Insight into COMESA thinking: CCC executives speak

COMESA old flag color

COMESA officials’ pronouncements: merger enforcement #1, cartel ‘follow-on enforcement’, jurisdictional swamp

As other attendees of the 17 July 2015 regional sensitisation workshop have done, the Zimbabwean daily NewsDay has reported on the Livingstone, Zambia event — a session that has yielded a plethora of rather interesting pronouncements from COMESA Competition Commission (“CCC”) officials, including on non-merger enforcement by the CCC, as we have noted elsewhere.

In light of the additional comments made by CCC officials — in particular George Lipimile, the agency’s CEO, and Willard Mwemba, its head of mergers — we decided to select a few and publish the  “AAT Highlights: COMESA Officials’ Statements” that should be of interest to competition-law practitioners active in the region (in no particular order):

M&A: CCC claims approval of 72 deals since 2014

Non-Merger Enforcement by COMESA

As we noted in yesterday’s post, the CCC’s head, executive director George Lipimile, foreshadowed non-merger enforcement by the agency, including an inquiry into the “shopping mall sector,” as well as cartel enforcement.  On the latter topic, Mr. Lipimile highlighted cartels in the fertiliser, bread and construction industries as potential targets for the CCC — all of which, of course, would constitute a type of “follow-on enforcement” by the CCC, versus an actual uncovering by the agency itself of novel, collusive conduct within its jurisdictional borders, as John Oxenham, a director at Africa consultancy Pr1merio, notes.
“Here, in particular, the three examples given by Mr. Lipimile merely constitute existing cartel investigations that we know well from the South African experience — indeed, the SA Competition Commission has already launched, and in large part completed, its prosecutions of the three alleged cartels,” says Oxenham.
As AAT has reported since the 2013 inception of the CCC, antitrust practitioners have been of two minds when it comes to the CCC: on the one hand, they have criticised the COMESA merger notification regime, its unclear thresholds and exorbitant fees, in the past.  On the other hand, while perhaps belittling the CCC’s merger experience, the competition community has been anxious to see what non-merger enforcement within COMESA would look like, as this (especially cartel investigations and concomitant fines under the COMESA Regulations) has a potentially significantly larger impact on doing business within the 19-member COMESA jurisdiction than merely making a mandatory, but simple, filing with an otherwise “paper tiger” agency.  Says Andreas Stargard, also with Pr1merio:
“If the CCC steps up its enforcement game in the non-transactional arena, it could become a true force to reckon with in the West.  I can envision a scenario where the CCC becomes capable of launching its own cartel matters and oversees a full-on leniency regime, not having to rely on the ‘follow-on enforcement’ experience from other agencies abroad.  The CCC has great potential, but it must ensure that it fulfills it by showing principled deliberation and full transparency in all of its actions — otherwise it risks continued doubt from outsiders.”

COMESA Judge Proposes Judicial Enhancements

Justice Samuel Rugege, the former principal judge of the COMESA Court of Justice, is quoted as arguing against the COMESA Treaty’s requirement for exhaustion of local remedies prior to bringing a matter before the Court of Justice:
“I think that the rule ought to be removed and members should have access to the courts like the Ecowas Court of Justice. The matter has been raised by the president of the Court and the matter needs to be pursued. It is an obstacle to those who want to come and cannot especially on matters that are likely to be matters of trade and commercial interest. Commercial matters must be resolved in the shortest possible time as economies depend on trade,” Rugege said.
Justice Rugege also highlighted the potential for jurisdictional infighting in the COMESA region (see our prior reporting on this topic here), observing that said COMESA currently lacks any framework for coordinating matters involving countries that are part of both SADC and the COMESA bloc.
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Finally: One step forward for COMESA merger enforcement? New rules, new commissioners

COMESA old flag color

Clarification or not?

Amended Rules for Merger Notification

Repealing the oft-criticised original 2012 Rules on the Determination of Merger Notification Threshold, the COMESA Board of Commissioners approved on March 26, 2015 the new set of Amended Merger Rules. These are ostensibly meant to permit parties and their legal counsel a more meaningful determination of filing fees, notification thresholds, and calculation of parties’ revenue (and asset) valuation.  Whilst many legal news outlets have reported (uncritically, as we fear) a high-level summary of these Rules, AAT undertook a critical review of them, and finds that many of the previously-identified flaws persist.

Filing Fee

The question of what parties had to pay in administrative fees to be permitted to file a merger notification with the Competition Commission was always in question (see here for AAT summaries of the issue).  We have reported on examples of fees that came dangerously close to the original $500,000 maximum limit.  Since then, the agency’s “Explanatory Note” (which still has a visible link on the Commission’s web site, but which happens to be an essentially “dead” web page, other than its amusing headline: “What is merger?“) attempted to clarify, and indeed informally change, the filing fee from a 0.5% figure to 0.01% of the parties’ annual COMESA-area turnover.

COMESA explanatory note

Where the filing fee stands now is, honestly, not clear to AAT.  While other sources have reiterated the revised fee of 0.1% with a maximum of $200,000, we fail to see any information whatsoever about the filing fee in the (partial set, containing only ANNEX 2 of) the Amended Rules made available by COMESA on its site, despite their title containing the term “fees”.  We have been able to determine, through some internet sleuthing on the COMESA site, that a document marked clearly as “DRAFT” does contain references to 0.1% and $200k maximum fees.

We note that we have now seen three different turnover percentage-based filing fees from COMESA: 0.01%, 0.1%, and 0.5%, as well as several different maxima.  Which shall govern in the end remains to be seen.  We do not envy those parties that have filed with COMESA and have paid the half-million dollar fee within the past 2 years, as we doubt they are entitled to restitution of their evident overpayment.

AAT predicts that this is where things will land, at 0.1% and $200,000, once the good folks at COMESA get around to actually editing the document and finalising their own legislation, so that practitioners and parties alike may have an original, statutory source document on which to rely

Our previous AAT advice has been very clear to companies envisaging a filing with COMESA: wait until the Commission and the Board clarify the regime in its entirety.  Do not file for fear of enforcement, because there is little if any enforcement yet, and the utter lack of clarity – apparently even within the agency itself – on the actual thresholds and other rules provides ample grounds for a legal challenge to the “constitutionality,” if you will, of the entire COMESA merger regime

Combined $50 million revenue threshold

What the 5-page document does show, however, is the new notification threshold embodied in Rule 4, which defines the threshold as follows:

Either (or both) of the acquiring and/or target firms must ‘operate’ [defined elsewhere] in at least two COMESA member states and have (1) combined annual turnover or assets of $50 million or more in the COMESA common market, AND (2) in line with the EU’s “two-thirds” merger rule, each of at least 2 parties to the merger must have at least $10 million revenue or assets within the COMESA zone, unless each of the merging parties achieves 2/3 or more of its aggregate revenue within one and the same member state.

The likewise-revised Form 12, the mandatory filing form, which is available in a scanned format (we hope this will be remedied and provided in more legible and native-electronic format soon by the secretariat) here, reflects the rules changes.  It must be submitted at a minimum within “30 days of the merging parties’ decisions [sic] to merge.”  The Competition Commission mus t make a decision within 120 days of receipt of (a complete) notification.

Interestingly, if the same two firms enter into multiple transactions within a 2-year period are to be treated “as one and the same merger arising on the date of the last transaction.” (See Rule 5, in a likely-misidentified subsection that is confusingly entitled 1.2.). Mimicking the EU Merger Regulation and Consolidated Jurisdictional Notice, the revised COMESA rules likewise contain special provisions for determining the revenues or assets of financial institutions (and their individual member-state branches’ income) as well as insurance companies.

Parents, sisters, subs: included.

Parent, sister and subsidiary entities are included in the revenue determination of the purchaser, to no surprise.  However, unlike what has been reported in the media, again we fail to see the (entirely logical) exclusion of the target parent’s turnover in calculating total revenues, other than in section 3.16 of the August 2014 Guidelines (which provides: “the annual turnover and value of assets of a target undertaking will not, for the purposes of these Guidelines, include the annual turnover or value of assets of its parents and their subsidiaries under Section 3.15)(d)where, after the merger is implemented, such parents are not parents of (i) the target undertaking if it remains after the merger, or (ii) the merged undertaking in the case of an amalgamation or combination“).

We observe the obvious: the Guidelines have no binding legal effect.

The Amended Rules do however provide that state-owned enterprises do not have to include their “parental” governmental revenues; for instance, if a state-owned airline like Air Tanzania were to acquire its counterpart, such as Air Mauritius, in a hypothetical COMESA-reportable transaction, the parties would not be required to report the full tax income or other revenues of the Tanzanian and Mauritian governments, respectively, but only those of the actual state-owned entity and its subsidiaries.

COMESA's 18th Summit in Ethiopia

18th COMESA Summit in Ethiopia

Four New Commissioners

As AAT reported previously, the Addis Ababa COMESA summit also saw the election and confirmation of four new Competition Commissioners.  We now have the full listing of the members, including the 4 new* ones (listed below in italics), whose term is for three years:

New 2015 Commissioners Origin
Ali Mohammed Afkada Djibouti
Amira Abdel Ghaffar* Egypt
Merkebu Zeleke Sime* Ethiopia
Francis Kariuki Kenya
Matthews Chikankheni Malawi
Georges Emmanuel Jude Tirant* Seychelles
Thabisile Langa Swaziland
Patrick Okilangole* Uganda
Chilufya Sampa Zambia