On 24 January 2024, the COMESA Competition Commission ('Commission') issued a request for comments on its proposed draft COMESA Competition and Consumer Protection Regulations ('Draft Regulations'), which will serve to update, and substantially amend, the current COMESA Competition Regulations, 2004 ('Regulations').
The Regulations were adopted and entered into force in 2004, although the Commission only began actively enforcing the Regulations when it commenced operations in January 2013.
Now, with the benefit of more than a decade of enforcement experience, the Commission has conducted a review of the Regulations and is proposing several material changes that the Commission believes will address some of the practical challenges that it has faced when implementing and enforcing the Regulations in the COMESA Common Market during this period.
We highlight in this bulletin five of the more significant changes proposed in the Draft Regulations:
- The Draft Regulations propose the establishment of a suspensory merger control regime, where the Commission's approval is required before parties may implement a notifiable merger. This would be a departure from the current non-suspensory regime, in which parties may implement a merger before the Commission has issued its decision.
- The Draft Regulations propose to more clearly delineate the public interest mandate of the Commission in assessing mergers, with reference to public interest factors that are commonly seen in other African merger control regimes, as well as novel factors that include environmental protection and sustainability considerations. The public interest mandate (including environmental considerations) would also be introduced in the Commission's assessment of potentially anti-competitive agreements.
- The Draft Regulations contemplate special treatment of mergers involving digital platforms or markets, which will be subject to a transaction value threshold. The Draft Regulations also propose distinct considerations for assessing whether firms operating in digital markets hold a dominant position (namely data quantity, accessibility and control, and network effects) and introduce a new prohibition against abuse of economic dependence, which appears to be targeted in part at designated gatekeepers.
- The Draft Regulations propose to introduce specific thresholds for notification of joint ventures to make it clear that greenfield joint ventures are notifiable to the Commission if the parties intend for the joint venture to operate in two or more Member States, which will formalise the Commission's recent practice in this regard.
- The Draft Regulations contemplate conferring on the Commission the power to conduct formal market inquiries, pursuant to which the Commission may take a variety of actions, including ordering undertakings to implement remedies that may be necessary to address concerns identified by the Commission through the market inquiry process.
Each of these changes is considered in further detail below. This is not an exhaustive list of the changes that will be brought about if the Draft Regulations are adopted. Other material amendments that are not addressed in detail in this bulletin include:
- a strengthened mandate for Member States to enforce the Draft
Regulations in their respective territories;
- powers of entry and search for the Commission;
- codification of the current COMESA Competition Rules, 2004
insofar as fines for contraventions of the Draft Regulations are
capped at a maximum of 10 percent of the parties' annual
turnover;
- the ability for the Commission to conclude settlement
agreementsand accept binding commitments from parties;
- the ability for the Commission to issue interim orders pending
an ongoing investigation;
- a reframing of the regional dimension threshold for
anti-competitive agreements to engage the Commission's
jurisdiction;
- the introduction of per se prohibitions on absolute
territorial protection, passive sales restrictions, and minimum
resale price maintenance;
- establishing a presumption of dominance for undertakings with a
market share of at least 30%;
- the introduction of a conventional prohibition on price
discrimination;
- the introduction of a leniency programme;
- a shift towards the concept of 'material influence' for
purposes of establishing control, rather than 'decisive
influence' as currently applied in terms of the COMESA Merger
Assessment Guidelines, 2014;
- the identification of a list of unfair consumer contract terms that will be regarded as non-binding on consumers; and
- the introduction of a prohibition on supplying injurious
digital content.
The Commission has invited interested parties to submit comments on the Draft Regulations by Wednesday, 14 February 2024.
Suspensory merger control regime
Extended public interest mandate, including environmental and innovation considerations
Special treatment of digital mergers, dominance in digital markets and designated gatekeepers
Notification of greenfield joint ventures
Suspensory merger control regime
A notable feature of the current COMESA merger control regime established by the Regulations – which is different from the national merger control regimes applicable in most of the COMESA Member States – is that the regime is non-suspensory.
Under the current Regulations, merging parties are obliged to notify the Commission of a merger that meets the thresholds within 30 days of the decision to merge. Thereafter, the parties are free to implement the merger and they need not wait to receive the Commission's decision before completing the transaction. The parties, of course, assume the risk of the Commission prohibiting the merger, or issuing approval subject to conditions that are not acceptable to the parties, but the Commission has seldom prohibited mergers and generally consults with parties before imposing conditions.
The Draft Regulations propose establishing a suspensory merger
control regime, in which the merging parties may not implement a
notifiable merger until the Commission has issued its approval. A
merger implemented without the Commission's approval will have
no legal effect and the parties may be liable to a fine of up to 10
percent of their annual turnover in the COMESA Common Market in the
previous financial year.
This shift from a non-suspensory to a suspensory regime has
potentially significant implications for the timing of transactions
that require notification to the Commission. The Draft Regulations
afford the Commission 120 business days to conduct its review,
which may be extended by up to 90 additional business days in
total. This provides a clearer limit on the maximum review period
than is currently the case (the Regulations provide for an initial
120 calendar day period with an open-ended possibility of
extension), which is welcomed, but results in a potentially lengthy
overall review period of 210 business days. Whereas currently
merging parties are free to implement their transaction pending the
conclusion of the Commission's review, if the Draft Regulations
are implemented, merging parties will have to wait until the
Commission has completed its review and approved the transaction.
The Draft Regulations do, however, contemplate the possibility of a
simplified procedure to fast track the review of notifiable mergers
that do not raise significant competition or public interest
concerns (it is contemplated that the Commission will issue
guidelines to identify those mergers that qualify to be assessed
via the simplified procedure).
Extended public interest mandate, including environmental and innovation considerations
The Commission currently has a dual mandate to consider the
effects of a merger on both competition and public interest
grounds, although the framing of the public interest considerations
in the Regulations is closely linked to traditional competition
considerations (such as the price, quality and variety of goods and
services, and new entry). A merger will be regarded as contrary to
the public interest if it substantially lessens competition in the
Common Market, creates a dominant position or is likely to be
contrary to the public interest.
The Draft Regulations propose to more clearly delineate the
public interest mandate of the Commission in assessing mergers,
with reference to public interest factors that are commonly seen in
other African merger control regimes: employment; the ability of
small and medium sized businesses to be competitive; and the
ability of industries in the Common Market to compete in
international markets.
The Draft Regulations also propose to extend the list of typical
public interest factors to include (i) environmental protection and
sustainability considerations, and (ii) innovation considerations
(although innovation remains relevant to the competition assessment
as well).
While the Commission will assess both the competition and public interest impact of a merger, the Draft Regulations provide that the Commission will place greater weight on the substantial lessening or prevention of competition test relative to the public interest test. The Draft Regulations further contemplate that the Commission will develop Public Interest Guidelines, which will presumably expand on its intended approach to assessing the identified public interest factors.
Outside of the merger control regime, the Draft Regulations
propose to introduce potential public interest justifications for
agreements that might otherwise be prohibited as anti-competitive.
In assessing such agreements, the Commission will be able to take
into account a similar list of public interest factors, including
environmental protection and sustainability considerations. The
Draft Regulations also propose to codify certain consumer rights,
which include the right to live in a healthy environment.
The express endorsement of environmental considerations as a relevant public interest factor for the Commission to assess, appears to be a first among COMESA Member States. Environmental considerations have, in certain circumstances, been raised as part of broader public interest considerations in South African merger control, but have not yet been incorporated into the legislation in express terms – and particularly not in the context of justifying potentially anti-competitive practices.
In line with global trends, the Draft Regulations contemplate
paying special attention to digital markets – both in
assessing mergers involving digital platforms or markets, and in
assessing dominance within such markets.Under the current
Regulations, mergers are notifiable to the Commission if the
parties operate in one or more Member State and their turnover or
asset values meet the prescribed thresholds. The Draft Regulations
propose to establish a separate threshold applicable only to
mergers involving digital platforms or markets, which will require
notification if one of the parties operates in at least two Member
States and the merger meets a prescribed transaction value
threshold. It is unclear from the Draft Regulations whether this
threshold could be met in circumstances where the target has no
presence in the COMESA Common Market.The proposed adoption of a
transaction value threshold mirrors an approach to digital merger
thresholds that has gained traction in other jurisdictions,
including South Africa, where the South African Competition
Commission recently issued guidelines recommending voluntary
notification of small mergers that meet a transaction value
threshold in order to address the concern that potentially
anti-competitive acquisitions in digital or technology markets are
escaping regulatory scrutiny.
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In respect of dominance, the Draft Regulations propose to
include specific considerations that the Commission must take into
account when assessing whether an undertaking holds a dominant
position in digital markets, namely: data quantity, accessibility
and control, and network effects. While these elements arguably
could be covered by the more traditional considerations for
establishing dominance under the current Regulations, the special
treatment afforded to digital markets in the Draft Regulations
likely reflects an intention by the Commission to pay particular
attention to potentially abusive conduct by firms operating in such
markets.The Draft Regulations, in addition, propose to introduce a
new prohibition on abuse of economic dependence. Economic
dependence will be deemed to exist where one party is in a position
of relative strength to another, which may be determined with
reference to market shares, relative strength, availability of
alternatives and factors that led to the situation of dependence.
It will be prohibited for the party in the position of relative
strength to abuse that position. A contravention of this
prohibition expressly does not require the offending party to be
dominant in any market.
It is also proposed that it be prohibited for 'an
undertaking, a group of undertakings [or] undertakings designated
as gatekeepers' to abuse a relative position of economic
dependence if the conduct substantially affects competition in the
Common Market. The Draft Regulations do not anywhere address the
concept of 'gatekeepers' or the process by which
parties might be designated as such. It does, however, appear that
this new prohibition may have particular relevance to firms
operating in digital markets.
Special treatment of digital mergers, dominance in digital markets and designated gatekeepers
Notification of greenfield joint ventures
The Draft Regulations seek to clarify the position regarding the requirement to submit merger notifications to the Commission for transactions involving the establishment of greenfield joint ventures.
The Draft Regulations propose to specifically address notification of joint ventures as follows:
- The definition of a merger will be amended to include the creation of a joint venture that performs, on a long-lasting basis, all the functions of an autonomous economic entity. (The definition of a merger in the current Regulations does not expressly address joint ventures, but the addition proposed in the Draft Regulations mirrors the position set out in the Commission's current Merger Guidelines.)
- A joint venture will be notifiable under the Draft Regulations
if (i) the joint venture is intended to operate in two or more
Member States, (ii) at least one of the parents to the joint
venture operates in one or more Member States, and (iii) the
combined turnover or asset values of all the parties to the joint
venture meet the prescribed thresholds.
The Draft Regulations therefore make it clear that greenfield joint ventures are notifiable to the Commission if the parties intend for the joint venture to operate in two or more Member States. This approach is broadly in line with the informal practice of the Commission that has recently developed. Presumably parties can avoid notification if it can be confirmed that there is no intention for the joint venture to operate in COMESA, as is the case currently under the Commission's informal practice.
Market inquiries
The Draft Regulations contemplate conferring on the Commission the power to conduct formal market inquiries. There is no provision for formal market inquiries under the current Regulations, so the Draft Regulations, in this respect, materially expand the scope of the Commission's powers.
The Draft Regulations define a market inquiry as including
research and studies, and a formal inquiry in respect of issues
affecting consumers or the general state of competition without
necessarily referring to the conduct or activity of any particular
undertaking.
The Draft Regulations contemplate that, pursuant to a market inquiry, the Commission may:
- initiate an investigation;
- enter into agreements with undertakings to implement necessary remedies aimed at addressing the Commission's concerns;
- order undertakings to implement necessary remedies aimed at addressing the Commission's concerns;
- make policy recommendations;
- conduct advocacy; or
- take any other action within its powers in accordance with the Draft Regulations.
These are fairly wide-ranging powers, particularly insofar as the Commission may order undertakings to implement an undefined set of remedies that may be necessary to address the Commission's concerns. Market inquiries of this nature have taken on particular significance in South Africa, where the South African Competition Commission has recently sought to take action against particular firms in an attempt to remedy what it considers to be anti-competitive features of certain markets, without having to demonstrate that those firms engaged in any conduct specifically prohibited by the legislation.2 It appears that a similar approach is contemplated by the Draft Regulations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
