Trade associations should be pro-competition
Monday, 22 November 2010
M S Siddiqui
TRADE associations (TAs) are established under law of the land. TAs in Bangladesh are registered as per Trade Organization Ordinance, Trade Organizations (Arbitration Tribunal) Rules, 1981 and Trade Organizations Rule 1994. The associations take approval of the regulator, Director of Trade Association (DTO), Ministry of Commerce. Thereafter they register themselves with the Registrar of Joint Stock companies as non-profit associations. DTO monitors TAs through scrutinizing and approving their proceedings and papers. TAs are authorized to carry out some regulatory functions like issuance of Certificate of Origin for export products and Utilization Documents (UD) of materials under bonded warehouse. They have a role in issuing quota under generalized system of preferences (GSP) in the US and Europe market. TAs in many other countries have more regulating authorities and share the regulating authority with government departments. There was an initiative to authorize the local TAs to issue trade license and share the license fee with local governments but there is no visible move to implement it.
The members of TA get opportunities to meet others in the same line of business to discuss their common interest. Such discussions, even if meant to pursue legitimate association objectives, bring together direct competitors and provide them with regular opportunities for exchanges of views on the market, which could easily spill over into illegal coordination. Casual discussions of prices, quantities and future business strategies can lead to agreements of fixing price and quantity, fixing of tender, division of market segments or any other informal understandings. The manipulation of tenders and restrict the submission of bid in tenders are widely discussed issues in Bangladesh. In some cases the regulating authority sit with certain bidders to distribute works and make an arranged game of open tender process. This is an open secret of corruption and manipulation. These are also prohibited under certain laws like Competition Act. They can unduly restrict membership, exchange of detailed and sensitive commercial information. These are dark side of association, which may create opportunities of monopoly and cartel despite their many pro-competitive aspects.
Bangladesh does not have competition act. Many of the first competition laws were enacted as a reaction to this trend towards industry-wide cooperation. The adoption of the Sherman Act in the United States in 1890, for instance, is a good example of a government reacting to this trend in order to preserve the competitive process. The business combinations or trusts of the late 19th century were viewed by US Congress as artificial devices to control markets, restrict competition and ultimately exploit consumers. Similarly, many years later, the drafters of the competition provisions in the Treaty of Rome forming EEC, were well aware of the possible risks for competition posed by trade associations' activities and extended the scope of Article 81 of EC on anti-competitive agreements to include decisions and concerted practices between undertakings which have as their object or effect the prevention, restriction or distortion of competition which are prohibited by Article 81 (1) of the Treaty of Rome if and in so far as they may affect trade between EC member states unless exempted by Article 81(3). Examples of such prohibited agreements, decisions or concerted practices are -- directly or indirectly fixing purchase or selling prices or any other trading conditions, limit or control production, markets, technical development, or investment, share markets or sources of supply, apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage, or make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. Any such agreements or decisions are automatically void.
Modern trade associations are direct descendents of the 19th century trusts and business associations, but discarding the negative association with conspiracies and illegal activities which had tainted them for almost 200 years. Today, the importance of trade and professional associations in performing a great number of functions, which are extremely valuable not just to the associations' members but to society in general, is widely acknowledged by the business community and government agencies alike. Trade associations and their activities are viewed as the expression of economic, social and political freedoms, which are often constitutionally protected. In many countries, the right of association is expressly protected as one of the fundamental rights of both individuals and corporations. Other constitutionally recognized freedoms and rights, such as the freedom of speech, the freedom of association and the right to petition the government, apply directly to a number of trade associations' activities and may represent a limit or border line to the enforcement of antitrust rules.
Although the roots of corporatism can be traced back to ancient times, modern trade associations appeared in the US only around 1850, not becoming a widespread phenomenon until the second half of the 19th century. These early associations, very much like the old middle age guilds, were self-contained organizations, which represented the will of the dominant members of the trade and had the power to regulate the industry and impose restrictions on trading practices to all their members. Most of the activities of these early trade associations would have fallen within the scope of modern competition rules and most likely would have been found to be anti-competitive.
As per standard rules, the activities of TAs are pro-competition or competitively neutral. For example, a TA may help establish industry standards that protect the public or allow components from different manufacturers to operate together. The association also may represent its members before legislatures or government agencies, providing valuable information to inform government decisions. When these activities are done with adequate safeguards, they need not pose an anti-trust risk. Different chambers in Bangladesh are closely working with the government to stabilize the price of essential commodities throughout the year, especially in the month of Ramadan.
There is a huge criticism of business and its associations for volatility in the prices of commodities. Government blames 'syndicate' for increase of prices. It is more interesting to note that the business leaders frequently comment in the media on this issue, blaming each other--manufacturers, importers, wholesalers and retailers. Their statements are sufficient to prove their guilty mind. It is more interesting to note that there is no evidence of monopoly or cartel in Bangladesh as revealed in different research and studies. Most of the economists and common business persons hold the same opinion. The blame game of political leaders and bureaucrats are supported by nervous (fish out of water) business leaders in front of the press. It is very interesting that government leaders, bureaucrats and business leaders talk of syndicate but economists and common business persons do not find the existence of such syndication. These 'experts' are interestingly divided on the issue and market is behaving on its own. The issue must be solved in the interest of the nation.
However, it is illegal to use a trade association to control or suggest prices of members. It is illegal to use information-sharing programmes, standardized contracts and arrange stage-managed participation in open tender as a disguised means of fixing prices.
According to Competition Act or anti-trust acts prevailing in many countries, the exchange of price or other sensitive business data among competitors, whether within a trade or professional association or other industry groups, is not legal. Any data exchange or statistical reporting that includes current prices or information that identifies data from individual competitors, can raise anti-trust concerns if it encourages more uniform prices than otherwise would exist. In general, information reporting cost or data other than price, and historical data rather than current or future data, is less likely to raise anti-trust concerns. Dissemination of aggregated data managed by an independent third party also raises fewer concerns. But the business concerns may collect price or other competitive information from public sources. Many trade associations maintain industry statistics and share the aggregated data with members. Collection of historical data by an independent third party, such as a trade association, that is then shared or reported on an aggregated basis is unlikely to raise competitive issues. Many countries have competition rules for business activities. These rules provide activities of trade associations statutory and non-statutory exemption or immunities from the application of competition rules.
The writer, a part-time teacher at Leading University, can be reached at e-mail: shah@banglachemcial.com
TRADE associations (TAs) are established under law of the land. TAs in Bangladesh are registered as per Trade Organization Ordinance, Trade Organizations (Arbitration Tribunal) Rules, 1981 and Trade Organizations Rule 1994. The associations take approval of the regulator, Director of Trade Association (DTO), Ministry of Commerce. Thereafter they register themselves with the Registrar of Joint Stock companies as non-profit associations. DTO monitors TAs through scrutinizing and approving their proceedings and papers. TAs are authorized to carry out some regulatory functions like issuance of Certificate of Origin for export products and Utilization Documents (UD) of materials under bonded warehouse. They have a role in issuing quota under generalized system of preferences (GSP) in the US and Europe market. TAs in many other countries have more regulating authorities and share the regulating authority with government departments. There was an initiative to authorize the local TAs to issue trade license and share the license fee with local governments but there is no visible move to implement it.
The members of TA get opportunities to meet others in the same line of business to discuss their common interest. Such discussions, even if meant to pursue legitimate association objectives, bring together direct competitors and provide them with regular opportunities for exchanges of views on the market, which could easily spill over into illegal coordination. Casual discussions of prices, quantities and future business strategies can lead to agreements of fixing price and quantity, fixing of tender, division of market segments or any other informal understandings. The manipulation of tenders and restrict the submission of bid in tenders are widely discussed issues in Bangladesh. In some cases the regulating authority sit with certain bidders to distribute works and make an arranged game of open tender process. This is an open secret of corruption and manipulation. These are also prohibited under certain laws like Competition Act. They can unduly restrict membership, exchange of detailed and sensitive commercial information. These are dark side of association, which may create opportunities of monopoly and cartel despite their many pro-competitive aspects.
Bangladesh does not have competition act. Many of the first competition laws were enacted as a reaction to this trend towards industry-wide cooperation. The adoption of the Sherman Act in the United States in 1890, for instance, is a good example of a government reacting to this trend in order to preserve the competitive process. The business combinations or trusts of the late 19th century were viewed by US Congress as artificial devices to control markets, restrict competition and ultimately exploit consumers. Similarly, many years later, the drafters of the competition provisions in the Treaty of Rome forming EEC, were well aware of the possible risks for competition posed by trade associations' activities and extended the scope of Article 81 of EC on anti-competitive agreements to include decisions and concerted practices between undertakings which have as their object or effect the prevention, restriction or distortion of competition which are prohibited by Article 81 (1) of the Treaty of Rome if and in so far as they may affect trade between EC member states unless exempted by Article 81(3). Examples of such prohibited agreements, decisions or concerted practices are -- directly or indirectly fixing purchase or selling prices or any other trading conditions, limit or control production, markets, technical development, or investment, share markets or sources of supply, apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage, or make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. Any such agreements or decisions are automatically void.
Modern trade associations are direct descendents of the 19th century trusts and business associations, but discarding the negative association with conspiracies and illegal activities which had tainted them for almost 200 years. Today, the importance of trade and professional associations in performing a great number of functions, which are extremely valuable not just to the associations' members but to society in general, is widely acknowledged by the business community and government agencies alike. Trade associations and their activities are viewed as the expression of economic, social and political freedoms, which are often constitutionally protected. In many countries, the right of association is expressly protected as one of the fundamental rights of both individuals and corporations. Other constitutionally recognized freedoms and rights, such as the freedom of speech, the freedom of association and the right to petition the government, apply directly to a number of trade associations' activities and may represent a limit or border line to the enforcement of antitrust rules.
Although the roots of corporatism can be traced back to ancient times, modern trade associations appeared in the US only around 1850, not becoming a widespread phenomenon until the second half of the 19th century. These early associations, very much like the old middle age guilds, were self-contained organizations, which represented the will of the dominant members of the trade and had the power to regulate the industry and impose restrictions on trading practices to all their members. Most of the activities of these early trade associations would have fallen within the scope of modern competition rules and most likely would have been found to be anti-competitive.
As per standard rules, the activities of TAs are pro-competition or competitively neutral. For example, a TA may help establish industry standards that protect the public or allow components from different manufacturers to operate together. The association also may represent its members before legislatures or government agencies, providing valuable information to inform government decisions. When these activities are done with adequate safeguards, they need not pose an anti-trust risk. Different chambers in Bangladesh are closely working with the government to stabilize the price of essential commodities throughout the year, especially in the month of Ramadan.
There is a huge criticism of business and its associations for volatility in the prices of commodities. Government blames 'syndicate' for increase of prices. It is more interesting to note that the business leaders frequently comment in the media on this issue, blaming each other--manufacturers, importers, wholesalers and retailers. Their statements are sufficient to prove their guilty mind. It is more interesting to note that there is no evidence of monopoly or cartel in Bangladesh as revealed in different research and studies. Most of the economists and common business persons hold the same opinion. The blame game of political leaders and bureaucrats are supported by nervous (fish out of water) business leaders in front of the press. It is very interesting that government leaders, bureaucrats and business leaders talk of syndicate but economists and common business persons do not find the existence of such syndication. These 'experts' are interestingly divided on the issue and market is behaving on its own. The issue must be solved in the interest of the nation.
However, it is illegal to use a trade association to control or suggest prices of members. It is illegal to use information-sharing programmes, standardized contracts and arrange stage-managed participation in open tender as a disguised means of fixing prices.
According to Competition Act or anti-trust acts prevailing in many countries, the exchange of price or other sensitive business data among competitors, whether within a trade or professional association or other industry groups, is not legal. Any data exchange or statistical reporting that includes current prices or information that identifies data from individual competitors, can raise anti-trust concerns if it encourages more uniform prices than otherwise would exist. In general, information reporting cost or data other than price, and historical data rather than current or future data, is less likely to raise anti-trust concerns. Dissemination of aggregated data managed by an independent third party also raises fewer concerns. But the business concerns may collect price or other competitive information from public sources. Many trade associations maintain industry statistics and share the aggregated data with members. Collection of historical data by an independent third party, such as a trade association, that is then shared or reported on an aggregated basis is unlikely to raise competitive issues. Many countries have competition rules for business activities. These rules provide activities of trade associations statutory and non-statutory exemption or immunities from the application of competition rules.
The writer, a part-time teacher at Leading University, can be reached at e-mail: shah@banglachemcial.com