Home Competition Act Trade Associations and Competition Law: Analysis on Global Level

Trade Associations and Competition Law: Analysis on Global Level

July 5, 2021

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This article is written by Anjeeta Rani who is pursuing a Certificate Course in Competition Law, Practice and Enforcement from Lawsikho.

Table of Contents

Introduction

Today, competition policy is an important part of the world economy’s legal and operational structure. Whereas anti-competitive activities were once thought to be mostly a domestic problem, most elements of competition law enforcement now have a considerable international aspect. This varies from price-fixing and market sharing arrangements that often spill across national borders and encircle the globe, to multiple prominent cases of abuses of a dominant position in high-tech network markets, recent cases concerning transnational energy sectors, and large business mergers that require to be investigated by several jurisdictions at the same time.

Trade associations often referred to as business associations, provide a forum for the competitors from the same industry or sector to collaborate and address topics of mutual concern, pursue shared alternatives, and further their mutual business interests. Their practices, on the other hand, are always scrutinised by antitrust authorities all over the world.

This article attempts to deal with the implications of competition law on trade associations in India as well as on an international level. To study the relationship between trade associations and competition law, the article has been bifurcated into chapters dealing with the interplay of competition law and trade associations at the municipal level and the competition laws regulating trade associations in various countries around the globe.

What are trade associations?

Trade associations are a group of individuals, firms or body corporates that are carrying out their business in the same industry of the market. The main motto for their establishment is to further the common interests of the industry and contribute towards its development through collective efforts especially in negotiating and discussing with the government or the specific ministerial department to bring in policies for the expansion of the industry.

These trade associations can be at a national as well as international level. Indian Sugar Mills Association is the oldest trade association in India. Some of the other trade associations in India are the Indian Film and TV Producers Council (IFTPC), Fashion Design Council of India (FDCI), Indian Banks’ Association (IBA), Indian Tea Association, and many others. Similarly, to name a few at the International level are the International Air Transport Association (IATA), International Federation of the Phonographic Industry (IFPI), World Gold Council, etc.

Trade associations provide a platform for the industry stakeholders to promote the welfare of the industry as a whole by dealing with issues like unfair trade practices, legislative issues in terms of taxation laws, labour laws and other industry-specific laws, technological advancements and upcoming prospects in the industry.

Furthermore, trade associations serve other useful roles such as providing a forum for members to address industry-specific concerns, compiling and distributing aggregate market data to assist members in making informed decisions, conducting market analysis, publishing trade-related academic papers, and conducting conferences/regular meetings.

The membership to the trade organisations is voluntary and non-profitable in nature. In no way, the association has a right to interfere with the internal business affairs of any of its members. The members remain as independent units with no commercial or profitable interest in the organisation.

A trade association is different from a trade union in the sense that the former is established to promote the welfare of the members of the association in a particular industry whereas the latter is an organisation/union of the employees of a business/corporation having a legal recognition and right to collective bargaining against the employers and the management to cater to the interests of the employees of that business/corporation.

The interplay between trade associations and competition law

There’s no doubt that most voluntary trade associations aim to uplift the welfare of their members and expand business opportunities as well. However, the distinction between legitimate and illegal trade associations is very thin. An association’s freedom to organise together can also be considered anti-competitive.

Despite their many pro-competitive facets such as trade promotion, business cost analysis, product standardization, and so on, trade unions are subject to antitrust concerns because of their essence, posing a threat to the viability and development of market players.

These organisations can prevent competition by setting costs through deliberate actions, restricting and controlling the production and distribution of commodities, services, or resources, making membership in the organisation compulsory in a certain area, and actively prohibiting corporate and business dealings.

As a result, antitrust policy is gradually focusing on trade associations’ activities that encourage anti-competitive agreements among members. A large number of monopoly lawsuits have been brought by antitrust authorities in which trade associations have been involved, some of which are discussed here.

In the case of Reliance Big Entertainment Ltd. v. Karnataka Film Chamber of Commerce, the Karnataka Film Chamber of Commerce (KFCC) did not allow producers, film distributors and exhibitors to release the films in the southern states, who were not a part of the association and discriminated against them which as a result led to the creation of anti-competitive disadvantages for non-regional films leading to huge losses in those states. The CCI held that the film association which consisted of several enterprises shall be considered as an “association of enterprises.”

It was observed that even though the film association was not engaged in any economic activity of production, distribution or exhibition of films, its members are producers, distributors or exhibitors of motion pictures which were involved in economic activities and hence were enterprises.

It ordered KFCC to pay 10% of its total income to the petitioners as compensation and removed the restriction imposed by the association for producers, exhibitors and distributors to register within the respective territory to release their movies.

In the case of Builders Association of India v. Cement Manufacturers’ Association, the informant had filed the case against Cement Manufacturers’ Association (CMA) constituting of 12 leading cement manufacturers, sellers and distributors in India alleging that the association acted as a forum for the members to indulge in restrictive trade practices including price-fixing by way of controlling the supply and production of cement against the capacity of the members.

The CCI found the allegations to be true and imposed a fine of 10% of its total receipts on the Cement Manufacturer’s Association for the past two years for serving as a platform for cartel activities. CMA was directed to disassociate and disengage itself from collecting wholesale and retail prices through the member cement companies and from circulating the details of production and supply of cement companies to its members.

In re Kerala Cine Exhibitors Association, the informant had filed a case before the CCI under Section 19(1) of the Competition Act, 2002 against associations of film theatre owners, film distributors and film producers in the state of Kerala. It was alleged that these associations had together formed a cartel and indulged in anti-competitive practices by not allowing the members of the informant association to release the movies in their theatres.

The Commission concluded that Kerala Film Exhibitors Federation, an association of film theatre owners and Film Distributors Association (Kerala), a trade association of film distributors have acted in a concerted manner to deny market access to Kerala Cine Exhibitors Association and infracted the provisions of Section 3(3)(b) read with Section 3(1) of the Act by controlling and limiting the distribution of movies to predetermined release centres in Kerala through an agreement.

Thus, it has been seen in several cases that these trade associations act as a significant deterrent to potential business entrants. They run independently of competitive forces and influence the competitors for their benefit. They take advantage of their dominant position by limiting the market for competitors who are not members of the association, resulting in appreciable adverse effects on competition.

Competition law regulating trade associations across the globe

The elimination of monopolisation and increased liberalisation and privatisation of some industries, as well as rapid advancements in technology and the globalization of foreign trade, have unleashed unparalleled economic powers, which have created a lot of implications across jurisdictions. At this point, the convergence of competition laws is necessary as it guarantees the trading nations to flourish through trade liberalisation.

In the EU, Article 101 of the Treaty on the Functioning of the European Union (TFEU) (formerly Article 81 of the Treaty establishing the European Community) prohibits any agreements between undertakings, decisions made by associations of undertakings, or concerted practices affecting trade between EU countries which could prevent, restrict or distort competition.

Article 101 does not require trade associations to be engaged in autonomous commercial practice for the law to be applicable. Article 101 extends to organizations whose actions, or the operations of their members, are determined to achieve the outcomes that Article 101 is intended to limit.

Similarly, in the USA, the Federal Trade Commission and the Department of Justice agree that trade associations are also the driving force behind significant pro-competitive practices. However, those advantages do not grant them an antitrust exemption for their actions. Even while the association is primarily behaving as an individual market player, trade associations must closely consider the antitrust consequences of association practices.

While looking into the competition laws of China, it can be observed that trade associations are government-run organizations with compulsory membership. These associations also serve as government agents in organising competitive policies, proposing laws, and determining prices. China’s Anti-Monopoly Law (AML) includes specific rules addressing trade associations’ anti-competitive conduct.

Article 11 states that the association of undertakings should intensify the self-discipline of the industry, guide undertakings to lawfully compete and safeguard the competition order in the market. Article 16 provides that association of undertakings shall be prohibited to organize undertakings to carry out monopolistic conducts being prohibited under this law. Article 46 states that in case the associations of operators organize undertakings of the industry to reach a monopoly agreement in violation of this law, the antimonopoly authorities shall impose a fine below 500,000 Yuan.

Conclusion

Although trade associations have a myriad of genuine purposes such as promoting market productivity and improving public wellbeing, they remain vulnerable to straying from the bounds set by competition law. This is because trade associations, by practice, provide avenues for frequent interactions between direct competitors as well as cooperative efforts among competitors in the same industry.

Given that the legislation is emerging and most of the trade associations are ignorant of its requirements and consequences, regulations are required to clarify the law’s provisions to those who will be impacted by them and to show how CCI wants them to function. The Office of Fair Trading in the United Kingdom has provided such recommendations for trade associations, occupations, and self-regulatory organisations.

Unlike the United States and the European Union, there is no procedure for seeking an interim decision akin to expert opinions and market assessment letters on matters of antitrust law, allowing for the determination of whether their actions and judgments are anti-competitive.

To comply with competition law, trade associations should be diligent in conducting self-evaluations of the economic consequences of their daily operations activities as an organization, motions and binding decisions of the executive committee or full-time membership in general meetings, AoA, MoA, laws and regulations, type and amount of knowledge exchange, and so on.

Safeguards such as presenting a specific agenda or explanation of objectives at trade association meetings, accepting some competition compliance directions at the outset of the conference, and having a compliance officer/lawyer attend, will reduce the chance of being charged with anti-competitive behaviour.