The COMESA Competition Commission (the Commission) is a supranational competition authority charged with the mandate to enforce the COMESA Competition Regulations (the Regulations) in the common market.2 The Regulations apply to conduct, among them cross-border mergers that have an appreciable effect on trade between member states and that would restrict competition in the common market.
The case for cross-border merger control and the need for a supranational merger control system have been debated and several scholars have written extensively on the subject. What is immediately evident from the literature available on cross-border merger control is that it is not always easy to regulate such mergers by any one country because of the challenges encountered in such regulation. The challenges are even more pronounced in less developed countries, as arguably3 they have less experience in the enforcement of merger legislation and lack adequate resources for such an exercise. Among the challenges identified are: the lack of extraterritorial application4 of national competition laws to conduct taking place outside their borders; limited skills and expertise; poor cooperation and coordination arrangements among the jurisdictions involved; limited resources; different merger review requirements in different countries; and a risk of inconsistent decisions. Some of these challenges are faced by national competition authorities, while others are faced by the merging parties. The article focuses on those faced by the merging parties.
The article will focus on whether or not the creation of a supranational merger control regime addresses the challenges of regulating cross-border mergers in less developed countries. However, there are several less developed countries with supranational competition authorities, and so generalising the review would be an unrealistic and impractical task to undertake. In view of this, the Common Market for Eastern and Southern Africa (COMESA) has been selected as a sample because it is the regional economic community that has recently established an operational supranational competition body to regulate competition matters, among them cross-border mergers in the region.5 Further, all COMESA member states are less developed countries6 which provides, to a greater degree, a relatively uniform sample. The different requirements for review will be discussed here. There are a number of issues to review to determine whether or not the creation of a supranational merger control system has resolved the challenges in this respect. These include:
- suspensory versus non-suspensory requirements;
- manadatory versus voluntary requirements;
- waiting periods after notification;
- triggering events for notification;
- deadlines after the triggering event;
- merger filing fees; and
- local nexus to trigger the review of a merger.
The article focuses on whether the Regulations have resolved the uncertainty raised by suspensory and non-suspensory merger control regimes.
Suspensory versus non-suspensory regimes
There are some COMESA member states with suspensory merger review regimes - among them Malawi, Kenya, Zambia and Swaziland. Section 37 of the CCPA, by implication, makes the Zambian merger regime suspensory in that it is a mischief at law to intentionally or negligently implement a merger that is reviewable by the CCPC without the approval of the CCPC. Section 42(2) of the Competition Act No. 12 of 2010 of the Laws of Kenya is even more explicit on the subject of suspending the merger pending review:
No person either individually or jointly or in concert with any other person, may implement a proposed merger to which this part applies, unless the proposed merger is -
a) approved by the authority; and
b) implemented in accordance with any conditions attached to the approval.
The Malawian competition legislation is equally explicit on the matter when it provides, under section 35 that any person who, in the absence of authority from the Commission - whether as a principal or agent, and whether by another enterprise or his agent - participates in effecting a merger between two or more enterprises, or a takeover of one or more such enterprises by another enterprise, or by a person who controls another such enterprise, where such a merger or takeover is likely to result in substantial lessening of competition in any market, shall be guilty of an offence. Any merger or takeover made in contravention of the foregoing shall have no legal effect and no rights or obligations imposed on the participating parties by any agreement in respect of the merger or takeover shall be legally enforceable. It would be overzealous to engage in further explanations on this, as it is beyond dispute that the regime is suspensory where the notification requirements are met. Section 35 of the Swaziland Competition Act No. 8 of 2007 is similarly worded.
The Fair Competition Act 2009 (FCA) of Seychelles appear to present troubling reading as it is not clear whether it is a suspensory regime or a non-suspensory regime. The FCA stipulates that where an enterprise wishes to establish a merger, it shall apply to the competition authority for permission to carry out or implement a merger. However, the FCA does not appear to expressly proscribe the implementation of the merger without the permission of the competition authority. This is implied in the language of the FCA when it states that where the authority determines after investigation that enterprises have effected a merger without the authority's permission, the authority may, by notice given in writing, direct the enterprises concerned so that the merger may be determined within such time specified in the direction. A cursory reading of the foregoing appears to suggest that it is for the authority to investigate those mergers and ask the parties through an order to rectify the situation. However, the FCA contains a general provision relating to the imposition of penalties. Among the powers of the competition authority is to impose remedies or financial penalties on enterprises that transgress the FCA. Another cursory reading of this provision suggests that it applies to effecting mergers without the authority's approval. One can also surmise that actually the regime is suspensory when legislation provides that:
a notifiable merger is one which involves an enterprise that by itself controls or, together with any other enterprise party to the proposed merger is likely to control 40% or more of the market or such other amounts as they minister may prescribe. Notifiable mergers are prohibited unless permitted by the competition authority.
The legislation has to be amended to avoid confusion and introduce an element of clarity.
In COMESA, the problem is exacerbated by the vague wording of part 4 of the Regulations, which seems to suggest that it is illegal to implement a merger before notification but lawful after notification - even before the Commission issues its approval. The danger with this is: what would happen in an instance where there is a referral to a member state with a suspensory merger regime, when the parties had already implemented the merger on the premise that it was notified with the Commission, and it does not suspend the transaction prior to approval?7 The foregoing results in uncertainty and lack of predictability, requirements of fundamental importance in merger control for the merging parties. Merging parties wish to carefully design their legal and commercial strategies on the basis of predictability and certainty.
The problem raised by the existence of suspensory and non-suspensory regimes is that it takes a lot of time and work for the merging parties to gather this information and comply with the different procedural requirements by the various authorities. This compounds the problem of costs in both administrative and pecuniary respects. A lot of money is paid by the parties to the attorneys and other professionals to gather all this information and ensure that it is accurate. Anything short of this by the parties would lead to serious uncertainty as regards the observance of the different competition legislation in various jurisdictions.
Have the regulations resolved this challenge?
To the extent that the Regulations reduce the number of jurisdictions to file the merger with respect to cross-border mergers (one-stop shop), it may appear that they have resolved this challenge. Nevertheless, a careful review of the Regulations reveals that a fundamental challenge has been conceived as result of this matter of suspensory versus non-suspensory regimes.
The COMESA merger control regime itself is a pure non-
suspensory regime as observed from the wording of article 24. Article 24 appears to proscribe the implementation of a merger before notification to the Commission but is silent on the implementation of the merger before the Commission's approval. The language of the legislation is not as express as the language in the Kenyan, Swaziland or Zambian competition statutes which expressly proscribe the implementation of mergers before the approval of the respective competition authorities. The relevant articles for these purposes are articles 24(1), (2), (3) and (4) which provide that:
1. A party to a notifiable merger shall notify the Commission in writing of the proposed merger as soon as it is practicable but in no event later than 30 days of the parties' decision to merge.
2. 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.
3. Notification in terms of paragraph 1 shall be made in such form and manner as may be prescribed and shall be accompanied by the prescribed fee and such information and particulars as may be prescribed or as the Commission may reasonably require.
4. The Commission in addition to the sanction under paragraph 2 may impose a penalty if the parties to a merger fail to give notice of the merger as required by paragraph 1.
A deep review of the above sub-provisions of article 24 reveals that the Regulations do not outlaw the implementation of a merger before the Commission grants approval. What appears to be the case especially from article 24(1) is that a merger has to be notified before it is implemented. Even this is a logical and practical conclusion but not a legal conclusion. Indeed, the requirement to notify a merger 30 days after a decision to merge has been arrived at by the parties makes it almost always the case that a merger cannot be implemented before notification. This is because practice has shown us that implementing most mergers involves an array of processes and procedures that usually cannot be concluded in 30 days. From this angle, one would be correct therefore to argue that the Regulations in practice proscribe the implementation of a merger before Notification. However, legally and in theory, this position is not true. If the parties are able to implement a merger before the expiration of the 30 day period commanded by the Regulations within which notification of the merger should be done after the decision to merge has been reached at, there is no sin that they would have committed at law. Therefore, legally, the COMESA merger control regime is non-suspensory.
The above and foregoing discussions do inform us that there is still a lot of uncertainty as regards the question of whether the COMESA merger regime is suspensory or non-suspensory. The position of some observers who indicate that it's a hybrid of the two systems exacerbates the problem further. The Regulations need to be amended to make it clear and express that they are either suspensory or non-suspensory. In the view of the author, the Regulations need to provide for an express suspensory merger control regime for two reasons.
The first reason is that a suspensory regime provides certainty, as the parties may not have to worry about whether or not they will have to unwind their merger or comply with certain conditions, such as divestiture, after they have already merged - which may be a very costly and lengthy exercise. Guidance and inference can also be sought from the EUMR, which provides for the suspension of the merger before the European Commission issues a decision. In fact the EUMR instructs against implementation of merges before notification. The rationale behind this in the European Union may have been to avoid some of the concerns raised above.
The second reason is that the Regulations under article 24(8) provide for a referral of some mergers on certain grounds. After the referral, the part of the merger referred is supposed to be reviewed under the domestic law of the member state which has asked for a referral. Article 24(8) of the Regulations provides that:
A Member State having attained knowledge of a merger notification submitted to the Commission may request the Commission to refer the merger for consideration under the Member State's national competition law if the Member State is satisfied that the merger, if carried out, is likely to disproportionately reduce competition to a material extent in the Member State or any part of the Member State.
The confusing and very uncertain situation created by the Regulations is that what would happen to an implemented merger if it is referred to a member state such as Kenya, Swaziland or Zambia whose national competition laws provide for a suspensory merger review regime? In the strictest sense, it may mean that the parties would have trespassed against the national competition laws of these member states and may have to face the sanctions/penalties under those respective laws. This is a great source of concern for the parties as they are likely to be caught in violation of laws not of their own volition but due to procedural arrangements. The COMESA Merger Assessment Guidelines (the Guidelines) have attempted to address this issue under section 5.28:
The Regulations do not prevent the merging parties from implementing mergers before notification or the completion of an assessment (as discussed further in Sections 5.31 through 5.32. The Commission considers that the parties to an implemented merger notified in accordance with the Regulations and these Guidelines should not, upon referral to a Member State authority, be penalised for having implemented the merger or not previously notifying such authority. The Commission will therefore only refer a merger to a Member State authority that requires notification and assessment of a merger prior to implementation if such authority undertakes in its referral request not to impose penalties on the parties or prejudice its review of the merger due to the implementation of the merger prior to the publication under Section 5.25.
The Guidelines thus make it very clear and unequivocal that referral can only be made if a national competition authority undertakes not to penalise the parties, its suspensory merger regime as dictated by statute notwithstanding. It is important to recall that the Guidelines are clearly ultra vires the Regulations in this regard, as the Regulations do not attempt to amend the national competition law to suit this situation, they simply provide that consideration of a merger after referral shall be pursuant to the member state's national competition law.
So far, no litigation has arisen as result of this concern or lacuna. Referrals have been made to Zambia and Zimbabwe before; both merger control regimes are suspensory and no issues arose. One reason for this is that the parties in some of these mergers did not implement the mergers, as they were waiting for the Commission's decision in order to avoid uncertainty. It should be recalled that parties who elect to implement a merger before the decision of the Commission do so at their own peril, and risk the Commission determining that the merger is incompatible with the common market. The other reason may be that both Zambia and Zimbabwe, unlike Kenya, have completely submitted to the jurisdiction of the Commission since its inception. The situation may not be the same in Kenya, which as a matter of fact still calls for merger notifications despite the ‘one-stop shop' principle that the Regulations attempts to create. Even in Zambia and Zimbabwe, it is possible that stakeholders (such as the lawyers) may raise issues observed above if a merger is referred to their country to be considered under their national competition laws. Clearly, the Regulations have not resolved this challenge, and amending them to make the COMESA merger regime suspensory will completely eliminate this challenge.
- This article is drawn from the author's PhD thesis.
- The Common Market is composed of the 19 member states of COMESA.
- The term ‘arguable' has been used here to imply that not all less-developed countries face these challenges. There are exceptions. For example, the Competition Commission of South Africa does not appear to suffer the challenges of resources and experience. The Zambian Competition and Consumer Protection Commission, equally, appears to have sufficient experience in the enforcement of merger legislation. Such a conclusion is premised on the number and quality of mergers the aforementioned competition authorities have handled.
- This problem is not only applicable to less developed countries but also to developed countries. In an email conversation of 11 October, 2016, Maria Coppola of the US Federal Trade Commission admitted that even the US antitrust authorities have problems addressing antitrust infringements taking place outside, but having effect inside, the US. However, it may be argued that these jurisdictions have managed to get around this challenge through accumulated experience of competition law enforcement, efficient and effective cooperation with other competition authorities as can be attested in the cooperation between the US competition authorities with their counterparts in the EU.
- At the time research commenced on this this dissertation, the COMESA Competition Commission was the most recent operational regional competition authority. The East African Competition Authority has since commenced its operations (in 2017). However, COMESA provides a better sample and case study in that all the members of the East African community, except Tanzania, are also members of COMESA. Further, a lesson can be drawn from COMESA in that it has enforced the merger legislation for a relatively longer period to enable researchers draw lessons in terms of failures and successes.
- See the International Monetary Fund's World Economic Outlook Report of 2015. World Economic Outlook, April 2015, pp 150-153. Accessed on 7 May 2016.
- It must be kept in mind that article 24(8) of the Regulations provides that after the referral, the transaction shall be reviewed under the member state's national law potentially making the merger illegal and the merging parties violating national law if it has a suspensory merger control regime. Maybe this has been addressed under article 24(9) as one of the reasons that the Commission may refuse to grant referral to a member state, that is, if such referral shall disadvantage the parties. The position has to be stripped of ambiguity and made clearer.