoI as part of the 1996 policy guidelines, substantially increased
financial and other powers of the Port Trusts. It also took a decision
that all new ports will be set up as companies under Indian
Companies Act and existing port trusts will be gradually corporatized.
• The issue of Port labour becomes relevant for competition in the
ports sector from two perspectives. First, to see if current labour laws
and institutions create a barrier for private sector entry in terminal
operation and oppose the privatisation/corporatisation of terminal
operations. Second, if the ports/terminals serving the same
hinterland and already facing competition are affected by
efficiency/inefficiency of labour in their ability to compete.
• The private operator’s liability to absorb existing labour is an entry
barrier for private players.
Regulatory Mechanism of Ports sector
• Port Trusts/ authorities
• State Maritime Boards/ State Port Departments
• Ministry of Shipping
• Tariff Authority for Major Ports
Closing remarks
• Sensitisation among policy makers about competition complaint
policy formulation approach
• Capacity building of policy makers ensuring competition neutral
policies
• Every department in Government which is involved in Policy
formulation must have a designated for instance CPCO(Central Public
Competition officer).
• Wider publicity of the provisions of Act and its benefit be circulated
to all the stakeholders.
• Greater synergy between sectoral regulator and CCI
Japan’s Anti-trust law
• A mix of some laws primarily governed by Antimonopoly Act, 1947 ( Dokusen
Kinshiho) and some other statutory laws
• AMA was introduced by USA during its occupation years on the lines of Sherman
Act. But it could not be enforced just like Sherman Act due to fear of rise of
communism in that era. Hence the traditional Zaibatsu corporations were
allowed to operate even when they have monopolistic behaviours.
• Hence, AMA is still the fundamental competition law in Japan
• Cartels are prohibited in Japan as an ‘unreasonable restraint of trade’ stipulated
under second half of article 3 of Law no 54 of 1947, otherwise known as AMA. It
is generally understood to be applicable to international cartels.
• But AMA requires ‘substantial restraint of competition’ in the relevant market as
an element to establish the illegality of cartels, and thus technically cartels are
not illegal per se in Japan. However, naked cartels, such as price cartels, quantity
cartels and share cartels are considered to have tendencies to generally restrain
competition and efficiency
Structure formed under AMA
• Japan Fair Trade Commission (JFTC) established with quasi-judicial and
quasi-legislative powers that was in charge of implementing the AMA
• The basic goal pursued was to establish “Free Enterprise System” instead of
fight against cartels
• Hence, it focused on prohibiting private monopolisation and unfair trade
practices, rather than cartels
• In post war Japan Bigness was seen as evil of evils, hence this is something
culturally inspired provision unlike any other acts across any other
jurisdictions
• Hence, what Japan was created much harsher form of Sherman Act to
create
Structure of AMA
The Japanese AMA has a different structure and it is centred on four pillars:
a) Monopolization;
b) Unreasonable Restraint of Trade;
c) Unfair trade practices;
d) Mergers and Stock Acquisitions.

The third pillar, unfair trade practices, includes also the provisions regarding
superior bargaining position and is a competition concept unique to Japan.
Its content overlaps often with the other fields like private monopolization or
unreasonable restraint of trade. Over time it has gained a lot of criticisms
from companies as well as from academics for its lack of legal certainty and
ambiguity concerning the standards of an illegal conduct.
Case example
JFTC found that two foreign financial institutions exchanged information about a
trade quote by a financial institution located in Japan (hereinafter referred to as
“the customer”) that intended to purchase US dollar-denominated supranational
bonds which were newly issued by an international institution and to sell its own
US dollar-denominated supranational bonds which had already been issued by the
same international institution (hereinafter referred to as “outstanding bonds”), via
chat function provided by an information vender. Then those two foreign financial
institutions agreed concerning outstanding bonds that one of them was going to
show the larger spread to the customer than the spread which the other showed to
the customer, and by doing so, the other one would receive the trade, thereby
violated the AMA
JFTC, however, closed the investigation without issuing cease and desist order
because the five-year period, which JFTC can issue the order, had passed. JFTC
made the case closure public on March 29th, 2018.
Some case examples from Japan
Issue prevalent in Japan
There is another type of unfair trade practice called “Abuse of Superior Bargaining
Position” (ASBP) that is comparable to exploitative abuse in the EU, the difference
being that the ASBP does not require a dominant position in the market.

JFTC has issued surcharge payment orders for 5 cases concerning ASBP to date, all
of those cases were challenged by the parties, and that seems to have made the
JFTC somewhat hesitant in pursuing these types of cases by way of imposing a
surcharge payment order. However, in FY 2015, the first decision regarding such
challenges came out in relation to the Toys”R”Us case, confirming in part the
original JFTC order. So, now we have to see how this decision might affect the JFTC
enforcement. It should also be noted that the JFTC still considers enforcement of
ASBP as one of its important goals, especially since ASBP together with the
Subcontract Act (discussed below) are the JFTC’s key tools for protecting small and
medium entities; therefore, the enforcement of ASBP by the JFTC as a whole is not
weakening at all.
Competition laws and socio-economic status
of jurisdictions
• The market form impacts the evolution of competition law in all
jurisdictions, as AAEC vis-a-vis ASBP of which either of them are
suitably applied as per the development of jurisprudence in certain
geography
• Cultural aspect of any country also impacts the development of
relevant provisions for that market
• Hence, India and Japan have different perception towards anti-
competitive practices and conduct. As a result the jurisdictions have
developed.
THANK YOU