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Turf War! Sectoral Regulators vs CCI
16 Jun 2012 11:02 AM
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One section in the Banking Laws Amendment Bill, 2011 is fuelling a potential turf war with sectoral regulators on one side and the Competition Commission of India on the other. The section says nothing contained in the Competition Act, 2002 shall apply to any banking company, the state bank of India, any subsidiary bank, any corresponding new bank or any regional rural bank or co-operative bank or multi-state co-operative bank in respect of the matters relating to amalgamation, merger, reconstruction, transfer, reconstitution or acquisition. in short, RBI should be the sole regulator of the sector and cci should have no jurisdiction. Similar demands have been made by shipping and telecom sector regulators as well. In response, the Competition Commission had this to say

Ashok Chawla, Chairman, CCI to CNBC TV18

Why it is being perceived that what the competition regulator does can as well be done by the sectoral regulators- not so-the legal architecture doesn't provide for that. And if did provide for that, the legislature in its wisdom would not have enacted the Competition Act.

The two sets of bodies- the sectoral regulators and the market regulators have necessarily to co-exist.

If this virus spreads, then you might as well wind up the Commission.

Now this debate is certainly not unique to India- its happened in the UK, its happened in the US. This week, Payaswini Upadhyay gets experts Thinking Aloud on how other jurisdictions have managed the overlap and what India can do to strike a balance

Anti-Trust Laws: Scope of Sectoral Exemption?

Laura Carstensen

Former Deputy Chairman

Competition Commission, UK

In the UK, there hasnt been very much debate historically as regards mergers. But its always been pretty much a consensus that the Competition authorities are the ones to decide on that. As regards Competition rules, more generally, anti-cartel, anti-abuse, dominance rules- weve come to an accommodation actuallywhich is called concurrency where the sectoral regulator and the competition authority can use those rules to conduct enquiry. Not both together- thats governed by the Memorandum of Understanding and in fact its always been the Competition authority that has tended to take the lead; there has been very little use by the sectoral regulator.

Christine Wilson

Partner, Kirkland & Ellis LLP

Former Vice Chair, Federal Civil Enforcement Committee, Antitrust Section

In the United States, we've essentially had the same debate that India is now experiencing. And here in the US, we have concluded that the government operates best if it acts like an umpire and not as a bowler or a batsman and for that reason the trend, over the last 30-40 years, has been away from regulation and towards competition.

SL Rao

Former Chairman, CERC

If I was to give you a blanket answer, then, no sector should be out of the purview of the Competition Commission of India. But I have some qualification that I will go along with as we proceed with this discussion but broadly, Competition- the law- should affect all sectors.

Anti-Trust Laws: Sectoral Exemptions?

Laura Carstensen

Former Deputy Chairman

Competition Commission, UK

In the UK, there are no sectors that are specifically excluded from the Competition rules or the merger control rules. The only qualification I would give to that is that in certain special cases, the government, not the sectoral regulator, can put in place whats called a public interest intervention notice and when that happens, the Competition authority will still advice on the Competition aspects of a merger but the government will also take into account other wider public interest issues and will then come to a decision. Now this is very much the exception, not the rule and it really only applies to national security, media plurality, and stability of the financial system cases.

Christine Wilson

Partner, Kirkland& Ellis LLP

Former Vice Chair, Federal Civil Enforcement Committee, Antitrust Section

Exemption from the anti-trust laws in the United States are disfavored and therefore they are very rare and limited in scope. There is only one industry in which the anti-trust authorities have no say in whether a merger should be permitted and thats in the railroad industry and in other industries, anti-trust authorities share authority with sectoral regulators in terms of whether mergers should be permitted and those sectors include banking, certain aspects of electricity and telecommunications.

SL Rao

Former Chairman, CERC

No sector has the kind of differentiation that banking does. And I think you need to understand this. Banking is a part of the overall financial and economic policies of the government. We have seen how when banking is not closely watched and regulated, it can go completely out of hand as it did in the US in 2008. So the banking sector is a complex sector which has fundamental effects on the economy. Of course, every other sector will say the same thing but banking is much more fundamental.

Anti-Trust Laws: Rationale for Exemption?

Laura Carstensen

Former Deputy Chairman

Competition Commission, UK

If certain sectors are exempted from oversight by the competition authorities and left to be looked at that relevant sector regulators, I would have two concerns, one would be inconsistency of application across different sectors, and by definition the exempted sectors would be very important sectors and the other worry I might have would be around perhaps not around regulatory capture but does the regulator who is looking at the regulated company day in and out on a range of issues has the same kind of distance, objectivity and the breadth of experience to draw on that the competition authority has when it comes to assess a transaction or a market practice- so these are my two concerns.

Christine Wilson

Partner,Kirkland & Ellis LLP

Former Vice Chair, Federal Civil Enforcement Committee, Antitrust Section

The initial rationale for separating the merger review from the anti trust authoritys jurisdiction and placing it in the hands of regulators was really two-fold. First, there was a sense that some industries are natural monopolies and therefore must be regulated and second, it was felt that there are certain societal needs that override the need for competition but as technology has advanced, we have found that natural monopolies have not been natural at all. And so anti-trust authority has replaced regulatory authority in some of those areas. Perhaps, the most notable example is the anti-trust analysis in the airline industry. Originally, the civil aeronautics board heavily regulated the airline industry. In fact, it not only regulated prices and routes, it also told the airlines the type of flight attendant uniforms and size of sandwiches that should be served on the plane and that goes to show you how absurd it can get when a government acts not like an umpire but as a bowler or batsman. The Department of Justice recommended on several occasions that the Civil Aeronautics Board block domestic mergers at the time the CAB had the authority to review mergers and the CAB ignored DoJs recommendations. Ultimately the CAB was dissolved and that authority to review the mergers was placed in the hands of DoJ.

SL Rao

Former Chairman, CERC

The argument in the case of banking sector is because there are so many different types, it is much better that the RBI regulates them. Now, I think, to a great extent that is correct

and fair because RBI is doing a job of regulating them but it has to regulate them on matters which have not to do with the broad competition issues. By that I dont mean the competing interest rates that is something that the RBI takes care of but basically mergers and acquisitions. I think mergers and acquisitions should come under theCCI as far as banking is concerned. But I would like to add a caveat here- that this should be consultation with the RBI because there is a lot of other issues- foreign policy issues, relationship with other countries, economic policy issues which come into the picture when youre looking at the regulation of banks.

Joint Jurisdiction: Recipe for Turf Wars?

Laura Carstensen

Former Deputy Chairman

Competition Commission, UK

It would be wrong to pretend, I suspect, that there are never frustrations. I am sure, there are occasions when the sectoral regulators would like to see a case through to the end rather than see it referred to the Competition authorities. So by and large, its worked pretty well- not forgetting of course that the sectoral regulator is in constant dialogue anyway with the regulated company in its sector over things like license modification, price control- so the sectoral regulators have plenty of regulatory levers such that perhaps, there is contentment to leave the competition rules- which are very specialized- to the Competition authorities who have the expert resources to pursue that.

Christine Wilson

Partner, Kirkland & Ellis LLP

Former Vice Chair, Federal Civil Enforcement Committee, Antitrust Section

Dual jurisdiction undermines certainty and predictability for businesses and can result in conflicting outcomes and blocked deals. Once of the most recent examples involves an energy deal that was announced a couple of years ago. The Department of Justice cleared the deal 18 months ago but the Energy regulator only cleared the deal about a week ago. In another instance in the energy sector, the DoJ imposed a certain set of remedies on the deal. The Federal Energy Regulatory Commission imposed an additional set of remedies but then a State regulatory agency that was also reviewing the deal ended up blocking it and so the deal crumbled.

SL Rao

Former Chairman, CERC

No doubt at all; itll lead to alot of turf battles. Already youve got between the Forward Markets Commission and the Central Electricity Regulatory Commission on the exchange futures in Electricity as to who should regulate that and the courts have to decide that. So, yes, there will be turf battles but I think the answer to this is not an exclusive jurisdiction. I think it is the jurisdiction of the Competition Commission, especially when it comes to mergers and acquisitions but in consultation with the sectoral regulator because they may have some special cases to put up and Competition Commission must take them into consideration.

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