CCP rejects allegations of Aptma

The Competition Commission of Pakistan (CCP) has rejected allegations of the All Pakistan Textile Mills Association (APTMA) that the Polyester Staple Fibre (PSF) producers are involved in cartelization or collusion. The CCP report on the PSF sector, issued on Wednesday, analysed possibility of the cartelisation in the PSF sector.
The CCP initially outsourced this study but later it was completed and finalised in-house by the CCP's research team consisting of Ms Kishwar Khan and Mustafa Mahmood, under the guidance of Mueen Batlay Member, CCP. The CCP study said that the PSF producers were not involved in cartelisation or collusion. However, they appear to have linked PSF prices with import prices.
This behaviour can be explained as PSF is generally known to be an import-led commodity and producers set prices little higher than the import price, taking advantage of the long-run contracts with textile industry. Contrary to APTMA, the CCP was of the view that the linking practice does not 'necessarily' imply collusion among the producers. Collusion could be inferred if PSF producers were found to be mutually agreeing to fix a certain price. No evidence of such an agreement was found by the CCP.
The report said that the members of the All Pakistan Textile Mills Association (APTMA) are the principal users of PSF. The association has expressed its reservations regarding what they allege as collusive practices of the PSF producers. They point out that PSF producers link their prices to the international price, and charge a markup on the basis of the duty levied and other incidentals that accrue on imports. The association argues that the adjustment made by the PSF producers to compete with imported PSF is an example of a collusive practice.
Economic theory and evidence across various sectors suggests that cartelization is generally easier when a few firms produce a relatively homogenous product. PSF prices by different producers have generally remained within a narrow range. The industry can be characterised to have followed price parallelism irrespective of production cost, size, location, profitability and productivity. One may draw the inference from such behaviour that the PSF firms could have a colluded to fix prices.
On another occasion, the MCA, and later on, the CCP observed that there seemed to be unity among the PSF producers as they were quoting and charging one price across Pakistan. There was a possibility that they had an understanding not to compete with each other in price, and were also sharing commercial information.
Generally cartels seek to increase price by limiting quantity, therefore, low capacity utilisation by producers raises serious suspicion regarding the likelihood of cartelisation in an industry. However, in case of the PSF industry, all producers are utilising almost a hundred per cent of their installed capacity.
The import duty on PSF is another cause of concern for APTMA, as it ultimately affects the textile industry. APTMA is of the view that there should be no duty on PSF import. The CCP observed that the duty's impact on export competitiveness of textile sector must be somewhat mitigated by the duty and tax remission for export (DTRE) scheme. Also the CCP analysis has determined earlier that the ability of PSF producers to raise PSF prices artificially is curtailed by the ability of PSF users to switch to cheaper imports. The government's general policy framework is considered to be investment friendly in nature, and no threat to entry in the PSF sector prevails on the part of the government. Nevertheless, the regulatory framework specific to the PSF sector, such as lower tariffs and weak application of trade remedy law appears to serve as a barrier. Such issues are known in advance and a businessman evaluates the prospects of market entry accordingly.