Supporting Accelerated Investment in Sri Lanka (SAIL) Project Competition Law Review and Recommendations

The law created two entities, the Consumer Affairs Authority and the Consumer Affairs Council, which have the right to investigate and enforce the provisions of the CAAA. However, the law suffers from vagueness and excessive regulation, failing to clearly define permitted and prohibited behavior. The current law gives the CAA too much latitude to regulate what should be normal competitive behavior. The existing provisions that allow the CAA to set a maximum price for any product deemed "essential" are contrary to international best practices and a significant drag on the development of a free market. The Amendments to the CAAA provide greater definition to competition offenses but also broaden the regulatory scope of the CAA, resulting in a mixed impact of providing greater certainty but proscribing behaviors that could be procompetitive. The lack of merger control and notification provisions in the existing law is a significant omission. Sri Lanka has been negatively impacted by mergers and acquisitions that have eliminated competitors without any oversight by the CAA. A system of pre-merger notification should be put in place that gives the CAA notice of business acquisitions, mergers, or joint ventures before they occur. This would prevent uncompetitive mergers and allow the CAA to take action to prevent the creation of monopolies and dominant firms. The ability of firms to establish their own prices, output, and quality are essential components of a free market. However, the current law allows the CAA to substitute its own judgment for that of competitors whenever it deems a product to be "essential." This provision is antithetical to a free market and highly damaging to competition. The maximum price control provisions contained in Part II of the CAA should be repealed. The main provisions that reflect competition policy in the existing law are Sections 34 through 38. Section 35 describes a broad prohibition against any conduct that has the effect of harming competition. However, the section is overly broad and includes both unilateral and coordinated conduct. The undefined and sweeping language could prohibit a great deal of conduct that would be permitted under international best practices. Part III, Section 35 should be amended to make a distinction between unilateral and joint conduct and to limit the reach to behavior that has a "substantial" impact on competition. The draft Amendments to the CAA make an effort to describe in detail the main types of antitrust offenses that should be prohibited in a system that conforms with international law. International norms recognize three broad categories of antitrust offenses: single-firm behavior that tends to exclude competition, agreements between firms that restrict competition, and concerted practices that harm competition. The draft Amendments attempt to describe these offenses in detail, but the lack of a complete draft leaves these comments guessing as to what, if anything, may change in other sections of the law. The CAA should have a duty to protect competitively sensitive information gathered during the course of any investigation. This would strike a balance between transparency and accountability of the agency and its actions and protecting trade secrets and competitively sensitive information. The CAA will need to gather information from competitors and customers that is of a highly sensitive nature, such as marketing strategy, planned innovations, customer lists, etc. These types of information should not be made public and should be treated with the utmost care by the investigating agency.