CCP finds abuse of dominance, cartelisation in tractor industry

Staff Reporter BOL News

14th Sep, 2021. 06:09 pm

ISLAMABAD: The Competition Commission of Pakistan (CCP) has found that two leading tractor manufacturers, Millat Tractors Ltd (MTL) and Al-Ghazi Tractors Ltd (AGTL), are prima facie abusing their dominant position in violation of Section 3 of the act and have entered into prohibited agreement (Cartelisation) in violation of Section 4 of the act.

The commission initiated an inquiry under Section 37 (1) of the Competition Act, 2010 (the ‘Act’) in the tractor industry on its own; however, it received various concerns forwarded to it from the Pakistan Citizens Portal (PCP) for drastic increase in the prices of tractors manufacturing companies at different points in time, despite various incentives given by the government and a great extent of localisation in the tractor industry.

The complainants also highlighted the alleged substandard quality of the tractors, resulting in frequent breakdowns. As per the commission’s report, the inquiry committee during the course of inquiry sought information relating to production and price data from the Millat Tractors Limited and Al-Ghazi Tractors Limited for three years, i.e., January 2018 to May 2021.

The data showed that both tractor manufacturers increased their prices in a sequential manner during a smaller timeframe and the quantum of percentage increase was approximately similar in case of alternative products, i.e., tractors (HP has a very small differential and the prices remain more or less in the same range).

The abovementioned sequential price pattern was also observed in 2018/20. Keeping in view the facts available, the commission, exercising its powers under Section 34 of the Act, authorised the teams to enter and search the premises of Millat Tractors Lahore and Al-Ghazi Tractors Karachi on September 2, 2021.

The data impounded consisted of the relevant record, documents, meeting minutes and computer-stored information. The nature of evidence impounded during the search revealed that there were WhatsApp conversations between the senior officials of these companies regarding the price fixing and other anti-competitive practices.

The analysis of the “Provisional Booking Orders” (PBOs) of MTL and AGTL reveal that there exists exploitative and identical clauses in terms of price, specifications, delivery schedule and dispute settlement, which create a significance imbalance to the advantage of the buyer’s rights and obligations arising under the contract. Thus, the terms of PBO, prima facie, being unfair to the buyers are in contravention of Section 3 (1) read with Section 3 (3) (a) of the act.

Undertakings are also involved in coordinated and collusive decision making with respect to the prices of tractors for various models.

Further, adherence is ensured by sharing the real-time pricing decision and; thereafter, enabling the other competitor to announce its own increase to take effect at a future date tantamount to collusive activities in the tractor industry and; therefore, constitute prima facie violation of Section 4 (1) read with Section 4 (2) (a) of the act.

MTL has entered into an agreement with its dealers across Pakistan for the imposition of restrictive trading conditions, amounting to “Resale Price Maintenance” (RPM) and has also monitored the same by circulating instructions to all the dealers, as well as warned them against punitive measures.

MTL appears to be in prima facie contravention of Section 4 (1) read with Section 4 (2) (a) of the act.

MTL and AGTL entered into arrangement/agreement of controlling supply of tractors in the relevant market in a coordinated manner, which tantamount to Section 4 (1) read with Section 4 (2) (c) of the act.

Keeping in view the finding of the inquiry report the commission in the interest of the public, at large, decided to initiate proceedings against the tractor manufacturers under Section 30 of the Competition Act, 2010 for alleged violation of Section 3 and 4 thereof.

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