ISLAMABAD, 25 JULY 2012: The Competition Commission of Pakistan (CCP) has imposed a total penalty of Rs 450 million including Rs 20 million on each of twenty (20) Gulf Cooperation Council (GCC) Approved Medical Center (GAMC) and Rs 10 million on each of five (5) Gulf Cooperation Council (GCC) Approved Medical Centers Administrative Office (GAMCA) for indulging in collusive activities in violation of Section 4 of the Competition Act, 2010 (the ‘Act’).

A CCP Bench comprising of Chairperson, Rahat Kaunain Hassan, Member, Abdul Ghaffar and Member, Dr Joseph Wilson, passed and issued the Order in respect of the proceedings initiated against GAMCAs & GAMCs (Respondents) for division of market and equal allocation of customers among the themselves and also exploiting customers by restricting their choice and imposing unfair terms and conditions in violation of Section 4 of the Act.

The proceedings were initiated on the complaint of Pakistan Overseas Employment Promoters Association (POEPA) wherein it was alleged that the Respondents are fixing a uniform fee, dividing the market and equally allocating the intended emigrants/ expatriate workers (GCC Customers) among themselves for the pre-departure medical tests, which is mandatory in nature to proceed to GCC States Bahrain, Kuwait, Oman, Qatar, Saudi Arabia. The Respondents were also alleged to have been exploiting the customers by restricting their choice and imposing unfair terms and conditions which amounts to violate Section 3 & 4 of the Act.

The Bench in its Order rejected the grounds taken by the Respondents that “fixing a uniform fee, dividing the market and equally allocating the intended emigrants/ expatriate workers (GCC Customers) among themselves for the pre-departure medical tests is an ‘Act of State’ and the Respondents are compelled to the implement such system, therefore, under the doctrine of ‘foreign sovereign compulsion’ the provisions of the Act are not applicable to them. The Bench observed that these doctrines are not available or recognized as defenses for contravention of Section 4 provisions, at best the Commission can look and examine these grounds in its discretionary exercise while considering grant of exemption. The defenses on the basis of these doctrines after being examined on merit were held to be untenable.

With respect to the price fixing aspect, the Bench has observed that given that such medical tests are in the nature of mandatory/ necessary services for the GCC Customers and are only conducted by the accredited medical centers i.e. GAMCs; if a prescribed fee in the form of ceiling is not provided, the GAMCs could start charging fee at exploitative rates (particularly keeping in view the customers it caters for). The purpose of allowing upper ceiling for such prescribed fee would also allow certain level of competition amongst the GAMCs vis-à-vis fee. It would also provide incentives for the Respondents to strive for greater efficiency and better quality of services as once the price is capped as an upper ceiling, the GAMCs may still work towards reducing operational costs along with improvement in quality of services. This would also provide more price flexibility than in the ‘fixed price’ approach. It was held by the Bench that such practice of prescribing upper ceiling of the fee requires obtaining of prior approval/ exemption from the Commission, therefore, the Respondents were directed to file the exemption application with the Registrar of the Commission within thirty (30) days.

Regarding the division of markets and equal allocation of the GCC Customers for pre-departure medical check-ups, the Bench observed that in order to achieve the real objective of the Executive Board that is to set up the health requirements needed to be fulfilled by workers coming for work in the region, determine the clinical, pathological and radiological tests to be conducted for assurance of their physical and psychological fitness, the modus operandi of division of market by creating five regions and equal allocation of GCC Customers within each of the regions cannot be considered indispensable. The justification by the Respondents that the equal distribution system was implemented in order to curb the malpractices i.e. giving kickbacks to the promoted was also found not tenable as mere pretext to curb malpractices cannot be a ground to allow express contravention of law. The Bench further observed that the grounds that non compliance would result into malpractices are not justifiable when the practice adopted to subvert such purported malpractices results in express contravention of law. This as per settled principles, is held in itself to be against public policy. The malpractices, if at all, have to be addressed it had to be done either through effective monitoring, proper enforcement, imposition of penalties or through cancellation of license/accreditation. It was observed that the division of market and equal allocation of GCC Customers (quota system) has allowed the Respondents to operate in their comfort zones by ensuring guaranteed revenues. Therefore, the Bench concluded that by implementing the division of market and equal allocation of GCC Customers (quota system), the competition is prevented and restricted; leaving no incentive to bring any innovation or efficiency.

The Bench observed the market division and customer allocation is in a sense inherently anti-competitive; as such agreement(s) are designed to create an area of monopoly in which competition on efficiency are totally absent. Eventually in such markets no benefit is advanced to the general public and not only the customer choices/ preferences are restricted and foreclosed even the innovation and efficiency is also lost. It was also observed that the Respondents have engaged themselves into an arrangement which is as per well settled principles considered per se illegal. As per the record, the system of ‘pre-departure medical tests’ was put in place since 2000. The competition law has been in force in Pakistan since October 2007 and the Respondents even after the introduction of the competition law, made no effort for rectifying their behavior. Clearly, such illegal practices /activities continued for over a period of four (4) years. Even during the proceedings while the Respondents have taken great pains to justify the market division and equal allocation of GCC Customers, no effort was made by the Respondents to work towards compliance.

Keeping in view the above, a fine in the sum of Rs. 20 Million was imposed on twenty (20) GAMCs and Rs. 10 million on five (5) GAMCAs. The Respondents were further directed to discontinue the practice/ arrangement of territorial division and equal allocation of GCC Customers among GAMCs forthwith and file the compliance report thereof with the Registrar of the Commission, no later than 15-08-2012. Failure to cease and desist this practice shall make the Respondents liable to an additional penalty in the sum of Rs. 500,000/- (Rupees Five Hundred Thousand Only) for each day of default.