CCI introduces Leniency “Plus” regime in India- Will it suffice?
The ongoing “battle” between the International Air Transport Association (IATA) and the Air Cargo Agents Association of India (ACAAI) over the implementation of the Cargo Accounts Settlement System (CASS) in India does not seem to be getting over! The “battle on CASS” as I would prefer calling it, between IATA and ACAAI, going on since 2012 and the “turf” is the Fair Market Watchdog, the Competition Commission of India (CCI)! Interestingly, the implementation of CASS by member airlines in India was made mandatory by IATA with effect from 1.6.2015 but the members of ACAAI have been opposing it (unsuccessfully so far) since 2012 before the CCI.
Here is the latest! CCI vide its order dated 31 March 2021, has again dismissed the allegations of abuse of dominance against the IATA in the relevant market “for account settlement services in respect of air cargo segment in India’.
Let us quickly have a relook at the background, duly captured in my blogs since beginning.
ACAAI in 2012 filed the first case against IATA in which it had alleged both violation of Section 3 (3) of the Competition Act, 2002 (the Act) i.e., anti-competitive agreement by limiting and controlling the market and fixing rate of commission payable to cargo agents by airlines and violation of Section 4 of the Act i.e., abuse of dominance against IATA and IATA-India through IATA resolutions. The CCI found a prima facie case for violations and referred the allegations for investigation to its investigating arm, the Director General (DG). The DG in its investigation report, while noticing that IATA resolutions did raise competition concerns, however, concluded that allegations of limiting and controlling the market and fixing rate of commission payable to cargo agents by airlines were not proved. CCI, agreeing with the DG investigation findings closed the case vide its order dated 4.6.2015, holding inter alia, that the introduction of CASS by IATA is not anti-competitive on account of the fact that it is an efficient system and because it is not fully functional in India and still in the pilot stage. CCI , thus dismissed the allegations of ACAAI of IATA under Section 3(3) of the Act of limiting and controlling the market and fixing rate of commission payable to cargo agents by airlines without taking any decision on the other allegation of violation of Section 4 of the Act , the abuse of dominance by IATA.
The above CCI order was challenged by ACAAI before the erstwhile Competition Appellate Tribunal (COMPAT) and the COMPAT vide its order dated 15.11.2016 allowed the appeal and while remanding the matter for fresh investigation by the DG, ruled that the DG failed to furnish its findings on the allegation of abuse of dominance though made in the complaint. You may see the COPMAT order reported in my blog on 18.11.2016 here.
IATA, as a counter blast to the above 2012 case filed by ACAAI, filed a case of cartelization i.e violation of Section 3(3) of the Act against ACAAI in 2017 alleging that ACAAI, which is a national trade association representing the air cargo industry in India are actively encouraging and pressurizing member cargo agents to collectively boycott businesses of airlines that seek to implement the CASS in India. It was alleged that ACAAI, to derail the implementation of CASS, are also persuading airlines to refrain from asking agents to join CASS in India. It was alleged that such conduct of ACAAI is anti-competitive agreement between members of ACAAI as it limits the supply of air cargo transportation services in India in violation of Section 3(3)(b) of the Act. IATA, by way of evidence, even produced an e-mail dated May, 2014 by which ACAAI allegedly persuaded its member agents to send a letter to a member airline of the Informant and sought confirmation from member agents in this regard. It was alleged that by requiring a confirmation from its member agents, ACAAI was exerting its influence and putting pressure on its member agents not only to send such letters to airlines but also to boycott any business relationship with them. The Commission, however, upon perusal of the emails and letters produced by IATA observed that ACAAI was not forcing its decision on the member agents, and that the decision of the ACAAI only seemed to be recommendatory for its members. The CCI accordingly did not find any prima facie case and closed the Information filed by IATA vide its order dated 12.9.2017. You may read the analysis on the CCI order in my blog dated 19.9.2017.
Further , based on the COMPAT order dated 15.11.2016 mentioned above, the first case filed by ACAAI continued before the DG, CCI but the DG after concluding its investigation , interestingly , in its fresh investigation report dated 14.6.2018 gave another new turn to the whole matter by holding that IATA being a trade association cannot be said to be engaged in economic and commercial activities as provided under Section 2(h) of the Act and , therefore, they cannot be termed as “enterprise” for the purposes of Section 4 of the Act! This finding by the DG, if accepted, could have taken IATA out of CCI’s jurisdiction itself!
However, CCI did not agree with this finding of the DG and on consideration of objections filed by ACAAI to this DG report held that some categories of activities undertaken by IATA were in the nature of “economic activities” , albeit for not-for-profit motive, as claimed by Ops and hence IATA was indeed an “enterprise” under Section 2(h) of the Act. Further, based on its previous decisions in which many trade associations were penalized for anti-competitive behaviour, CCI directed DG to conduct another investigation. DG accordingly submitted its supplementary investigation report/ 3rd investigation report on 07.11.2019. DG delineated the ‘relevant market’ as ‘market for account settlement services in respect of air cargo segment in India’. In this relevant market, IATA was not found to be enjoying a dominant position. Further, DG also did not find any evidence to hold any anti-competitive agreement between member airlines of IATA in violation of Section 3(3) of the Act. Thus, DG gave a clean chit to IATA!
Submissions by the Informant/ACAAI
Against the findings of the DG in the 3rd investigation report, ACAAI made the following allegations: –
- As per the Cargo Agency Programme of IATA under IATA Resolution 801, only those air cargo agents who are accredited with IATA can engage in business dealings with IATA member airlines.
- The cargo agents have to pass mandatory investigation and accreditation procedure according to the financial and other criteria set by IATA in order to engage in business with member airlines of IATA. Thus, OPs act as a direct entry barrier between the cargo agents and the airline companies.
- According to the Informant the relevant market should be broadly taken as the ‘the services of facilitating international cargo business (inbound and outbound) with international airlines in India’.
- OPs hold a dominant position in the delineated relevant market as predominant proportion of the international cargo business (in terms of tonnage) is conducted through IATA’s member airlines which was around i.e., 90.14% – 93.53% in year 2017. Therefore, cargo agents have no other option but to follow the abusive conduct of IATA
- Although only 17.10% of IATA member airlines had adopted CASS system but they were carrying 67% of total freight tonnage in India. Thus, the OPs are dominant even in the relevant market delineated by the Commission/ DG.
- Some of the alleged abuse of dominant position as highlighted by the Informant are restrictive and unfair nature of Resolution 801 and Resolution 851 prescribing unilateral financial conditions on cargo agents; payment of mandatory fee for change in nature of business entity of air cargo agents; imposition of discriminatory business conditions for Indian cargo agents and non-Indian cargo agents; lack of availability of legal recourse against the decision of arbitration board; imposition of various kinds of fees on air cargo agents such as application fees, registration fees, annual agency subscription fees, mandatory accreditation with IATA for becoming member of the Informant etc
- Further, the IATA in abuse of its dominant position has imposed onerous terms and conditions for payment through CASS system impacting the financial position of the members of the Informant. Cargo agents who choose not to participate in the CASS are marginalised as IATA member airlines indicate through communications that air waybill stock/ space would be given only to those cargo agents who participate in IATA’s CASS Programme. Further, CASS system imposes strict deadlines for payment of entire freight charges without any grace period and also imposes penalty under the guise of administrative fees. Also, CASS is not mandatory for member airlines as they can choose not to opt for it, but if an airline opts for CASS, the cargo agent in order to deal with the member airline is compelled to opt for CASS
Contentions made by IATA
As expected, IATA supported the findings in the DG 3rd investigation report and submitted that:
- IATA is not operating independently of competitive forces as all decisions pertaining to the carrier/ agent relationship, are taken by IATA members only after getting approval from ‘International Federation of Freight Forwarders Associations Consultative Council’ that has equal number of IATA and IFIATA members.
- IATA’s conferences and resolutions do not impose any unilateral, unfair and abusive conditions on air cargo agents. Further, there is extensive dialogue between all stakeholders (member airlines and accredited cargo agents) prior to the adoption of any resolution.
- The introduction of CASS represents a significant upgrade over the traditional offline invoice settlement system which was error prone, time consuming and inefficient. Also, CASS is merely one of the many available account settlement systems and IATA does not mandate either the airlines or the air cargo agents to use CASS. For instance, in 2018-19, out of 18 airlines which had adopted CASS, 11 of them also had their own internal account settlement systems.
Commission’s decision –
After holding initially that the OPs were enterprise within the meaning of Section 2(h), the CCI delineated the relevant market as ‘market for account settlement services in respect of air cargo segment in India’, CCI relied on the data provided by the DG and held that the OPs are not dominant in the relevant market. The rationale being that during the relevant period, i.e., 2009-10 to 2012-13, the market share of IATA in the relevant market was ‘NIL’. Moreover, even beyond the relevant period, the market share of OPs was never more than 21.18%[1]. CCI noted that CASS was not mandatory but an option for cargo agents. The air cargo agents had the option to switch to alternative account settlement system. Thus, there existed substitutability in the relevant market. Thus, as OPs did not enjoy dominant position in the relevant market, the CCI refrained from delving into the question of abuse of dominant position.
With regards to the allegations pertaining to contravention of the provisions of Section 3 of the Act, the CCI, agreeing with DG findings, observed that in the absence of any fresh material or evidence in respect of the allegations pertaining to contravention of the provisions of Section 3 of the Act, the contention of the Informant is not well-founded.
COMMENT:
In past, there have been
multiple face-offs between the parties before the CCI and the COMPAT. But in my
view even this recent order, the CCI has left few gaps, such as , (i) not considering the market share
of IATA in the International cargo volumes to and from India , which if
considered would have shown that IATA enjoyed market power and faced virtually no
competition from domestic airlines and
(ii) not fully examining the possible role of the member airlines of IATA in
coming together in an anti-competitive manner to dictate terms of doing
business to the downstream cargo agents fully
dependent upon them in violation of Section 3(3) of the Act . I am sure that
ACAAI is going to challenge this CCI order too by another appeal before the new
Appellate Tribunal, the NCLAT. So the battle over CASS in India is likely to
continue …
#IATA #ACAAI #CASS # CCI # CompetitionAct #Cartel
[1] Apparently, CCI has only considered the domestic cargo transit figures and ignored ACAAI’s objection of considering the International cargo figures in which IATA member airlines clearly enjoyed market power.
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