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Competition and policy harmonisation in the Southern African region

By Pierre E J Brooks *

Introduction / Extraterritorial application of competition laws / Case law on extraterritoriality / Bilateral agreements / Regional arrangements / A multilateral approach / Harmonising competition law in the Southern African region /


Today many countries have rules on competition which are designed to forestall or minimise anticompetitive behaviour and structures. It is not difficult to appreciate why this is so, since robust competition is generally accepted as contributing appreciably to (a) a more efficient use of scarce human and capital resources, (b) better prices and quality of goods and services and, (c) greater technological innovation.

Because of the risk of diminishing profits which competition creates for less successful, unproductive firms, they frequently seek government intervention and favours to protect them from the dynamics of the market, or band together in collusive accord to exploit consumers or thwart competitors.

The prescriptions of the agreement signed at Marrakesh which established the Word Trade Organization (WTO) in certain respects diminishes the capabilities of governments to protect domestic firms from international competition. This may have provided an additional incentive for firms that operate internationally to collude. A spate of recent cases brought by the Antitrust Division of the United States Attorney General's office, arguably, bears testimony to this. More specifically, the Assistant Attorney General responsible for antitrust matters, in an address to the Senate Committee on the Judiciary on 26 February 1998, cited a number of prominent foreign firms which had admitted to a contravention of US antitrust laws and had paid admission of guilt fines of between US$10 million and US$100 million.

Of course, once collusive behaviour or potentially anticompetitive mergers and acquisitions have a multinational dimension with all the attendant difficulties relating to access to and sufficiency of relevant information that such a situation presents, multi- jurisdictional involvement often becomes a sine qua non for the effective settlement of a case. Parochial interests and loyalties often militate against this happening. One can accordingly appreciate why increasing attention is being given to achieving a more co-operative and structured approach to the problems of competition law in a transnational context.

In this presentation various approaches to the issue will briefly be outlined with a view to forming some tentative opinions on what can be done in this area of the law in the Southern African region to facilitate economic development, transnational commercial activity, and the settlement of disputes.

Extraterritorial application of competition laws

The extraterritorial application of a country's competition laws is essentially a unilateral act. It is done on the basis of what may conveniently be termed the "effects doctrine". The United States Supreme Court, for example, after initially holding that: "The general and almost universal rule is that the character of an act as lawful or unlawful must be determined wholly by the law of the country where the act is done" (American Banana Co v United Fruit Co 213 US 347 (1909) 356), soon afterwards substantially altered its approach (US v Sisal Sales Corp 247 US 268 (1927)). So much so that Judge Hand in US v Aluminum Co of America 148 F 2d 416 (1945) could say that it was settled law that a state may impose liabilities even upon persons not within its allegiance, for conduct outside its borders that has consequences which the state reprehends. Certain modifications to this view emerged in Timberlane Lumber Co v Bank of America 549 F 2d 597 and Laker Airways Ltd v Sabina 731 F 2d 909, and in the Foreign Trade Antitrust Improvements Act 1982. The latter gives effect to Congress's belief that activity whose anticompetitive effects are felt only in foreign states should not be a concern of United States antitrust regulation, but that those activities carried out abroad that have "direct, substantial and reasonably foreseeable" effect in the United States should be subject to the Sherman and Federal Trade Commission Acts (see also the American Law Institute's Restatement of the Law Third: The Foreign Relations Law of the United States (1987) pars 402, 403 and 415).

The approach followed in Germany is that its Antitrust Act shall apply to all restraints of competition which have effect within the territory even if they are caused outside of Germany (art 98 (2)).

In similar vein the European Court of Justice has held in Re Wood Pulp Cartel: A Ahlström OY and Others v EC Commission 1988 4 CMLR 901 that if the applicability of prohibitions laid down under European Union competition law were made to depend on the place where the agreement, decision or concerted practice was formed, the result would obviously be to give undertakings an easy means of evading those prohibitions. According to the court, the decisive factor is, therefore, the place where the agreement is implemented.

In South Africa the Competition Board is of the opinion that it has the right to exercise jurisdiction in respect of matters that have a negative impact on competition in the Republic notwithstanding the fact that certain key events in the causal chain take place outside the country's borders, provided that it, the Minister, or Special Court, as the case may be, are in a position to implement effectively the remedial or preventative measures that are decided upon (Anglo/Goldfields case Report No 20 par 83).

Case law on extraterritoriality

When Minorco SA, a company incorporated in Luxembourg and controlled by Anglo/De Beers, made a hostile bid to acquire the whole of the share capital of Consolidated Gold Fields Plc, a company incorporated in the United Kingdom and having a substantial shareholding in Gold Fields of South Africa, the directors of Consgold, inter alia, instituted legal proceedings in the USA to forestall the take-over on the basis of section 7 of the Clayton Act and sections 1 and 2 of the Sherman Act. The plaintiffs in the case were Consgold, its wholly-owned subsidiary, Gold Fields Mining Corporation, Nominate Mining Corporation and its 90 percent subsidiary, Newmont Gold Company. They argued that a successful take-over would have resulted in Anglo/De Beers gaining control over the American corporations.

A United States District Court in New York issued a temporary injunction restraining Minorco from effecting its tender offer since it believed that the take-over violated American antitrust provisions. This decision was upheld on an appeal to the United States Court of Appeals for the second circuit. That effectively put paid to Minorco's bid for Consgold.

Matsushita Electrical Industrial Co v Zenith Radio Corp 475 US 574 involved claims by two American television-set manufacturers (Zenith and National Union Corp) against competing Japanese producers. The plaintiffs alleged that the Japanese were selling their products at predatory levels in the United States while selling their products at supracompetitive prices in their home market.

Predatory pricing is, of course, a contentitious matter in competition law. In America the Supreme Court seems to have settled on a two-part test in order to ascertain whether predatory pricing has taken place. First, it entails an enquiry into whether there had been pricing below some appropriate measure of costs (eg marginal costs). Having established that this is the case, the enquiry then focuses on whether there is a reasonable prospect of recoupment of the losses incurred by the pricing of product below the acceptable level.

In the Matsushita case the plaintiffs failed on two counts, namely (a) if, as claimed, the Japanese had been pricing predatorily in America for many years, they would have incurred losses of such staggering proportions that they could never be recouped even if they were eventually successful in attaining a monopoly of the American market, and (b) because the Court refused to consider whether the Japanese had engaged in supracompetitive pricing in their home market since the US antitrust laws did not apply there. The Court was, therefore, able to avoid the more complex issue of whether the standards for predatory behaviour should be adjusted for competitive circumstances unique to international trade (Gifford "Predatory pricing analysis in the Supreme Court" (1994) 39 Antitrust Bulletin 431, 455-464).

The principal substantive provisions of competition law in the European Union are articles 85 and 86 of the Treaty of Rome. Article 85 deals with restrictive practices, article 86 with the abuse of a dominant position. In order to fall foul of these two articles the conduct in question must not only be restrictive or abusive, as the case may be, but also affect trade between the member states.

The following agreements involving foreign organisations or companies were held by the Commission and/or the European Court of Justice to have violated article 85:

An agreement between Eastern European foreign trade associations and European purchasers that effectively regulated prices for sales to the European Union, imposed quotas on imports, and prevented sales to other parties in Western Europe (Re Aluminium Imports from Eastern Europe 1987 3 CMLR 813).

An agreement between French and Japanese ballbearing manufacturers aimed at regulating imports from Japan into France and increasing prices (Re Franco-Japanese Ballbearings Agreement 1975 1 CMLR D8).

An agreement between a German company and Japanese supplier in terms of which the German company was granted exclusive distribution rights for the EU, thereby preventing the Japanese company from exporting to the EU (Re Siemens/Fanuc 1988 4 CMLR 948).

All of these cases related to imports into the EU and in each instance involved at least one EU enterprise. However, as the Wood Pulp case has shown, article 85 can be violated even if all the parties to the agreement are based outside the EU.

A number of merger cases having an international or transnational dimension have been considered by the Commission of the European Union in accordance with the prescriptions of the EU's Merger Regulation 4069/89 of 21 December 1989 as amended.

In Mitsubishi/UCAR the Commission approved a concentrative joint venture in terms of which Mitsubishi acquired 50 percent of the worldwide carbon business of Union Carbide. This decision was reached on the basis of the fact that (a) Mitsubishi's EU market share of 0,01 percent was negligible, (b) there would be no co-ordination between the respective parent companies or between them and the new venture because there was no significant likelihood that Mitsubishi would be in a position to compete with the joint venture in the joint venture's EU markets, and (c) no dominant position in the EU would be created or strengthened.

Tetra Pak, a Swiss corporation that manufactures packaging machines for liquids, intended making a bid for Alfa Laval, a Swedish corporation producing food and other processing equipment. Because the new company would be able to offer a complete product range consisting of processing and packaging machinery necessary for the operation of a food processing plant, the Commission was initially concerned that the transaction would create or strengthen a dominant position in the EU, either in the food processing machine sector or the packaging sector. It consequently withheld its approval which prevented Tetra Pak form making a public bid. Subsequently the Commission decided not to oppose the transaction on the grounds that the acquisition of Alfa Laval would not have a substantial effect in the EU.

One of the mergers that the Commission did prohibit was that involving Aérospatiale, Alenia and Haviland. In this case the company to be acquired was the de Haviland division of Boeing of Canada and Boeing Canada Technology, which are both wholly-owned subsidiaries of the US Boeing Company. The Commission rejected the acquisition because it apparently would have given Arérospatiale/Alenia at least 50 per- cent of the worldwide market and at least 67 percent of the EU market for commuter aircraft in the twenty-to-seventy-passenger range. The proposed transaction had previously been approved by the Canadian authorities who, needless to say, were angered by the Commission's decision.

In order to obviate the contentious issues of the type encountered in the Haviland case, it has been suggested that the exercise of jurisdiction by the Commission should also depend upon an additional enquiry, one which is known as the "jurisdictional rule of reason" in US antitrust parlance. Under this approach the question is not only whether a transaction may be subject to jurisdiction, but also whether jurisdiction should be exercised. The latter step would entail a comity analysis which balances the legitimate interest in regulating anticompetitive conduct with the interests and policies of the relevant foreign states (Venit "European merger control: The first twelve months" (1992) 60 Antitrust Law Journal 981, 984). This would, to a large degree, avoid the need of diplomatic protests and the passing of "blocking statutes" that followed America's extraterritorial assumption of jurisdiction in the Aluminum case (see Whish Competition Law 2ed (1989) 392 and the other authorities cited there).

Another potential merger which the Commission prohibited was that involving the platinum interests of Implats and Lonrho. The South African Competition Board had indicated that it would not oppose the transaction since, from a South African perspective, on the production level, it would have beneficial effects that outweighed competition - related concerns. The Commission, on the other hand, focussed on the negative effect the merger would have on downstream European markets and consumers. The fact that platinum producers were price takers and not price makers apparently did not carry much weight with the Commission.

Bilateral agreements

One mechanism that is used to diffuse potential jurisdictional conflicts is for countries to enter into bilateral agreements that address the issue. The United States, for example, has concluded competition agreements with the competition authorities of Germany, Australia, Canada and the European Union. The latter contains provisions on notifications, exchanges of information, consultations, confidentiality and a review clause. Other less common provisions relate to co-operation and comity. America has relied on these arrangements, inter alia, to address and resolve contentious issues with the EU relating to the Boeing/MacDonnell-Douglas merger, and alleged anticompetitive conduct by several European airlines.

The EU for its part has concluded agreements which contain competition rules with a wide range of countries including Switzerland, Canada, Brazil, the Czech and Slovak Republics, Hungary, Romania, and even some countries, such as Cyprus and Israel, not noted for having an active competition policy.

The various EU agreements differ in degree of comprehensiveness from a "best efforts" clause in the EU - Canada agreement to an almost carbon copy of the Community's own competition rules, including all of the implementing rules and case law, in the Agreement on the European Economic Area (EEA). One of the principal objectives common to all these agreements is the EU's desire to ensure that trade between the Community and the other contracting states is not distorted by anticompetitive practices. Competition policy has, therefore, become a part of trade strategy. In the case of the EEA agreement this extends to measures aimed at eliminating or minimising the competition distorting effects of state aid to enterprises.

In regard to the latter matter, mention may be made of a case that arose under similar provisions in the EU's 1972 Free Trade Agreement with the European Free Trade Association (EFTA). The case involved Eurostar, a joint venture in Austria between Steyr-Daimler-Punch and Chrysler, which manufactured Chrysler Voyager minivans. The Austrian government had awarded a grant of ECU 100 Million for an ECU 300 million investment. The extent of the 33,3 percent state aid was substantially higher than would have been allowed under EU state aid rules. The Commission accordingly raised the issue with the Austrian government, arguing that the state aid provisions of the Free Trade Agreement had been violated. When by the autumn of 1992 there was still no satisfactory solution, the Commission proposed taking appropriate action to remedy the situation and the Council decided to impose a punitive 10 percent import duty. After further discussions the matter was resolved and the need to levy the import duty fell away.

South Africa is not a party to any agreement containing competition rules with any other state. However, the Republic is currently in the process of negotiating a trade agreement with the EU.

One of the difficulties with which the parties are confronted is that the EU's rules governing competition, which the EU apparently wishes to apply to the trade agreement, are in certain material respects at variance with the current competition law dispensation in South Africa. Even after the envisaged new Competition Act comes into force next year, some differences will remain.

In principle it is not a good idea for one party, in effect, summarily to impose its competition laws on another against the latter's will. A less contentious approach would, perhaps, be for the parties to formalise appropriate interaction between the respective competition authorities. Thus, where the Commission or the South African competition authority has reason to believe that certain anticompetitive activities are taking place within the territory of the other authority which are substantially negatively affecting important interests of one of the parties, it may request the other party's competition authority to take appropriate remedial action in terms of that authority's rules governing competition. Such a request would not prejudice any action under the requesting authority's competition laws that may be deemed necessary and would not in any way encumber the addressed authority's decision-making powers. This process would obviously entail an exchange of relevant information and documentation.

Regional arrangements

Regional economic integration on a meaningful scale will invariably require some arrangements regarding competition. The more intimate the integration, the more important rules governing competition become.

The European Union is by far the most sophisticated and successful example of regional integration. From the outset it was recognised that a comprehensive set of principles, laws and procedures was essential for the proper functioning of the economic community. Mindful of the disparate ambit and content of competition laws in the constituent member states, it was accepted that the Union's (initially the Community's) rules on competition would override those of the member states in the event of a conflict between them. Over the years a formidable body of jurisprudence on competition law has developed, while member states have themselves amended national laws to bring them in line with those of the Union.

A number of other integration agreements such as NAFTA (United States, Canada and Mexico), the Group of Three (Mexico, Colombia and Venezuela), MERCOSUR (Argentina, Brazil, Paraguay and Uruguay), and the Andean Group (Venezuela, Colombia, Ecuador, Peru and Bolivia) also include provisions on competition.

For example, the 1995 draft Protocol for the Defense of Competition approved by MERCOSUR explicitly refers to anticompetitive behaviour that ought to be prohibited at national level. It also contains provisions regarding various forms of concentration activity that would result in control of more than twenty percent of a relevant market.

The draft Protocol ostensibly builds on Decision 21/94 of the MERCOSUR Council entitled Basic Elements of the Defense of Competition in MERCOSUR, which was intended to harmonise national legislation across the region. However, there appears to be some doubt whether the draft Protocol aims at harmonising legislation in member states by prohibiting various types of conduct, or if the idea was to prohibit certain forms of conduct when they affect all or part of MERCOSUR. The situation is further complicated by the fact that Paraguay and Uruguay have no competition legislation, while legislation in the other countries is partially incompatible (see World Bank/OECD publication Competition in a Global Economy: A Latin American Perspective (1996) for a discussion on MERCOSUR and other regional groupings' provisions on competition;and De Araujo & Tineo "Harmonization of competition policies among Mercosur countries" (1998) 43 Antitrust Bulletin 45).

A multilateral approach

There seems to be a good deal of consensus on the desirability of having uniformity on international competition laws which could, possibly, be initiated and overseen by the WTO. However, the debate on the scope, content and application of such rules has resulted in a wide divergence of opinion.

Some commentators have divided the proposals in this regard into two categories, namely minimum or detailed substantive rules for the world, and unilateral action including positive comity.

An example of the former is the Draft International Antitrust Code which was prepared by a group of experts in the field. The proposed code is built upon five principles -

* the application of substantive national law for the solution of international cases;

* national treatment under national law of nationals and foreigners;

* minimum standards for the national laws, agreed upon in an international agreement;

* procedural initiatives to be taken if necessary for the effectiveness of international antitrust law by an international body or agency, as well as by parties to the agreement that are adversely affected; and

* restriction of these four principles to cross-border situations.

The OECD advocates a somewhat different approach. Giving notice to another country of investigations or proceedings which may affect important interests of that country; the coordination of concurrent investigations by two or more countries; and a meaningful response to requests for assistance by a country relating to investigations being conducted in that country, lie at the heart of the OECD's Recommendation of the Council Concerning Cooperation Between Member Countries on Anticompetitive Practices Affecting International Trade (1995) (see outline of the 1995 OECD Council Recommendation in attached annexure).

A third option is postulated by Professor Eleanor Fox ("International antitrust: against minimum rules; for cosmopolitan principles" (1998) 43 Antitrust Bulletin 5), which encompasses overarching framework principles that provide a discipline against nationalistic measures, that keep enforcement at the national level, that require procedural vehicles and safeguards to assure access to national courts, and that provide choice of law rules where the significant antitrust effects are localised within one nation. More particularly, she suggests parties should work towards a multilateral agreement incorporating the following points:

1. Nations should have and enforce antitrust laws.

2. Nations should enforce their laws without discrimination as to nationality.

3. National law enforcement should account for global impacts, not just national impacts.

4. For transparency, the law's scope and treatment for application of any noncompetition criteria (eg environment, national security) should be clearly stated, and conduct or transactions challenged as anticompetitive should first be analysed separately under competition criteria.

5. Nations should refrain from ordering relief that is unreasonably extraterritorial.

6. As in TRIPs, and as in positive comity agreements being crafted by the United States, the European Union, and others, there should be opportunity for harmed nations to complain to domestic authorities, and protocols should be established for cooperation in discovery and enforcement.

7. Nations should recognize that all nations have subject matter jurisdiction over transactions and conduct that directly threaten their citizens with antitrust harm.

8. Where the harm is to a nation's exports and the challenged conduct and the directly harmed consumers are in the importing nation ("internal market harm"), the law of the importing nation should apply - no matter where suit is brought - as long as the importing nation has an antitrust law and that law is nonparochial.

9. The importing nation should be obliged to provide an accessible litigation system accompanied by the safeguards of due processes, as recourse for harmed nations or persons (as in TRIPs). If this rule is violated, the harmed nation or person should be free to sue in its own country; while recognising in internal market situations that the applicable law is the law of the importing country.

10. Dispute resolution should be limited to provable breaches of these obligations (again, as in TRIPs). This limitation would be fair and appropriate in view of the fact that the system has built-in self-help mechanisms at national level.

Harmonising competition law in the Southern African region

A critical assessment of developments and precedents in other parts of the world leads one to recognise that closer economic cooperation or integration, and increased transborder commercial activity in the Southern African region will inevitably require that attention be given to the drafting, implementation and enforcement of appropriate rules governing competition in the region. This paper has drawn attention to a number of ways in which the issue could be addressed. Do we seek a solution that is based on an internationally accepted approach, or will a region-specific arrangement best suit our particular needs?

It is obvious that any discussion on the matter must be premised on the conviction that such rules are necessary. It is also clear that most countries in the region have given no, or very little, attention to the public law dimension of competition. This is not necessarily a bad thing, for it affords the opportunity to start with a clear slate and draw on a wealth of experience and precedents from other jurisdictions.

Of course, one of the unfortunate consequences of Country A not having competition legislation in place is that if Enterprise Y, which has its principal place of business in Country B, causes harm through anticompetitive conduct to companies incorporated in and doing business in Country A, there is little Country A can do about it. Referring the matter to the competition authority of Country B, as a general rule, would be to no avail, unless it can be shown the Enterprise Y's actions in Country A would also restrict or distort competition in Country B.

It would accordingly appear that if countries in the region are serious about the competition law implications of enhanced intra-regional commercial activity, they should each enact appropriate competition legislation. One should not harbour any illusions that this will be a trouble-free exercise. Moreover, enacting legislation is one thing, ensuring that it works is another (see eg Kovacic & Slay "Perilous beginnings: the establishment of antimonopoly and consumer protection programs in the Republic of Georgia (1998)43 Antitrust Bulletin 15; Kovacic "Competition policy, economic development, and the transition to free markets in the Third World: the case of Zimbabwe" (1992)61 Antitrust Law Journal 253). After such enactments, adherence by the countries in the region to mutually agreed procedures of referral, cooperation, exchange of information, and dispute resolution should not be too complicated.

At this stage of our development the setting up of a separate regional structure to oversee a supranational competition law applicable throughout the region appears to be a less easily attainable goal.

With our compliments. 

Nationwide Poles & Jim Foot




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Disclaimer: This site does not profess to offer legal assistance or interpretation.  It’s content reflects the view and experience gained by of the author during a hearing at the Competitions Tribunal of South Africa.  It may help you to figure out what happens & why.