SADC Guidance Note: Cooperation Agreements in Competition Law Enforcement

Transcription

1 Technical assistance to the SADC Secretariat to enhance regional integration and harmonization of competition and consumer policy in the SADC Member States SADC Guidance Note: Cooperation Agreements in Competition Law Enforcement This and the other best practice guidance documents under the Project focus on the best enforcement and analytical practices that are already applied by SADC competition authorities. Significant attention is given as well to best practices developed elsewhere, which, based on the judgement of the Project Team, our consultations and the End of Project Workshop, should be considered by SADC CAs and stakeholders in the future. The sources for the best practices are often indicated in the references in the main text and in the bibliography of each document. Other sources include the many interactions with competition authority officials during the Project and the previous work of Project Team members and the SADC Secretariat Programme Officer. Contents Key Features of SADC Guidance Note on Cooperation Agreements Introduction: The need to enhance cooperation among SADC competition agencies Anti-competitive practices whose effect is primarily in a foreign market Enhancing Cooperation among SADC Members Competition Agencies 4 3. SADC Guidance on Enhancing Cooperation Among SADC Member s Competition SADC Guidance on Inter-agency Cooperation with Regard to: Cartel Enforcement SADC Guidance Note on Inter-agency Cooperation with Regard to: Mergers and Acquisitions Concluding Comment... 9 Bibliography TA to the SADC Secretariat - P194 Co-operation Agreements - December

2 Key Features of SADC Guidance Note on Cooperation Agreements Given the levels of capacity in several of the SADC Members, cooperation should be along the lines of a first generation cooperation agreement. Cooperation should be set at the level of soft law, including commitments that remain voluntary and restricted. SADC Members domestic laws should authorise their competition authority to exchange confidential information in certain circumstances along with safeguards to protect the confidentiality of exchanged information. SADC Member countries should support information exchanges in cartel investigations. It should be at their discretion whether: to provide the requested information in a specific case, to provide the requested information only subject to conditions Information exchanges should provide safeguards for the rights of parties under the laws of SADC member countries. This guidance note advises against giving prior notice, unless required by domestic law or international agreement, due to concerns that prior notice to the source of information can severely disrupt and delay investigations of cartels. In the case of merger control, SADC Member countries with competition laws and agencies should seek to cooperate and to coordinate their reviews of transnational mergers in appropriate cases without compromising effective enforcement of domestic laws. When applying their merger laws, SADC Members should aim at the resolution of domestic competitive concerns arising from the particular merger under review and should endeavour to avoid inconsistencies with remedies sought in other SADC Member reviewing jurisdictions. SADC Member countries are encouraged to facilitate effective cooperation and coordination of merger reviews, and to consider actions, including national legislation as well as bilateral and multilateral agreements or other instruments, by which they can eliminate or reduce impediments to cooperation and coordination. SADC Member countries should encourage merging parties to facilitate coordination among competition authorities, particularly with respect to the timing of notifications, provision of voluntary waivers of confidentiality rights, sharing of information between CAs, ensuring that all affected countries are informed of the transaction, and the application of similar analytical methods. TA to the SADC Secretariat - P194 Co-operation Agreements - December

3 Member countries should establish safeguards concerning the treatment of confidential information obtained from another competition authority. 1. Introduction: The need to enhance cooperation among SADC competition agencies Today s trade is unequivocally international. This is in stark contrast to the 120 or so national competition laws and agencies that exist with their multiplicity of legal traditions, institutions and customs. 1 Despite this emphasis on domestic law enforcement, the prosecutions and investigations undertaken by domestic competition agencies will typically affect important interests in other countries. It is therefore widely recognised that more formalised systems of interagency cooperation are required to address cross-border anti competitive practices and add value to national enforcement efforts in the face of problems affecting more than one country. Anti-competitive practices that affect more than one jurisdiction can been divided into three main categories: 1. Anticompetitive practices with a similar impact on several markets international cartels; 2. Anti-competitive practices that affect market access import cartels; exclusionary abuses of dominance; some vertical agreements; anticompetitive distribution practices; 3. Anti-competitive practices whose effect is primarily in a foreign market export cartels. Domestic competition law enforcement to prevent these practices can be difficult because multinational corporations undertaking any illegal restrictive business activity are able to conceal evidence necessary to prosecute them in one authority, by transferring it to another jurisdiction. Some national competition agencies (such as the US and the EU) have extended the scope of application of their domestic laws to conduct that occurs outside their territories. However, this can create enforcement difficulties and encroach on the sovereignty of the other jurisdiction. Consequently, the spread of international cartel activity, cross border unilateral anticompetitive behaviour and the increase in cross border mergers and acquisitions still requires a coordinated approach to assess market impact in a coherent manner. Groups 1 Among the multitude of domestic competition laws, it is possible to identify three main types. The oldest is the U.S. system which puts emphasis on criminal prosecution of cartels, litigation by government and private parties and punitive treble damage suits. Next to this model, the European Union s (EU) system places more emphasis on the administrative rather than criminal process, with the imposition of administrative fines and administrative orders restraining unlawful conduct. The newest - so-called Asian model - is characterised by the enforcement agency typically being part of the executive, and rather than being punitive, warnings are much more extensively used than in the other systems. TA to the SADC Secretariat - P194 Co-operation Agreements - December

4 of enforcers need to coordinate with each other and not only on specific cases. Managing enforcement areas where competition laws are not harmonised is the current challenge of international cooperation in competition law enforcement. Successful enforcement depends not only on the cooperation procedures used to facilitate the enforcement of national antitrust laws. It also depends on the design and coverage of the national laws of the cooperating countries, the relative powers of the national competition agencies involved and the similarity of the concepts used in substantive analysis. In this respect, UNCTAD provides a useful forum for non case specific cooperation on competition issues among developing countries. At present cooperation on competition issues at the bilateral or the regional levels is nearly always voluntary. That is, each country chooses other jurisdictions with which it wants to cooperate. Cooperation agreements generally provide that each country reserves the right to decide on a case by case basis whether it will cooperate with the co-signatory. This significantly affects the ability of competition agencies to cooperate in competition matters. In response to this perceived sub-optimal level of cooperation, much work has been conducted by organisations such as the OECD and the ICN on the issue of increasing cooperation between agencies on the issues of cartel activity, merger transactions and unilateral conduct. These organisations note that lack of inter-agency co-operation results in under-enforcement and under-sanctioning of anti-competitive behaviour because: Certain kinds of co-operation can only take place between certain agencies, depending on the nature of the agreements between their jurisdictions; Certain types of material cannot be exchanged (so-called confidential information); Procedures may be long and cumbersome and may vary according to the cooperation instrument involved; Insufficient co-operation can result between agencies if the evidence required is scattered in different jurisdictions which cannot be shared for legal reasons; Even if one agency has adequate information to carry out a successful prosecution, other jurisdictions which have also been harmed may find themselves unable to sanction because of their inability to obtain the necessary information from other agencies. 2. Enhancing Cooperation among SADC Members Competition Agencies: Effective enforcement cooperation amongst competition agencies within SADC is hampered by the relative lack of experience and institutional capacity in some of the Members competition agencies. This amplifies the universal problems faced by competition agencies due to the differences in substantive rules and institutional TA to the SADC Secretariat - P194 Co-operation Agreements - December

5 approaches followed by those Members that do have competition agencies, 2 and the legal restrictions that exist on the exchange of information which is deemed confidential. Sakarta 3 submits that the recent emergence of competition regimes within SADC member states has not meant a harmonisation of laws or institutional approaches within the region. The competition approaches of each state vary according to differences in policy as well as differences in their respective legal systems. Notwithstanding this, as table I indicates, Zambia, Namibia and Mauritius have a boilerplate provision on exchanging information with other competition agencies. In each of these jurisdictions, the national competition commission s functions include to liaise and exchange information, knowledge and expertise with competition and consumer protection authorities in other countries. In contrast to this, in South Africa, the President may assign the Competition Commission any duty of the Republic, in terms of an international agreement relating to the purpose of the Act, to exchange information with a similar foreign agency. This provision is ambiguous as to whether information can only be exchanged in cases where an international agreement to do so is in force and whether this relates to nonconfidential information only. In sum, it is clear that there is not a comprehensive or coherent approach to cooperation in competition law enforcement in SADC. This document therefore sets out guidance on the key elements to enhance cooperation among SADC Member States competition agencies. This note cannot hope to deal in advance with every conceivable situation which might arise that requires cooperation. Where there are particular issues of the policy which are of crucial significance and have been directly and specifically addressed in this guidance note, or it is important for the applicant to be certain that a particular aspect of the note accurately reflects SADC s current thinking, it is incumbent on the SADC Member State to raise the matter as early as possible with the Competition Programme Officer at SADC so that specific guidance can be given. 3. SADC Guidance on Enhancing Cooperation Among SADC Member s Competition 3.1 Agencies This guidance note recognizes the unique circumstances prevailing in the SADC region regarding diversity in expertise, capacity and resources available to promote cooperation in competition law enforcement among its Members. It is also clear from the experiences of other competition agencies in developed and developing countries, that this diversity in institutional and legal structures constitutes 2 Angola, the Democratic Republic of Congo, Lesotho, Mozambique and Madagascar (now under SADC suspension) are in the process of adopting competition laws and policies. 3 N. Sakarta TA to the SADC Secretariat - P194 Co-operation Agreements - December

6 one of the major obstacles to effective cooperation in addressing international anticompetitive practices. The ICN listed the common experiences of new competition agencies to include: Inadequate legislation Incoherent policies Limited capital resources Limited experienced human resource capacity Untrained judiciary Lack of a competition culture Taking the circumstances of SADC Members into account while aiming to enhance the potential for them to cooperate in addressing cross-border anti-competitive practices, this guidance note draws from the most relevant best practice recommendations for the SADC region that are already available. This will increase the likelihood of compatibility with more competition agencies in other jurisdictions and draw on the positive and negative experiences that have been fundamental in the design of these recommendations. Given the levels of experience and capacity in most of the SADC Member s competition agencies, the guidance presented here advocate what can be termed a first generation cooperation agreement. This is restricted to the level of soft law, including commitments that remain voluntary and are restricted to: notification of cases, exchange of information, co-ordination of action, consultation and conciliation. This guidance note suggests that several of the Members of the SADC region are not yet ready to take on second generation cooperation agreements, which are stronger through making it possible to share confidential information and use compulsory process on behalf of the other party. For example, the US and Australia cooperation agreement of 1999, includes detailed provisions on exchange of confidential information, and a commitment by the Parties to exchange such information. However, as yet there is not enough equivalent capacity among the SADC competition authorities to make such cooperation feasible at present. 3.2 Exchanges on Information Both competition agencies and companies need transparency and clear guidelines regarding the kind of communications permitted under a given competition law and the different considerations to be made when entering into exchange of information systems. Given the absence of specific cooperation agreements in SADC Member countries, this guidance note on what can be exchanged includes: TA to the SADC Secretariat - P194 Co-operation Agreements - December

7 Information which has already been published or otherwise made public; Information about the existence of an investigation in a specific sector (postinspection); The stage of progress of any ongoing case (once investigation has started) and information on previous cases; Whether or not an immunity/amnesty application has been received; Whether or not conditional immunity/amnesty has been granted to the applicant; The provisional orientation of the agency in the case (moving towards a decision sanctioning the cartel or not); The methods applied in the jurisdiction with respect to the setting of fines and other penalties; The likely timing of any key steps in the case, including final decision. Without specific cooperation provisions between the SADC Members the following information should be considered to be normally confidential: The identities of the companies/individuals under investigation; The identity of any immunity/amnesty applicant; The contents of any immunity/amnesty application; Evidence obtained using investigatory powers; Information about specific pieces of evidence obtained (sender and date). Other conditions imposed on the exchange of agency information should include: The information not be divulged outside the receiving agency The information not be used for purposes other than a cartel investigation in that specific sector 4. SADC Guidance on Inter-agency Cooperation with Regard to: Cartel Enforcement SADC Members domestic laws should authorise their competition authority to exchange confidential information in certain circumstances along with safeguards to protect the confidentiality of exchanged information. Information exchanges should provide safeguards for the rights of parties under the laws of SADC member countries. These should include: a. legal profession privilege the highest level of protection in either Member s jurisdiction should apply; b. privilege against self incrimination which is respected when using the exchanged information in criminal proceedings against individuals. This SADC guidance notes advise against giving prior notice, unless required by domestic law or international agreement, due to concerns that prior notice to the source of information can severely disrupt and delay investigations of cartels. The types of information that could be exchanged among SADC Members competition agencies include: TA to the SADC Secretariat - P194 Co-operation Agreements - December

8 Pre-investigatory phase: sharing of leads and background information about the industry and relevant actors; notification of initial investigative actions which can facilitate later specific investigative requests for assistance coordination of searches, raids or inspections and of interviews travel by officials to foreign jurisdictions to conduct interviews Investigative phase: the state of play of the procedure; a general assessment of the case; travel by officials to foreign jurisdictions to conduct interviews of foreign parties an order requiring a company to produce certain documents in the possession of foreign affiliates. Post-investigative phase: providing copies of public court filings; providing access to non-public information that is not statutorily protected or otherwise entitled to confidential treatment; co-ordination with other agencies on the filing of charges; notifications to foreign agencies of guilty pleas and convictions of foreign corporations; adoptions of decisions in cases which are also under investigation in other jurisdictions. 5. SADC Guidance Note on Inter-agency Cooperation with Regard to: Mergers and Acquisitions SADC currently does not have rules dealing with the regulation of cross-border merger operations at either the domestic or regional level but does commit Member States to pursue case specific cooperation to the extent consistent with each member's laws, regulations, and important common interests in preventing hardcore cartels, abuse of dominance, anticompetitive mergers and unilateral conduct This SADC guidance note suggests that: SADC Member countries with competition laws and agencies should seek to cooperate and to coordinate their reviews of transnational mergers in appropriate cases without compromising effective enforcement of domestic laws. When applying their merger laws, they should aim at the resolution of domestic competitive concerns arising from the particular merger under review and should endeavour to avoid inconsistencies with remedies sought in other SADC Member reviewing jurisdictions. TA to the SADC Secretariat - P194 Co-operation Agreements - December

9 Member countries are encouraged to facilitate effective cooperation and coordination of merger reviews, and to consider actions, including national legislation as well as bilateral and multilateral agreements or other instruments, by which they can eliminate or reduce impediments to cooperation and coordination. Member countries should encourage merging parties to facilitate coordination among competition authorities, in particular with respect to the timing of notifications and provision of voluntary waivers of confidentiality rights, without drawing any negative inferences from a party s decision not to do so. Member countries should establish safeguards concerning the treatment of confidential information obtained from another competition authority. 6. Concluding Comment Despite the constraints noted earlier, the Project Team s consultations with many SADC competition authorities and the discussions at the SADC Roundtable on Regional Cooperation held on October 2011 indicates that considerable progress has been made in promoting greater information sharing and cooperation between SADC CAs on both specific cases and case enforcement and analytical methods more generally. This progress has resulted from informal contacts and relationships, staff exchanges and the networks established through the work of the SADC Competition and Consumer Law and Policy Committee. These informal contacts and networks are helping to build the foundation of trust, reciprocity of trust, and mutual respect and obligations that are essential to the establishment of more formal arrangements in the future. Accordingly, in the first quarter of calendar year 2012, South Africa and Namibia are expected to sign a Memorandum of Understanding on information sharing and cooperation for competition law enforcement. This more formal instrument is based on staff exchanges, voluntary information sharing, and other informal activities that have taken place over the past few years. These informal networks and very soon formal instruments are in place despite the fact that neither country can share confidential information with the other. The MOU with Namibia is seen by the South African Competition Commission as a pilot project that once tested and refined could be extended to other SADC MS with which the Commission has already established informal relationships of cooperation and information sharing (such as Botswana, Swaziland, Mauritius and Zambia). TA to the SADC Secretariat - P194 Co-operation Agreements - December

10 Table 1: Overview of provisions covering cooperation and information exchange as of October 2011 Country Comp. Exchange of Disclosure of Law information information Positive Comity Zambia Yes Article 5(i) 4 no Yes 5 COMESA SADC Members South Africa Yes Article 82 6 Article 69 7 No Mauritius Yes Article 30(i) 8 Article 70 9 No Swaziland Yes no Article No Namibia Yes Article no No 16(b) 11 Zimbabwe Yes no no No Malawi Yes no no No Seychelles Yes no no No Tanzania Yes??? Botswana Yes Yes Yes No Mozambique No n/a n/a No DR Congo No n/a n/a No Madagascar No n/a n/a No Angola No n/a n/a No Lesotho No n/a n/a No 4 The functions of the Commission are to, inter alia, (i) liaise and exchange information, knowledge and expertise with competition and consumer protection authorities in other countries. 5 Article 65 Zambian Competition and Consumer Protection Law 6 Information exchange with foreign agencies: The President may assign to the Competition Commission any duty of the Republic, in terms of an international agreement relating to the purpose of this Act, to exchange information with a similar foreign agency. 7 Breach of confidence It is an offence to disclose any confidential information concerning the affairs of any person or firm obtained (a) in carrying out any function in terms of this Act; or (b) as a result of initiating a complaint or participating in any proceedings in terms of this Act. This does not apply to information disclosed (a) for the purpose of the proper administration or enforcement of this Act; (h) for the purpose of the administration of justice: or (c) at the request of an inspector, Commissioner, Deputy Commissioner or Competition Tribunal member entitled to receive the information. 8 The Executive Director shall, inter alia, (i) liaise and exchange information, knowledge and expertise with competition authorities in other countries entrusted with functions similar to those of the Commission. 9 Disclosure of information (iv) for the purpose of responding to a request made by a foreign or multinational competition authority for the production of information in circumstances where Mauritius is a party to an international agreement providing for the production or exchange of such information. 10 Prohibition of publication or disclosure of information 23. (1) A person shall not, without the consent in writing given by or on behalf of the Commission, publish or disclose to any person, otherwise than in the course of the person's duties, contents of any document, communication or information which relates to, and which has come to his/her knowledge in the course of that person's duties under this Act. 11 The Commission is responsible for the administration and enforcement of this Act and, in addition to any other functions conferred on the Commission, it has the following powers and functions: (b) to liaise and exchange information, knowledge and expertise with authorities of other countries entrusted with functions similar to those of the Commission. TA to the SADC Secretariat - P194 Co-operation Agreements - December

11 Bibliography Abbott, Kenneth W. and Duncan Snidal (2000), Hard and Soft Law in International Governance, 54:3 International Organisation, Addy, George N. (1996), Confidentiality and Mutual Assistance in Enforcing Competition Laws available at Artwood, J. R. (1993), Positive Comity: Is it a Positive Step? 1992 Fordham Corp. L. Inst (B. Hawk, ed). Cernat, Lucian (2005), Eager To Ink But Ready To Act? RTA Proliferation and International Cooperation on Competition Policy in Brusick, Philippe, Ana María Alvarez and Lucian Cernat (eds) Competition Provisions in Regional Trade Agreements: How to Assure Development Gains, UNCTAD. Commonwealth Secretariat (2009) Harmonization Framework of the National Competition Laws and Policies in SADC Series of papers prepared by Dr. Arthur Pryor and Dr. Martin Howe for the SADC Secretariat. Hartzenberg Trudi (2002) Competition Policy in SADC University of Cape Town Trade and Industrial Policy Strategies 2002 Annual Forum International Competition Network. Cooperation Between Competition Agencies in Cartel Investigations Report Kaira Thula (2009) Harmonizing the Objectives of Competition Policy and Regulation Paper presented by the Executive Director Zambia Competition Commission to the UNCTAD Multi-Year Expert Meeting on Services, Development and Trade: The Regulatory and Institutional Dimension Geneva, March 2009 Lipimile George (2011b) Harmonization Framework of the National Competition Laws and Policies in SADC (Draft Report) Presented to the SADC Roundtable on Regional Competition Policy October Gaborone Botswana OECD Recommendation of the Council concerning Cooperation Between Member Countries on Restrictive Business Practices Affecting International Trade OECD Recommendation of the Council concerning Effective Action Against Hard Core Cartels OECD Best Practices For The Formal Exchange Of Information Between Competition Authorities In Hard Core Cartel Investigations TA to the SADC Secretariat - P194 Co-operation Agreements - December

12 Sakata, N. Are Southern African competition law regimes geared up for effective cooperation in competition law enforcement? The Fifth Annual Competitition Law, Economics & Policy in South Africa Schaub, A (1998), International co-operation in antitrust matters: making the point in the wake of the Boeing/MDD proceedings Stewart Taimoon, Julian Clarke and Susan Joekes (2007) Competition Law in Action: Experience from Developing Countries Ottawa Canada: International Development Research Centre (IDRC) UK Department for Trade and Industry Co-operation with Competition Authorities Worldwide Zanettin, Bruno (2002), Cooperation Between Antitrust Agencies at the International Level, Hart Publishing Oxford and Portland, Oregon. TA to the SADC Secretariat - P194 Co-operation Agreements - December