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Independence of competition agencies

“This is a most interesting subject. Both the perception of independence and its reality are important for the effective functioning of a competition agency. While independence of a competition agency is a cherished factor enshrined in most modern competition regimes, there are troublesome questions that surround it and that need to be addressed satisfactorily within the socio political milieu of each jurisdiction.

The important goal of each competition regime is that the competition agency should be so structured, empowered, and resourced as to be able to apply the law conscientiously, without fear or favour, and without being beholden to any external pressure whatsoever. If a competition agency is not independent it will be potentially, if not in fact, subservient to the agenda of the political forces in power. And often, in a developing country context, the agency could be subject to the whims or the commercial interests of an individual or perhaps a group of individuals in power. The agency would thus be obliged to act in a discriminatory manner and not in accordance with law the effect of which, in all likelihood, would be debilitating for the economy and the consumer.

Being essentially an integral part of Government, albeit it may have quasi-judicial adjudicatory authority, the difficult question always is how much autarky should be granted to an agency since it is manned by unelected persons; and the collorary to this question is how to ensure that this independence is not misused or how to ensure that the “independent” competition agency will really act in the public interest.
I do not believe there are any easy answers to these questions. There is, of course, one redeeming feature. Being primarily an over-arching law enforcement agency, and not a sector regulator, there is less danger of the agency being captured by business interests in a particular economic sector or for the agency to have a vested interest in any economic sector.

The crux of the matter is that a competition agency must have the unfettered discretion to open and close an investigation with only one consideration ─ the due and proper application of law. If the legal structure ─ whatever it is ─ relating to the establishment and functioning of the agency achieves this end-result, and this is all that is necessary! What this simply means is that the operational independence of the Commission must be ensured.

This certainly does not mean that the competition agency should work in splendid isolation. It cannot divorce itself from the environment within which it operates if it is to remain relevant. It must be conscious of, advert to, and be consistent with the broad thrust of the Government’s economic framework. In other words, while absolute primacy is to be attached to the enforcement of anti-trust law, in letter and spirit, a competition agency can not ignore the economic policies of the Government, for instance, when setting priorities. Thus, while the law needs to be unequivocal and emphatic regarding the competition agency’s operational independence, the agency really has little option but to be politic and phlegmatic in its approach in order to have relevance and to be effective.

A further question that is very important is how to ensure that the legal provisions relating to independence of the agency are actually implemented and the agency, in fact, enjoys the necessary operational autonomy. I am talking about the difference between provisions in the statute and actual practice. Often, the difference is huge. Sometimes the competition law enforcer is simply a Government department with hardly any statutory independence but in practical terms the agency is fairly independent. However, on the other hand and much more often ─ certainly in developing countries ─ the substantial independence granted by law to the agency is really a dead letter and is of no consequence ─ practically, the agency does not enjoy any autonomy.
The essential elements of independence are:

Firstly, the Commissioners or Members of the agency, including the head of the agency, must have security of tenure;

Secondly, the agency should be able to establish its own operational regulations without outside intervention;

Thirdly, there must not be any intervention in the agency’s professional work or in the priorities set by it; and

Fourthly, the agency must have available to it tied and secure sources of funding to cover its operational needs without having to depend upon subventions from the Government’s budget.

Now the question arises, who will ensure that the agency does what it is supposed to do. Where is the check if the agency does not fulfill its statutory obligations or abuses its independence? This is rather similar to the question: who will guard the guards or who is the regulator’s regulator. I am talking about the question of the competition agency’s accountability. This is certainly a vexed question without any really satisfactory answer and has been addressed in different ways. Again, if it works and is seen to work, it is fine ─ and if it does not, it is unsatisfactory. The difficulty is in achieving the right balance so that there is an appropriate check on the agency without infringing upon its operational independence.

Let me now turn to the case of Pakistan. I believe that the law makes ample provision to cater to and safeguard, to a substantial degree, the independence of the Commission albeit the law has not been fully implemented in this connection. Our law also has reasonable provisions to institute accountability for the Competition Commission.

Perhaps, I should very briefly point out the relevant provisions in our law relating to independence and accountability:

First, in general terms, the law declares that the Commission shall be “administratively and functionally independent” and imposes a duty on the Government “to use its best efforts to promote, enhance and maintain the independence of the Commission.”

Second, Members of the Commission, as also the Chairman, are appointed on a fixed term of three years, renewable once but not beyond the age of 65. They cannot be removed from office except for cause, as stipulated in the law, to be determined by an independent court of inquiry commissioned by the Government.

Third, the power to make operational regulations has been conferred on the Commission in accordance with law;

Fourth, a most significant tied source of funding for the Commission is a small levy on the fees and charges collected by other regulatory agencies at a percentage rate to be prescribed by the Government in consultation with the Commission which is not to be varied to the Commission’s disadvantage. While the Government has indeed notified 3% as the levy to be imposed, this has not been collected as the Government has not displayed any political will in this connection;

Fifth, annual accounts of the Commission are required to be audited by the Auditor General or a firm of Chartered Accountants nominated by the Auditor General;

Sixth, the Commission is required to submit to Parliament an annual report on its activities during the preceding year as well as its annual audited accounts for that year. Effectively, the Commission is accountable to parliament;

Seventh, orders of the Commission are appealable to the superior judiciary;

Eighth, the Government can exempt a class of undertakings from the operation of the law on grounds of state security or public interest, and also exempt a single undertaking if it performs a sovereign function for the Government; and

Ninth, the Government can also issue policy directives to the Commission, but importantly, these must not be inconsistent with the provisions of the Ordinance.

These provisions, and the manner of their implementation, both confer independence as well as detract from it; and there are, I believe, adequate provisions to hold the Commission accountable. Practically, if I may say so, the Commission has been able to withstand pressures from different quarters and maintain its operational independence.

I am sure I would be joined by heads of many developing country competition agencies when I say that the International Competition Network and the OECD Competition Committee must come out with an unequivocally clear statement in support of operational independence of competition authorities. They must also, if possible, lay down the minimum criteria of what constitutes independence. I am sure developing country agencies would find this most useful in dealings with their Governments.”

— Speech delivered on May 11, 2010

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