Confusion reigns in COMESA: filing fees misstated, “operation” vs. “threshold”, and new web site

COMESA Competition Commission logo

COMESA Competition Commission makes changes, but observers deplore lack of clarity and persisting mistakes

Visiting the CCC web site will yield a surprise to COMESA followers, as the Commission’s online presence has an updated look.  (Importantly, we express hope that it’s not all cosmetic but also substantive, and that the CCC’s webmaster has improved online security, in light of the numerous hacking attacks to which the agency was subjected in 2014.)

What’s more, the new web site has some new merger-related information, most notably of course the new finalized Merger Assessment Guidelines and an “Explanatory Note” on mergers.

Guidelines subvert Rules threshold under guise of companies’ “operation” within region

The former attempt to infuse some sense into the previous zero-dollar notification threshold regime (by re-defining in the Guidelines what it means to “operate” in COMESA countries as having turnover of >$5 million per annum).  They do so without actually amending or otherwise revoking the underlying Rules, which still do specify to this day that the turnover threshold for notification is “$0” COMESA dollars (which are the fictitious FX equivalent currency of U.S. dollars, so there is effectively no currency conversion required from USD figures).  CNBC/Africa has an 8-minute interview on the topic with a World Bank Group staffer who was part of the working group making the revisions here.

We at AAT respectfully question both the validity and the sensibility of keeping the flawed legislation of the Rules in place, while making agency ex parte interpretive changes via CCC “Guidelines” that notably do not have the force of law in COMESA countries.

“Explanatory Note” and the question of filing fees: 0.01% or 0.5%? Errors continue to persist.

The latter document (reproduced below in full) tries to do the same in a more simplistic fashion — asking, curiously, “What is merger?” [sic!]  However, the Explanatory Note appears fundamentally flawed as it incorrectly includes a reference to the filing fee as being set at 0.01% of the parties’ combined annual revenues.

AAT analysed this statement and believes that the CCC improperly refers to the old Rules (which provided for a 0.01% fee in Rule 55) until they were revised and then subsequently interpreted by CCC guidance in February of 2013: since then, filing a CCC notification incurs a fee of 0.5% of turnover, as we extensively discussed here(Update: The CCC has apparently read our post and, as of 5 Nov. 2014, changed this incorrect statement, deleting all references to filing fees in their entirety.)

Continuing lack of clarity emanates from COMESA’s official statements and publications

AAT deplores the ongoing confusion that reigns with respect to the CCC’s pronouncements on crucially important issues such as thresholds, filing fees, and the like.  It takes more than a new web site design to instill parties’ and attorneys’ trust in the young antitrust regime’s competency, and with it, new filings (which have notably stalled at zero for the past half year).

Mergers and Acquisistions

What is Merger?

Most mergers pose little or no serious threat to competition, and may actually be pro-competitive.  Such benevolent mergers have a number of economic advantages such as resultant economies of scale, reduction in the cost of production and sale, and gains of horizontal integration.  There could also be more convenient and reliable supply of input materials and reduction of overheads.  These advantages could, and should, lead to lower prices to the consumer.

Other mergers, however, may harm competition by increasing the probability of exercise of market power and abuse of dominance.  Mergers can also sometimes produce market structures that are anti-competitive in the sense of making it easier for a group of firms to cartelise a market, or enabling the merged entity to act more like a monopolist.

An increasing number of business firms in the COMESA region are merging, or entering into other forms of strategic alliances, in order to take advantage of the many economic benefits that arise from such transactions.  Undertakings in the COMESA region are relatively small compared with those in other parts of the world.  Mergers in the region, however, would create ‘regional champions’ capable of competing with other international companies on an equal footing.

Companies however need to notify the Commission their proposed mergers to enable the mergers to be thoroughly examined for any anti-competitive features that might reduce or eliminate the transaction’s economic benefits.  Not all mergers are notified to the Commission.  Only those large mergers that exceed a certain prescribed threshold have to be notified.  The fee for notifying mergers is not punitive, but is only meant to defray the costs to the Commission for examining the transactions.  The COMESA Competition Rules provide for a relatively small merger notification fee calculated at 0.01% of the combined annual turnover or combined value of assets in the COMESA region of the merging parties.  (NOTE by editor: The CCC has, as of 5 Nov. 2014, changed this incorrect statement and deleted all references to filing fees entirely.) Failure to notify mergers can however be very costly to the merging parties.  The Regulations provide for a high penalty of up to 1% of the merging parties’ annual turnover in the COMESA region for not notifying eligible mergers

Merger in COMESA Competition Regulations

The word merger in this COMESA Competition Regulation is construed in the context of its definition under Article 23(1) of the Regulations.

Control is used in the context of controlling interest as defined under Article 23(2) of the Regulations. Without prejudice to Article 23(2), control shall be constituted by rights, contracts or any other means which, either separately or in combination with and having regard to the considerations of fact or law involved, confer the possibility of exercising decisive influence on an undertaking. The COMESA Competition Commission (‘the Commission’) shall deem a person or undertaking to exercise control within the meaning of Article 23(2) of the Regulations if the person or undertaking;

  • Beneficially owns more than one half of the issued share capital of the undertaking;
  • Is entitled to cast a majority of the votes that may be cast at a general meeting of the undertaking, or has the ability to control the voting of a majority of those votes that may be cast at a general meeting of the undertaking, or has the ability to control the voting of a majority of those votes, either directly or through a controlled entity of the undertaking;
  • Is able to appoint, or to veto the appointment, of a majority of the directors of the undertakings;
  • Is a holding company, and the undertaking is a subsidiary of that holding company;
  • In the case of the undertaking being a trust, has the ability to control the majority of the votes of the trustees or to appoint or change the majority of the beneficiaries of the trust;
  • In the case of an undertaking being a close corporation, owns the majority of the members’ interest or controls directly, or has the right to control, the majority of the members’ votes in the close corporation; or
  • Has the ability to materially influence the policy of the undertaking in a manner comparable to a person who, in ordinary commercial practice, can exercise an element of control referred to in paragraphs (a) to (f).

The Commission shall assess material influence on a case by case basis, having regard to the overall relationship between the acquiring firm and the target firm in light of the commercial context.

In its assessment of material influence, the Commission shall focus on the acquiring undertaking(s). Minority and other interests shall be examined by the Commission to the extent that they are able to influence the policy of the undertaking(s) concerned.

The Commission shall consider an acquiring firm’s ability to influence policy relevant to the behaviour of the target firm in the market place. This includes the management of the business, in particular in relation to its competitive conduct, and thus includes the strategic direction of a firm and its ability to define and achieve its commercial objectives.

The Commission shall consider an acquiring firm’s ability to block special resolutions by virtue of share ownership or other factors, including:

  • The distribution and holders of the remaining shares, in particular whether the acquiring entity’s shareholding makes it the largest shareholder;
  • Patterns of attendance and voting at recent shareholders’ meetings based on recent shareholder returns, and, in particular, whether voter attendance is such that in practice a minority holder is able to block a special resolution;
  • Any special voting or veto rights attached to the shareholding under consideration; and
  • Any other special provisions in the constitution of the target firm which confer the ability to exercise influence.

Where an acquiring firm is not able to block special resolutions of the target firm, the Commission shall have regard to the status and expertise of the acquiring firm, and its corresponding influence with other shareholders, and shall consider whether, given the identity and corporate policy of the target company, the acquiring firm may be able to exert material influence on policy formulation at an earlier stage.

The Commission shall review the proportion of Board of Directors appointed by the acquiring firm and the corporate/industry expertise of members of the Board appointed by the acquiring firm. The Commission may also assess the identities, relevant expertise and incentives of other Board Members.

Interpretation of Article 23(3) of the COMESA Competition Regulations
Article 23(3) of the COMESA Competition Regulations (‘the Regulations’) provides that:

                        “This Article shall apply where:

  • both the acquiring firm and target firm or either the acquiring firm or target firm operate in two or more Member States; and

  • the threshold of combined annual turnover or assets provided for in paragraph 4 is exceeded”.

The interpretation shall focus on Article 23(3)(a) since Article 23(3)(b) is superfluous due to the non-existent of thresholds currently. Article 23(3)(a) is divided into two parts as follows:

  • both the acquiring firm and the target firm operate in two or more Member States;
  • either the acquiring firm or target firm operate in two or more Member States.

The meaning of the first part above is that for a merger to fall within the dominion of Part IV of the Regulations is that both the acquiring firm and the target firm should operate in two or more Member States. For example if Company A is the acquiring firm and it operates in Zambia and Malawi and Company B is the target company and it equally operates in Zambia and Malawi, then the requirements of the first limb are satisfied and the merger falls within the ambit of Part IV of the Regulations.

Another scenario where the first part is satisfied is where Company A the acquiring firm operates in Zambia and Malawi and Company B the target firm operates in Zambia and Ethiopia. In this example, both Company A and Company B operate in two or more Member States.

The third scenario where the first part is satisfied is where Company A the acquiring firm operates in Zambia and Malawi and Company B the target firm operates in Djibouti and Madagascar. In this example, both Company A and Company B operate in two or more Member States.

As regards the second part, a merger falls within the province of Part IV of the Regulations where for example Company A the acquiring firm operates in Kenya and Seychelles and acquires Company B the target which has no operations in the COMESA Member States.

Another scenario where the second part is satisfied is where Company A the acquiring firm has no operations in any of the COMESA Member States but acquires Company B the target which operates in Rwanda and Burundi.

The foregoing are pursuant to the second limb which uses the words “either or” and therefore presupposes that both the acquiring firm and the target firm do not have to operate in two or more Member States as is the case for the first limb but that where either the target or acquiring is operates in two or more Member States, the merger is captured under Part IV of the Regulations.

It is important to note that where the acquiring firm operates in only one Member State and the target firm operates in another Member State and only that Member State, then such a merger does not satisfy the jurisdictional requirements of Part IV of the Regulations. This is however on the premise that such firms do not control any other firm whether directly or indirectly in a third Member State. Such firms should also not be controlled whether directly or indirectly by any other firm in a third Member State. For example, where Company A the acquiring firm operates in Swaziland only and Company B the target operates in Rwanda only, such a merger does not meet the jurisdictional requirements of Part IV of the Regulations. The situation may be different where Company A has a stake in Company C which operates in Mauritius or Company B has a stake in Company D which operates in the Democratic Republic of Congo.

The word operate is taken to mean that a firm(s) in issue derives turnover in two or more Member States. Therefore does not need to be directly domiciled in a Member State but it can have operations through exports, imports, subsidiaries etc. in a Member State.

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Official closure schedule of COMESA – unique time table

COMESA Competition Commission logo

Note to practitioners: filings due on these unique closure dates, set by the COMESA Competition Commission‘s registrar’s office for 2014, will be due on the subsequent working day:

1. 1st January 2014- New Years’s Day
2. 15th January 2014- John Chilembwe day
3. 3rd March 2014- Martyrs Day
4. 18th April 2014- Good Friday
5. 21st April 2014- Easter Monday
6. 1st May 2014- Labour Day
7. 14th May 2014- Kamuzu Day
8. 20th May, 2014- General Elections
9. 7th July 2014- Independence Day
10. 15th October 2014- Mothers Day
11. 25th December 2014- Christmas

“Crossing the Competition Rubicon”: Internationalising African Antitrust through COMESA

John Oxenham & Andreas Stargard

(PDF of article as published in Concurrences)

Crossing the Competition Rubicon: Internationalising African Antitrust through COMESA

As published in HORIZONS / Concurrences Law Journal (vol. 03-2013) Institute of Competition Law, re-published under licence.

English Abstract: Antitrust publications were abuzz with “COMESA” in recent months. Yet, neither the decades-old pan-African organisation nor its Competition Regulations are novel. What’s new is that COMESA’s Competition Commission has finally — and suddenly — opened its doors and begun operations, already having reviewed two merger filings. This paper examines the economic advantages of COMESA for the region, analyses its role as a multi-national enforcement body, and identifies the pitfalls the agency will face in its inaugural year.
French Abstract: Les publications en droit de la concurrence étaient en effervescence avec « COMESA » ces derniers mois. Pourtant ni l’organisation pan-africaine, ni ses règlements concurrence ne sont nouveaux. Ce qu’il y a de nouveau, c’est que la Commission de la Concurrence du COMESA a finalement — et tout à coup — ouvert ses portes et a commencé ses opérations, ayant déjà examiné deux dossiers de fusion. Cet article examine les avantages économiques qu’offre COMESA pour la région, il analyse son rôle en tant qu’organe d’exécution multinational, et il identifie les pièges dont devra faire face la CCC durant sa première année.

Introduction

1. The Common Market for Eastern and Southern Africa has recently grabbed international legal headlines. Its acronymic title, COMESA, now firmly features in the awareness of most competition lawyers. The organisation is not new, however, nor are its Competition Rules and Regulations. The multi-national body itself dates back at least twenty years, and the Regulations were finalised and (technically) entered into force in 2004.

2. Why all the ruckus in 2013 then ? The reason is straight-forward : Antitrust law does not self-execute. It needs an enforcer, public or private. That enforcement agency now exists.

I. Alea iacta est: A new supranational competition authority is born

3. For the past decade of the Competition Regulations’ theoretical existence, they dwelled in the nether region of unenforced laws – their Article 18 prohibition on abuse of dominance effectively had equal legal footing as the rule against a pedestrian jaywalking at a red stoplight : with no policeman in sight, either goes unpunished.

4. COMESA crossed the “missing policeman” rubicon on 14 January 2013, when the Competition Commission (“CCC”) saw the light of day. With the advent of its operation – as well as that of the supervisory body, its Board of Commissioners – also comes the enforcement of the full spectrum of competition legislation embodied in the Regulations (merger control, unilateral conduct, cartels, and so on). Its impact will be felt by economic actors across an area spanning 19 member states, 12 million km2 and a population of over 389 million [1].

5. The basics of the COMESA Regulations and the CCC’s powers are already well-documented elsewhere and do not merit repetition here. Instead, this paper is focussed on two broader policy points : (1) the law’s potential beneficial impact on the region as a whole ; and (2) the pitfalls and prospects of successful execution by the CCC. As the CCC has seemingly (and with good reason) done, we emphasise first and foremost the new merger-control regime, rather than other vertical and horizontal restrictive practices that are also, in principle, within the agency’s enforcement powers but remain entirely untested for now.

6. The new competition regime has not emerged without escaping criticism in the press and in law firms’ client alerts. Certain aspects of the feedback are particularly noteworthy, as they may have a fatal impact on the merger-control regime and indeed could render it unworkable in practice. The two key reproaches levied are (1) the “zero threshold” for mergers to be notified, and (2) that a two-party transaction must be notified even though one of the firms has no nexus to the COMESA market at all. In effect, were the COMESA merger provisions taken literally, “all” transactions falling within the ambit of a notifiable merger, regardless of how small or how removed from the common market area, would be notifiable under penalty of 10% of the merging parties’ turnover in the Common Market [2].

7. The CCC has already indicated, however, that it will address these issues in its final Guidelines and, potentially, in revisions to the Regulations themselves. Its willingness to adapt – hopefully swiftly – is commendable. It must change its initial broad-brush notification approach to accommodate the reality that the purchase of a competing road-side lemonade stand by another juice vendor in Nairobi is simply not a competitive concern justifying the legal mandate for formal notification with a multi-national antitrust authority. Compliance with ICN Recommended Practices I.A and I.B is fundamental for a pragmatic solution and, not least, to forestall the facile spread of misconceptions about the CCC’s perceived mission as well as, frankly, the danger of international ridicule [3].

8. In addition to the criticism levelled against it by third-party observers, the CCC has also sustained an early blow from within, as there has been a jurisdictional tug-of-war between the CCC and Kenya (notably a COMESA member state). The fairly little-noticed matter involves the control of acquisition of shares, interest or assets among local firms in Kenya. Uncertainty as to who the responsible regulatory authority was for such intra-country dealmakers has resulted in the Kenyan Attorney General issuing an opinion giving the Competition Authority of Kenya (CAK) authority to act as the sole agency with the mandate to clear “local” mergers and acquisitions. It shields local firms from the COMESA regime as far as purely domestic transactions are concerned. The CCC’s formal letter response to a contemporaneous blog posting by the authors on the dispute highlights the risk posed by vaguely worded filing requirements as far as “local” mergers are concerned : “[I]t is our considered view that CAK has failed to comprehend the advice by the Attorney-General which … specifically states that CAK shall continue to exercise its jurisdiction on local mergers and acquisitions. It is our understanding (…) [he] has not referred to merger transactions with regional dimension. This is the correct position” [4].

9. Regardless of the outside criticism and internal jurisdictional skirmish, at least two mergers have already been notified to the CCC as of the writing of this article, and others are underway. By comparison to another “newborn” merger authority’s performance – the Indian CCI, which was created in June 2011 – these numbers are arguably on the low end. The CCI saw a total of 51 and 62 merger filings in each of its first two years, respectively. At the CCC’s current pace, it will likely not surpass a dozen notifications in its inaugural year, although we view the first four months since its inception as non-indicative of future filings and anticipate that the rate will increase significantly.

II. Measuring COMESA’s success

10. To create a functioning, universally respected, supra-national competition authority ex nihilo is neither easy nor enviable, and to measure its success at only the half-year mark of its existence would be premature. Therefore, a perhaps more meaningful analysis of the short history of the CCC’s performance should focus on other benchmarks than the insufficient merger statistics that are available as of now. We identify some cognisable waypoints below, which may guide future evaluation of the CCC’s performance.

1. Best practices

11. The CCC’s release of formal Guidelines – dealing with, inter alia, such expected topics as merger control and market definition, as well as uniquely region-focussed topics such as the public interest criterion of the COMESA Regulations – has provided welcome and early guidance to businesses and competition practitioners alike. What’s more, the Guidelines’ pre-release in draft form, and the CCC’s concomitant request for public comment, conforms to international best practices for competition agencies and has allowed international commentators and global bodies (such as the American Bar Association) to provide valuable insight ex ante, before it is “too late” and enforcement blunders occur. It is too early to determine the extent to which the public comments will be taken into account and the Guidelines tweaked, however.

12. In addition, while simple in principle, it is hard to overstate the value inherent in clear, English-language agency documentation, made available on a professional, functioning, and well-designed web interface. The CCC offers all of the above, and fares well when compared to several of the more established competition agencies’ public profiles (including the clarity, updated nature, and accessibility of their documentation), in contrast to MOFCOM or other more senior agencies elsewhere.

13. In sum, the CCC’s pursuit of best practices from the get-go emphasises the overarching goal of “fairness” embedded in its basic charter, as well as its “ongoing efforts to clarify and publish guidance about its enforcement policies and practices” [5].

2. Organisational health

14. An enforcement agency is only as good as its enforcers, just as a law firm’s real capital is human in nature, consisting of its attorneys. That said, there does exist a benefit of having an enforcement body with a significant history and consistency of practice, regardless of present leadership, which is : institutional memory and resulting predictability for the outside practitioner of the agency’s enforcement actions and decisions. Here, this positive externality of having a long-lived authority with established practice is lacking.

15. The CCC is based in the administrative capital of Malawi, Lilongwe, and currently only fields eight staff members, which may be an issue if and when merger notifications increase. On the plus side, COMESA’s anticipated multi-national staffing portends longevity, institutional memory, and the potential for a – conceivably constructive and beneficial – “revolving door” staffing policy between NCAs and the CCC. Yet, with only two mergers notified to date and in light of its infancy, we view these criticisms as less relevant.

3. Regional enforcement and cohesion

16. One of the professed goals of COMESA’s CCC is to “achieve uniformity of interpretation and application of competition law and policy,” not only as part of its own enforcement within the CCC’s proper jurisdiction, but moreover “within the common market” as a whole [6]. In a region that has often lacked these features, such an approach is doubtless welcome. Based on the CCC’s pronouncements [7], the agency supports increased uniformity among member states’ domestic competition enforcement, in addition to its own exclusive enforcement over matters with a COMESA dimension per Article 3 of the Regulations.

17. One of the historical motivations for a pan-African competition enforcer was the realisation of member states that “with globalization, markets continued to extend beyond national boundaries and the national laws, and their enforcement institutions were no longer sufficient to deal with the new market problems of the region. To address these problems of enforcing multi-jurisdictional competition cases, a regional approach to the competition cases with regional coverage was found to be the solution.” [8]

18. Having a strong infrastructure in place has the potential to prevent pure competition policy and its application from descending into nationally politicised issues, as exemplified by anticompetitive government aid measures designed to prop up inefficient para-statal “domestic champion” enterprises.

4. Cost and time savings

19. The one-stop-shop concept which underlies the CCC’s raison d’être brings with it potential efficiencies of scope and scale, and is, in principle, a sound one. Its prime exponent is arguably one of the most successful multi-national competition enforcers, namely the EU Commission. Its current competition commissioner called it one “of the EU’s success stories making sure that consumers benefit from products and services to choose from at competitive prices whilst allowing companies to get their mergers reviewed swiftly.” [9] Today, over 70% of pre-notification referrals seek one-stop-shop review by the EU Commission in lieu of individual national filings.

20. As for the CCC, its merger mandate is similar, i.e., to enhance the efficiency of notification (one in lieu of potentially eight) and the consistency of review (obtaining one single outcome rather than potentially divergent results in different member countries). Moreover, its promise is to lower parties’ transaction costs : according to its own statement, the agency has already undertaken a “preliminary assessment” of the anticipated notification fees, concluding with the prediction that the cost of a COMESA filing will be “much lower than that of the national competition authorities and this has resulted in the cost of doing business (notifying using the COMESA route) being reduced by about 43.4%.” [10]

21. Taking this initial assessment at face value would be premature, however. The CCC admits that it “has not yet concluded any merger investigation for one to have a basis for any comparisons yet.” [11] Moreover, it is unclear from the CCC’s quoted statement whether the entire cost of notifying (including counsel fees, avoidance of duplication before multiple NCAs, and other opportunity-cost savings) is being reduced or merely the filing fees.

22. One potential procedural avenue to ensure lower average fees would be to introduce the equivalent of “short-form” notifications for transactions with little to no competitive concerns or nexi to any COMESA member state. Assuming the truth of the CCC’s assertion, however, it will be difficult for parties to squabble with expected cost savings that will slash their pre-merger legal expenditures by almost half.

23. Whether the CCC will have sufficient regulatory “bite” remains to be seen, as neither approval nor divestiture or prohibition decisions have been taken yet. It is noteworthy that the first parties to notify transactions to the CCC, however, have been highly reputable global electronics and pharmaceutical firms, respectively, represented by experienced competition counsel. Their decision to notify with the young and – at that moment still entirely untested – competition authority is, in our view, a vital sign of success for the CCC. Some observers at the EU in Brussels and at the OECD in Paris have called the high level of the pioneering notification a “stroke of luck” for the CCC, as the quality of the Philips/Funai deal will give pause to other foreign firms that may have otherwise chosen to ignore the COMESA regime. “Transaction No. 1” thus has the potential to provide the necessary initial bite to the virgin CCC’s regulatory jaw.

5. Other externalities benefitting the common market and its participants

24. A functioning antitrust regime is beneficial to economic actors at all levels, from producers and importers down to the end user [12]. With COMESA’s joinder of competition-law jurisdictions, that benefit accrues to the entire region, especially as only a minority of member states have an antitrust law at present, with varying levels of enforcement [13].

25. When considering investments in Sub-Saharan Africa, one thinks of a single jurisdiction (for example, South Africa or Botswana). A functioning CCC will result in international investors considering COMESA instead of individual member states, promoting cross-border investments and thus enhancing COMESA’s attractiveness and competitiveness within the region as a destination for foreign direct investment.

26. In this respect, the most important advantage realised by COMESA is, in principle, the elimination of multiple merger filings in various African jurisdictions in respect of a single transaction which results in a cross-border merger transaction. Accordingly, the COMESA one-stop-shop structure saves significant amounts of time and money, obviating the parties’ need to examine and comply with each individual member jurisdiction’s merger guidelines and regulations, not to speak of multiple filing fees for a single cross-border transaction.

27. The establishment of COMESA as a competition watchdog is largely welcomed in the region and appears to be on a promising international path, as well. Teething problems like thresholds, timing and jurisdictional reach are hopefully close to finalisation, which will provide greater clarity to merging parties. If the CCC and the Board manage the process of “righting the ship” well and in a timely fashion, we envisage that the COMESA competition regime will actually “enhance” the region’s economic attractiveness for both foreign and local investors, and will promote rather than stifle cross-border transactions.

III. Righting the ship : Finishing the river crossing

28. Balancing its economic and legal benefits with the CCC regime’s present shortcomings prompts the inevitable question what the implications are for future cross-border merger notifications. To realise its full potential of fostering regional growth, it is vital that the COMESA ship is righted urgently.

– Merger thresholds need to be revised, if not outright introduced, as it is plainly non-sensical to have a zero-turnover threshold. The CCC itself appears to recognize this crucial deficiency, as it claims that : “Small companies that fall below a given threshold will not need to undergo the authorisation process.” [14] Properly-scaled thresholds, i.e., thresholds that are appropriate for the region’s economy, will also permit the CCC to ensure an efficient allocation of enforcement resources, avoiding the risk of being flooded by de minimis merger-control filings that would otherwise require review.

– Article 23(3) of the Regulations implies that transactions would be notifiable to the Commission even if only one of the merging parties operates in two COMESA Member States and the other merging party does not operate in “any” COMESA Member State. This is also emphasized in the Guidelines on Merger Assessment, which suggest that a merger is notifiable even if only one of the merging parties has activities in at least two COMESA Member States and the other party has none. This would mean that a merger must be notified, or is otherwise subject to COMESA scrutiny, even if there is no nexus between one of the merging firms and the Common Market. If this interpretation is indeed maintained, we believe that it will place an undue burden on potential merger parties and undermine one of the crucial objectives of any merger regime : to gain international acceptance.

29. Absent swift rectification, these concerns may render the COMESA Competition regime unworkable. At best, they will merely deter parties from making a notification (hoping for lack of enforcement). Worse, these regulatory uncertainties may cause undertakings to abandon potential transactions entirely.

30. Addressing the issues identified above is imperative to ensuring the CCC’s viability as a recognised international competition authority. In addition, we believe that the agency faces other – perhaps less serious, yet nonetheless important – obstacles on the final leg of its proverbial river crossing :

– COMESA’s express inclusion of so-called “para-statals” (i.e., fully or partial government-owned enterprises) within the penumbra of its jurisdiction under Article 3 is commendable and indeed important, given the comparative prevalence of such enterprises in the region and the risk of abuse inherent in their transformation into privatised businesses. The CCC must be careful, however, not to be side-lined by the member states’ governments, as the Regulations’ prior-exemption exception of Article 3(2) presents a potentially appetising jurisdictional loophole for dominant para-statals being shielded from review by the CCC.

– The Guidelines’ indirect reference to EU rules poses a threat of commingling divergent standards and interpretive assessments thereof, e.g., applying guidance on the SIEC standard to an SLC regime.

– The trigger date for notification is also not clear. Article 24(1) requires notification within 30 days of a “decision to merge.” The Guidelines indicate that a decision to merge is “construed when there is established a concurrence of wills between the merging parties in the pursuit of a merger objective.” Neither the commercial nor the legal meaning of this phrase is entirely clear and will make it difficult for companies to determine when to notify a transaction, resulting in the risk of facing penalties for late filing. Clarification of all relevant “notification triggers” is therefore highly desirable from the perspective of affected undertakings.

– While the CCC’s previously identified “preliminary assessment” of the anticipated fees appears to claim otherwise, we are of the (likewise preliminary) view that COMESA’s merger filing-fee is not in accordance with other jurisdictions. These fees constitute a danger that may help to undermine COMESA’s international and legal acceptance. Especially when compared to established global regimes – such as the EU’s DG COMP or the German Bundeskartellamt (with no and relatively low filing fees, respectively) – the potential fees COMESA may charge notifying parties under its Rules pose a serious threat to the regime’s legitimacy.

– On a positive note in this regard, the CCC has taken notice of – and acted swiftly in response to – critics’ public comments relating to the initially vague arithmetic determination of the CCC’s filing fees. The alternative two-part provision contained a connecting “higher of” reference, which caused unintended confusion among competition practitioners [15]. Many a law firm’s initial assessment and subsequent public client alert therefore referred to COMESA fees being the “greater of” the two computational bases. The CCC stepped in within merely weeks and issued clarifying guidance. While it did not correct the ambiguous language in the Rule itself, it issued a public notice of Interpretive Meaning of the Notification Fee Pursuant to Rule 55(4) of the Amended COMESA Competition Rules on 26 February 2013, thereby putting an end to speculation that filing fees would indeed be calculated on the higher-of basis.

– The need for original copies to be filed with the notification goes against the global trend of leading enforcement agencies, such as the FTC or DG COMP, increasingly allowing filings to be made electronically. It hinders efficiency and increases administrative and timing burdens on the parties, which is inconsistent with the CCC’s stated objectives and, indeed, contrarian to the developments of the 21st century.

31. Several international networks and associations comprising members from various antitrust jurisdictions worldwide have provided significant contributions to the CCC, working closely with the agency to propose practical and workable solutions to the identified hurdles. Organisations that have provided input include the International Competition Network (ICN) (which currently includes 128 agency members from 111 jurisdictions and is the most extensive network of competition authorities worldwide) and the American Bar Association’s two sections of Antitrust Law and of International Law. They have offered the CCC assistance, particularly in the provision of commentary and proposed amendments to the merger assessment guidelines, suggesting workable (and tested) solutions in relation to the various teething problems it faces [16]. We note that there is a fine line between receiving offers of support and the affirmative seeking of advice – we would encourage the CCC to undertake the latter at all stages of its developmental process, as its legitimacy in the eyes of the global competition community will only be enhanced, not reduced, by its efforts to integrate itself into the global network of enforcers. As has been the mantra of many an NCA official’s speeches over the past decade, convergence of international antitrust regimes is crucial to effective enforcement on the one hand and rational decision-making by businesses on the other. For COMESA to fall in line with the global trend of convergence, the CCC must not shy away from seeking the input of other, more advanced sister agencies and organisations such as the ICN, which – in our experience – are always glad to provide their support.

32. Finally, one key inquiry faced by any nascent international legal regime is whether the unified, single decisions made under a harmonised legal system are likely to be superior to the alternative, i.e., the sum of those applying diverse national laws [17]. Even if uncoordinated domestic regimes are deemed inefficient, it does not automatically follow that a single multi-national regime will yield more pareto-optimal outcomes [18]. Historically, there have been three main criticisms levied against international antitrust regimes. They include higher monitoring costs, higher enforcement costs, and the loss of innovation [19]. Considering each of them in detail would breach the bounds of the present article. Suffice it to note that some scholarship suggests agency costs to be higher at an international level, with the concomitant effect that bureaucrats will have more ability to fashion rules in their own interest [20]. A parallel risk is that the multi-national process may appear more opaque than the more established and well-known domestic procedures, resulting inter alia in greater difficulty of monitoring those responsible for carrying out enforcement policy, as well as less innovative (because less diverse and more static) approaches to enforcement or resolution of conflicts [21]. An international regulator outside the direct control of government may pursue interests distinct from its members, which may not mirror the interests of the citizens living in the member states. Taken together, these risks may cause a global regime to appear less in the public interest than maintaining the sovereignty of individual domestic rules [22].

33. While these critiques may have valid application in developed countries with mature competition authorities where a global harmonised regime is being considered, they appear somewhat neutralised in the case of COMESA. For one, a majority of the Member States did not have pre-existing competition-law regimes, and the remainder of the NCAs were arguably inexperienced and not developed. We submit that having at least a functioning and well-funded competition enforcement regime — centralised or decentralised — is more beneficial that having none at all.

IV. Conclusion

34. As with every rubicon worthy of its proverbial name, COMESA’s crossing of the antitrust divide has advanced beyond the point of no return. And rightly so : the efficiency gains, consumer benefits, and appeal to investors derived from a stable, transparent and predictable competition-law enforcement that transcends national borders all promise a net positive return. We see this prospect holding true despite early teething problems, as the CCC appears to be in the process of rectifying most, if not all, of them in due course.

35. The CCC’s future enforcement performance being in line with international best practices will be the ultimate litmus test for increased investment in the region and COMESA’s economic growth. One gladly wishes to take the CCC by its word in describing the impetus behind the unified antitrust regime : “cooperation and transparency in procedures [are] essential for business as they would not be subjected to excessive costs arising from multiple, parallel and poorly coordinated investigations.” [23] Businesses probably could not agree more – but a mere mission statement is a far cry from actual, competent enforcement. For the time being, the CCC’s ship hasn’t made it to the other river bank and is still traversing unpredictable rapids.

36. The near future will doubtless reveal several important benchmarking metrics of the CCC’s merger review performance, for instance : how many transactions are notified ? How quickly can the authority render decisions on most routine notices ? How robust is its underlying economic and legal reasoning ? It may take additional time before a complex merger demanding in-depth analysis will challenge the CCC to show its true analytical prowess and administrative ability to deal with difficult cases.

37. The CCC has the features and multi-national support that allow it, in principle, to become a robust regional competition authority. That said, its success is not a foregone conclusion, and the agency must ensure that it has the sanctioning not only of COMESA’s regional member states and domestic NCAs, but also of the broader international antitrust community.

Footnotes:

[1] Even when compared to the worldwide GDP leader and key historical role model of multi-national competition-law jurisdictions – the European Union – these figures are impressive for a comparatively young African agglomeration of economies. (By comparison, the EU has 27 member states, a population of 501 million, and a GDP of $16 trillion.)

[2] Article 24 of COMESA Competition Regulations 2004.

[3] The “missing-nexus” and “zero-dollar” threshold problems have caused several antitrust experts – including private practitioners, EU Commission officials and US enforcement agency representatives – to scoff at even a passing mention of COMESA as a relevant jurisdiction to take into account when counselling clients on worldwide merger-notification obligations. The CCC must act with speed and determination to rectify these problems to maintain its bona fides vis-à-vis both its international sister agencies as well as private parties appearing before it.

[4] Letter from COMESA Competition Commission, dated 22 March 2013 (“CCC March letter”), at § 14, available online at https://africanantitrust.com/2013/05/14.

[5] CCC news release, COMESA Competition Commission Seeks Public Comments on its Draft Guidelines, available at : http://www.comesacompetition.org/latest.

[6] Art. 1 of COMESA Competition Regulations, December 2004, available at http://www.comesacompetition.org/im….

[7] For instance, Art. 5 of the Regulations, and the CCC’s mandate that national competition laws in the region “should increasingly come into alignment.”

[8] CCC March letter, at § 5.

[9] J. Almunia, Commission Vice President and Competition Commissioner, Mergers : competition authorities agree best practices to handle cross-border mergers that do not benefit from EU one-stop shop review, 9 November 2011. See also J.J. Parisi, A Simple Guide to the EC Merger Regulation, January 2010 (“The EC Merger Regulation (ECMR) was intended to provide a ‘level playing field’ in a ‘one-stop shop’ for the review of mergers with significant cross border effects.”).

[10] CCC March letter, at § 17.

[11] Ibid. at § 16.

[12] The European Commission’s 2012 report on competition policy showed that without an effective European competition policy, the internal market cannot deliver its full economic potential. The COMESA Regulations’ Preamble notably posits the tripartite goals of “economic growth, trade liberalisation and economic efficiency” as drivers for the regional antitrust regime.

[13] Egypt, Kenya, Malawi, Mauritius, Seychelles, Swaziland, Zambia and Zimbabwe.

[14] COMESA CCC Frequently Asked Questions.

[15] Rule 55(4) of the amended COMESA Competition Rules reads as follows : “Notification of a notifiable merger shall be accompanied by a fee calculated at 0.5% or COM$ 500 000, or whichever is lower of the combined annual turnover or combined value of assets in the Common Market, whichever is higher”.

[16] Ibid.

[17] JO McGinnis, The Political Economy of International Antitrust Harmonization, 45 Wm. & Mary L. Rev. 549 (2003), p. 555.

[18] Ibid, p. 555.

[19] Ibid, p. 560.

[20] Ibid.

[21] Ibid, at p. 560, 565.

[22] Ibid, p. 561

[23] CCC March letter, at § 5.

COMESA issues antitrust RFP for comment & review project, re-releases 5 draft Guidelines

COMESA Competition Commission logo

COMESA’s Competition Commission’s (“CCC”) has issued a Request for Proposal to conduct a comprehensive review of its previously-released five draft competition GuidelinesIn doing so, the CCC re-released the drafts for public review and comment a second time.

Yesterday (Aug. 26, 2013), the CCC published a Request for Proposal to help the agency hold workshops to aid in a comprehensive review of the key COMESA Competition Regulations and Rules / (2).  It will be interesting to see which consultancy submits the winning bid (and whether it will be one from within or outside COMESA!) and what its proposal for the review project will look like.

The topics covered by the Guidelines to be reviewed are:

  1. Mergers
  2. Art. 18 (Abuse of Dominance)
  3. Public Interest
  4. Art. 16 & 19 (horizontal and vertical practices)
  5. Market Definition

We commend the CCC for not only publishing its Guidelines in draft form prior to finalization, but for following international best practices by engaging in what promises to be a substantive and professionally-run review project, akin to the U.S. and EU enforcement agencies.

For what it’s worth, some of our observations on the Guidelines are below.

  • The CCC explicitly endorses a collective-dominance theory of harm in its Dominance Guideline.  A concept largely shunned in the United States (“shared monopoly”), collective dominance is rarely used but admittedly recognized by the EU courts and competition authorities.
  • The Merger Assessment Guideline gives the formal rationale underlying the mystifyingly low “zero-dollar threshold” problem that has plagued COMESA’s CCC since its inception: the threshold for notification has been set at zero “because different Member States are at different levels of economic development and hence a realistic threshold can only be determined after the Regulation has been tested on the market”.  Notably, the authority also predicts in this document that “the threshold shall be raised after a period of implementation of the Regulation” — a move that cannot come too soon and that should not come as any surprise to readers of this blog or to practitioners and parties, which have had to deal with outsized notification-fee demands by the agency for transactions with low to no revenues in the COMESA zone in the past.
  • Lastly, this “regional glue” of the 19-member state organization also underpins a key aspect of the CCC’s Public Interest Guideline , which emphasizes this element of unity across the COMESA region as an important factor in identifying the otherwise “amorphous” concept of public interest.  Rather commendably in this regard, the Competition Commission recognizes the presumption that competition / antitrust should be the “weightiest” of all the conceivable public interest criteria that may be raised by parties and/or member states in future proceedings.

As always, we welcome reader input in the comment section below.

COMESA’s “opening hours”: clarifying timing rules

COMESA old flag color
As to the timing of submissions, COMESA’s Competition Rule 3 provides that when a time period runs out on a weekend or holiday (Saturday, Sunday or other day the CCC is closed) the submission may be made the following day (not a Saturday, Sunday or other closure day).  The Competition Regulations do not have any parallel provision regarding timing.

     So do the Rules govern the Regs?

According to an official from the CCC, the Rules are promulgated pursuant to the Regulations.  As they are designed to facilitate the operation of the Regulations, the Rule 3 computation of time is likewise applicable to the Regulations (where not otherwise specified).

Therefore, no need to file prior to the expiration on a weekend day — rather, file immediately afterwards.

Clarification of COMESA merger regime filing fee

COMESA old flag color

Yesterday, on 26. February 2013, the COMESA Competition Commission issued new guidance relating to the amended merger notification requirements, as follows. Note especially the clarification on the “higher of / lower of” filing fee issue that AfricanAntitrust.com had previously reported on, correcting several law firm client alerts, which had falsely described the fee as the “higher of” the two thresholds:

INTERPRETIVE MEANING OF THE NOTIFICATION FEE PURSUANT TO RULE 55(4) OF THE AMENDED COMESA COMPETITION RULES

Rule 55(4) of the amended COMESA Competition Rules reads as follows:

“Notification of a notifiable merger shall be accompanied by a fee calculated at 0.5% or COM$ 500000, or whichever is lower of the combined annual turnover or combined value of assets in the Common Market, whichever is higher”. The interpretation of the above provision is that the COM$500,000 is the maximum fee payable for merger notification.

1. When a merger is received, the COMESA Competition Commission (‘the Commission’) will first calculate 0.5% of the combined turnover of the merging parties.

2. The Commission will then calculate 0.5% of the combined value of assets of the merging parties.

3. The Commission will then compare results in 1 and 2 above and get the higher value.

4. The Commission will then compare this higher value to the COM$500,000. If the higher value is lower than the COM$500,000, the Commission will consider the higher of either the combined assets or turnover as a notification fee. If either the combined assets or turnover is higher than COM$500,000, then the latter shall be the notification fee.

The example below illustrates this:

• Company A proposes to acquire 100% of the assets of Company B. Both operate and have sales in at least two COMESA member states. Company A has turnover (within COMESA) of $15 million; Company B has turnover of $10 million. One-half of one percent of their combined turnover is equal to $125,000 (i.e., $25 million X 0.5%).

• Company A has assets (within COMESA) of $7 million; Company B has assets of $3 million. One-half of one percent of their combined assets is equal to $50,000 (i.e., $10 million X 0.5%). $125,000 (turnover) is the higher of the two figures in steps 1 and 2.

• Since the higher value of the assets vs. turnover (i.e., $125,000) is lower than $500,000, the filing fee is $125,000.

COMESA MERGER FILING FORMS- FORM 12

COMESA old flag color
The COMESA Competition Commission has recently made available the relevant merger filing documentation and forms.  Complying with the requirements set out in Form 12 certainly appears, at first glance, to be relatively straightforward, however, contrary to what is stated in the COMESA Regulations, the Merger notification form appears to prohibit the closing of a transaction without approval (i.e., parties may not implement the merger or acquisition without the COMESA Commission approval).

The attempt to legislate by way of the notification documents further erodes  merger control certainty.  Given the extremely wide ambit of what constitutes a notifiable merger, the COMESA Commission will need to ensure that the contradiction contained in the merger filing forms is urgently rectified.

Helpful COMESA documentation

COMESA old flag color
The COMESA Competition Commission’s FAQ and business guide documents provide important information for corporations doing business in the organisation’s member states.

For even more insight into the COMESA antitrust regime — and its actual operation in real life — stay tuned for upcoming seminar information.