Striking a balance between Fair trade , Competition and Consumer Protection,
With the advent of globalisation and the world knitting themselves into a global village, the face of the markets have changed drastically. There were times when the only soap available in the market was Lux but now, supermarkets have dedicated shelves together just to sell bathing soaps. The needs and the growing level of awareness among consumers coupled with liberal economic policies are the reason for such a change. However, at several instances and across the globe, this is need is misused and put up to the disadvantage of the consumers and buyers of all layers. Owing to such unscrupulous practices, as a solution to the rising problems, the concept of fair trade rose. This paper attempts to study the relationship between fair trade, competition and interest of the consumers in this era of globalisation.
International trade today is one of the key battlefields between pro-liberalisation and anti-liberalisation forces. This struggle is likely to become more intense in the next few years as the pro-liberalisation forces set in motion their drive to expand the powers of the World Trade Organisation (WTO) by bringing new issues under its umbrella that were not in the original mandate (such as foreign investment and competition law). Pressures on developing countries, such as Pakistan, to rapidly open their markets to imports, result from the WTO’s operational principles and rules as well as policy prescriptions of the International Monetary Fund (IMF), the World Bank, regional development banks and bilateral aid donors imposed as conditions of debt rescheduling, new loans and aid. For developing countries, the sale of commodities abroad is often a vital source of income. Oil and coffee are the two widely traded exported items. Minerals and cash crops are also important. Revenues from these commodities often end up in the hands of the government rather than the workers who produce them or ordinary people.
What is fair trade?
Fair trade is a social movement whose stated goal is to help producers in developing countries achieve better trading conditions. Members of the movement advocate the payment of higher prices to exporters, as well as improved social and environmental standards. The movement focuses in particular on commodities, or products which are typically exported from developing countries to developed countries, but also consumed in domestic markets (e.g. Brazil, India and Bangladesh) most notably handicrafts, coffee, cocoa, wine, sugar, fresh fruit, chocolate, flowers and gold. Fair trade has its roots in the efforts of church organizations helping to rebuild European communities after WWII. These faith-based initiatives sold handicrafts produced in rebuilding communities in Europe to create economic opportunities for the artisans and to raise awareness about their plight among consumers who purchased them. Later iterations of this model were “world stores” at which consumers could buy ethically produced items. Fair trade certification programs were introduced to improve on the world store model.
To quote one author, fair trade “in its earliest incarnation was opposed in principle to the deregulation embraced by later neoliberal policies.”
Seen in this light, contemporary fair trade standards are a limited, voluntary attempt to replace some of the national regulatory tools that countries had formerly used to protect their workers and industries. These regulations were forcibly dismantled by trade agreements such as NAFTA, and through agreements with institutions like the International Monetary Fund (IMF), World Trade Organization (WTO), and the World Bank.
The need for such a drastic social movement was seen and felt across decades but the term fair trade was coined by the South Americans in 1946.
The World Fair Trade Organisation has come up with ten principles that every country must adopt in order to ensure fair trade. They are as follows:
Creating Opportunities for Economically Disadvantaged Producers
Transparency and Accountability
Fair Trading Practices
Ensuring no Child Labour and Forced Labour
Commitment to Non Discrimination, Gender Equity and Women’s Economic Empowerment, and Freedom of Association
Ensuring Good Working Conditions
Providing Capacity Building
Promoting Fair Trade
Respect for the Environment
Once upon a time, way back in the 1800s, there were several giant businesses known as “trusts.” They controlled whole sections of the economy, like railroads, oil, steel, and sugar. Two of the most famous trusts were U.S. Steel and Standard Oil; they were monopolies that controlled the supply of their product—as well as the price. With one company controlling an entire industry, there was no competition, and smaller businesses and people had no choices about from whom to buy. Prices went through the roof, and quality didn’t have to be a priority. This caused hardship and threatened the new American prosperity.
While the rich, trust-owning businessmen got richer and richer, the public got angry and demanded the government take action. President Theodore Roosevelt “busted” (or broke up) many trusts by enforcing what came to be known as “antitrust” laws. The goal of these laws was to protect consumers by promoting competition in the marketplace. Hence the concept of anti-trust came into the picture which was an antithesis to capitalist practices. The whole idea of anti-trust or competition law as known in other countries ensures that the unfair practices in the markets are curbed and the both the seller and the buyer are accorded and free and fair environment to engage is trade.
Competition law and IPR
The intellectual property laws and the antitrust laws share the common purpose of promoting innovation and enhancing consumer welfare. The intellectual property laws provide incentives for innovation and its dissemination and commercialization by establishing enforceable property rights for the creators of new and useful products, more efficient processes, and original works of expression. The antitrust laws promote innovation and consumer welfare by prohibiting certain actions that may harm competition with respect to either existing or new ways of serving consumers.
Unfair competition means any fraudulent, deceptive, or dishonest trade practice that is prohibited by statute, regulation, or the common law. It consists of a body of related doctrines that gives rise to several different causes of actions, including (1) actions for infringement of patents, trademarks, or copyrights; (2) actions for wrongful appropriation of trade names, trade dress, and trade secrets; and (3) actions for publication of defamatory, false, or misleading representations.
Fair practices and WTO
Although many dissolutions on the WTO system, particularly from developing countries, has been going on, due to legalisation from the powerful countries. However, the Fairness Norms might be questioned in two kinds: firstly, the weaknesses of regulatory policies in other countries give the exporters of those countries unfair advantage when they enter another country’s market. These complaints usually are labelled as ‘social dumping’ or ‘regulatory subsidise’.
Secondly, the unfairness claims made against foreign laws, practice and institutions that impede one’s own export to foreign markets.
The law of unfair competition serves five purposes. First, it seeks to protect the economic, intellectual, and creative investments made by businesses in distinguishing themselves and their products. Second, the law seeks to preserve the good will that businesses have established with customers over time. Third, the law seeks to deter businesses from appropriating the good will of their competitors. Fourth, the law seeks to promote clarity and stability by encouraging customers to rely on a merchant’s trade name and reputation when evaluating the quality and prices of rival products. Fifth, the law of unfair competition seeks to increase competition by providing businesses with incentives to offer better goods and services than others in the same field.
Although the law of unfair competition helps protect consumers from injuries caused by deceptive trade practices, the remedies provided to redress such injuries are generally only available to business entities and proprietors. Consumers who are injured by deceptive trade practices normally must avail themselves of the remedies provided by consumer protection laws. Businesses and proprietors, however, may typically avail themselves of two remedies offered by the law of unfair competition, injunctive relief (a court order restraining a competitor from engaging in a particular unlawful action) and money damages (compensation for any losses caused by the unlawful practice). These remedies may be available in both state and federal court, depending on the circumstances surrounding the unlawful act.
Position in UK
The Consumer Protection from Unfair Trading Regulations 2008 (Consumer Protection Regulations) implement the EU’s Unfair Commercial Practices Directive (UCPD). The UCPD aims to harmonise European legislation preventing business practices that are unfair to consumers. The aim of the legislation is to make it easier for traders in one member state to market and sell their products to consumers in other member states. This is particularly relevant to the tourism sector.
The Business Protection from Misleading Marketing Regulations 2008 (Business Protection Regulations) also implement the EU’s Unfair Commercial Practices Directive. These regulations tighten restrictions relating to how companies compare their products to rival products from other companies.
The aim of the CPRs is to provide a framework for determining whether certain practices are misleading, aggressive or lack due diligence on the basis that they would alter the behaviour of the average customer. In other words, if it can be determined that the customer made a purchase that they otherwise would not have done had they known the full facts of the matter, then the business has engaged in unfair practices. This covers engaging in misleading practices such as making false or deceptive statements in marketing material or omitting important information that would have a bearing on the customer’s purchasing decision.
Position in USA
Congress passed the first antitrust law, the Sherman Act, in 1890 as a “comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade.” In 1914, Congress passed two additional antitrust laws: the Federal Trade Commission Act, which created the FTC, and the Clayton Act. With some revisions, these are the three core federal antitrust laws still in effect today. These Acts, first, restrict the formation of cartels and prohibit other collusive practices regarded as being in restraint of trade. Second, they restrict the mergers and acquisitions of organizations that could substantially lessen competition. Third, they prohibit the creation of a monopoly and the abuse of monopoly power.
The FTC enforces federal consumer protection laws that prevent fraud, deception and unfair business practices. The Commission also enforces federal antitrust laws that prohibit anticompetitive mergers and other business practices that could lead to higher prices, fewer choices, or less innovation.
US consumer protection policy is in essence based on the notion that consumers should be empowered to protect their own self interests. This leads to an emphasis being placed on requiring sellers to provide full disclosure about their products to enable consumers to make informed choices, and allowing access to justice, including by enabling class actions and collective action. Despite that, some federal and state agencies actively engage in enforcement actions in the public interest.
Position in India
The competition law jurisprudence of India is older than many other developing countries. The Monopolies and Restrictive Trade Practices (MRTP) Act was adopted by India more than 40 years ago because of “command and control” approach of the government. It was introduced to prevent concentration of economic power, control monopolies and to prevent monopolistic, restrictive or unfair trade practices. After the advent of Competition Act 2002, the position of India in terms of trade and improved manifolds as now she not only restricts monopolies and restrictive trade practices but has embraced several changes that make the country an open economy.
Unfair Trade Practices in India encompass a broad array of torts, all of which involve economic injury brought on by deceptive or wrongful conduct. The legal theories that can be asserted include claims such as trade secret misappropriation, unfair competition, false advertising, palming-off, dilution and disparagement.
Fair trade and Consumer rights: The Intersection
The intent of Fair Trade is overall development of the marginalized through the medium of trade. Fair trade addresses the unjust and biased world order as well as the trade, which is routed by profit motives, which seldom takes the development concerns of the majority of the world’s population, into account who are socially and economically backward. Fair trade places development before profits. It clubs campaigns, protests and alternative sustainable options of income generation in the best possible way.
For Fair Trade, the social responsibility of uplifting the marginalized comes as the prime objective where as in the mainstream, the present efforts to ensure ‘social responsibility’ most often turns out to be cosmetic exercises which confers them the social license to go on with its profit lead/ oriented initiatives. Making the present conventional stream of trade fair is not possible till it makes the development of the excluded section of the world, as its major objective. It is a paradigm shift from the very concept of conventional trade and business.
The Fair Trade organisations working with producers at grassroots level in India are also responding to the needs of social empowerment of the marginalized communities with the additional support of Fair Trade partners, philanthropists, development organisations and corporate sector.
Fair Trade is a blend of social and economic components of activities aimed at the overall of development of the marginalized is to be realized in order to have a sustainable impact on the lives of the neediest among the marginalized of the world. Fair trade from its origin strives for that.
There is effectively no law in India against false advertising and unfair trade practices. The frequent news stories of big brands indulging in false advertising should be no surprise. As there is no law, businesses are free to be uninhibited in advertising. Whereas businesses do not have “rules of the game” to engage in fair competition, the end loser is the consumer, left in a web of false claims and half truths. Curiously, we started out with a law protecting against unfair trade practices during the “licence permit raj”, and then dropped it when the economy liberalized and competition came in.
How have we come to this stage? The answer will guide in developing a response against unfair trade practices. By the 1980s, there was proliferation of advertising, including false advertising. To regulate advertising, in 1984, Parliament inserted a chapter on unfair trade practices in the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP).
Under the MRTP Act, any person or trader (business entity) could approach the MRTP Commission against an unfair trade practice. If a trader suffered losses due to an unfair trade practice by another trader, he could claim damages. The MRTP Commission could also, on its own knowledge, take up a case of an unfair trade practice. While the MRTP Commission had only one office in New Delhi, it took up a large number of cases of unfair trade practices. Companies approached the MRTP Commission with complaints against other companies, the most famous being the Colgate-Pepsodent advertisement rivalry.
The Consumer Protection Act (CPA) was enacted two years later. The CPA intended to give protection to consumers against unfair trade practices. Towards this, it borrowed the definition of unfair trade practices from the MRTP Act. Thus, another platform emerged for a remedy against an unfair trade practice.
However, for reasons we note later, the remedy under the CPA has remained dormant. At the turn of the century, following changes worldwide, need was felt for a comprehensive law against monopolies and anti-competition business activities.
The central government appointed a committee to study the subject and draft a new law. The committee prepared a report and a draft bill. It excluded unfair trade practices from the draft bill as it did not want to dilute the thrust of the law from anti-competition activities.
The justification given by the committee for the exclusion was that the CPA provided adequate redressal against unfair trade practices. Following recommendations of the committee, the Competition Act, 2002 was enacted, repealing the MRTP Act, 1969. There is no argument against the committee seeking to focus exclusively on fostering competition in drafting competition law. However, the committee should have recommended a separate legislation for (un)fair trade practices.
The justification of the committee, that the CPA provided adequate redressal against unfair trade practices, did not have a basis. Only a consumer can approach a consumer forum for a remedy. A company is not a consumer and thus cannot approach a consumer forum complaining of unfair trade practices.
Further, even a natural person can become a consumer only on entering in a contract for buying goods or availing of services. In most cases, a manufacturer advertises its products, but the consumer contracts with the retailer, not the manufacturer.
Thus, effectively, a person who comes across an unfair trade practice has no remedy. For these reasons, the CPA has almost no relevance in regulating unfair trade practices. The MRTP Act alone was the effective law against unfair trade practices.
The Consumer Protection Bill, 2015 provides redressal against unfair trade practices. However, like the existing CPA, only consumers, that is, natural persons who have entered in a contract, can seek remedy from a consumer forum. The bill is proposing to create an additional body, the Central Consumer Protection Authority. Again, only a consumer can seek remedy from the Authority. That is how it should be.
Since the focus of the law is consumer protection, it should confine itself to benefiting consumers only and not open itself up to business entities seeking remedy. Opening up the authority to all will crowd it with disputes among business entities. However, the bill allows any person to bring an unfair trade practice to the notice of the authority.
Thus, a business entity can draw the attention of the authority to an unfair trade practice. But this is only incidental. A business entity must be provided protection against unfair trade practices and a mechanism to claim remedies.
As law has evolved, the subject of unfair trade practices has fallen in the gap between the competition law and consumer protection. A separate legislation and a statutory body like the Competition Commission are imperative to foster fair trade practices in the economy.
Recent cases to curb unfair trade practice
The European Commission has fined Google €4.34 billion for breaching EU antitrust rules. Since 2011, Google has imposed illegal restrictions on Android device manufacturers and mobile network operators to cement its dominant position in general internet search.
Google must now bring the conduct effectively to an end within 90 days or face penalty payments of up to 5% of the average daily worldwide turnover of Alphabet, Google’s parent company.
Commissioner Margrethe Vestager, in charge of competition policy, said: “Today, mobile internet makes up more than half of global internet traffic. It has changed the lives of millions of Europeans. Our case is about three types of restrictions that Google has imposed on Android device manufacturers and network operators to ensure that traffic on Android devices goes to the Google search engine. In this way, Google has used Android as a vehicle to cement the dominance of its search engine. These practices have denied rivals the chance to innovate and compete on the merits. They have denied European consumers the benefits of effective competition in the important mobile sphere. This is illegal under EU antitrust rules.”
In particular, Google:
has required manufacturers to pre-install the Google Search app and browser app (Chrome), as a condition for licensing Google’s app store (the Play Store);
made payments to certain large manufacturers and mobile network operators on condition that they exclusively pre-installed the Google Search app on their devices; and
has prevented manufacturers wishing to pre-install Google apps from selling even a single smart mobile device running on alternative versions of Android that were not approved by Google (so-called “Android forks”).
For many years, China has pursued industrial policies and unfair trade practices—including dumping, discriminatory non-tariff barriers, forced technology transfer, over capacity, and industrial subsidies—that champion Chinese firms and make it impossible for many United States firms to compete on a level playing field.
China’s industrial policies, such as its “Made in China 2025” plan, harm companies in the United States and around the world.
China imposes much higher tariffs on United States exports than the United States imposes on China.
China’s average tariff rate is nearly three times higher than the average United States rate. Certain products are even more imbalanced, for instance the United States charges a 2.5 percent tariff on Chinese cars, while China currently maintains a 25 percent tariff on cars from the United States. China has banned imports of United States agricultural products such as poultry, cutting off America’s ranchers and farmers from a major market for their goods.
China has dumped and unfairly subsidized a range of goods for the United States market, undermining America’s domestic industry. In 2018 alone, the Trump Administration has found dumping or unfair subsidies on 13 different products, including steel wheels, cold-drawn mechanical tubing, tool chests and cabinets, forged steel fittings, aluminum foil, rubber bands, cast iron soil pipe and fittings, and large diameter welded pipe.
In January 2018, the Trump Administration found that China’s overproduction of steel and aluminum, and the resulting impact on global markets, is a circumstance that threatens to impair America’s national security. The United States has run a trade in goods deficit with China for years, including a $375 billion deficit in 2017 alone.