Cross-Border Cases and Issues: Overlap between SADC, COMESA and EAC and Possible Implications for Specific Enforcement Cases

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1 Technical assistance to the SADC Secretariat to enhance regional integration and harmonization of competition and consumer policy in the SADC Member States Cross-Border Cases and Issues: Overlap between SADC, COMESA and EAC and Possible Implications for Specific Enforcement Cases and SADC/COMESA Cooperation in the Future 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. This project document is more of a speculative foresight discussion paper that highlights best practices in cooperation with COMESA, EAC and other regional trade agreements in the future as the African economy expands and cross-border competition cases become more prominent in the future. Contents Major Implications for Competition Law Enforcement in SADC Member States Introduction Merger and Acquisition (M&A) Trends in Africa and the SADC Region 3 3. Enforcing Competition Rules on Cross-Border Mergers within the SADC region Implications and Conclusions for SADC Merger Review and Other Enforcement Cases TA to the SADC Secretariat - P194 Cross Border Cases - December

2 Major Implications for Competition Law Enforcement in SADC Member States South Africa and some other SADC Member States are being affected by international mergers, cartels, dominant positions and other enforcement cases that are for the most part investigated in the more experienced competition law jurisdictions in Europe and North America. There is some evidence as well that cross-border mergers and acquisitions and other competition matters that affect the SADC region are also increasing, and that this trend could accelerate in the coming years. However, with a few exceptions, cross-border merger and other cases that influence competition and consumer welfare in individual SADC MS and throughout the SADC region have not been well identified, documented and analysed by SADC competition authorities and the consulting and academic communities. There is growing discussion and some concerns that, because SADC is on a different cooperation and harmonization path compared with COMESA and the EAC, SADC Member States and the total region could be placed at a disadvantage if and when cross-border merger and other cases that have competitive effects in two or all three regional trade areas start to accelerate in the years ahead. This supposed disadvantage would result from the lack of SADC regional competition rules and authority, and the small size of the SADC Secretariat programme on Competition and Consumer Policy and Law. This foresight discussion paper explores these propositions and their implications for the future through assessing cross-border merger and acquisition trends in Africa and the SADC region, and ten actual and hypothetical cross-border merger cases. One major implication of this foresight analysis is that, at a minimum, the SADC Secretariat Competition and Consumer Policy and Law Programme will need to be strengthened at some point in the future. This will be needed to better represent and defend SADC regional interests on cross-border merger and other enforcement cases that have substantial competitive effects on the SADC region but are being reviewed by the COMESA and EAC competition authorities at either the MS or regional levels. 1. Introduction There is growing debate that overlapping membership and the establishment of COMESA wide competition rules and the COMESA Competition Commission (CCC) o TA to the SADC Secretariat - P194 Cross Border Cases - December

3 enforce those rules could cause significant problems for SADC competition authorities in the future when dealing with cross border merger and other enforcement cases that involve both SADC and COMESA members. The EAC may as well operationalize its competition rules and authority in the near future, which would have implications for Tanzania and perhaps other SADC members. Some SADC critics are arguing that as the competition policy and law agenda moves forward under the Tri-Partite Agreement between the three overlapping regional trade agreements (see Annex A), SADC and its Member States, particularly the MS that are only SADC members, could be placed at a disadvantage. This supposed disadvantage results from the lack of region-wide competition rules and authority in SADC, and the small size of the SADC Secretariat s Competition Policy and Law Programme which has only one officer. This discussion foresight paper explores these cross-border and overlapping membership issues from the perspective of cross-border merger and acquisition (M&A) trends throughout Africa and the SADC region, and some actual and hypothetical crossorder merger cases that could prove troublesome to SADC Member States and Secretariat in the future. The final section offers some implications and conclusions for future consideration. Annex A displays the overlapping membership across the three regional trade agreements (RTAs). Annex B summarizes some of the Project Team s major findings on cross-border cases within SADC that could be important in the future to the other two RTAs as well. 2. Merger and Acquisition (M&A) Trends in Africa and the SADC Region The primary modes of entry for foreign investors can be through greenfield investments or through cross border mergers and acquisitions (M&As) (Agbloyor, Abor, Adjasi & Yawson, 2011). While greenfield investments involve the foreign firm setting up an entirely new operation in the host country, cross border M&As occur when the foreign firm merges with an existing domestic enterprise or acquires an equity stake in the existing domestic firm. Cross border M&As can take the following forms: horizontal, vertical or conglomerate. A horizontal cross border M&As involves firms in the same industry. A vertical cross border M&A occurs when the parties involved merge or acquire an equity stake in another firm in order to ensure closeness to the sources of input suppliers, business customers and/or the ultimate consumer. Finally, conglomerate cross border M&A involves firms in completely different industries. Conglomeration is normally undertaken to reduce risk through product or market diversification. On the other hand, greenfield investment refers to a start-up company by a foreign firm in a host country. Thus, a greenfield investment is likely to take time to set up. With cross border M&As, the firm gains immediate market access and can start operating business and earning profits very quickly. TA to the SADC Secretariat - P194 Cross Border Cases - December

4 Cross border merger and acquisitions have over the years became an important source of FDI for Africa. According to UNCTAD (2010), cross border M&A activity in Africa increased over 80% between the periods and The average value of cross border M&A transactions increased by more than six times from $1.58 billion recorded during the period to $9.97 billion during the period. Slow growth in the OECD economies is expected to result in further major increases in M&A activity in Africa and the SADC region over the next decade. According to UNCTAD, 2010, the distribution of cross border M&A activity in Africa varies with some regions being more important compared to others. Southern Africa (44.40%) and Northern Africa (44.15%) were the most active sub-regions in terms of cross border M&A transactions on the African continent during the period The next more active sub-regions in terms of cross border M&A transactions are West Africa (10.16%) and East Africa (2.05%). The UNCTAD 2010 report shows the top five acquisitions in Africa by firms from the developing countries between as: 20% of Standard Bank of South Africa s acquired by ICB Bank of China; China s CNOOC s acquisition of a 45% stake in Nigeria s National Petroleum Corporation; United Arab Emirates Investor s group acquisition of a 35% stake in Tunisee-Telecoms; Petronas of Malaysia s acquisition of a 35% stake in Egyptian LNG; and Abraaj s Capital of United Arab Emirates acquisition of a 100% stake in Egyptian Fertilizers Co. Within the SADC region, 53, 38 and 50 M & As are reported to have taken place in 2008, 2009 and 2010 respectively (UNCTAD, 2010). South Africa dominated the M & A activity, accounting for 54% of all the mergers and acquisitions, followed by Mauritius with 18% in Table 1: Members of SADC, COMESA, EAC and M & A activity during Country SADC COMESA EAC No of M & A cases SADC Member States Angola X Botswana* X Lesotho X Mozambique X Namibia* X South Africa* X Democratic Republic of the Congo (DRC) X X Madagascar X X Malawi* X X Mauritius* X X Seychelles* X X Of the 15 SADC members, 8 are also members of COMESA, 1 is also a member of the EAC, and 6 are SADC members only. Of the 18 COMESA members, 8 are in SADC, 4 are in ECA and 6 are only COMESA members. Of the 5 EAC members, 1 is also in SADC, and four are in COMESA. Tanzania was in COMESA but left in TA to the SADC Secretariat - P194 Cross Border Cases - December

5 Tanzania* X X Swaziland* X X Zambia* X X Zimbabwe* X X Total Other COMESA Not Member of SADC Burundi X X Federal Islamic Republic X of the Comoros Djibouti X Eritrea X Ethiopia* X Kenya* X X Rwanda X X Somali Democratic Republic X Sudan X Uganda X X Total Source: UNCTAD, 2010 *Indicates whether the MS has an operational competition law and authority. 3. Enforcing Competition Rules on Cross-Border Mergers within the SADC region The notable M & Activity within SADC (See table 1 above) suggests that SADC Member State Competition Commissions/Authorities (CAs) should have in place unambiguous competition enforcement mechanisms to review mergers that raise competition issues. However, only 10 of 15 SADC countries are now enforcing competition laws. A second major issue is that the majority of SADC member states belong to overlapping regional blocks such as COMESA and the EAC. This overlapping membership potentially could cause frictions and problems for SADC competition authorities when dealing with cross border cases that involve COMESA members. This is because COMESA wide competition rules and the COMESA Competition Commission (CCC) are superior to the competition laws and authorities of the individual COMESA Member States, which as noted above includes eight SADC MS that are also COMESA members. On the other hand, SADC does not have regional competition enforcement mechanism, but instead has adopted a more informal and voluntary path for promoting cooperation and harmonization in the enforcement of competition laws. SADC critics are arguing that over time this situation could put into question the political standing and integrity of SADC, because at least potentially SADC will have to look to COMESA to resolve SADC cases that affect competition within both COMESA and SADC Member States including the six SADC members that are not members of COMESA or the EAC. The following actual and hypothetical mergers and acquisitions are developed in order to clarify these points and to illustrate the kinds of irritants and frictions that could occur in TA to the SADC Secretariat - P194 Cross Border Cases - December

6 the future because of the overlapping membership situation. The rationale for the theoretical cases is that, as seen in Table 1 above, the M & A activity in SADC is very low and highly concentrated in one country, South Africa. In addition, while the information on the jurisdiction of the M & A target firm is clear, the jurisdiction of the acquiring firm is not always clearly specified in some of the data used for this research. Moreover, the competitive effects of these cross-border acquisitions have been documented and analysed for only a few merger review cases that have affects in two or more SADC and other countries. In order to get around this problem, we have supplemented the available cross-border cases 2 with hypothetical cases. In the actual and hypothetical case, two ways are used to establish jurisdiction and interest in the analyses: 1. Interest and jurisdiction is established by substantial commercial facilities in two or more countries called the local nexus test. 2. Interest and jurisdiction is established by the competitive effects test which would allow an MS ands its CA to have an interest and perhaps establish jurisdiction even when the local nexus/commercial facilities test is not satisfied. This requires that the CA or regional commission have the capability under its competition law to apply its merger review provisions in an extra-territorial manner. 3 Case 1: Nictus BPK of South Africa (SADC) acquired Fateni Collections (Pty) Ltd of Namibia (SADC) in This is a cross-border case involving two SADC member states with commercial facilities within SADC (mainly South Africa) and no or limited competitive effects in COMESA. The two SADC member states are not COMESA members. This implies that the COMESA Competition Commission would have no jurisdiction over the case and perhaps little interest in this case because it has little competitive effects within COMESA. The case would therefore be handled hopefully on a cooperative basis by the two or more SADC affected Member States. Case 2: Telkom of South Africa (SADC) acquired Africa Online a company with operations in Zimbabwe (SADC/COMESA) in This is an example of a cross-border enforcement case involving one SADC member state that is not a COMESA member (South Africa) and a second SADC MS that is a COMESA member (Zimbabwe). The case is likely to have commercial facilities and/or competitive effects in South Africa and Zimbabwe, but limited competitive effects in other COMESA member states. CCC may have some interest but would likely not have jurisdiction because the case does not involve cross-border trade within COMESA. The case should be handled hopefully on a cooperative basis by the two SADC MS and the SADC/COMESA member may wish to keep the CCC informed on the case to 2 The cases are adapted from Swart and van Marrewijk, 2008 who note that they acquired the cases from Ernest and Young database on M & As. 3 Based on currently available information, only two of ten SADC competition authorities have this capability, South Africa and Zambia. TA to the SADC Secretariat - P194 Cross Border Cases - December

7 e.g. prevent any misunderstandings. In some ways, cross-border cases involving SADC only MS and COMESA only MS would be handled in a similar way given the Tri- Partite Agreement between the SADC, COMESA and EAC; but this is a hypothesis that has yet to be tested. Case 3: African Oxygen LTD, a South African (SADC) gas distribution company acquired Specialty Chemicals of Madagascar (SADC/COMESA) in This case represents a scenario of a cross-border case involving a SADC member state only and a SADC/COMESA member state. Commercial facilities are presumed to be in two countries but the case has substantial competitive effects in one or more other COMESA members. This suggests that the CCC may have a strong interest and may establish jurisdiction based on an EU type competitive effects test and extra-territorial reach (the United States and potentially South Africa and Zambia could/would do the same). The SADC/COMESA member state may be forced or may want to send the case to the CCC, which may then decide to take the lead role. This will require formal and informal cooperation instruments between the SADC only member state and CCC to protect the economic and political interests of the SADC only member state. The SADC only member state may prefer to not transfer the case to the CCC, and the SADC Secretariat may be politically embarrassed because SADC does not have a region wide authority. However, if the CCC does a good case investigation and resolution, the SADC only member and SADC region as a whole would benefit as a free rider. However, if the CCC resolution only addresses the competitive effects and efficiencies in the COMESA region, then both the SADC only member state and the SADC region will experience both political embarrassment and competitive harm from the merger decision. Case 4: Sasfin Holdings (LTD) of South Africa acquired SMB Nedbank International Ltd of Mauritius in This case involves one SADC only MS and a SADC/COMESA MS. It is assumed that there are commercial facilities in the two MS but substantial competitive effects are felt in many Member States in both SADC and CCC. The CCC has interest, jurisdiction and the capability to take the lead role, because of the risk and likelihood of substantial cross-border competitive effects in many COMESA MS. The SADC would benefit if the CCC provides a good investigation and resolution, as SADC receives significant benefit at little cost. In this case, SADC will free ride on the CCC and COMESA. The downside for SADC is the political embarrassment of asking CCC to solve a SADC region competition problem because SADC has not yet established a region wide capability. Nonetheless, the SADC Secretariat would still need additional resources in order to ensure that SADC MS and regional interests are protected in the investigation and resolution of the merger. This situation would be similar to the problem and loss of sovereignty that a nation state experiences when potentially it can be substantially TA to the SADC Secretariat - P194 Cross Border Cases - December

8 harmed by an international merger or cartel but does not have a competition law or authority to review and remedy the merger. Case 5: SA Corp Real Estate Fund (LTD) acquired Oryx Properties of Namibia in This represents a cross-border case between two SADC only members and it is assumed that there are commercial facilities, with significant competitive effects, in many SADC and COMESA Member States. CCC would have a strong interest and may attempt to and succeed in establishing jurisdiction and a leadership role based on the competitive effects test and EU and US style extra-territorial reach. While the potential for SADC free riding is still there, this case poses more serious problems because no COMESA MS has significant commercial facilities/local nexus to facilitate the implementation of undertakings. The problem for SADC is its integrity and credibility as a regional institution, when CCC is investigating and resolving a case even though COMESA has no local nexus/commercial facilities. The problem for the CCC is that CCC may require the help of the two SADC only competition authorities to implement structural and perhaps behavioral remedies, especially if commercial facilities in COMESA MS are only importers. This enforcement case could become troublesome if there are no high quality cooperation agreements and informal rules of the game in place between SADC regions, SADC MS and the CCC for handling these kinds of cases. Again, the SADC Secretariat would require additional competition programme resources to protect the interests and credibility of SADC MS and the region. Case 6: First Hypothetical Case A COMESA member without a competition law has a dominant merged entity or other dominant company with significant commercial facilities in the non-ca COMESA member. The dominant company is allegedly violating COMESA competition rules in a manner that reportedly is causing substantial harm to competition and consumers in many parts of the COMESA and SADC regions. The CCC would have a significant interest and likely jurisdiction to investigate and resolve the cross-border case based on cross-border competitive effects within the COMESA region. CAs in the SADC only MS would have an interest but likely would not have jurisdiction unless their law allows for extra-territorial reach. As noted before, based on current evidence, only South Africa and Zambia has such reach. Therefore, SADC can only be advisors and spectators and hope that the CCC will analyse and remedy the merger in a manner that reduces the adverse competitive effects in both the COMESA and SADC regions. Case 7: Second Hypothetical Case TA to the SADC Secretariat - P194 Cross Border Cases - December

9 A SADC only member without a competition law has an alleged violator of competition rules that reportedly is causing substantial harm to competition and consumers in many parts of the COMESA and SADC regions. Since SADC does not have regional rules and authority, the three options are that: (i) the CCC could investigate and resolve the case on behalf of both regions; (ii) a major SADC MS (such as South Africa) with a competition law could attempt to exercise extra-territorial reach and investigate and resolve the case on behalf of the SADC; or (iii) the SADC CA and SADC MS could work together in a cooperative and coordinated manner to ensure that both SADC and COMESA needs and objectives are addressed. Case 8: Third Hypothetical Case A COMESA member with a competition law refuses to investigate an alleged violator, with commercial facilities in the MS, which reportedly is causing substantial harm to competition and consumers in many parts of the COMESA and SADC region. The refusal could be for industrial policy and national champion reasons, or because the alleged victims are for the most part in other countries. The CCC would have an interest and jurisdiction to resolve the case on behalf of both regions. Case 9: Fourth Hypothetical Case A SADC member with a competition law refuses to investigate an alleged violator with commercial facilities in the MS, which reportedly is causing substantial harm to competition and consumers in many parts of the COMESA and SADC region. The options are essentially the same as under hypothetical case 7. However, whether or not the CCC takes on the burden of addressing this and similar cases where the source of the problem is SADC deficiencies would depend on their case priorities, the requirements of other cases at that time, and perhaps the extent of harm to competition and consumers in the COMESA region compared with the harm in the SADC region. This situation points out that there are limitations to SADC free-riding from a CCC and COMESA perspective. There would also be additional embarrassment to SADC and its competition policy and law community in that SADC s more informal and voluntary approach is failing to ensure that Member States accept their competition law responsibilities and obligations to other SADC MS. Case 10: Acquisition of Kibo Breweries by Tanzania Breweries One of the better documented cross-border merger cases in Africa is the acquisition of Kibo Breweries by Tanzania Breweries, which was investigated by the Tanzania CA in 2002 and led to a decision to reject the merger. This decision was subsequently reversed by the responsible Tanzanian Government Minister. This complex acquisition involved brewing operations, competition and consumers in two countries, Tanzania and Kenya, and brewery company owners and investors in a third country South Africa. Therefore, three countries had an interest in the transaction: South Africa which is only a SADC member, Tanzania which is a member of SADC and EAC, TA to the SADC Secretariat - P194 Cross Border Cases - December

10 and Kenya which is a member of COMESA and EAC. All three countries have had operational competition laws and authorities for a fairly long time. If this cross-border merger were to take place in the near future rather than about ten years ago, the EAC competition authority would have an interest and perhaps jurisdiction because of major commercial facilities in Tanzania and competitive effects in Tanzania and Kenya. COMESA would have an interest and may attempt to establish jurisdiction because of competitive effects in Kenya and perhaps other countries at this time. And South Africa clearly would have an interest but jurisdiction would be more questionable based on the available facts of the merger. The question of whether Tanzania, the EAC authority or CCC should review the merger would be a matter of negotiation, debate and perhaps conflict. While South Africa and the SADC Secretariat would need to ensure that South Africa s and the SADC region s interests are taken into account in the merger review. 4. Implications and Conclusions for SADC Merger Review and Other Enforcement Cases Based on current evidence, the ten actual and hypothetical cases have occurred very rarely over the past decade within the SADC region (the Tanzanian brewery case is the merger that is most often mentioned). As the SADC, COMESA and EAC economies and markets continue to expand and more MS have competition laws, these kinds of cases may occur more frequently in the future, but the number, timing and severity are very difficult to predict at the present time. Internet search and other research are needed to identify other SADC cross-border cases, similar cross-border cases in other parts of Africa, and similar cross-border cases in other parts of the global economy such as: a) Cross-border cases where the EU established jurisdiction based on competitive effects when the case largely involved non-eu members; and b) Cross-border cases where the US asserted jurisdiction based on competitive effects and extra-territorial reach (Connaught Merieux with Canada is one example in the literature see Agarwal and Ireland 2009 and UNCTAD 2005). These situations are even more challenging and complex for cross-border consumer fraud problems given (i) no regional capability in either COMESA or SADC to address criminal type consumer protection cases, and (ii) less harmonized and enforced consumer protection laws in most SADC and COMESA states. One option would be some kind of Mutual Legal Assistance Treaty (MLAT) between COMESA and SADC MS or their regional authorities. Experience over the past two decades in other regions of the global economy indicate that cross-border consumer fraud cases based on fraudulent telemarketing, Internet/business to consumer E-commerce and hit and run direct sales targeted at TA to the SADC Secretariat - P194 Cross Border Cases - December

11 households near the border, could become more prominent and harmful within the SADC, COMESA and EAC regions in the comparatively near future. These and other hypothetical competition and consumer cases need to be investigated from the perspective of the current stage of the SADC Declaration on regional Cooperation with its emphasis on cooperation and softer forms of harmonization and convergence, in order to assess the implications for cooperation platforms and formal and informal cooperation arrangements between SADC MS, between SADC MS and COMESA and ECA MS under the Tri-partite Agreement, between SADC MS and the CCC, and between the CCC and an under-staffed SADC Secretariat Competition and Consumer Policy and Law program with no region wide rules and authority. It is necessary therefore that SADC member states collect and analyse information on these and other cross-border cases from the perspective of: (i) cooperation and harmonization across the SADC region; (ii) cooperation and harmonization with the COMESA region, individual COMESA member states, and the CCC, (iii) and whether and when SADC should consider region wide competition rules and a distinct SADC competition authority. TA to the SADC Secretariat - P194 Cross Border Cases - December

12 Annex A: Overlapping Membership between SADC, COMESA and EAC Country SADC COMESA EAC SADC Member States Only 1. Angola X 2. Botswana* X 3. Lesotho X 4. Mozambique X 5. Namibia* X 6. South Africa* X SADC and COMESA Members 7. Democratic Republic of the Congo (DRC) X X 8. Madagascar X X 9. Malawi* X X 10. Mauritius* X X 11. Seychelles* X X 12. Swaziland* X X 13. Zambia* X X 14. Zimbabwe* X X 15. Tanzania* X X Other COMESA Members Not Members of SADC 16. Burundi X X 17. Federal Islamic X Republic of the Comoros 18. Djibouti X 19. Eritrea X 20. Ethiopia* X 21. Kenya* X X 22. Rwanda X X 23. Somali Democratic X Republic 24. Sudan X 25. Uganda X X *Indicates whether the MS has an operational competition law and authority. Of the 15 SADC members, 8 are also members of the Common Market for Eastern and Southern Africa (COMESA), 1 is also a member of the East African Community (EAC), and 6 are SADC members only again based on currently available information. Of the 18 COMESA members, 8 are in SADC, 4 are in ECA and 6 are only COMESA members. Of the 5 EAC members, 1 is also in SADC, and four are in COMESA. Tanzania was in COMESA but left in 2000 (see Inception Report). Of the 25 countries that are covered by the Tri-Partite Agreement between the three regional trade agreements, only 12 currently have operational competition laws and TA to the SADC Secretariat - P194 Cross Border Cases - December

13 authorities, based on currently available information. Ten of these are in SADC and the other two are Ethiopia and Kenya. Of the 25 countries, 12 or about one-half are members of only one RTA. These include six SADC members and six COMESA members. TA to the SADC Secretariat - P194 Cross Border Cases - December

14 Annex B: Cross-Border Merger and Other Cases within SADC One of the major findings on cross-border cases from the missions, consultations, and other sources accessed during this project (see e.g. Government of Africa 2009:45) is as follows. Many of the cross-border mergers, cartels, abuse of dominance and other crossborder enforcement matters are largely taking place outside SADC but are having competitive effects that may be substantial (but apparently at times not investigated in detail) in one or more SADC Member States. Alternatively, based on the available evidence, the cross-border cases may largely affect a larger SADC economy typically South Africa in terms of commercial facilities, production, sales, and competitive effects, but as well could be having some competitive effects that may be substantial on other smaller SADC economies. The literature and sources suggest four possible situations and outcomes from these cross-border competition cases that could also be relevant to cross-border consumer frauds in the future. For a cross-border merger, the smaller and less affected SADC economy or economies may have only one of the merging companies. In some mergers, merger approval would not affect market structure, concentration and competition in the short term in the smaller economy (economies), but may prevent competition in the future if e.g. the acquired company was likely to enter the smaller economy over the longer term. This would make the transaction a pre-emptive merger for the smaller economy (Agrawal and Ireland 2009). Alternatively, the merger may eliminate a highly competitive company and/or maverick producer from the smaller economy, and therefore the transaction may result in a more immediate substantial lessening of competition in the smaller economy. A second situation is that the smaller SADC economy (or economies) may have three competitors before the merger, and the non-merging company is a highly competitive local company whose aggressive pricing and other strategies may continue to discipline the conduct of the merged entity after the transaction is completed. In these situations, the merger may involve a lower risk of a SLC than in the larger economy. This situation could probably be extended as well to cross-border cartel and collective dominance cases when the smaller economy has a maverick producer that is not a participant in the cartel, tacit collusion or collective dominance. A third situation is when the larger and more affected competition law jurisdiction fixes the merger, cartel or other competition and consumer fraud problem in a manner that also reduces and eliminates the adverse competitive effects in the smaller SADC economy. In this situation, the smaller economy is free riding on the efforts of the larger and more affected jurisdiction similar to the free-riding on the CCC hypothesized in the text. The fourth situation which is more important and potentially harmful to the smaller economy is as follows. The larger and more affected jurisdiction may fix the merger or TA to the SADC Secretariat - P194 Cross Border Cases - December

15 other competition and consumer problem in its own country. However, the remedy may have little or no effect on eliminating adverse competition and consumer effects in the smaller SADC economy. Or in fact the remedy may increase adverse effects on competition and consumers in the smaller economy because the merged entity, dominant company, cartel members or participants in the consumer fraud are able to transfer their anti-competitive and consumer business practices and harm to the smaller SADC economy. The smaller SADC economy may not have investigated and remedied the competition or consumer matter because of limited resources, limited or no knowledge and experience with cross-border cases and competition and consumer effects, limitations in its competition law which restricts taking action against companies located in neighbouring SADC countries, or because the country is not yet enforcing a competition law. All of these situations point out that larger and more experienced SADC jurisdictions that: (i) (ii) are affected by and are investigating a cross-border merger, cartel, dominance or other competition matter that is largely taking place outside SADC; or a domestic competition matter that may have cross-border effects within SADC and could harm competition and consumers in smaller SADC economies; may have a responsibility (although likely not a legal obligation) to inform its smaller SADC partners that the competition matter may be adversely affecting competition and consumers in their jurisdictions and to work with them to identify and implement remedies that are effective in other SADC economies. This appears to be taking place through informal relationships, ad hoc contacts and best efforts at the discretion of the generally larger CA which has received the merger notification, complaint or other information. However, these methods need to be formalized and made more consistent and predictable in order to achieve the cooperation and harmonization objectives of the SADC Declaration on Regional Cooperation in Competition and Consumer Policies of A good starting point would be to request that merging parties include information on their pre-merger notification form on whether they are pre-notifying other SADC competition authorities and if so why (e.g. because of e.g. production, sales, or other activities and facilities of one or more merging companies in these other jurisdictions). Complainants in the complaint form could also be asked whether to the best of their knowledge the alleged anti-competitive conduct affects competition and consumers in more than one SADC country and if so which countries and why. More research is also needed on which markets and industries are more likely to generate SADC cross-border cases. For example, the cement industry faces high transport costs but its markets can often be regional markets that encompass cities and rural areas on both sides of an SADC border. For this and perhaps other industries, the TA to the SADC Secretariat - P194 Cross Border Cases - December

16 relevant market can be both regional/sub-national (since it does not cover an entire country) and cross-border. Smaller economies will also need to develop better resources, skills, knowledge and experience to determine when to conduct their own investigation and apply their own remedies on cross-border cases; and when to consult only with and thus free ride on the larger and more affected jurisdictions within and outside SADC, including in the future the COMESA Competition Commission. Bibliography Agarwal Manish and Derek Ireland (2009) Merger Review and the Dangers of the Two- Firm Local Nexus Criterion Paper Presented to the Annual Meeting of the Canadian Law and Economics Association, 2-3 October 2009, Toronto Canada Agbloyor, Abor, Adjasi and Yawson (2011), Financial Markets and Cross Border Mergers and Acquisitions in Africa, University of Ghana Business School, Legon, Ghana. Government of South Africa (2009) Unleashing Rivalry: Ten years of enforcement by the South African competition authorities Published by the Competition Commission and Competition Tribunal of South Africa United Nations Conference on Trade and Development (UNCTAD 2005) Exclusionary Anti-Competitive Practices: Their Effects on Competition and Development United Nations Geneva 2005 Prepared by Dr. Philip Marsden Director Competition Law Forum and Senior Research Fellow British Institute of International Competition Law London United Nations Conference on Trade and Development (UNCTAD 2010) World Investment Report, Investing in a Low Carbon Economy, United Nations TA to the SADC Secretariat - P194 Cross Border Cases - December