The European, Middle Eastern and African Antitrust Review 2017

COMESA: Competition Commission

20 July 2016

Head of Mergers and Acquisitions Division

The COMESA Competition Commission (the Commission) commenced its operations in January 2013, meaning that it has been in operation for more than three years. During this time the Commission has done considerable work, especially in the area of merger control.

The Commission is established under article 6 of the COMESA Competition Regulations (the Regulations) and has international legal personality that gives it the capacity required for the performance of its functions. The Commission draws its mandate to intervene in mergers having an effect in the Common Market1 from Part 4 of the Regulations.

Does the Commission intervene in all mergers taking place in the Common Market?

Since the Commission commenced its operations, there have been concerns by some stakeholders that the Commission has usurped the powers of the national competition authorities by asserting jurisdiction on mergers that should be assessed by national competition authorities. This assumption is very misleading, and it is important that clarification is given.

The Commission does not intervene in all mergers taking place in the Common Market. There is a jurisdictional limit provided by articles 3(2) and 23(3) of the Regulations. Article 3(2) provides that:

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

Further, article 23(3) provides that:

This Article shall apply where:

(a)   both the acquiring firm and the target firm or either the acquiring firm or the target firm operate in two or more Member States; and

(b)   the threshold of combined annual turnover or assets is exceeded.

What is evident from the above two provisions of the law is that the jurisdiction of the Commission is only triggered once a merger affects two or more member states. Where the effects of the merger is only in one member state, then it is the national competition authority of that member state that has the priority to assess the merger. Where a merger has effects in more than one member state, other national competition authorities may not have the jurisdiction to prohibit such mergers if the anticompetitive effects of these mergers are being experienced in one member state and the merger has occurred in another member state. This is because national competition legislation lacks extraterritorial jurisdiction. The Regulations therefore bridge this gap by ensuring that where such a situation arises, the negative effects of such a merger would be addressed without causing harm to the competitive process and consumers in any member states. It is therefore not true that the Commission has usurped the powers of national competition legislation.

Do the Regulations have force of law in the member states?

Let me address another concern that has arisen. Some stakeholders have argued that the Regulations have no force of law in member states and, hence, mergers with cross-border effect should not be notified to the Commission but to national competition authorities. I am disappointed when I hear such arguments, especially from the legal fraternity, because basic legal studies and international law informs us that countries that are signatories and have acceded to a treaty are bound by the provisions of that treaty unless they acceded to the treaty subject to permissible derogations. There is also a lot of case law, or jurisprudence as my learned colleagues would call it, on the subject. Jurisprudence is replete with judgments where the courts have held that treaty law is supreme and takes precedence over national law. The Vienna Convention on the Law of Treaties is also instructive on the subject. However, it is not my intention to become passionate and write more on the law of treaties, as we are not in an international law class.

One may ask then, which treaty we are referring to in the case of the Common Market, as so far we have only made reference to the Regulations. The Regulations are an offspring of article 55(3) of the Treaty establishing the Common Market for Eastern and Southern Africa (the Treaty). Article 55(3) provides that: ‘The Council shall make Regulations to regulate competition within the Member States’. It is therefore unequivocal that the Regulations draw their authority from the Treaty, and therefore bind any member state party to this Treaty. I am not aware of any member state that signed the Treaty subject to derogation from article 55.

In addition, the Treaty, the Regulations and the COMESA Competition Rules (the Rules) are unmistakable and very clear in indicating that member states are bound by the Regulations.

Article 5(2)(b) of the Treaty states that 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. This is an interesting provision in that it imposes responsibility on the member states to give effect to the Regulations of the Council, which include the Competition Regulations. The Treaty has reiterated this position under article 10(2) by stating that a Regulation shall be binding on all the member states in its entirety. This may be subject to debate, but it is not the focus of this article. What is clear is that it is the intention of the member states that the Regulations should be observed by all that are subject to them.

To reinforce the above conclusions, the Regulations and Rules themselves have provisions that impose obligations on the member states to observe and respect them. Article 5 of the Regulations reiterates the Treaty provision under article 5(2)(b), cited above, by expressly stating that pursuant to article 5(2)(b) of the Treaty, member states shall take all appropriate measures, whether general or particular, to ensure the fulfilment of the obligations arising out of the Regulations or resulting from action taken by the Commission under the Regulations. They facilitate the achievement of the objects of the Common Market. Member states shall abstain from taking any measure which could jeopardise the attainment of the objectives of the Regulations. Note that the word ‘shall’ has been used by article 5 of the Regulations in imposing an obligation on the member states not to take measures that could jeopardise the objectives of the Treaty. It therefore follows that this obligation is mandatory as opposed to optional, thereby cementing the intention of the member states to have the Regulations as a force of law. Drawing from this, Rule 5(2) gives binding authority to the decisions of the Commission when it provides that the decisions rendered by the Commission and the Board of Commissioners of the Commission shall, pursuant to article 5 of the Regulations, be binding on undertakings, governments of member states and state courts. Surely the logical and consistent flow of the provisions of the Treaty, Regulations and Rules establishes the clear intention of the member states on the issue and should put to rest any argument to the contrary.

Do the Regulations impose a time limit on the Commission in the assessment of mergers?

Notification of a merger is deemed complete after the submission of the relevant information as requested in the COMESA Competition Form 122 and payment of a legal fee provided for under Rule 55. Once the notification is deemed complete, the Commission does not have all the time in the world to assess a merger. Article 25 of the Regulations imposes a time limit of 120 calendar days within which the Commission should complete the assessment and issue a decision after notification. This 120-day period may seem long, but in comparison, the European Union Merger Regulations provide a time limit of 25 working days for the first phase, in some cases extended to 35 working days, and an additional 90 working days for the second phase, which can also be extended in a number of circumstances. The fact that these are working days means that they can, in some circumstances, significantly exceed the time periods under the COMESA Competition Regulations. Suffice to say that very few cases in the European Union proceed to the second phase. The Commission has an average of about 75 calendar days within which it has made decisions on mergers over the three years it has been in operation.

Although the Regulations do not provide for a two-phased approach in the assessment of mergers, the Commission has provided for this in the COMESA Merger Assessment Guidelines (the Guidelines) that became operational on 31 October 2014. The Guidelines provide that phase one will commence on the first day of the 120-day review period set forth in the Regulations and will expire no later than 45 days thereafter, subject to any extensions provided. Phase two will commence at the expiry of the phase one period if the Commission decides that the merger should be assessed under phase two, and will continue until the end of the 120-day review period, subject to any extensions provided.

Are there instances when the Commission can refer a merger to a member state?

The objective of assessing mergers is to ensure that mergers that are likely to be injurious to the optimal operation of markets and would harm consumer welfare are prohibited or remedied. It is in this view that the ‘best placed’ principle operates (ie, a country that would best assess the merger does the assessment). Therefore, article 24(8) of the Regulations allows a member state to request a referral of 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 that member state, or any part of it. It should be made clear here that the Commission retains jurisdiction on the merger as it affects other member states.

An important question one may pose is, what happens to the merging parties in an instance where they have already implemented the merger, since the COMESA merger regime is non-suspensory? It is important to note that in the case of a referral, a merger is not notified to the national competition authority but to the Commission. The transfer of a merger to a national competition authority is a referral and not a notification. Therefore, the Guidelines have addressed this issue by providing that parties to such a merger should not be penalised for not notifying the national competition authority of the merger. However, a word of caution to the merging parties is that even if the COMESA merger regime is non-suspensory, it is wise not to implement the merger until the Commission issues its decision, otherwise there may be a risk that the implemented merger may be rejected by the Commission, and in case of a referral, by the national competition authority, and this would be costly for the merging parties.

What are the merger notification thresholds?

We have already seen that in order for the Commission to have jurisdiction over the merger, the merging parties should have operations in two or more member states and meet a certain threshold.

When the Commission commenced its operations, the merger notification thresholds were set at zero. Therefore, the only triggering event for jurisdiction and notification was that the merging parties had operations3in two or more member states, regardless of the size of the merging parties. Article 23(3)(a) presented unlikely situations in instances where the target firm had no operations in any member state, but the acquiring firm had operations in two or more member states because such transactions were captured. However, it was difficult to imagine a situation where such a transaction would have an appreciable effect on trade between member states and would restrict competition in the Common Market. Such a situation is improbable and obviously inconsistent with international best practice.

In order to address this, section 3 of the Guidelines stated that in order to be notified, the target firm in a merger needed to have operations in a member state. However, the Guidelines are not binding law, as stated in their preamble. Therefore, in order to have jurisdiction on mergers on a sound procedural basis, the COMESA Council of Ministers amended the Rules to increase the thresholds from zero to the following:

(i) the combined annual turnover or combined value of assets, whichever is higher, in the Common Market of all parties to a merger equals or exceeds US$50 million; and

(ii) the annual turnover or value of assets, whichever is higher, in the Common Market of each of at least two of the parties to a merger equals or exceeds US$10 million.

The above stands unless each of the parties to a merger achieves more than two-thirds of its aggregate turnover or assets in the Common Market, within one and the same member state.

The above Rule brings in significant change to the COMESA merger regime. Threshold (i) above is intended to capture only mergers of a certain size and not those that prima facie would not have any effect on competition. Threshold (ii) ensures that the Regulations avoid capturing mergers involving minute target companies while the two-thirds rule is intended to ensure that the member state where the merging parties conduct most of their activities has priority to assess the validity of the merger. I think the Commission has done considerably well during the period it has been operating (less than three years), considering that it took several years for our elder brother, the DG Competition,4 to promulgate the Merger Regulations and acceptable thresholds to the member states and other stakeholders. Indeed, we have the advantage of learning from its experiences and it remains our role model.

Are there fees for filing a merger?

The Rules have a provision for merger notification fees. When the Commission commenced its operations, the notification fees were determined as 0.5 per cent of the combined turnover or assets in the Common Market (whichever was the higher amount) of the merging parties, with a ceiling amount of US$500,000. This formula brought a lot of discomfort to the business community, which argued that the fees were too high and unreasonable. The Commission considered the complaints and recommended to the COMESA Council of Ministers to amend Rule 55 and reduce the filing fees to 0.1 per cent of the combined turnover or assets in the Common Market (whichever is higher) of the merging parties, with a ceiling of US$200,000. This represents an approximately 66 per cent reduction in filing fees and has automatically resulted in the reduction of the cost of doing business in the Common Market.

Progress on mergers from inception to date

The Commission has, since inception, reviewed more than 100 mergers as at 21 June 2016. Energy, construction and insurance are the top three sectors dominating the mergers handled by the Commission, accounting for 12.5, 11.5 and 10.6 per cent of the total number of mergers, respectively. The tables below depict the mergers handled by the Commission and the distribution by sector and member states, from inception to date:

 

Merger statistics

2013 – June 2016

2013

2014

2015

2016
(Jan – June)

Application withdrawn

1

0

1

0

0

Merger transactions approved unconditionally

82

18

40

19

5

Merger transactions approved with conditions

3

0

1

2

0

Transactions without probable cause or not amounting to ‘merger’ after assessment

5

4

1

0

0

Transactions under assessment

13

0

0

0

13

Total

104

22

43

21

18

Merger transactions by economic sector, 2013–2016

Sector

Number of transactions

Mining

2

Pharmaceuticals

4

Banking and financial services

7

Agriculture

5

ICT and telecommunications

8

Insurance

11

Energy

13

Construction

12

Other

42

Merger transactions by country, 2013–2016

Sector

Number of transactions

Kenya

49

Zambia

49

Zimbabwe

38

Mauritius

37

Uganda

35

Malawi

33

Democratic Republic of the Congo

32

Rwanda

30

Egypt

28

Swaziland

26

Libya

20

Ethiopia

16

Madagascar

15

Sudan

15

Seychelles

14

Eritrea

12

Dijibouti

10

Burundi

9

Comoros

5

Benefits of having a supranational competition authority

A regional competition authority presents several benefits. One benefit already mentioned above is that it fills the gap left by the lack of extraterritorial application of national competition laws, as it addresses competition concerns emanating from one jurisdiction and having effect in another. Second, it reduces the regulatory burden of merger notification, in that for cases with a regional dimension, the merging parties only have to deal with one notification, hence saving time and costs. Third, it brings in the element of certainty and predictability by eliminating the possibility of inconsistent outcomes and differences in the timings of the outcomes.

Conclusion

The Commission’s journey in merger control has been relatively short but very comprehensive. It is impossible to narrate everything in an article that has a word limit. Mistakes have been made at times and lessons learnt, but we are comforted by our resolve to remain committed and develop the Commission into a centre of excellence in the enforcement of competition law.

Notes

  1.  ‘Common Market’ in this article refers to the Common Market for Eastern and Southern Africa.
  2. This and other relevant documents are found on the COMESA Competition Commission website: www.comesacompetition.org.
  3. The Commission adopted and has continued to define the word ‘operate’ as turnover derived in a particular member state. Currently, the Guidelines provide that in order to operate in a member state, a firm should derive a turnover of not less than US$5 million in that member state.
  4. The DG Competition is the division responsible for competition at the European Commission.

 

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