The Competition Commission of Pakistan (CCP) has concluded its inquiry against the two leading tractor manufacturing companies, Millat Tractors Limited (MTL) and Al-Ghazi Tractors Limited (AGTL), and found them guilty of anti-competitive practices.
CCP initiated the inquiry on its own under Section 37(1) of the Competition Act, 2010 (the ‘Act’), though it did receive various complaints forwarded to it through the Pakistan Citizen Portal regarding a drastic increase in the prices of the tractor manufacturers at different times despite a number of incentives given by the government and a great extent of localization in the tractor industry. The complainants also highlighted the alleged substandard quality of the tractors resulting in a frequent breakdown.
As per the CCP inquiry report, the two firms are prima facie abusing their dominant position in violation of Section 3 of the Act and have entered into a prohibited agreement (Cartelization) in violation of Section 4 of the Act.
The CCP report says that the inquiry committee, during the course of the inquiry, had sought information related to the production and prices of tractors from MTL and AGTL during the last over three years, i.e., January 2018 to May 2021.
The data shows that both the tractor manufacturers increased their prices in a sequential manner during a smaller timeframe and the quantum of percentage increase was approximately similar in the 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 above-mentioned sequential price pattern was also observed in the years 2018–2020. Keeping in view the facts available, the Commission exercised its powers under Section 34 of the Act and authorized its teams to enter and search the premises of MTL, Lahore and AGTL, Karachi on September 02, 2021. The data impounded comprised the relevant record, documents, meeting minutes, and computer-stored information.
The nature of evidence impounded during the entry and search revealed that there were WhatsApp conversations between the senior officials of these companies regarding price-fixing and other anti-competitive practices. An analysis of the “Provisional Booking Orders (PBOs)” of MTL and AGTL reveals that there exist exploitative and identical clauses in terms of price, specifications, delivery schedule, and dispute settlement which create a significant imbalance to the advantage of buyers’ 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 prices of tractors of various models. Furthermore, 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 and AGTL have entered into an agreement with its dealers across Pakistan for the imposition of restrictive trading conditions amounting to “Resale Price Maintenance” (RPM) and have also monitored the same by circulating instructions to all dealers as well as [they have] warned them against punitive measures. MTL and AGTL appear to be in prima facie contravention of Section 4(1) read with Section 4(2)(a) of the Act.”
MTL and AGTL entered into an arrangement/agreement of controlling the supply of tractors in the relevant market in a coordinated manner which is 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 a proceeding against the tractor manufacturers under Section 30 of the Competition Act, 2010 for alleged violation of Section 3 and 4 thereof.
