CCP Imposes Rs. 1.1 Billion Fine on Haier & Dawlance for Anti-Competitive Practices

The Competition Commission of Pakistan (CCP) has imposed a collective fine of Rs. 1.1 billion on Haier and DEL/Dawlance for committing anti-competitive practices, warning the retailers, suppliers, manufacturers, and dealers in all sectors against striking resale price maintenance (RPM) arrangements.

According to details, CCP passed an order against Haier and DEL/Dawlance for violation of Section 4 of the Competition Act, 2010 and entering into RPM arrangements — a form of price-fixing under Section 4(2)(a) of the Act and by object an anti-competitive practice — with its dealers.

The CCP bench comprised Chairperson CCP, Rahat Kaunain Hassan, and Member, Mujtaba Ahmad Lodhi.

CCP held that the contravention was a hardcore restriction and a serious violation of competition law.

For DEL/Dawlance, the bench considered the change in management and the subsequent discontinuation of the RPM agreement. It observed that DEL/Dawlance voluntarily committed to refunding the penalties to its dealers and had a cooperative and compliance-oriented approach throughout the proceedings. So, CCP restricted the penalty amount to PKR 100 million, not exceeding one percent of its annual turnover in FY 2020-21. CCP, therefore, held that the conduct, circumstances, approach, and duration of the contravention did not justify the same treatment for both parties.

It found that Haier was ‘blowing hot and cold’ throughout the proceedings. Nevertheless, although its conduct called for a much higher and stricter penalty, considering the violation is a case of the first instance for Haier and in order to promote a compliance-oriented approach, with good faith, CCP restricted the penalty amount to PKR 1 billion, not exceeding three percent of its annual turnover in FY 2020-21.

It is to note that the Commission had initiated an inquiry under Section 37(1) of the Act into the alleged contravention of Section 4 of the Act by “electronic appliance manufacturers, distributors/dealers, and their respective trade associations”. To gather evidence, search and inspections were also carried out at both Haier’s and DEL/Dawlance’s premises under Section 34 of the Act. CCP found evidence of price circulars sanctioning dealers and price control policies in place through which both Haier and DEL/Dawlance had restricted its dealers from selling below a certain price, provide any discounts or package deals, and imposed penalties/sanctions on their dealers to monitor and implement their respective pricing policies.

The parties had also not obtained any exemption from CCP for its RPM agreements under Section 5 of the Act on account of any efficiency grounds specified under Section 9 of the Act, i.e., that the agreements substantially contribute to improving production or distribution, promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, or the benefits of the agreements clearly outweigh the adverse effects of absence or lessening of competition.

CCP observed that RPM agreements in any form including restricting discounts and imposing minimum/maximum pricing levels were by object anti-competitive and void under Section 4 of the Act. In this connection, it was observed that the choice to offer forms of discount or package deals was an important part of the negotiating process., restricting the same along with fixing prices lessens consumer bargaining power. RPM may also lead to price hikes for consumers. Also, the argued pro-competitive effects could by no means be upheld and justified where the parties imposed penalties/sanctions on its dealers.

Alarmed by the potential likelihood of RPM agreements being rampant in any market in Pakistan as well as the possibility of dealers requesting to implement the same, CCP has cautioned all retailers, suppliers, manufacturers, dealers, and any other party in all sectors as follows:

1. RPM Agreements are ‘by object’ anti-competitive in nature and a violation of Section 4(2)(a) of the Act. The Commission considers the same to be a serious violation of competition law. Any party wishing to implement the same must notify such agreements/arrangements and first seek clearance from the Commission through exemption under Section 5 of the Act addressing the efficiencies specified under Section 9 of the Act. In the absence of such exemption, such agreements/arrangements are void.
2. Forms of RPM include imposing minimum and maximum pricing restrictions and discount restrictions.
3. If a party has been involved in an RPM arrangement, it may benefit from lenient treatment by coming forward and filing a leniency application.
4. Parties cannot, directly or indirectly, impose any sanction, monitor compliance, and/or coerce other parties.