Member Article

Pursuant to much speculation, the Common Market for Eastern and Southern Africa’s (“COMESA”) Competition Commission (the “Commission”) become operative on 14 January 2013. COMESA is a regional organisation of eastern and southern African states which currently comprise 19 member states namely Burundi, Comoros, Democratic Republic of Congo, Djibouti, Eritrea, Ethiopia, Egypt, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia and Zimbabwe, many of which have their own national competition law legislation. In terms of the COMESA Competition Regulations (the “Regulations”), the Commission has jurisdiction over all economic activities within, or which have an effect within the common market and conduct which has an appreciable effect on trade between member states and which restricts competition in the common market. The aforementioned “jurisdictional test” would appear to comprise a prima facie substantive analysis requiring the merging parties to interrogate whether the conduct in question has an appreciable effect on trade which restricts competition in the common market. Notwithstanding the foregoing, during April 2013, various draft guideline documents were published by the Commission for public comment. The objective of these guidelines is to provide clarity and guidance about the Commission’s enforcement policies and practices (although it bears emphasis that such documents do not have the force of law). In terms of the Draft Merger Assessment Guideline under the COMESA Competition Regulation (2004) (the “Guidelines”), whenever a merger is consummated, there is a rebuttable presumption that it would lead to a substantial lessening of competition. Such a presumption can only be rebutted after an assessment of the merger subsequent to notification has been made. The imposition of a rebuttable presumption in the aforementioned manner appears to be somewhat at odds with a literally reading of the Regulations and on this basis, may by vulnerable to legal challenge. The Commission has a wide range of powers and functions including the regulation of anti-competitive business practices (i.e. restrictive business practices, abuse of dominance provisions and prohibited practices), the notification of mergers with a regional dimension and the enforcement of certain consumer protection measures. If we turn our attention to merger regulation, a merger is defined in terms of the Regulations as “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”. The term “controlling interest” is defined very broadly and encompasses the acquisition of any interest whatsoever which would allow the holder thereof to exercise either direct or indirect control. From the foregoing it is therefore clear that the Regulations, similar to the South African competition jurisprudence, contemplate an expansive interpretation as regards the notion of “control”. A merger as defined in the Regulations will require notification to the Commission to the extent that (i) either or both of the merging parties operate in two or more member states and (ii) the requisite merger thresholds have been met. It bears mention that the meaning to be ascribed to the term “operate in” had appeared to be somewhat ambiguous, in that it was unclear as to whether such a section would refer to firms with operations in the member states, or would extend to firms which simply sold goods or services into the member states. The Guidelines have however shed light in this regard, as they explicitly provide that the term “operate in” is to be construed widely to include not only firms which have a physical presence within members states but are also inclusive of firms which merely derive a turnover within such member states (for instance through exports or imports). As regards the merger thresholds referred to above, these have currently been set to zero, which has the resultant effect of widening the ambit of transactions which require notification to the Commission. We however understand that the rationale in adopting zero thresholds was informed by the fact that the various member states are at different levels of economic development and a realistic threshold could only be determined once the Regulations have been “tested on the market”. Parties to a notifiable transaction must notify the Commission within 30 (calendar) days of the decision to merge. The phrase “decision to merge” itself is nebulous and may be subject to varying interpretations. Although the Guidelines provide that a “decision to merge” is established when there is a “concurrence of wills between the merging parties in pursuit of a merger objective”, it is submitted that there is still some uncertainty as to the specific event which would trigger notification. In respect of time periods, within a 120 (working) day period after receiving the notification the Commission must either approve the merger (either with or without conditions) or prohibit it. This period may be extended and although the Guidelines refer to the application of a “reasonableness test” in considering the maximum time period within which a merger is to be considered there is still no explicit provision for a particular period of time within which a decision is to be reached. Of significance in this regard is that it has been reported that the Commission is considering the introduction of a fast track procedure which will, amongst other provisions, allow transactions which do not give rise to complicated competition law issues to be approved within a 4-6 week timeframe. Failure to notify a transaction can result in either a fine of up to 10% of either or both the merging parties’ annual turnover in the common market for the preceding year. Moreover, the merger will have no legal effect as the rights or obligations imposed on the participating parties by any agreement shall not be legally enforceable. The COMESA competition regime does not contain any pre-implementation provisions and therefore (within the 30 day period referred to above) one is free to implement a merger pending notification, a view which appears to be endorsed by the Guidelines. Whether to implement prior to approval is subject to the parties’ appetite for risk as the Commission may subsequently prohibit the merger and require that the merging parties take steps deemed necessary to terminate the merger (or whatever part thereof had been implemented). A careful analysis should thus be undertaken prior to making the decision to pre-implement. The Regulations provide that merging filing fees are the lesser of (i) 0.5% of the combined turnover or combined assets of the merging parties in the common market (whichever is higher); or (ii) US$500 000. Initially, the exact drafting of the Regulations had created ambiguity as to the manner in which the merger filing fees were to be interpreted. However, the Commission has subsequently endorsed the interpretation set out above. Although we understand that the Commission has indicated that such a filing fee is likely to be amended, in the interim, it seems to us that the current maximum merger filing fee is likely to have a chilling effect on the notification of mergers. As things stand, uncertainty has centred around whether a notification to the Commission obviates the requirement to notify a transaction to a national competition authority. There appears to be no clear answer in this regard. The Regulations provide for a mechanism in terms of which a national authority may request that a merger be referred to it for consideration on the basis that the contemplated transaction is likely to disproportionally reduce competition to a material extent in the member state. However, this does not sufficiently address the question as to whether, in the absence of the national authority requesting a referral, merging parties would be required to notify both the national authority and the Commission (although the Guidelines appear to intimate that this would be the case). If the effect of a notification to the Commission is to usurp the jurisdiction of national authorities (insofar as mergers with a regional dimension are concerned) although admittedly less onerous on the merging parties, it may potentially lead to tension between the various national authorities and the Commission. In this regard it has been reported that competition authorities in various jurisdictions (including Kenya, Mauritius and Zambia) are currently investigating the powers of the Commission and the extent to which the Regulations are binding upon it. To date, we understand that two merger notifications have been submitted to the Commission and we expect that various other notifications will continue to be made within the course of the year. It is therefore clear the Commission is set to significantly impact upon those conducting business in the common market. It is therefore not only crucial that businesses familiarise themselves with the national and COMESA competition regimes, but also recognise that at this initial stage, as the Commission has only just entered the competition law foray, there are a number of grey areas which will require elucidation and which will continuously be tested over time.