HE 2800 – Consumer Education

Prepared by: Teresita G. Rodriguez

E-mail Address: [email protected]

Central Luzon State University

Science City of Muñoz 3120
Nueva Ecija, Philippines

Instructional Module for the Course

HE 2800: Consumer Education

Module 13: Restrictive and Unfair Trade Practices

For making huge profits or becoming rich overnight, all sorts of means and
methods of malpractices are being adopted by the traders, businessmen, employers,
producers and sellers at the cost of consumer’s interest. Thus, marketing of goods
injurious to health and life, deception of the consumer through unfair trade practices such
as, substandard quality, adulteration, non-supply of correct quantity, excess pricing etc.,
are rampant in our society.

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Objectives
The study of this module would enable the students to know:

1. the restrictive trade practices;

2. the unfair trade practices; and
3. consumer rights and responsibilities to check restrictive and unfair trade practices.

Restrictive Trade Practices

The Consumer Protection (Amendment) Act, 1993 has inserted a new clause in
the Act of 1986, to define the term ‘restrictive trade practice’. The new clause enlarges
the scope of the Consumer Protection Act by covering a Restrictive Trade Practice within
its ambit. According to the definition under the Consumer Protection Act, 1986, a
restrictive trade practice means a trade practice which has or may have the effect of
preventing distorting or restricting competition in any manner, and in particular
i) which tends to obstruct the flow of capital or resources into the stream of
production; or
ii) which tends to bring about manipulation of prices or conditions of delivery or to
affect the flow of supplies in the market relating to goods or services in such
manner as to impose on the consumer unjustified costs or restrictions. The most
essential qualification for a restrictive trade practice is that it must have some
actual or probable effect on competition.
Practices like price fixing, collective
boycott, exclusive dealing, collective
tendering or bidding, territorial restriction,
price discrimination, tie-up sales and resale
price maintenance etc, are the examples of
restrictive trade practices.

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Instances of Restrictive Trade Practices

The following are some of the instances of restrictive trade practices:
Price fixing
This is the commonest form of restrictive trade practices where the traders
determine the price of goods by fiat of combination or concert. The main purpose behind
price-fixing is to eliminate competition and maintain the upward trend of the prices. Such
an effort to control the market would be a restrictive trade practice.
Exclusive Dealings
It is an arrangement or practice whereby a producer or manufacturer or supplier,
requires his dealers to deal exclusively in his products and not in the products of his
competitors. They are similar to ‘solus’ agreements which may not be unlawful per se, if
they do not prevent, distort or restrict competition but merely regulate it. However, if the
exclusive agreement dodges or fore closes competition by blocking the market with one’s
own products, it would tantamount to a restrictive trade practice.
Territorial restriction
Where a manufacturer or supplier requires his dealers to sell the products only in
the allocated area or market, such a practice may amount to restrictive trade practice on
the ground of territorial restriction. Even though in certain cases it may be justified on
the ground of reduced costs or equitable distribution of the product, the same may not
be justified in certain other cases. Especially if the intention behind imposing such
territorial restriction to kill the competition or to create monopoly for a particular brand
product.
Tie-up sales
A ‘tie-up sale’ or ‘tying-up arrangement, can be
understood as an arrangement or agreement whereby a
purchaser is forced to take one or more articles or
services. Generally, imposing a condition precedent of
purchasing one item for the purchase of another would
be a tieup sale. This way a trader can force his goods
which are not wanted by the buyers on them. It is nothing

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but exploitation of the consumers by the traders and it serves hardly any purpose beyond
the suppression of competition. For example, a buyer wants to purchase item ‘x’ but the
trader imposes a precedent condition that to purchase ‘x’, the buyer must buy item ‘y’
also from him. The effect of such an arrangement would be compelling the buyer to buy
some goods or services which he does not want. In such an event, the buyer forgoes his
free choice between competing products, resulting in economic harm to competition in
the free market. These tie-up sales hardly serve any purpose beyond the suppression of
competition.
Withholding supplies
Where the supplier withholds the supplies with the apprehension that they are
likely to be sold by the dealers for less than the minimum resale price, it would be covered
by the definition of Restrictive Trade Practice. It is pertinent to note that Section 40 of
the M.R.T.P. Act prohibits the supplier from withholding supplies of any goods from any
wholesaler or retailer on the ground that such wholesaler or retailer is selling or is likely
to sell the goods at a price below the fixed minimum price.
Full-line forcing
Where a buyer is forced to purchase not only the main products but also all the
auxiliary products produced or sold by the seller, it is called ‘full line forcing’. It is nothing
but an extreme form of tie-up sales. It is unreasonable because it may deprive the buyers
of their right to choose the best goods out of the competitive brands offered in the free
and open market.

Unfair Trade Practices

The primary objective of the Parliament in passing the 1986 Act is to protect the
rights of consumers against the unfair trade practices followed by unscrupulous traders.
Thus, it becomes important to know the definition of the expression “unfair trade
practice”. The 1993 Amendment has incorporated a complete definition of the expression
with a view to make it an independent source.
According to the Act, ‘Unfair Trade Practice’ means a trade practice which for the
purpose of promoting the sale, use, or supply of any goods or for the provision of any

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service. any unfair method / practice or deceptive practice that is adopted by the traders
in promoting their sales or services becomes an Unfair Trade Practice. It includes the
following:
i. false representation as to the standard, quality, quantity, grade, composition, style
or model of the goods sold
ii. false representation as to the standard, quality or grade of the service hired
iii. false representation that a rebuilt, second-hand, renovated, re-conditioned or old
goods are new goods
iv. false representation as to the sponsorship, approval, performance, characteristic,
accessories, uses or benefits of the goods or services
v. false representation that the seller or supplier has a sponsorship or approval or
affiliation which he actually does not have.
vi. false or misleading representation concerning the need for or the usefulness of
any goods or services
vii. giving warranty or guarantee to the public about the performance, efficacy or
length of life of a product or of any goods, which is not based on adequate or
proper testing
viii. making misrepresentation as to a warranty or guarantee of a product or of any
goods or services; or making a promise to replace, maintain or repair an article
without any reasonable basis.
ix. misleading the public concerning the price at which products / goods or services
have been ordinarily sold
x. giving false or misleading facts, suggesting unfairly that the goods, services or
trade of another person are of low-quality standard etc., so as to affect adversely
other’s trade.
xi. permitting the publication of any advertisement in any form for the sale or supply
at a bargain price of goods or services that are not intended to be offered for sale
or supply at the bargain price etc.

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xii. permitting the offering of gifts or other items with the intention of creating
impression that they are offered free of charge when the same are fully or partly
covered by the amount collected by the trader
xiii. permitting the conduct of any contest, lottery or game of chance or skill, with an
intention to promote either directly or indirectly the sale, use or supply of any
product or any business interest
xiv. permitting the sale or supply of goods knowing or having reason to believe that
the goods do not comply with the standards prescribed by competent authority
relating to their performance, composition, contents, design, construction or
packaging; and
xv. permitting the hoarding i.e., storing or destruction of goods or refusing to sell them
with an intention to raise the cost of those or other similar goods.
This is a welcome change because it is common nowadays to find that the business
community which announces a number of schemes to offer free gifts or prizes etc.,
normally does not publish the result of such schemes after their closure, thereby, putting
the consumers to a lot of inconvenience. Now, under the explanation added to the newly
added clause defining unfair trade practice clearly mandates that the results of such
schemes should be published within a reasonable period of time in the same newspaper
in which the scheme was originally advertised. Failure to do so would amount to unfair
trade practices.

Instances of Unfair Trade Practices

The definition of Unfair Trade Practice under the Act is most comprehensive in the
sense that it covers almost all the kinds of unfair practices followed or adopted by the
traders. Some precedents of Unfair Trade Practice are mentioned hereunder:
Discount Sales
Advertising sale at throwaway price giving unverifiable market prices without
mentioning the quality of goods offered for sale and the duration of the sale period would
be prejudicial to the public interest and would be an unfair trade practice. Similarly,

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advertisement of discount sale at 50% without

specifying the particular quality of goods on
which the discount would be given is an unfair
trade practice.

Misleading and false advertisement regarding high returns on investment

Where certain firms or organizations advertised guaranteeing high returns, tax free
income on eucalyptus trees or other growths, in effect guaranteeing about 3 times returns
on the investment made by customers / members of the scheme without any factual
basis, the same would be an Unfair Trade Practice. Where the finance companies offer
high rates of interest on deposits without working out the rate of return on future
investments, the same would be an unfair trade practice.
False claim of treatment of diseases
Where a little-known doctor misled the general public by falsely representing that
he offers 100% successful treatment for cure of white patches and he was a world-
renowned skin specialist, the M.R.T.P. Commission held that it was an Unfair Trade
Practice.
Failure to repair machine during warranty period
Where the respondent seller of a machine gave one year guarantee for satisfactory
performance at the time of purchase, but the machine went out of order within few
months of purchase, the failure of the seller / supplier in properly repairing or replacing
the parts of the machine would be an unfair trade practice.
Misleading false advertisement regarding quality of educational service
In the field of education, unscrupulous persons / organizations often try to dupe.
The gullible public, by issuing misleading advertisement regarding the degrees conferred,
one sitting examinations and unrecognized degrees etc. all such advertisements would
fall within the ambit of Unfair Trade Practice. Making false representations through

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advertisements regarding imparting education equal to and recognized by American /

Foreign Universities and false guarantee about getting jobs etc. would be Unfair Trade
Practice.

Monopolistic Restrictive Trade Practices (MRTP) Commission

The Monopolies Inquiry Commission realized the need for setting up a permanent
body to investigate the complaints regarding Monopolistic Restrictive and Unfair Trade
Practices which are detrimental to the public interest. The Act accordingly provides for a
dual machinery for implementation of its provisions, namely, the Central Government and
the M.R.T.P Commission. The Commission has been conferred with wide jurisdiction and
powers. It has the powers
i. To conduct an inquiry into a monopolistic or restrictive trade practice,
ii. To require the Director General to make preliminary investigation into an alleged
monopolistic or restrictive trade practice.
iii. To summon and enforce the attendance of any witness and to examine him on
oath.
iv. To receive evidence on affidavits.
v. To requisite any public record, firm, any court or office
vi. To issue any commission for the examination of witness.
The Central Government or any State Government, traders or class of traders or
consumers may make an application to the commission for an order for the recovery of
compensation for the damage or loss. it is important to note that this relief provided by
the Act is in addition to the rights to institute a suit for recovery of compensation.
Therefore, even a registered consumers association also may seek compensation or
inquiry by the commission.

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