One of the key criticisms of COMESA’s merger control regime has been the adoption of very low filing thresholds and the absence of a sufficient ‘nexus’ requirement to the COMESA region. As a result, on a strict reading of the prescribed filing thresholds, any transaction where at least one of the parties has even the slightest turnover, assets, presence or some other form of operation in two or more COMESA member states triggers a filing obligation to the COMESA Competition Commission (the CCC).
Although the filing is non-suspensive, notifying parties have to pay filing fees of up to USD 500,000, depending on the parties’ turnover in the region and regardless of the value of the transaction. The regulatory burden and cost generated by COMESA’s merger control rules has had the effect of a ‘cold shower’ on many businesses and probably contributed to the relatively limited number of filings made to the CCC since it started accepting filings in January 2013. At the same time, the low filing thresholds have resulted in some deals which raised no competition concerns in the COMESA region being notified, thereby giving rise to criticism that undue transaction costs are being placed on businesses and putting into question the enforcement benefit in having resources reviewing deals having no restrictive effect on competition.
Informal exemptions from filing
In an effort to address criticism and align itself with international best practice, the CCC has recently started to grant exemptions from filing. The CCC would appear to be relying on Article 3(2) of COMESA’s Competition Regulations (the Regulations) which limits the application of COMESA’s merger control rules to transactions ‘which have an appreciable effect on trade between Member States and which restrict competition in the Common Market’. Unfortunately no guidance exists to assist businesses in determining whether a transaction appreciably affects trade and restricts competition. In addition, informal exemptions are currently only granted at the discretion of the CCC upon request from a notifying party. Arguably, businesses should also be able to self-assess whether a transaction is notifiable or not, taking into account the criteria set out in Article 3(2).
The CCC’s informal exemption procedure is a temporary solution until filing thresholds can be amended. Indeed, with financial thresholds set at zero and a requirement for at least one of the parties to operate in two or more COMESA member states, the CCC’s jurisdictional scope is exceedingly wide by reference to international best practice. In addition, relying on the wording of Article 3(2) alone is not satisfactory in our view in the long-term as filing thresholds should be clear, transparent and easily applicable. As is apparent from filing notices published to date, the current merger thresholds have had the effect of bringing under the CCC’s jurisdiction transactions having limited or no nexus to the COMESA region. As set out in the ICN’s Recommended Practices for Merger Notification Procedures, “notification should not be required unless the transaction is likely to have a significant, direct and immediate effect within the jurisdiction concerned.”
Suggestions for amending COMESA’s jurisdictional merger control rules
The CCC is currently working with international consultants appointed by the World Bank to review COMESA’s merger control rules. Amendments to COMESA’s Competition Regulations are expected to be proposed in the coming months following submission of the consultants’ report and recommendations. It is hoped that COMESA’s Council of Ministers can then be seized before year-end to approve the proposed amendments. However, finding consensus amongst 19 member states with different agendas and priorities may be difficult to achieve. New rules are therefore unlikely to enter into force before 2015.
Below are some suggestions for amending COMESA’s Regulations as regards jurisdiction:
- Current ‘zero’ thresholds and requirement to operate in at least two COMESA member states should be replaced by a two-prong test: a combined worldwide turnover (or asset) threshold; and a COMESA-wide turnover (or asset) threshold to be achieved by at least two parties.
- In the context of an acquisition, only the target’s turnover (and not the turnover of the entire seller group) should be taken into account;
- The threshold should be set at a sufficient level, in accordance with the average revenue/GDP of the COMESA region, to capture only material transactions capable of having appreciable anti-competitive effects within the region.
- The CCC’s jurisdiction should be clearly stated as exclusive. The reference in the Regulations to the CCC’s ‘primary jurisdiction’ has given rise to unresolved differences with member states and local competition authorities questioning the parallel jurisdiction of national competition authorities over transactions meeting both COMESA thresholds and local thresholds. In order not to impose an unnecessary regulatory burden on parties and to avoid any risk of conflicting reviews and decision, it is imperative that transactions meeting COMESA’s regional thresholds be reviewed exclusively by the CCC and that transactions below COMESA’s regional thresholds be subject to existing local merger control rules and thresholds. At the time of writing, 8 of the 19 COMESA member states had merger control rules enforced by a local competition authority, namely Egypt, Kenya, Malawi, Mauritius, Seychelles, Swaziland, Zambia, Zimbabwe
1 Chantal Lavoie is head of the Practice Development team and senior knowledge management lawyer in the Antitrust Competition and Trade group of Freshfields, Bruckhaus Deringer. The views expressed in this article are personal.
2 In March 2014, CCC sources reported the number of filings to have reached approximately 35.
3 See recommended practice I.C comment 1, at http://www.internationalcompetitionnetwork.org/working-groups/current/merger/notificationprocedures.aspx