Frequently Asked Questions
1. WHAT IS THE RELEVANT COMPETITION LEGISLATION FOR ENFORCING COMPETITION IN THE COMMON MARKET
The COMESA competition law is contained in Chapter VI, Article 55(1) of the Treaty establishing the Common Market for Eastern and Southern Africa (the “COMESA Treaty”) which reads: “The Member States agree that any practice which negates the objective of free and liberalised trade shall be prohibited. To this end, the Member States agree to prohibit any agreement between undertakings or concerted practice which has as its objective or effect the prevention, restriction or distortion of competition within the Common Market.” Article 55(3) of the Treaty mandates the COMESA Council of Ministers to make regulations to regulate competition within the Member States.
As a result, Council made and ratified the COMESA Competition Regulations of 2004 (the “Regulations”) which entered into force in December 2014 upon their publication in the COMESA Official Gazette. The purpose of the Regulations is to promote and encourage competition by preventing restrictive business practices and other restrictions that deter the efficient operation of markets thereby enhancing the welfare of consumers in the Common Market. Apart from limited exclusions, the Regulations have a wide scope of application as they apply to all economic activities whether conducted by private or public persons within, or having an effect within, the Common Market.
2. WHICH INSTITUTION HAS BEEN GIVEN THE MANDATE TO ENFORCE THE REGULATIONS
The enforcer of the legislation is the COMESA Competition Commission (the “Commission”) established under Article 6 of the Regulations. The Commission was launched during December 2008 and is based in Lilongwe, Malawi. The Commission officially commenced operations on 14th January 2013. The Commission is composed of the Secretariat headed by a Director which is responsible for investigation; the Committee of Initial Determination (CID) responsible for making initial determinations on notification, complaints, etc; and a Board of Commissioners mandated with the adjudicative functions.
3. WHAT ARE THE FUNCTIONS OF THE COMMISSION
The Commission’s main function is to promote competition and consumer welfare within the Common Market through the application of the provisions of the Regulations. The Commission is also mandated among other things: to monitor and investigate anti-competitive practices of undertakings within the Common Market, mediate disputes between Member States concerning anti-competitive conduct, regularly review regional competition policy to improve the effectiveness of the Regulations, cooperate with Member States national competition authorities and promote harmonisation of the regional and national competition laws. The Commission’s operations will have significant impact in the COMESA region and will affect all firms active in Member States, both in the ordinary course of business and in the context of acquisitions.
4. WHAT ARE THE INVESTIGATIVE POWERS OF THE COMMISSION
In carrying out the duties assigned to it by the Regulations, the Commission may undertake all necessary investigations into undertakings and association of undertakings. The Commission officials are empowered to examine the books and other business records; to take copies or extracts from books and business records; to ask for oral explanations on the spot; to enter any premises, land and means of transport of undertakings.
5. WHAT OBJECTIVES DOES THE COMMISSION PURSUE IN ITS ENFORCEMENT ACTIVITIES
In enforcing the anti-competitive business practices and consumer protection provisions of the Regulations, the Commission intends to bring the offending conduct to a halt so as to minimise damage to the competition process on the market and to prevent offending conduct from recurring by means of the deterrence mechanism in form of penalties and order of compensations to those adversely affected by the conduct.
6. WITH THE INTRODUCTION OF THE REGULATIONS, HOW WILL THEY INTERACT WITH THE NATIONAL COMPETITION LAWS
With the commencement of the enforcement of the COMESA Competition Regulations on 14th January 2013 there are now two separate legal regimes which govern the enforcement of competition law and policy in the COMESA Member States, namely:
a) The National Competition laws: these are the national legal orders comprising the respective bodies of legal rules within each of the COMESA Member States.
b) The Regional Legal Framework: these comprise the body of legal rules created at COMESA level such as the COMESA Competition Regulations and Rules.
Given the two legal orders, the national order shall apply to the enforcement of anti-competitive practices emanating at national level hence, enforced by the national competition authorities in their respective Member States. Whereas the regional framework shall be invoked generally where there is a cross border impact. The impact of cross border trade is implicit prerequisite in light of the wording of Article 3(1) of the Regulations. Consequently, the Commission essentially can only intervene when there is an effect on trade between Member States. The Regulations, more especially Articles 16 and 18, and to some greater extent the Merger Control Regulation, do not apply unless the agreement or conduct has an appreciable effect on trade between Member States and restricts competition in the Common Market.
7. WHAT IS THE WORKING RELATIONSHIP BETWEEN THE COMMISSION AND THE NATIONAL COMPETITION AUTHORITIES OF THE COMESA MEMBER STATES
The effective enforcement of the Regulations largely depends on an effective working relationship between the Commission and the national competition authorities of the Member States. One of the functions of the Commission under Article 7(d) of the Regulations is to cooperate with competition authorities in Member States. Rule 40 of the Rules outlines the liaison process between the Commission and the competent authorities of the Member States in establishing existence of infringements on applications and notifications and in reaching decisions. The same Rule further stipulated that the competent authorities of the Member States shall have the right to express their views upon the procedure taken by the Commission. Rule 43 of the Rules also stipulates that the competent authorities of the Member States shall undertake investigations at the request of the Commission and the officials of the Commission may assist the officials of a national competition authority in carrying out their duties. Conversely, under Rule 44 of the Rules, officials of the competent authority of a Member State in whose territory the Commission staff are conducting investigations may at the request of the competent authority or the Commission, assist the officials of the Commission in carrying out their duties.
8. WHAT AREAS OF COMPETITION LAW ARE ADDRESSED BY THE COMESA COMPETITION REGULATIONS
The Regulations apply to all economic activities conducted by private or public persons within, or having an effect within, the Common Market and which have an appreciable effect on trade between Member States and which restrict competition in the Common Market.
The Regulations cover the following major areas:
a) Mergers and other forms of acquisitions where both the acquiring firm and target firm, or either the acquiring firm or target firm, operate in two or more COMESA Member States.
b) Anti-competitive Business Practices which include: horizontal and vertical agreements, concerted practices and abuse of dominance which have cross boarder effect.
c) Consumer protection violations which include false or misleading representation and product service standards among others are having cross boarder effect.
9. WHAT KIND OF TRANSACTIONS CONSTITUTES A MERGER?
The definition of a merger falls under Article 23(1) of the COMESA Competition Regulations (“the Regulations”). Article 23(1) provides that:
A “merger” means the direct or indirect acquisition or establishment of a controlling interest by one or more persons in the whole or part of the business of a competitor, supplier, customer or other person, whether that controlling interest is achieved as a result of:
a) the purchase or lease of the shares or assets;
b) the amalgamation or combination with a competitor, supplier, customer or other person; or
c) any means other than those specified in a) or b).
What this means is that whenever one firm leases or acquires assets or shares of another company or combines in any other way not specifically mentioned in Article 23(1) which enables it to determine that company’s commercial strategy, then a merger is construed. What is important to note in the definition of a merger is that two or more firms that were distinct before the merger cease to be distinct after it has taken place.
10. IS THERE A PROHIBITION ON THE PRE-IMPLEMENTATION OF A MERGER? IF SO, DO THE REGULATIONS MAKE PROVISION FOR A PENALTY?
A party to a notifiable merger must notify the Commission of the proposed merger within 30 days of the parties’ decision to merge. Prior implementation of a merger without notification to the Commission in contravention of the Regulations will result in the merger having no legal effect, in which case rights or obligations imposed on the merging parties by any agreement in respect of the merger will not be legally enforceable in the Common Market.
Article 24(2) of the Regulations provide that any notifiable merger carried out in contravention of this part shall have no legal effect and no rights or obligations imposed on the participating parties by any agreement in respect of the merger shall be legally enforceable in the Common Market.
The Commission in addition to the sanction in the above paragraph may impose a penalty if the parties to a merger fail to give notice of the merger as required by Article 24(1) of the Regulations. A penalty imposed may not exceed ten per centum of either or both of the merging parties’ annual turnover in the Common Market as reflected in their accounts of any party considered for the preceding financial year.
11. WHAT KIND OF TRANSACTION CONSTITUTES A NOTIFIABLE MERGER?
It is not all transaction that satisfies the definition of a merger in Article 23(1) and Article 23(2) that are notifiable. Only transactions that meet the requirements of Article 23(3) would be notifiable. Article 23(3) of the Regulations provide for the mandatory notification of mergers in which either the acquiring firm, or the target firm, or both, operate in two or more COMESA Member States and certain thresholds of combined annual turnover or assets are exceeded. This may mean, for instance, that a Belgian entity acquiring the shares in a South African entity with subsidiaries in Kenya and Zambia may need to notify the South African competition authorities (South Africa is not a COMESA member) as well as COMESA (Kenya and Zambia are member states), should the thresholds for mandatory notification be met. Currently, the threshold for merger notification is set at Zero in accordance with Rule 4 of the COMESA Competition Rules (“the Rules”) on the Determination of the Merger Notification Thresholds.
12. CAN A MEMBER STATE REVIEW A MERGER THAT HAS REGIONAL DIMENSION?
According to Article 23(3)(a), Regional Dimension is satisfied where both the acquiring firm and the target firm or either the acquiring firm or the target firm operate in two or more COMESA Member States. All transactions that satisfy the Regional Dimension criteria are notifiable with the Commission and not the National Competition Authorities of the Member States. However, in certain instances there may be exemptions. This may happen in instances where a Member State demonstrates that a merger when implemented will reduce competition to a greater extent in that Member State. Discretion to refer such a Merger to the requesting Member State lies with the Commission.
13. DOES THE REGULATIONS PROHIBIT THE ABUSE OF A DOMINANT POSITION? IF SO, WHAT IS THE THRESHOLD FOR DOMINANCE AND WHAT CONDUCT AMOUNTS TO AN ABUSE?
Pursuant to Article 17 (a) of the Regulations, an undertaking holds a dominant position in a market if by itself or together with an interconnected company, it occupies such a position of economic strength as will enable it to operate in the market without effective constraints from its competitors or potential competitors. Article 17(c) alludes to a “dominant position” as meaning the ability to influence unilaterally price or output in the Common Market or any part of it.
The Regulations under Article 18 (1) prohibits any abuse by one or more undertakings of a dominant position within the Common Market or in a substantial part of it as incompatible with the Common Market.
The Regulations do not provide for quantifiable thresholds for the determination of a dominant position but the guidelines on the application of Article 18 of the Regulations have attempted to introduce quantifiable thresholds.
14. HOW DOES THE REGULATIONS SPECIFICALLY PROHIBIT CARTEL CONDUCT?
The Regulations prohibits, as incompatible with the Common Market, all agreements between undertakings, decision by associations of undertakings and concerted practices which may affect trade between Member States and have their object or effect the prevention, restriction and distortion of competition within the Common Market. More specifically, the Article 19 (3) of the Regulations prohibits the following cartel conducts:
a) agreements fixing prices, which agreements hinder or prevent the sale or supply or purchase of goods or services between persons, or restrict the terms and conditions of sale or supply or purchase between persons, or restrict the terms and conditions of sale or supply or purchase between persons engaged in the sale of purchased goods or services;
b) collusive tendering and bid-rigging;
c) market or customer allocation agreements;
d) Allocation by quota as to sales and production;
e) Collective action to enforce arrangements;
f) Concerted refusal to supply goods or services to a potential purchaser, or to purchase goods or services from a potential supplier; or
g) Collective denials of access to an arrangement or association which is crucial to competition.
15. WHAT ARE THE PENALTIES FOR CARTEL AND ABUSE OF DOMINANCE CONDUCT? DOES THE REGULATIONS IMPOSE CRIMINAL SANCTIONS?
The Regulations under Article 8(5) provides that any person who contravenes or fails to comply with any provision of the Regulations or any Rules made under the Regulations, or any directive or order lawfully given, or any requirement lawfully imposed, for which no penalty is provided, shall be determined to have breached the Regulations and shall be liable pursuant to that determination for a fine (in an amount to be determined by Rules) and/or such other penalty as may be assessed.
Rule 45(2) of the COMESA Competition Rules (“the Rules”) provides that the Commission may by decision impose on undertakings or associations of undertakings fines up to 10% of annual turnover units of account, in the Common Market in the preceding business year of each of the undertakings participating in the infringement where, either intentionally or negligently they infringe parts 3 and 5 of the Regulations……”. This provision, therefore, applies to cartel and abuse of dominance conduct which falls under part 3 of the Regulations.
The Regulations, however, do not provide for criminal sanctions for cartel or abuse of dominance conduct.
16. WHAT CONSUMER WELFARE VIOLATIONS ARE COVERED IN THE REGULATIONS
Part 5 of the Regulations is dedicated to consumer protection issues prohibited by law in relation to goods and services sold to consumers. The provisions in the relevant section covers a wide range of prohibitions including false or misleading representation; unconscionable conduct in consumer transactions; unconscionable conduct in business transactions; product safety standards and unsafe goods; product information standards; compulsory product recall, etc.
17. WHAT IS UNCONSIONABLE CONDUCT
The Regulations prohibits unconscionable conduct in both consumer related transactions as well as commercial conduct. The Regulations do not specifically define what constituted unconscionable conduct but outlines some of the factors into determining unconscionable conduct. But in general terms, unconscionable conduct involves exploitation by the party in a stronger position taking advantage of the incapacity or disadvantage endured by the weaker party.
Disclaimer: The contents of this document are for general guidance to some of the frequently asked questions regarding the COMESA Competition Regulations of 2004 ("the Regulations”). It does not constitute legal advice and should not be relied on as a statement of law relating to the Regulations. Stakeholders are encouraged to seek legal advice should they have any doubt about whether any conduct may breach the Regulations.