[2021] 

126 taxmann-nlul.refread.com/rpa/taxmann_com 198 (Article)

Date of Publishing: April 16, 2021

Crisis Cartels: An Antitrust Solution to COVID-19

The COVID-19 pandemic has brought to the fore a number of novel challenges for industries and
business at large. While different sectors and regulators grapple with the unprecedented situations,
non-conventional ideas and innovation seem to have become the buzzwords. Various industries are
facing issues due to overcapacity and lack of demand, remedying which would require structural
changes like cartelisation, inevitably giving rise to antitrust issues. In this light, we seek to analyse the
possibility of the Competition Commission of India (hereinafter CCI) permitting the formation of
temporary crisis cartels to somewhat mitigate the resulting problems.

Ordinarily, Section 3 of the Competition Act, 2002 (hereinafter the Act) prohibits cartels of any kind;
once the existence of an agreement is proved, an appreciable adverse effect on competition (hereinafter
AAEC) in India is presumed to have taken place. Crisis cartels, a specialised form of cartels, are
essentially of two kinds - first, those between private firms not approved by the government and second,
cartels sanctioned by the government in times of economic distress. 1

The pandemic, coupled with recessionary trends all over the globe, has severely affected the Indian
economy. For the first time, despite growth in the agricultural sector, there has been a fall in the GDP of
the country. Such cartels are formed when market forces are deemed insufficient to solve the problem
and the resulting overcapacity would lead to significant losses causing inefficiency and even forcing
some players to exit the market. This is in contrast to cooperation through joint ventures (hereinafter
JV), that are exempted from section 3(3) of the Act under certain circumstances owing to increase in
efficiency as a result of such an agreement. 2 Industries are one of the major causes for concern with
sectors like automobiles, aviation, oil and manufacturing operating at overcapacity, resulting in losses.
In order to manage costs, a huge number of layoffs are also taking place. Restructuring would permit
these sectors to return to profitability, thereby fostering competitiveness. On the other hand, some
sectors like pharmaceuticals and food supplies are facing severe shortages owing to heightened
demand. By allowing such cartels temporarily, the survival of competitors who would otherwise have
been forced to shut down is ensured. This not only keeps them active on the market post the pandemic,
but also resolves the employment issue as the continued existence of the companies saves jobs. 3

Based on this premise, looking at two particular sectors- health and aviation, it is observed that the
pandemic has impacted them in completely opposite ways. The health industry is facing supply
disruptions owing to the lockdown, coupled with ever growing demand for medicines, protective gear
and even hospital beds. The aviation industry, which was not in the best of health before the pandemic
either, is facing the problem of shortage in demand because of travel restrictions. Therefore, in addition
to the classic crisis cartels that are created to reduce excess supply, the kind of cartels that are proposed
to be allowed in this scenario are those that tackle excess demand. 4
The primary objective of the Competition Act in India is consumer welfare. At present, with the
outbreak of the virus, the market demands an increase in health services and supply from the
pharmaceutical companies' end. Due to the lack of availability of the health care supplies, it becomes
important for the enterprises in this industry to be allowed to cooperate to ensure the continuity of
supply. It can be argued that the companies would not want to share their know-how with each other.
However, it is only practical that to speed up the production of much-needed amenities, these
companies come together and cooperate. For instance, even if one enterprise comes up with the
vaccination, it will be very difficult for them to have it widely distributed. This is where the "corona
crisis cartels" come in - through such cooperation, sharing of information and production data, the goal
of public welfare can be achieved. In addition, there are medicines coming up as immunity boosters and
for such products to reach the masses, it becomes imperative that the players in the industry
collaborate.

During lockdown, travel restrictions were imposed, which led to a slump in the already declining
aviation industry; it not only affected the shareholders and owners of the airline companies but also the
employees in that sector. Even after the lockdown lifts, the only customers would be passengers who
have to commute necessarily, for instance for work. This essentially means that this industry will still
continue to have an economic slowdown. The aviation industry does not only provide the means for
travelling for persons but also cargo facilities; it becomes all the more necessary to preserve the airline
sector. Crisis cartels, now, is a way through which the problems of restructuring the infrastructure and
preserving the jobs of the employees may be tackled. This will also lead in coordination of schedules by
the different airline corporations and they can jointly decide how to answer the issues. The CCI and the
Ministry of Corporate Affairs, to avoid any kind of misuse of such a provision, can review the
restructuring cartel agreements drawn up by the players before allowing them to start cooperating.

The CCI has been cognisant of the issues being faced by the companies. To deal with the supply-demand
changes in the current pandemic, the CCI, in April 2020, had released an advisory for businesses to
share certain kinds of information and coordinate. It is not suggested that such measures be permitted
to all sectors uniformly - identifying the sectors that actually face risks of overcapacity or are in the
interests of the consumers should be considered. 5

Arguably, the Indian antitrust regulatory framework is also flexible enough to accommodate the
establishment of such an arrangement. Section 54 of the Act empowers the Central Government, in
certain circumstances (for public interest or for security of the State, for instance) to suspend the
applicability of the provisions of this legislation for a period of time. Using this power, the Ministry of
Corporate Affairs has, in the past, exempted national, rural and regional banks from section 5 Under
section 19(3) of the Competition Act, before declaring an agreement as having an AAEC, the CCI
considers factors like benefits to consumers or economic, technical and scientific development. While
considering section 19(3) as one of the inherent safeguards in the Act, the CCI allowed companies like
essential services and medical commodities to share distribution and logistics only in certain cases; it
warned them to not exploit this situation. The formation of crisis cartels furthers this very purpose and
is aimed at increasing efficiency, with the pro-competitive effects outweighing the anti-competitive
aspects.6 and vessel sharing agreements from section 37

It is also pertinent to note that some countries have decided to adopt a flexible approach towards such
issues in terms of specific sectors. In the interest of consumer welfare, the United Kingdom and
Germany, for instance, allowed food retailers to collaborate and cooperate among themselves. of the
Act. Once the affected sectors are identified, it becomes possible to exempt them from the applicability
of section 3 of the Act, the charging section for cartel conduct. Section 54 can further the making of
crisis cartels, if the Government carefully and with caution identifies the class of enterprises which
should be exempted, instead of announcing a blanket exemption which may lead to misuse. 8 The
Norway government permitted an exception from antitrust enforcement to the 'air, land and sea
transportation' sectors for three months. 9 Previously, the antitrust authority in the European Union has
allowed restructuring in light of the non-economic benefits arising out of the crisis cartel. 10 In fact, the
European Commission allowed producers of milk, flowers and potatoes to self-organize temporarily. 11

The current scenario is indeed unprecedented and calls for action on part of all stakeholders- especially
the Government authorities. Crisis cartels, essentially public interest cartels, could be a good way for
ensuring the re-emergence of a more competitive and healthier industry- beneficial to producers and
consumers alike. The temporary nature of this arrangement is the key to its success. It is also
imperative to provide leeway in a nuanced manner, keeping in mind the very purpose of antitrust
legislation. For this, the CCI has to be vigilant and act as a strict watchdog, taking proactive steps to
prohibit and break cartels whenever there is an apparent misuse of the scheme.

■■
1. OECD Global Forum on Competition, Crisis Cartels, OECD (Oct., 18, 2011),
http://www.oecd.org/daf/competition/cartels/48948847.pdf.
2. Harish Damodaran, For the first time, farm sector set to grow even as GDP sees a
contraction, INDIAN EXPRESS (Aug. 24, 2020),
https://indianexpress.com/article/india/for-the-first-time-farm-sector-set-to-grow-even-as-
gdp-sees-a-contraction-6567182/.
3. Diederik Schrijvershof, Martijn van de Hel, Ramesh Kaushik, Crisis Cartels and state aid
as a solution to the corona pandemic, MAVERICKLAW (March 20, 2020),
https://www.maverick-law.com/en/blogs/crisis-cartels-and-state-aid-as-a-solution-to-the-
corona-pandemic.html.
4. Maarten Pieter Schinkel & Abel d'Ailly, Corona Crisis Cartels: Sense and Sensibility, SSRN
(June 24, 2020), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3623154.
5. Competition Commission of India, Advisory to Businesses in Time of COVID-19, CCI (April
19, 2020), https://www.cci.gov.in/sites/default/files/whats_newdocument/Advisory.pdf.
6. The Gazette of India (E) No. 2828, The Ministry of Corporate Affairs, August 30, 2017.
7. The Gazette of India (E) No. 2753, The Ministry of Corporate Affairs, December 11, 2013.
8. Christopher Thomas, Christian Ritz, Stefan Kirwitzke, Raphael Fleischer,COVID-19 and
Competition Law - Companies Must Not Quarantine Competition Law Compliance,
COMPETITION POLICY INTERNATIONAL (April 02, 2020),
https://www.competitionpolicyinternational.com/covid-19-and-competition-law-companies-
must-not-quarantine-competition-law-compliance/.
9. Id.
10. Bruce Wardhaugh, Crisis Cartels:Non-Economic Values, the Public Interest and
Institutional Considerations, 10 Eur. Competition J. 311 (2014).
11. Schinkel & d'Ailly, supra note 4.