Vol. 3 :: No. 10 October, 2001 (Ashoj-Kartik)

Corporate Law

Need of Competition Law in Nepal

By Gandhi Pandit

Introduction:

The growth of trade and industry always requires new set of rules and regulations, which will promote and encourage healthy competition and contest in market place. The competition in business does not only give opportunity to conduct their business freely and openly, it also helps create an environment for fair play which will result in producing goods and service at competitive price. Competition law always allows the market to regulate their activities without any foul play in the part of business sector. Competition law always opposes the monopolistic approach of the business houses.

The businessmen and traders always tend to make profit by using any recourse. This type of temptation and motivation will lead them to go into the market to have their absolute control on their products. To have their own monopoly in the market, they may recourse any method to drive their competitors out from the market place. To regulate such activities and restrict on monopolistic behavior of businesshouses and individuals, competition law is enacted by the state.

Competition is an essential requirement of a free market economy. It encourages efficiency among producers and suppliers by providing consumers with a choice of goods and services at the best possible price. Whereas unregulated competition in a free market leads inevitably to monopoly and other undesirable practices. A company which is aggressively competitive will seek to win as large a share in the market as is possible and in so doing reduce the competition it faces. If the company is too successful, it may in time completely eliminate any competition. Another problem, which may arise, is that companies may find it more profitable to cooperate with each other than to compete. Companies within a particular industry may form a cartel to fix minimum prices for their products or restrict production, denying consumers the benefit of a competitive market. Thus, it is necessary to regulate the competitive process in order to maintain a healthy free market, which serves the interest of consumer, and free market as well.

The competition law usually encompasses various types of business activities, which is antagonistic and hostile to free market economy. Following are the trade practices or business norms that competition law would tend to regulate and control:

a. Monopolies:

It is the objective of competition legislation to regulate and monitor the activities of companies which tend to create monopolies. The situation of monopolies exist where one company supplies or purchases substantial number of goods or services of particular type as well as where group of companies get together to control substantial number of market with an intention to regulate or control the market to gain excessive benefit or return from the market.

b. Merger and Acquisition:

The aim of competition law is to see whether one company is taking over gross asset of an other company with an intention to control the particular goods and service in the market that is deemed to be contrary to public interest.

c. Control on Restrictive Trade Practice:

The other aim of competition law is to have legislative control on mergers and restrictive trade practices by providing a mechanism for investigating of specific anti competition practices of individual firms rather than the market as a whole. Restrictive trade practice occurs where two or more persons enter into an agreement, which is designed to fix prices and/or regulate supplies of goods in the market the purpose of which is to gain excessive profit from consumers. In this situation the consumer has no choice but to purchase consumer goods on the price fixed by suppliers which otherwise would be cheaper if it were to be sold in free market.

d. Resale Price Maintenance Agreement:

The resale price maintenance practice is such an activity under which a supplier imposes on a buyer a restriction in regard to the price at which the buyer must resell the goods he has bought. Such business practice always helps create monopolies and undesirable power to control price and market, which is prejudicial to free market. Thus a resale price maintenance agreement or arrangement is always presumed unfair unless the suppliers prove it otherwise.

To control anti competition activities and behavior, the law provides a mechanism or machinery which is responsible to carry out an investigation to see whether an anti competition practice is being pursued.

Therefore the very purpose of competition law is to regulate the market power of companies and individuals on one hand and to restrain them from entering into agreements, which is aimed at restricting competition by fixing the prices of goods or services so as to divide market between them for the purpose of making unfair profit thereof. In addition to this, the competition law also looks at regulating mergers and would take proper action to prevent dominant companies from abusing their position by imposing excessive price or by discriminating their customers. Though the government is less interested to intervene with free market by imposing certain restrictive rules it does so where interference with the free market is readily in the interest of consumer and market as well.

Until now Nepal does not have any law to regulate anti competition activities and unfair trade practices being observed by companies and entities. The reason for not enacting such law is that our country has not grown up to the level where monopoly of business houses is responsible for controlling the price and product. As industry is growing in slow pace, the need to bring competition law is not felt or realized. But whatever industry we have at present, it is always good to have competition law enacted so as to give more room for industrial growth to occur without having to encounter with unhealthy trade practices.

Nepal has to some extent taken appropriate action by enacting consumer protection legislation. The aim of Consumer Protection Act is to protect the interest of individual innocent consumer from unrestricted or unfair trade practices being practiced by the producer or suppliers of goods of services. The said act has taken reasonable measures to protect the consumer from unfair price fixing or control of supply of goods to bring scarcity in the market in order to raise the price of goods or service high. This act only aims at protecting individual consumer’s interest where as the competition law looks to maintain free and healthy market and trade practices which serves the interest of economy of the country as a whole.

So competition law is very important and necessary to promote free trade and open market in the country. Anti competitive arrangement or practices are always injurious and prejudicial to national economy and interest of consumers at large. It also leads to smooth growth of consumer market where price and quality of goods are market driven. Ordinary consumer will have opportunity to purchase goods and service at the best possible price. Any activities or trade practices, which has element of controlling competition in trade and business, will be eliminated and free flow of business is encouraged. If Nepal is to attract foreign investment, a key legislation that is needed is a comprehensive competition law. While formulating and drafting of new competition law, one must focus to regulate following activities:

(a) regulate monopolies, mergers and restrictive and uncompetitive practices

(b) regulate and manage trade practices

(c) control and put restriction on unfair trade practices which tend to control prices of the goods and service

(d) punish and bring justice to those who persistently follow unfair practices prejudicial to consumers

The competition law mainly concerns with control of unfair or restricted trade practices which:

(a) is detrimental to the interest of consumers, and

(b) is to be regarded as unfair to consumer, to regulate the activities of merger and acquisition and to control the restrictive trade practices which are contrary to public interest.

Nepal does not have much industry and service related business where problem of merger and acquisition has surfaced. So the new law in this respect need not comprehend all the aspects that a law of other industrialized nations has tended to do. Looking into present situation of our country, we must develop competition law in peace meal fashion so as to meet the changing needs and circumstances of the society. It means that while formulating the laws, we must focus in the area of price control and supply of goods where carteling is prevalent.

It is always felt in Nepal that laws are enacted very easily but the government seems to be week in implementing them. We have many laws which have been enacted but have not been adequately enforced or implemented. If competition law is to succeed in achieving its goal, one needs to think of incorporating in it the effective enforcement mechanism. As the market needs constant supervision and regulation, an effective investigating body must be formed with full power and authority, which will carry out the market investigation periodically. In addition to this, a separate legal body must be created with power to handle and hear the petition filed by the aggrieved party. If effective mechanism is formulated, this will help the competition law to succeed in controlling and regulating unfair trade practices and anti competition activities in market. The effective implementation is equally important if free and competitive consumer market is to be established.

It is right time for HMG to think of enacting competition law. This law is the need of the present time. All of the business people and consumers at large are in favor of bringing new competition law, which will promote and protect the interest of ordinary consumers by regulating and monitoring the market place.

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