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CCP finds cartelisation by tractor companies

Our Correspondent
Tuesday, Sep 14, 2021

ISLAMABAD: An inquiry conducted by the Competition Commission of Pakistan (CCP) reveals that the two giant companies of tractor industry are allegedly involved in abuse of dominance and cartelisation for fleecing customers.

According to exclusive details obtained by this scribe, it was revealed that the CCP concluded an inquiry under Section 37(1) of the Competition Act, 2010 in the tractor industry. The commission’s inquiry report 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 CCP initiated the inquiry on its own. However, the commission received various concerns forwarded to it from the Pakistan Citizen Portal (PCP) over a drastic increase in the prices of tractors by the manufacturing companies at different points in time despite various incentives given by the government and a great extent of localization in the tractor industry. The complainants also highlighted the alleged substandard build 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 Millat Tractors Ltd (MTL) and Al-Ghazi Tractors Ltd (AGTL) for the period 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 time-frame 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 above-mentioned sequential price pattern was also observed in the years 2018-2020.

Keeping in view the facts, the commission, exercising its powers under Section 34 of the Act, authorized teams to enter and search the premises of Millat Tractors Ltd (MTL) Lahore and Al-Ghazi Tractors Ltd (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 ‘Enter and 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 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 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 condition amounting to “Resale Price Maintenance” (RPM) and has also monitored the same by circulating instructions to all 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.

The MTL and AGTL entered into an arrangement/agreement of controlling supply of tractors in the relevant market in a coordinated manner, which was 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 tractor manufacturers under Section 30 of the Competition Act, 2010 for alleged violation of Section 3 & 4 thereof.