A Guide to Anti-competitive Business Practices
The COMESA Competition Regulations (“the Regulations”) prohibit certain anticompetitive business practices as incompatible with the objectives of the Common Market in so far as they affect trade between Member States. The prohibitions are set out in Part 3 of the Regulations. The goal of these provisions of the Regulations is to safeguard competition in the Common Market as a means to enhancing intra regional trade, protecting consumer welfare and ensuring efficient allocation of resources in the Common Market. The creation and preservation of the open single market is thus a prerequisite to ensuring a productive economy that meets consumer interests.
Agreements Prohibited by the Regulations (Article 16&19 Prohibitions)
The Regulations prohibits agreements, decisions by association of undertakings and concerted practices which may affect trade between Member States and have as their object or effect the prevention, restriction or distortion of competition within the Common Market. Whether a business conduct or arrangement is anti-competitive is assessed on the basis of its objective, or its effect on trade between Member States and competition, rather than its form. This means that verbal and informal 'gentlemen's agreements' are equally capable of being found to be anti-competitive as formal, written agreements.
Some examples of the types of business arrangements which are generally prohibited under part 3 of the Regulations include:
- Agreements fixing prices , which agreements hinder or prevent the sale or supply or purchase of goods or services between persons, or limit or restrict the terms and conditions of sale or supply or purchase between persons, or limit or restrict the terms and conditions of sale or supply or purchase between persons engaged in the sale of purchased goods or services;
- Collusive tendering and bid-rigging;
- Market or customer allocation agreements;
- Allocation by quota as to sales and production;
- Collective action to enforce arrangements;
- Concerted refusals to supply goods or services to a potential purchaser, or to purchase goods or services from a potential supplier; or
- Collective denials of access to an arrangement or association which is crucial to competition
These conducts between competitors are the most serious form of anti-competitive behaviour under Part 3 of the Regulations as they constitute hardcore cartels and carry the highest penalties.
Abuse of a dominant market position (Article 18 prohibition)
The Regulations prohibit any abuse by one or more firms of a dominant position within the Common Market or in a substantial part of it as incompatible with the Common Market in so far as it may affect trade between Member States. The Regulations do not prohibit the possession of a dominant position as such can be attained through the competition process. It is the abuse of that dominant position that is prohibited as it may restrict or deter competition on the market.
Examples of behaviour that could amount to an abuse by a business of its dominant position include:
- imposing unfair trading terms, such as exclusivity;
- excessive, predatory or discriminatory pricing;
- refusal to supply or provide access to essential facilities; and
- tying (i.e. stipulating that a buyer wishing to purchase one product must also purchase all or some of his requirements for a second product).
The fact that an agreement is restrictive of competition does not mean that it is automatically prohibited unless it is a hardcore cartel as discussed above. Some agreements may be exempted by the Regulations should the firms involved demonstrate that there are efficiencies accruing from the conduct which outweigh the anticompetitive effects.
For example, an agreement between two pharmaceutical companies to develop a new drug together as opposed to independently is likely to be subject to Part 3 prohibition, as the two companies are working together instead of competing with each other. However, the benefits for consumers resulting from such co-operation may outweigh the anticompetitive effects. For instance, the combined investment in research and technology by the two firms may lead to the speed up the invention of the drug and delivery to the market thus benefitting consumers.
With regard to abuse of a dominant position, a firm's conduct may be exonerated because of some efficiency or other benefits which outweigh the anticompetitive effect of the abuse. For instance, a dominant company may be able to show that it has an objective justification for its refusal to supply to a particular customer or competitor such as the poor record of safeguarding intellectual property rights which would entail the protection of legitimate business interests. It would only be when such behaviour goes beyond what is necessary to protect the business' interests that this would amount to abuse.
Consequences of a Breach of the Relevant Provisions of the Regulations
Contravention of Part 3 of the Regulations can have the following serious consequences:
- Any agreement or decision which contravenes the Regulations is void and unenforceable;
- Firms engaged in activities which breach these provisions can face fines of up to 10% of annual turnover in the Common Market; and
- Firms in breach of the relevant provisions of the Regulations expose themselves to actions for damages from customers and competitors who can demonstrate that they have been harmed by the anti-competitive behavior.
In this regard, any business undertaking needs to be aware of the provisions of the Regulations so that it can meet its obligations and protect its position in the marketplace.
The Need for Businesses to Ensure Compliance with the Regulations
The risks associated with being a party to an anti-competitive agreement or abusing a dominant position are serious. In addition to the consequences highlighted in the foregoing, one other major risk to a company is the disruption and damage to its reputation which may arise from lengthy investigations or subsequent litigation from customers, competitors and consumers. Non compliance with the Regulations, therefore, becomes a serious governance issue which may put off would be investors into the company and even lead to the exit of current shareholders.
Cognizant of the severe consequences of non-compliance with the Regulations, businesses should regularly review or inquire whether the company's business practices and agreements comply with Regulations. It is important, therefore, to promote an understanding amongst employees as to what type of behaviour is and is not permissible under competition law.
One practical way to promote an understanding of competition law amongst employees is for a company to devise and actively implement a competition compliance policy that is specifically tailored to that company. Not only does this minimise the risk of being non-compliant in the first place, but if a company is investigated for anti-competitive behaviour, evidence of a competition compliance policy may be taken into account by the Commission in determining the fine.