DealMakers - Q1 2023 (released May 2023)
National security protections, procedural fairness and cartel enforcement highlighted as competition law trends
by Nazeera Mia and Shakti Wood
One of the key points made during the Africa Competition Law Conference, hosted by Bowmans in late February, is that national security provisions are firmly in the sights of competition authorities internationally, but less so for competition regulators in Africa.
Apart from protectionist measures applied in merger control, other hot topics highlighted at the event were procedural fairness in merger assessments, and that cartel enforcement is becoming more prominent.
National security provisions gain momentum globally
Though national security considerations appear to have become a trend internationally, with the exception of South Africa, African countries do not seem to be prioritising national security provisions in their competition regimes.
In the EU, there has been an increase in foreign direct investment (FDI) regulations, which have been described as a ‘patchwork’, with loose coordination between regimes.
Of the 27 EU Member States, 18 have FDI regimes, with seven more expected to adopt laws before the end of the year. Each regime has its own substantive standard, and their definitions of national security are often opaque – sometimes intentionally so, to retain flexibility.
This can be frustrating for business. Instead of receiving published decisions, parties have access to one-page decisions that often do not disclose the identity of the case handler.
In South Africa, concerns have been raised that national security provisions – which have not yet come into effect – may not be dealt with transparently, and may be open to abuse. In sectors where national security provisions apply, businesses may need to work with political scientists to identify and address potential industrial policy issues.
Speakers at the Africa Competition Law Conference also discussed protectionist measures in merger control and agreed that they are here to stay, but that they need to be applied in a way that communicates that South Africa and the rest of Africa is open for investment from both local and foreign investors.
Procedural fairness is broader than merger reviews only
There remain significant differences in merger assessments and anti-trust matters across Africa.
Speakers at the conference highlighted that procedural fairness does not only apply once transactions have been notified to the relevant regulator, but extends to the earlier planning process involving the assessment of the transaction, consideration of whether it requires notification, and which competition authority/ies have jurisdiction.
One potential challenge raised was discrepancies between regulators in relation to the treatment of third-party submissions or interventions during merger reviews. Third-party input can be valuable in assessing the likelihood of a substantial lessening or prevention of competition because of the merger, but such input needs to be balanced against the timeline for review of the merger.
While South Africa has a clear framework for third-party intervention, this is not always the case in other jurisdictions. In addition, in some jurisdictions where third-party input is statutorily provided for, there appears to be inadequate provision for third parties to produce evidence and, in turn, for merger parties to respond to third-party submissions and cross-examine witnesses.
An example is a recent case in Tanzania where third parties had been allowed to raise objections after the merger had been approved. In that case, the merging parties had brought an appeal against certain conditions attaching to their merger. During the appeal proceedings, third-party objectors came forward to raise issues with the transaction – even though they had not come forward earlier when they had been afforded the opportunity to do so.
Despite the late entry of the third-party objectors into the process, the Tanzanian Competition Tribunal allowed them to enter submissions so that it could assess whether they had legitimate concerns.
The implication is that even where third parties have no legitimate basis on which to seek to intervene, they can nevertheless inordinately delay the merger approval.
Interestingly, opacity in respect of third-party submissions is not limited to African merger review processes. It has also been observed in European Commission merger reviews, where merger parties may not receive direct insight into issues raised by third parties.
Cartel enforcement is back on the map
Globally, the nature of cartel conduct has shifted away from traditional price fixing to more complex arrangements, including buyer cartels, information exchange cases and limitations on innovations or product characteristics.
A related trend is the increased sophistication of cartels in the ways in which they establish networks and maintain coordination. Instead of the boardroom meetings of the past, cartel firms have turned to electronic networking and other signalling, which can make it harder to detect collusion.
In turn, competition authorities are becoming more sophisticated in the ways in which they detect cartel activity. Virtual dawn raids, where the authorities demand electronic records held by companies suspected of cartel conduct, are expected to become more common.
In South Africa, dawn raids continue to be an important and effective tool for cartel detection, while corporate leniency has been extremely helpful in cartel enforcement.
In Kenya, although the competition law was amended to introduce a leniency programme, it has not yet been applied in practice. The Competition Authority of Kenya has, instead, been making effective use of dawn raids and has built its human and technological capacity to process data accessed during these raids.
Another example is the Competition Commission of COMESA, which is amending its competition regulations to introduce a leniency programme.
Developments such as these are indicative of the increasing attention on cartel enforcement across the continent.
Mia is a Knowledge and Learning Lawyer, and Wood a Consultant | Bowmans South Africa.