THE COMESA COMPETITION REGULATIONS (2004)

‘COMPETITION REGULATION IN THE COMON MARKET‘

George K. LipimileDIRECTOR & CHIEF EXECUTIVE OFFICER

COMESA Competition Commission

INTRODUCTION – OUTLINE OF THE PRESENTATION1. General Remarks on what is Common Market

for Eastern and Southern Africa (COMESA).2. Challenges presented by the proliferation of

National Competition Laws.3. Need for the Regional Competition Policy

under COMESA.4. COMESA Treaty Provisions.5. Obligations of Member States under the

COMESA Treaty.6. Merger Control Regulation and Challenges. 7. Conclusive Remarks.

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COMESA COMPETITION LAW AND POLICYWhat is COMESA ? The Common Market for Eastern and Southern

Africa - promoting regional economic integration through trade and investment.With its 19 member states, population of 430 million (2008) and an annual import bill of around US$ 152 billion (2008) and an export bill of over US$ 157 billion (2008), COMESA forms a major market place for both internal and external trading. Its area is impressive on the map of the African Continent covering a geographical area of 12 Million (sq km).

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Burundi*, Comoros, Djibouti*, DR Congo, Egypt*, Ethiopia*, Eretria, Libya, Kenya*, Madagascar *, Malawi*, Mauritius*, Rwanda*, Swaziland*, Seychelles*, Sudan*, Uganda, Zambia*, Zimbabwe*.

8 COMESA Countries are part of SADC and 4 part of EAC (Kenya, Uganda, Rwanda, Burundi). A tripartite Taskforce has been setup to harmonize

their programmes and the overall regional integration process for the three Regional Economic Communities.

*Member States with National Competition Laws.

COMESA MEMBER STATES

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Conduct being examined in two (or more) jurisdictions Conduct investigated by one authority that may have effects in

another jurisdiction Investigations where witnesses or evidence located in another

jurisdiction Remedies that may have impact in another jurisdiction Knowledge of and compliance with complex filling rules; Completion of an array of forms in accordance with various

national requirements; Payment of substantial fees to the reviewing authorities {often

designed to subsidize the operation of the Competition Authority}

Knowledge of and compliance with review schedules and waiting periods.

CHALLENGES PRESENTED BY THE PROLIFERATTION OF NATIONAL COMPETITIION LAWS-

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The globalisation of the world economy impacts on the work of competition authorities◦ Impact of anticompetitive behaviour often goes beyond

national borders, in particular in the case of international cartels ⇨ recent example: Fertilizer, Bread and construction cartels

◦ Mergers & transactions often have an international dimension and produce effects in various markets ⇨ recent example: acquisition of Game Stores by Wal-Mart; Lafarge in cement sector; Illovo Sugar; South African Breweries etc

National Competition authorities face challenges to curb multinational anticompetitive behaviours given jurisdictional and practical limitations of their enforcement powers.

Need for the COMESA Competition Regulations

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Given the fact that the competition laws are national but markets extent beyond national boundaries - :

Are the respective national competition laws of Member States and their enforcement sufficient to deal with the market problems of the regional nature?

Is it prudent for the countries in the region to continue relying on the domestic laws, yet at the same time work towards the development of a more seamless regional system that facilitates the workings of regional markets?

What new tools, tasks and concepts will be needed to address the competition issues that are emerging on the horizon of the regional and global economy ?

THE DILEMMA

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Having regard to Article 55 (1) of the COMESA Treaty: “ … To this end, the Member States agree to prohibit any agreement between undertakings or concerted practice which has its objective or effect the prevention, restriction or distortion of competition within the Common Market”

Article 55 (3): “The Council shall make regulations to regulate competition within the Member States”.

The Regulations were ratified by the Council of Ministers on 17th December, 2004 .

TREATY PROVISIONS

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Effect of RegulationsArticle 10 (2) of the Treaty : “ A Regulation shall be binding on all the Member States in its entirety “Entry into Force of RegulationsArticle 12 (1) of the Treaty : “ Regulations shall be published in the Official Gazette of the Common Market and shall enter into force on the date of their publication or such later date as may be specified in the Regulation”.COMESA GazetteVolume 9 No. 2; Decision No. 43 in Notice No.2 of 2004

EFFECT OF THE REGULATIONS ON MEMBER STATES

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Polytol Paints & Adhesives Manufactures Co. Ltd V. The Republic of Mauritius (CCJ – August, 2013 )Effects of CCJ Decision with Respect to the COMESA Competition Regulations1. Failure by COMESA Member States to domesticate

the Regulations by giving them the force of law and the necessary legal effect within their territories constitutes a breach of the COMESA Treaty.

2. Member States can be taken to the CCJ by other Member States or the Secretary General for breaching the Treaty by failing to fulfill their obligations under the Treaty.

EFFECT OF THE REGULATIONS ON MEMBER STATES

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Polytol Paints & Adhesives Manufactures Co. Ltd V. The Republic of Mauritius (CCJ – August, 2013 )Effects of CCJ Decision with Respect to the COMESA Competition Regulations3. Legal or natural persons have enforceable rights to

take their Member State governments to the CCJ in respect of conduct or measures that prejudices them and constitutes a breach of the Treaty obligations.

4. That Member States cannot use their internal laws as an explanation or defence for not implementing the COMESA Treaty obligations.

EFFECT OF THE REGULATIONS ON MEMBER STATES cont’d/.

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Article 5 of the Regulations: Pursuant to Article 5(2)(b) of the Treaty , Member States shall take all appropriate measures, whether general or particular, to ensure fulfillment of the obligations arising out of these Regulations or resulting from action taken by the Commission under these Regulations. They shall facilitate the achievement of the objects of the Common Market. Member States shall abstain from taking any measure which could jeopardize the attainment of the objectives of these Regulations.

Article 5 (2) (b) of the Treaty : “Each Member State shall take steps to secure the enactment of and the continuation of such legislation to give effect to this Treaty and in particular : to confer upon the Regulations of the Council the force of law and the necessary legal effect within its territory “.

OBLIGATIONS OF MEMBER STATES

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The supra – national merger control regime of COMESA came into force on the 14th of January, 2013;

It seeks to offer a “One – Stop Shop” for the filings in the Common Market;

This means all transactions with an appreciable effect on trade between Member States must be filed with the COMESA Competition Commission – no need to file with individual Member States.

“COMESA ROUTE OFFERS ONE STOP SHOP”

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There are now two separate legal regimes which govern the enforcement of competition law and policy in the COMESA Member States, namely; The National Competition laws: these are the national

legal orders comprising the respective bodies of legal rules within each of the COMESA Member States {Enforcement of anticompetitive practices emanating at national level}.

The Regional Legal Framework: these comprise the body of legal rules created at COMESA level such as the COMESA Competition Regulations and Rules.{Enforcement of anticompetitive practices with cross – border impact}

“COMESA ROUTE OFFERS ONE STOP SHOP”

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Anti-competitive Business Practices : Vertical Restraints { Rule of Reason

Approach}Horizontal Restraints { Per se prohibition}Abuse of Dominance

Mergers and AcquisitionsPre- merger notification requirement

Consumer Protection/Welfare

MAJOR ELEMENTS OF THE COMESA COMPETITION REGULATIONS

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The Regulations provide for three institutions namely - : COMESA Court of Justice: Receives appeals against the

decisions of the Board of Commissioners. Board of Commissioners: A non- executive Board consisting

of 9/13 Members appointed by Council from the Member States. Determines cases it receives from the Commission. The Chairman shall assign three of the Commissioners to be full time members of the Board to be carrying out initial determination of the cases.

Commission: Enjoys international legal personality and in the territory of each Member State shall have the legal capacity required for the performance of its functions; Headed by the Director, responsible for the development of the regional competition policy and its responsibility extends to fact-finding, taking action against infringements of the law, imposing penalties and granting exemptions under the Regulations.

INSTITUTIONAL ARRANGEMENTS

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Scope of Application (Art. 3) : “…apply to all economic activities whether conducted

by private or public persons within, or having an effect within, the Common Market…”

“…apply to conduct covered by Parts 3, 4, and 5 which have an appreciable effect on trade between Member States and restrict competition in the Common Market”

“…shall have primary jurisdiction over an industry or a sector of an industry which is subject to the jurisdiction of a separate regulatory entity…”

“… does not apply to conduct expressly exempted by national legislation”

SCOPE OF APPLICATION:I

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Scope of Application (Art. 3) :Jurisdictional Limit :

In order to come within the prohibition imposed by the Regulations, the agreement practice must affect trade between Member States and the free play of competition to an appreciable extent.

Jurisdiction of the Regulations requires fulfillment of three concepts namely:-

Appliciability: Quantitative element criterion – the Regulations limit jurisdiction to agreements and practices capable of having effects on trade of a certain magnitude.

Effect on trade Between Member States: The application of the Regulations confined to agreements having a minimum level of cross-border effects within the Common Market.

Restriction of Competition in the Common Market :The concept of appreciability is thus distinct from but related to the requirement that the practice should restrict competition.

SCOPE OF APPLICATION:2

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Who determines the Parameters under Article 3 (1) De minimis principle applies The Commission intends to issue a notice indicating when,

in its view, an agreement is likely to be considered to be of minor importance.

Such a notice is intended to enable undertakings to be able to judge for themselves whether their agreements fall outside the scope of the Regulations.

As a result the CCC is currently working on a quantitative criteria to be determined by reference to market share threshold, what is not applicable*.

SCOPE OF APPLICATION (3)

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Remember: Anti-competitive conduct confined to the territory of a single Member State is capable of having repercussions on patterns of trade and competition in the Common Market. Hence, the fact that the parties to an agreement are from the same Member State does not mean that there can be no effect on trade between Member States. The Regulations may apply to agreements between undertakings in the same Member State.

* The quantitative thresholds aim to free up the Commission’s resources to allow it to concentrate on serious infringement of the regulations.

SCOPE OF APPLICATION (4)

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Articles 23 – 26 of the Regulations set out the treatment of Mergers. Based on Article 23 (3) : Applies - : Definition of a Merger : Article 23 (1) A Merger means a direct or indirect

acquisition or establishment of a controlling interest by one or more persons in the whole or part of business of a competitor , supplier, customer or other person whether …’

Article 23 (2) : ‘Controlling Interest means ‘any interest which enables the holder thereof to exercise, directly or indirectly, any control whatsoever over the activities or assets of the undertaking’

Article 23 (3) ;Both the acquiring firm or target firm or either the acquiring firm or target firm operate either in two or more Member States of COMESA (Regional Dimension)

Article 23 (4) :The Zero threshold makes all mergers notifiable under Article 23 (4) of the Regulations.

Article 24 (1) Obligation to notify the Commission of the proposed merger within 30 days of the decision to merger – fine under Article 23 (5) (a).

Article 23 (6) Commission may require the parties to a non-notifiable merger to file a notification.

MERGER CONTROL PROCEDURE UNDER COMESA

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Notification of a Merger with a Regional Dimension – Article 24A party to a notifiable merger shall notify the Commission no later than 30 days of the parties’ decision to merger. Failure to notify a merger is penalized – a fine of maximum 10%

merging parties’ annual turnover in the Common Market (Article 24 (4) )

A Merger implemented without the Commission approval shall have no legal effect and no rights or obligations shall be legally enforceable in the Common Market.

NOTE: Article 25 foresees a one phase merger control assessment within 120 days: Based on Article 23 the CCC will first have to examine if the transaction falls under the CCR. Then in light of Article 26 the CCC will undertake a substantive assessment test and investigate:- (1) If the merger leads or threatens to lead to a SLC and, in the case of anticompetitive effects, (11) If there are any factors (i,e efficiency gains, public interests) to offset the harmful effects.

MERGER CONTROL PROCEDURE UNDER COMESA

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Positives:- High degree of convergence between COMESA Competition

Regulations and domestic competition laws i.e. -: Concurrent competence and cooperation between the

Commission and National Authorities during investigations provided for under the Regulations and Rules.

Most member states have systems of competition law modeled upon Article 16 and 18 of the Regulations; and to some greater extent the national Merger Control Regulations.

Where there is a conflict between the COMESA and domestic competition law, it is likely that the COMESA Competition Regulations may take precedence over national law, so that where a clash occurs it is the former which must be applied.

THE RELATIONSHIP BETWEEN THE CCR AND NATIONAL LAWS

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• The main dispute resolution mechanism under the COMESA Treaty is the COMESA Court of Justice.

• The Court Consists of two chambers these being the Court of First Instance and the Appellate Division;

• The main function of the COMESA Court of Justice is to ensure adherence to law in the interpretation and application of the Treaty;

• Its jurisdiction is to adjudicate upon all matters referred to it under the COMESA Treaty;

• References to the Court can be by Member States, the Secretary General, legal and natural persons.

• The Commission can refer a matter to the CCJ for either guidance or interpretation of the law.

DISPUTE RESOLUTION MECHANISM

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Commencement Of OperationsNew law always comes with a catalog of challenges:-

Announcement : 16 . .6 . 13 Commission ACTIVELY dealing with two main issues, namely – (1)

Guidelines on the ‘scope of application, and (2) establishment of quantifiable thresholds in respect of mergers and dominance.

Commission flooded with inquiries (Positive and Negative) Commission to carryout an advocacy strategy Resistance by same Member States to accept the supremacy of

the Regulations over national law General ignorance of the COMESA Treaty obligations by the

Member States; Lack of political will by Member States to support the Regional

Economic Integration Agenda. Goodwill and availability of technical assistance from the FTC,

ICN, EU, WB, Experts, Regional and International Law Firms

CHALLENGES

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Various Procedural Issues : Notification : Article 24 (1) “a party to a merger shall notify the

Commission in writing of the proposed merger as soon as it is practicable but not later than 30 days of the parties’ decision to merger”.

Article 3 : the interpretation is not clear when read together with Article 23 (3) vis a vis notifiable mergers.

The question is – Given the Zero threshold : Who determines whether a conduct has ‘an appreciable effect on trade’. Is it the parties or the Commission ? At what stage should such a determination be made?

Recommendation: Consider describing the triggering event for notification. Consider defining the scope of application of the Regulations

according to the geographical area of activity of the undertakings concerned and be set through quantitative thresholds in order to cover those transactions which impact on the ‘region’.

Challenges 1:

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Review period: Article 24 establishes time frame of 120 Working days for one phase investigation which can be extended by the CCC if necessary.Merger Filing Fees : Maximum of 500000USD .Recommendation Introduce a shorter initial review period ( about 4 to 6

weeks) to see if the merger falls under Art. 3 and if there are doubts as to the compatibility and followed by a longer phase for any further investigation,

Consider options to expedite the review of non-problematic mergers, perhaps by allowing for the early termination.

Consider introducing a timeframe for the review of non-notifiable mergers as outlined in Art. 23 (6).

Consider reviewing the merger notification fees based on objective criterion.

Challenges 3:

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Article 23 (1) and 23 (2) address the issue of “controlling interest” in defining what transactions will be covered by the merger legislation.

Recommendations Consider formulating the “controlling interest” standard

in an easily understandable way that offers merging parties adequate guidance as to their notification obligations. Efforts to provide such guidance include, e.g., the EUC’s notice, the UK Office of Fair-trading Merger – Procedural guidance publication, and the Bundeskarllamt’s Information leaflet on the Germany Control of concentrations.

Consider including explicitly the formation of permanent joint ventures as qualifying merger transactions.

Challenges 4:

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Article 24 (3) :Authorizes the CCC to “impose a penalty if the parties to a merger fail to give notice of the Merger”.Recommendations: Consider introducing the wording similar to ECMR Article 14:-

The Commission may by decision impose fines not exceeding 10% of the aggregate turnover of any party to a merger where, either intentionally or negligently, they - :

Fail to notify a concentration in accordance with article 24 prior to its implementation, unless they are expressly authorized to do so by the CCC;

Implement the concentration in breach of Article x Implement a concentration declared incompatible with the

Common Market by decision pursuant to Article x, or do not comply with any measure ordered by decision pursuant to Article x

Fail to comply with a condition or an obligation imposed by decision pursuant to Article x

Challenges 5:

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Notification Thresholds : Article 23 (4): The Board with the approval of the Council has prescribed the threshold

at Zero. There is a risk that transactions where the target has no activity in the COMESA

jurisdiction whilst the buyer only has very limited activity but in more two Member States, would need to be notified to the Commission.

The choice of zero threshold renders even extremely small transactions notifiable.Recommendation:The ICN recommends that thresholds should be designed to screen out mergers that fail to have an appropriate “nexus” with the investigating jurisdiction. The threshold should pursue the objective of providing a simple and objective

mechanism that can be easily handled by the firms involved in a merger in order to determine if their transaction is notifiable to the CCC or not.

Article 23 (4) should be read as granting the Board the discretion to set the threshold to the extent that only mergers which have an appreciable effect on trade … should be deemed notifiable.

Consultations with the ICN in its Recommended Practices and the EU in the ECMR have dealt with the question of thresholds.

Consider explaining that Art. 23 (4)(a), while presented as a combined test, requires that a specified amount of local business operations of at least two parties to the merger as a predicate for notification. A combined t/o indicator, which may be satisfied only by the acquiring party irrespective of any local operations by the target business, can result in notifications where the transaction does not have an effect within the investigating jurisdiction.

Challenges 6:

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Notion of Public Interest :The term public interest is included in several

provisions of the Regulations dealing with Mergers e.g. : Article 26 (1); 26(3); 26 (4); 26(7).

Recommendation Consider clarifying the relationship between Art. 26

(1) and Art. 26 (3). Under Art. 26(!) a merger that is likely to SLC may be cleared if it can be justified on substantial public interest grounds. Whereas Att.26 (3) a merger shall be contrary to public interest if it has SLC.

The CCC shall assess public interest as it affects the Common Market and not the individual Member State.

Challenges 7:

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Ratification/Domestication of the COMESA TreatyNothing can be done as long as a Member State has not

RATIFIED the COMESA Treaty. That is a prerequisite, both for a dualist and for a monist country, in order to be bound by the COMESA Legal framework.

For Monist Member States, as soon as the ratification instrument has been deposited with the COMESA Secretariat normaly, both the Treaty and any subsequent Regulation should become enforceable in those countries.

For dualist countries, there is a second prerequisite namely, the COMESA Treaty must be domesticated into the national law by a special incorporation act. As long as this is not done, neither the COMESA Treaty nor the CCR are enforceable.

Challenges 8:

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“In 1974, in one of the first cases to come before the English courts which questions of Community law were raised, Lord Denning described the implications of Community law for the English legal system as ‘an incoming tide. It flows into the estuaries and up the rivers. It cannot be held back’”.

The 1985 Commission’s white paper “’completing the internal market’, suggest that even Lord Denning may not have foreseen the full force of the oncoming tide of Community law. UK businesses that fail to take account of its implications, as part of their business strategy to remain competitive in the single market, do so at their own peril”.

CONCLUSION

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THANK YOU

Any comments to:-

George K Lipimile Director and Chief Executive Officer COMESA Competition Commission Lilongwe, Malawi glipimile@comesa.int

COMESA COMPETITION LAW AND POLICY

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