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Role of trade associations to promote competition

M S Siddiqui
06 Jul 2022 00:00:00 | Update: 06 Jul 2022 01:20:17
Role of trade associations to promote competition

An association formed in order to represent the interests of its members in commercial matters may be termed as a trade association. Trade associations play an important role in mobilising voices of business enterprises in a sector or across sectors, which help them in negotiating issues of common interest to the members. Trade associations, by definition, are made up of competitors. These associations provide their members and consumers with valuable benefits, such as education, outreach efforts to expand markets, enhance product compatibility or quality standards, and otherwise help businesses become more efficient.

Associations play a fundamental role in integrating companies and serving as platforms for discussion of common interests, allowing their members to channel those interests representing them before the public authorities. In this way, associations play a significant role in informing the state and other actors about legitimate concerns and expectations, representing and guaranteeing such legitimate interests. However, due to the role as platforms for discussion and information exchange, associations are also frequently linked to the formation or facilitation of cartels.

Indeed, within their regular activities such as general meetings, roundtables, analysis of information and formulation of recommendations or policies binding for their members etc. Associations may be voluntarily or involuntarily used to coordinate, decide or facilitate agreements and other practices harmful to competition, turning into platforms aimed at eliminating competition among their participants or excluding or harming other competitors.

Sometimes, during casual discussion at the association of the prices, quantities, customers, territories, market shares, terms of sales and advertising restrictions and future business strategies can lead to agreements or informal understanding.

This could easily spill over into illegal coordination, so called cartelisation. Adam Smith in his famous book The Wealth of Nations (1776) wrote, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices”. At the same time, trade association may distort the market competition by boycotting a member or product or colluding to raise price or limit supply of goods and services.

Competition law is a branch of law that promotes or seeks to maintain market competition by regulating anti-competitive conducts by companies. The primary purpose of competition law is to remedy some of the situations in which the free market system breaks down.

The growth of an association can also present risks for competition when, using this positioning in an unjustified manner, it promotes differentiated treatment between members and non-members, or among different types of members. In these cases, the association serves as a platform to maintain or strengthen the positioning of some competitors at the expense of others without a valid reason or justification. It could become an infringement when an association that holds a particularly important position in the sector imposes unjustified conditions and requirements for affiliation or exclusion of members, so that these requirements may constitute barriers to entry, insofar as they prevent specific competing agents from entering the affected market, benefiting some or all of its members and ultimately harming consumers.

An anti-competitive coordination that can take place among competitors is not only a consequence of a formal discussion and adoption of express agreements, negotiated directly by their participants. Participants in a cartel may seek to eliminate the need to discuss openly and directly with each other about the relevant aspects of an anticompetitive agreement.

Interestingly, a vast majority of trade associations are unaware of the competition law and its implications. Guidelines to explain the provisions of the law to those that are likely to be affected by them and to indicate how the law expects them to operate are essential.

Competition law simply enjoins trade association meetings, to understand and appreciate the difference between legitimate association activity and anti-competitive practices. It treats the activities of trade associations much like any other form of cooperation between competitors. It prohibits the conduct of trade associations that may fall in the category of cartelization and provides for stringent penalty for cartel behavior.

At the level of trade associations, it is important to bear in mind that (i) regardless of good intentions of the trade association and/or its members, if the effect of conduct is to restrict competition, the activity may be illegal, and (ii) infringement does not require actual adverse effect on the market, the mere intention to impede competition is sufficient. Therefore, it is the responsibility of the association and its members to ensure compliance with the law.

To ensure compliance with the competition law, trade associations should also play a proactive role in undertaking self-assessments regarding competitive implications of the day-to-day conduct of the business of an association, articles of association, memorandum of association, rules and regulations, nature and quantity of information exchange and so on. To be prohibited by competition law, an agreement need not be written down or binding.

To this end, it is possible for the participants in these offenses to resort to indirect mechanisms for the exchange of sensitive information in order to eliminate the uncertainty inherent in the competitive process, and thus promote or facilitate an anticompetitive interaction among them. Once competitors are aware of the decisions and strategies that their competitors will develop e.g. increases in their prices, customer selection and contracting conditions, they can adjust their own choices and strategies to avoid competing with each other, and they can also monitor the development or “compliance” of their competitors’ announcements, and organize themselves as a cartel without needing to establish a permanent communication channel. As pointed out earlier, even if not illegal in itself, exchanging sensitive information may promote, facilitate or support cartel behavior. Instead, when the exchange doesn’t involve sensitive information, there are no specific risks of infringing the Competition Act.

In this regard, it is necessary to recognize that, generally, associations are free to establish their membership conditions and the conditions for businesses to access the services the association may offer, if those conditions don’t infringe competition rules. In fact, when associations hold a particularly important position in the sector, denial of membership, the expulsion of a member or a discriminatory treatment in the access to the services they provide may significantly affect the capacity of businesses and professionals to compete in the market. Though these practices are not per se prohibited, they may be considered illegal when they generate a negative impact on competition.

The members might consider that an association holds a particularly important position in the sector when, due to its high representativeness or the need of its members to access the services it offers. It then has the capacity to restrict competition in the market where its members compete.

Likewise, the members might consider that a denial of membership, the exclusion of a member or a discriminatory treatment in the access to the services offered by the association lack justification when it can be proven that such actions have the main purpose or effect of excluding competitors without a valid commercial reason.

Businesses can play an important role as stakeholders and partners in a competition agency’s

enforcement and advocacy initiatives. Communications between businesses and competition

authorities can also help raise the profile of competition law and policy and promote compliance with the law. Active and dynamic engagement and dialogue between competition authorities and business stakeholders can raise awareness and encourage compliance.

 

The writer is a legal economist and adviser, Bangladesh Competition Commission. He can be contacted at mssiddiqui2035@gmail.com

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