Market jurisprudence

One of the interesting things about an open market system is that there will be judgement calls, there will be arguments that will precede those judgement calls, and finally further arguments over those judgment calls. It is interesting that there have been two high profile cases, whose verdicts have been pronounced on successive days. One of them was delivered by the European Commission, and it has led to the imposition of fine on Apple’s profits in Europe with its base in Ireland, where the Dublin government gave tax concessions to the American giant. 

The second case involved Reliance Industries and the Oil and Natural Gas Commission (ONGC) dispute. The AP Shah Committee was set up by the Narendra Modi government in November 2015 to decide whether Reliance Industries had gained unfair advantage from the migrant gas from the adjacent fields of the Oil and Natural Gas Commission (ONGC). The conclusion of the Shah committee is nuanced. It found that the Reliance Industries had indeed benefited from the migrant gas, and at the existing rate of natural gas, it would amount to Rs 11,055 crore. Of course, it is now left to the government to take a decision. It can make a demand on the Reliance Industries, and it is possible that Reliance would want to challenge it in a court of law. On the face of it, the court verdict would have to be on the lines of the Shah Committee’s opinion.

It might appear that there is nothing common between the two cases. While the European Commission pronounced its verdict on the issue of tax concession given the Irish government to Apple which gave an advantage to the American company, the other one involves an advantage that had accrued to Reliance Industries due to a chance occurrence of migrant gas.

In the case of the Irish government and Apple, there was the rational motive on the part of the Irish government which wanted to attract businesses and investors. But there was a little foul play, or it would be called business strategy, when Apple sold its products all over the European Union (EU) countries, but it accounted its sales as having been sourced from its Ireland base. It certainly appears to be an unfair trade practice because other businesses in the same segment would be at a disadvantage. And it affects the profit lines of other businesses as well which do not enjoy the same tax concessions like Apple.

 This leads to the question whether the policy of tax concessions offered by governments are rational and fair. It would be argued that concessions are indeed a rational strategy for any government to adopt. But this is an issue that is open to debate and argument. A concession offered to one of the players should not be detrimental to others. Secondly, it should not be the case that a government offering a tax concession to a business, in this case the Irish government’s offer to Apple, deprives people of the rightful tax which could be spent on public welfare measures. It is an indirect loss to the national exchequer, an argument which is a little too familiar to India’s business watchers. 

There have been howls of protest from supporters of the free market over the Ireland-Apple case, arguing that it is this kind of regulatory intervention and tax-bullying that is killing the European economy. Of course, the ideological rant misses the point as it always does. Is fair play one of the principles of a market economy? Is there need for an arbitrator to settle points of difference? And is there need for everyone to abide by the decisions of the regulator to keep the system going, where every decision of the regulator could not be right, and there is a possibility that market players are tempted to always seek advantages and even a favoured status?

If we now turn to the Reliance Industries-ONGC case, the case appears to be a grey area. It can be argued that the Reliance Industries did not ‘steal’ the ‘migrant gas’, nor did it encroach on the adjacent ONGC oil wells. A sense of fair play would however require that Reliance Industries should not have pocketed the earnings from the migrant gas because it was not part of the wells it has contracted from the Director General of Hydrocarbons (DGH). It also emerges that the ONGC had been quiet about it from about 2009 to 2013 before it filed the complaint. 

The parallel between the two cases re-emerges again: In the first case, the Irish Government and the Apple appear to be in collusion, one offering an unfair tax concession, and the other accepting is silently, and in effect slyly.

In the second instance, it is the Reliance Industries and the ONGC who seem to have been in collusion, at least for a while. 

This is what raises questions of jurisprudence. Even if something is not patently illegal, can it be unfair and unjust? As these two cases appear to be falling in the market jurisdiction, the issues of market fairness and market justness need to be considered and debated within the context of what should be called market jurisprudence. The free market evangelists need to be reminded that running the market is a tricky business, and there will always arise questions of right and wrong, fair and unjust. These cannot be pushed under the carpet. The capitalist economy needs a sense of values to be able to function well and smoothly.    

The author is Consulting Editor, dna