THE COMESA COMPETITION REGULATIONS (2004)

‘COMPETITION REGULATION IN THE COMMON MARKET‘

Willard MwembaHead; Mergers and Acquisitions

COMESA Competition Commission

INTRODUCTION – OUTLINE OF THE PRESENTATION1. General Remarks on what is Common Market

for Eastern and Southern Africa (COMESA).2. Challenges presented by the proliferation of

National Competition Laws.3. Need for the Regional Competition Policy

under COMESA.4. COMESA Treaty Provisions.5. Obligations of Member States under the

COMESA Treaty.6. Merger Control Regulation and Challenges. 7. Concluding Remarks.

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COMESA COMPETITION LAW AND POLICYWhat is COMESA ? The Common Market for Eastern and Southern

Africa - promoting regional economic integration through trade and investment.With its 19 member states, population of 430 million (2008) and an annual import bill of around US$ 152 billion (2008) and an export bill of over US$ 157 billion (2008), COMESA forms a major market place for both internal and external trading. Its area is impressive on the map of the African Continent covering a geographical area of 12 Million (sq km).

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Burundi*, Comoros, Djibouti*, DR Congo, Egypt*, Ethiopia*, Eretria, Libya, Kenya*, Madagascar *, Malawi*, Mauritius*, Rwanda*, Swaziland*, Seychelles*, Sudan*, Uganda, Zambia*, Zimbabwe*.

8 COMESA Countries are part of SADC and 4 part of EAC (Kenya, Uganda, Rwanda, Burundi). A tripartite Taskforce has been setup to harmonize

their programmes and the overall regional integration process for the three Regional Economic Communities.

*Member States with National Competition Laws.

COMESA MEMBER STATES

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Conduct being examined in two (or more) jurisdictions Conduct investigated by one authority that may have effects in

another jurisdiction Investigations where witnesses or evidence located in another

jurisdiction Remedies that may have impact in another jurisdiction Knowledge of and compliance with complex filling rules; Completion of an array of forms in accordance with various

national requirements; Payment of substantial fees to the reviewing authorities {often

designed to subsidize the operation of the Competition Authority}

Knowledge of and compliance with review schedules and waiting periods.

CHALLENGES PRESENTED BY THE PROLIFERATTION OF NATIONAL COMPETITIION LAWS-

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Trade in goods and services in a global environment has no respect for artificial borders.

The Regulations are critical because the National Competition Laws lack extraterritoriality to deals with anti-trust infringements emanating outside their borders.

Need for the COMESA Competition Regulations

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Having regard to Article 55 (1) of the COMESA Treaty: “ … To this end, the Member States agree to prohibit any agreement between undertakings or concerted practice which has its objective or effect the prevention, restriction or distortion of competition within the Common Market”

Article 55 (3): “The Council shall make regulations to regulate competition within the Member States”.

The Regulations were ratified by the Council of Ministers on 17th December, 2004 .

TREATY PROVISIONS

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Effect of RegulationsArticle 10 (2) of the Treaty : “ A Regulation shall be binding on all the Member States in its entirety “Entry into Force of RegulationsArticle 12 (1) of the Treaty : “ Regulations shall be published in the Official Gazette of the Common Market and shall enter into force on the date of their publication or such later date as may be specified in the Regulation”.COMESA GazetteVolume 9 No. 2; Decision No. 43 in Notice No.2 of 2004

EFFECT OF THE REGULATIONS ON MEMBER STATES

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Polytol Paints & Adhesives Manufactures Co. Ltd V. The Republic of Mauritius (CCJ – August, 2013 )Effects of CCJ Decision with Respect to the COMESA Competition Regulations1. Failure by COMESA Member States to domesticate

the Regulations by giving them the force of law and the necessary legal effect within their territories constitutes a breach of the COMESA Treaty.

2. Member States can be taken to the CCJ by other Member States or the Secretary General for breaching the Treaty by failing to fulfill their obligations under the Treaty.

EFFECT OF THE REGULATIONS ON MEMBER STATES

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Polytol Paints & Adhesives Manufactures Co. Ltd V. The Republic of Mauritius (CCJ – August, 2013 )Effects of CCJ Decision with Respect to the COMESA Competition Regulations3. Legal or natural persons have enforceable rights to

take their Member State governments to the CCJ in respect of conduct or measures that prejudices them and constitutes a breach of the Treaty obligations.

4. That Member States cannot use their internal laws as an explanation or defence for not implementing the COMESA Treaty obligations.

EFFECT OF THE REGULATIONS ON MEMBER STATES cont’d/.

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Article 5 of the Regulations: Pursuant to Article 5(2)(b) of the Treaty , Member States shall take all appropriate measures, whether general or particular, to ensure fulfillment of the obligations arising out of these Regulations or resulting from action taken by the Commission under these Regulations. They shall facilitate the achievement of the objects of the Common Market. Member States shall abstain from taking any measure which could jeopardize the attainment of the objectives of these Regulations.

Article 5 (2) (b) of the Treaty : “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 “.

OBLIGATIONS OF MEMBER STATES

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Two legal systems now exist namely:The domestic legal order to address competition concerns that lack a cross border dimensionThe regional legal order to address competition concerns that have a cross border dimension.Therefore, the Regulations have not rendered the domestic laws of Member States irrelevant. The jurisdiction of domestic laws has not been usurped.

Two Legal Orders Exist

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Anti-competitive Business Practices : Mergers and Acquisitions Consumer Protection/Welfare

MAJOR ELEMENTS OF THE COMESA COMPETITION REGULATIONS

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The Regulations provide for three institutions namely - : COMESA Court of Justice: Receives appeals against the

decisions of the Board of Commissioners. Board of Commissioners: A non- executive Board consisting

of 9/13 Members appointed by Council from the Member States. Determines cases it receives from the Commission. The Chairman shall assign three of the Commissioners to be full time members of the Board to be carrying out initial determination of the cases.

Commission: Enjoys international legal personality and in the territory of each Member State shall have the legal capacity required for the performance of its functions; Headed by the Director, responsible for the development of the regional competition policy and its responsibility extends to fact-finding, taking action against infringements of the law, imposing penalties and granting exemptions under the Regulations.

INSTITUTIONAL ARRANGEMENTS

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Scope of Application (Art. 3) : “…apply to all economic activities whether conducted

by private or public persons within, or having an effect within, the Common Market…”

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

“…shall have primary jurisdiction over an industry or a sector of an industry which is subject to the jurisdiction of a separate regulatory entity…”

“… does not apply to conduct expressly exempted by national legislation”

SCOPE OF APPLICATION:I

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Scope of Application (Art. 3) :Jurisdictional Limit :

In order to come within the prohibition imposed by the Regulations, the agreement practice must affect trade between Member States and the free play of competition to an appreciable extent.

Jurisdiction of the Regulations requires fulfillment of three concepts namely:-

Appreciability: Quantitative element criterion – the Regulations limit jurisdiction to agreements and practices capable of having effects on trade of a certain magnitude.

Effect on trade Between Member States: The application of the Regulations confined to agreements having a minimum level of cross-border effects within the Common Market.

Restriction of Competition in the Common Market :The concept of appreciability is thus distinct from but related to the requirement that the practice should restrict competition.

SCOPE OF APPLICATION:2

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Articles 23 – 26 of the Regulations set out the treatment of Mergers. Based on Article 23 (3) : Applies - : Definition of a Merger : Article 23 (1) A Merger means a direct or indirect

acquisition or establishment of a controlling interest by one or more persons in the whole or part of business of a competitor , supplier, customer or other person whether …’

Article 23 (2) : ‘Controlling Interest means ‘any interest which enables the holder thereof to exercise, directly or indirectly, any control whatsoever over the activities or assets of the undertaking’

Article 23 (3) ;Both the acquiring firm or target firm or either the acquiring firm or target firm operate either in two or more Member States of COMESA (Regional Dimension)

Article 23 (4) :The Zero threshold makes all mergers notifiable under Article 23 (4) of the Regulations.

Article 24 (1) Obligation to notify the Commission of the proposed merger within 30 days of the decision to merger – fine under Article 23 (5) (a).

Article 23 (6) Commission may require the parties to a non-notifiable merger to file a notification.

MERGER CONTROL PROCEDURE UNDER COMESA

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Notification of a Merger with a Regional Dimension – Article 24A party to a notifiable merger shall notify the Commission no later than 30 days of the parties’ decision to merger. Failure to notify a merger is penalized – a fine of maximum 10%

merging parties’ annual turnover in the Common Market (Article 24 (4) )

A Merger implemented without the Commission approval shall have no legal effect and no rights or obligations shall be legally enforceable in the Common Market.

NOTE: Article 25 foresees a one phase merger control assessment within 120 days: Based on Article 23 the CCC will first have to examine if the transaction falls under the CCR. Then in light of Article 26 the CCC will undertake a substantive assessment test and investigate:- (1) If the merger leads or threatens to lead to a SLC and, in the case of anticompetitive effects, (11) If there are any factors (i,e efficiency gains, public interests) to offset the harmful effects.

MERGER CONTROL PROCEDURE UNDER COMESA

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• The main dispute resolution mechanism under the COMESA Treaty is the COMESA Court of Justice.

• The Court Consists of two chambers these being the Court of First Instance and the Appellate Division;

• The main function of the COMESA Court of Justice is to ensure adherence to law in the interpretation and application of the Treaty;

• Its jurisdiction is to adjudicate upon all matters referred to it under the COMESA Treaty;

• References to the Court can be by Member States, the Secretary General, legal and natural persons.

• The Commission can refer a matter to the CCJ for either guidance or interpretation of the law.

DISPUTE RESOLUTION MECHANISM

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Acceptance of the Regulations Zero notification thresholds Notification fees Meaning of ‘Decision to Merge’ under Article

24 Article 23(3) reading results in a possible

absurdity Lack of domestication of the Treaty especially

for Member States that follow the Dualist system.

CHALLENGES

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The enforcement of the Regulations is one of the greatest milestones in the regional integration agenda.

In order to remain afloat and competitive, undertakings and law firms advising their clients should be abreast with this law.

Undertakings that choose to ignore this law do so at their own peril.

CONCLUSION

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THANK YOU

COMESA COMPETITION LAW AND POLICY

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