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Essential Health Commodities in Covid-19: A Competition Law Perspective

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COVID-19 is a global pandemic that has wreaked havoc across everything that humans consider dear – from their lives, to their livelihoods. While there seem to be pre-existing measures that can be taken in order to both prevent and as well as somehow treat the sickness, the livelihoods that have been impacted negatively or downright destroyed by this pandemic are not that easy to cure.

The competition regulating authorities of various countries have been trying to advise the respective governments so that the policies and responses to treating the pandemic is in line with the competition principles. This they believe will help in addressing the problems in the various markets such as overcharging prices for essential commodities, dealing with “crisis cartels,” allowing for short-term agreements between competitors, etc.

This paper by Aparna Venkataraman tries to analyse what the role of competition law has been in the pandemic and its efficiency. It mainly tries to focus on the interplay between competition law and the essential commodities in these lockdown times.

By Aparna Venkataraman, a fifth year student from Tamil Nadu National Law University, Tiruchirappalli

Essential Health Commodities in Covid-19: A Competition Law Perspective

Introduction

COVID-19 is a term that we have all become familiar with in the year 2020. It has been the one and only thing that has become relevant across all the jurisdictions now. Its impact has been huge across the world, including India.

To address the same, the Indian Government too acted in a manner that would best help the interests of the nation – by enforcing the first of what would become a series of five lockdowns in the country, on 25th March 2020.

Prior to this, the Competition Commission of India (hereinafter referred to as “CCI”) also issued a notice adjourning hearing of all matters till March 31 . The CCI also issued Public Notices on the 23rd of March, 30th of March , 13th of April , and 20th of April as well, the first of which announced suspension of activities till 31st of March. The second notice extended the suspension till the 14th of April. The notice dated 13th of April partially revoked the second notice and allowed for filing of complaints under S3 and S4 of the Competition Act 2002 (hereinafter referred to as  “CA”) as well as combination complaints electronically. The notification on the 20th of April provided the same details as the previous notice, with the new aspects being the new dates for the matters listed till 03rd of May 2020.

The CCI also issued an advisory for all the businesses on the 19th of April 2020 . This advisory, while taking into account the disruptions caused by COVID-19 also cautioned the businesses to not contravene the provisions of the Act, particularly that of S3(3) and S19(3). 

With respect to essential commodities, India had legislated way back in 1955, an Act referred to as the Essential Commodities Act 1955 (hereinafter referred to as “ECA”). This Act has not, however defined an essential commodity. It has merely said that an essential commodity is one as per what has been stated in the Schedule of the Act .

The Central Government can by elevating a commodity to that of an essential commodity control the production, the supply, and the distribution of certain commodities . The Central Government, by virtue of S2A(2) of the ECA, had amended the Schedule to include masks and hand sanitisers as essential commodities . This was to be given effect from the 13th of March till 30th of June . It is worth mentioning at this juncture that ECA is a part of the Ninth Schedule of the Constitution of India as well .

Methodology

Objectives:

  • To understand the connection between Competition Act, 2002 and Essential Commodities Act, 1955 and also to understand whether this relationship changed in the time of COVID-19.
  • To analyse the role of competition authorities like the CCI in such an unprecedented crisis.

Scope & Limitations:

The project is limited to that of the applicability of competition law on “essential commodities” alone. Although the broad scheme of actions that are to be taken by regulatory bodies like that of the CCI is mentioned, it is dealt with in a brief manner.

Sources: 

The research will be purely doctrinal using both primary sources (Competition Act 2002, Essential Commodities Act 1955, Constitution of India, etc.) as well as secondary sources (journal articles, blog articles, newspaper clippings, to name a few).

Research Questions: 

  • What is the connection between Competition Act 2002 and Essential Commodities Act 1955? What is the impact of COVID-19 on this relationship?
  • How have the competition authorities like the CCI worked in such an unprecedented crisis?

Essential Commodities Act and Competition Law

The problem with that of the ECA is that it has long been said that by authorising the Government to control these essential commodities, there are restrictions placed on the price fluctuation in so far as these commodities are concerned. This hampers the interests of the manufacturers as well. This law is actually quite draconian in nature for what had been the problems then are not the problems faced by the economy now .

It is important to refer to the Schedule of the Act now. There are 8 items in the Schedule – drugs, fertilisers, foodstuff, hank yarn, petroleum and its products, raw jute, seeds of various food crops and vegetables, as well as masks and sanitisers (but the last of this list was only till the 30th of June as per the notification). Of these products, it is clearly visible that six of them are agriculture products.

These agriculture products have harvesting cycles, where they are available in abundance and their prices are also cheapest then. One way of allowing for this volatility to reduce substantially is by allowing for the traders and the farmers themselves to hoard these products and release them as per the demand. This is however punishable under the ECA.

The provisions of this Act, on a bare reading, seem to be in consonance with that of CA, but there are certain differences between the two. The ECA is drafted in such a way that it allows for the Executive, through delegated legislation, to set the prices as well as the quantity of the good that can be stored with the trader.

This delegated legislation is also known as Control Order, with which the Executive controls the trade of all food products. These Control Orders seem to be randomly passed as well, sometimes overnight too. This is where the ECA differs from the CA. According to the CA, such a situation would allow for the concept of abuse of dominant position to come to play.

In the event of that taking place, the enterprise that has been claimed to abusing its dominant position is given an opportunity to be heard, and the same should also be proved with the CCI. The Government takes away this opportunity from the traders while applying the ECA.

A difference between that of the implementation of ECA and CA can be seen in the pricing practices . With regard to the ECA, the Government fixes the prices or at least ensures fair prices, but that is not the case with the CCI. The CCI does not regulate the prices in any way, but in the event of any person or enterprise having “appreciable adverse effects on competition” (hereinafter referred to as “AAEC/s”) is suitably penalised as per the CA. Price fixation, price gouging, or even unfair/discriminatory pricing are all situations of AAECs. 

During COVID-19 what happened to the masks and sanitisers is very interesting and relevant to this discussion. During the time of the imposition of the lockdown, it was clear that businesses had to shut down. People were also beginning to store the hand sanitisers and masks as a preventive mechanism. This meant that the producer companies started selling the products at an exorbitant rate as well.

The rates were hiked at least two to three times the original cost, with N95 masks going from Rs. 150 to Rs. 500 almost overnight. This hike is a clear cut example of price gouging as well. Thereafter came the amendment to the ECA. Meanwhile, the Ministry of Consumer Affair, Food and Public Distribution also sought to regulate the prices through an Order by fixing them at appropriate levels.

However, this was to be in force only till 30th of June 2020. This situation even allowed for a PIL to be filed in the Supreme Court seeking to allow fair as well as equitable distribution of the hand sanitisers, N95 masks, and liquid soaps . The SC heard the matter and after listening to the directions taken by the Government of India, disposed the PIL as well.

The relationship between the ECA and the CA becomes all the more relevant during these COVID-19 times and the advisory issued by the CCI bears importance here. It is to be underlined here that the advisory is allowing for the Act to function as it was prior to the times of COVID, but also provides that “coordinated conduct” in certain cases can be considered, provided that it can be proved that it resulted in increasing the efficiency of the businesses.

This “coordinated conduct” can lead to determination of prices, whereby all the competitors come together and fix a price, which also has an AAEC. The advisory seems to provide for these “coordinated conduct” to be in relation to medical products, which have been deemed to be essential commodities during these times like that of masks, sanitisers, vaccines, medicines, ventilators, and so on.

The CCI is seemingly willing to consider this cartelisation provided that it was “necessary and proportionate to address concerns arising from COVID-19”. It has to however be kept in mind that the CCI is willing to consider these cartels in every way apart from pricing cartels.

Role of the Competition Regulatory Authorities Across Other Jurisdictions

It is to be noted here that various other jurisdictions have this concept of crisis cartel in place, and hence allow for relaxations on them, depending on the circumstances. But the CA does not allow for the same. These crisis cartels are situations wherein the competitors across the industry join forces as a solution to the problem at hand.

As the name suggests, there has to be a definite crisis for these cartels to come into existence. These trying COVID-19 times does qualify as a crisis and the authorities around the world have also provided for relaxations for these cartels.

The United States of America issued a joint statement with the Department of Justice and Federal Trade Commission, where it allowed for crisis cartels. But these crisis cartels were allowed only among the healthcare providers and the similar professionals that to in the following circumstances – R&D collaborations, joint-purchase agreements, as well as sharing of technical know-how and/or the standards for management of patients. 

The European Union allowed for the coordinated efforts from players in the healthcare industry particularly with respect to medicines and equipment to be delivered properly to the patients.

Australia has also allowed for cartels between/among the essential commodity suppliers, so to speak, such as the supermarket managers and wholesalers, owners of malls or other centres of shopping, hospitals, banks, and so on too. Here the logic is that the public good or benefit is much greater than any damage or detriment that the public might suffer from.

The same logic had been used by United Kingdom as well, for they have also allowed for crisis cartels or coordinated activities between/among industries where there has to be prevention of shortage of resources for the benefit of the public. 

Norway has allowed for a three-month exception for cartelisation of transport companies in order to facilitate both transport of goods as well as services in a timely and effective manner.

Iceland has allowed for exceptions to the general rule of anti-cartelisation to distributors in the fuel industry, maritime industry players, travel agencies, pharmacies and suppliers of medicine, and banks along with other such similar financial institutions. It has also taken measures to combat the problem of excessive pricing of the now essential commodity of masks and sanitisers.

The Italian authority had also intervened in the producers charging hefty prices on the masks and sanitisers and provided for a deadline to the companies to stop the same as well. The Polish authority also took it upon themselves to solve the problem of exploitation of the consumer base through the high prices of the food articles as well as medical products.

The Hellenic Competition Commission (of Greece) just finished conducting their investigation into the healthcare industry and the food industry because of complaints of excessive pricing and has taken action accordingly as well. 

Conclusion

The notion of masks and sanitisers being pivotal in these current times is present across jurisdictions. In India it has been called as “essential commodities” and suitable action taken. Here what is to be observed is that the current situation is of such a nature that the intervention of regulation of price has not come just from the CCI and the similar authority in the other jurisdictions. In India itself the Ministry of Health and Family Welfare had its own Notification on the same, and so did the Ministry of Consumer Affair, Food and Public Distribution.

It is also to be observed that India seems to be on par with various other countries in terms of actions taken to allow the public access to the essentials in a fair and equitable manner. This is a matter that is to be appreciated and lauded.

But looking at the other side of the coin, the producers across various jurisdictions all seem to have taken advantage of the crisis and over charged the products. While there seems to be unity of thought among the producers and traders, it is a bad reflection of humanity that is visible through them. The idea of taking advantage of someone who is desperate for the products that you sell that too in such a crisis where they might not even have the requisite funds to fend for themselves, is just sad. 

The CA although not made with the idea of meeting such a crisis, has stood up to the challenge and has allowed for the CCI to take charge without there having to be any changes made to the parent Act. This is also something to be lauded, and has shown that the CA is a strong legislation.

With regard to the relationship between ECA and CA, however, the author is of the opinion that the ECA is to be repealed and the provisions of the CA can control the same as well. There can be an amendment made to the CA, particularly that of S54, in order for the government to have a say in regulating the prices of these commodities but it should be restricted to dire circumstances only.

If this happens, then the element of arbitrariness which exists in the ECA stands eliminated, and hence it would also allow for corporates to enter the market. This would benefit the Indian economy and the farmers as well. Although the Modi Government has taken steps to deregulate the ECA, it might be a better option to completely repeal this Act and bring the subject matter entirely under the power of the CA.

References

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  2. Advisory to Businesses in Time of COVID-19, https://www.cci.gov.in/sites/default/files/whats_newdocument/Advisory.pdf (last visited Nov 1, 2020)
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