HARNESSING AFRICA’S FREE TRADE AGENDA – AFCFTA PROTOCOL ON COMPETITION
This is the fourth in a series of articles on the African Continental Free Trade Area (AfCFTA) agreement. The aim of the series is to unpack the agreement’s various protocols and related matters and highlight:
- key opportunities and potential inhibitors for businesses to consider in undertaking a regional growth strategy;
- the roles of legal advisors in navigating the AfCFTA institutions and member states in supporting a regional trade or investment strategy; and
- avenues for the private sector to influence the trajectory of the implementation of the AfCFTA instruments.
The AfCFTA agreement is alive to the fact that anti-competitive and other restrictive business practices constitute an obstacle to the achievement of a single African market. Consequently, the AfCFTA makes provision for a Protocol on Competition Policy (Protocol) as outlined in this article.
Essentially, the Protocol aims to create an integrated and unified African continental competition regulation regime that supports the aspirations of economic integration; ensures that gains from trade liberalisation are not negated or undermined by anti-competitive practices; and manages the interrelationships of competition regimes and sectoral regulatory laws at the national, regional, and continental levels.
The Protocol establishes the AfCFTA Competition Authority (AfCFTA Authority), an autonomous body composed of a decision-making board and an investigative body with powers to investigate, prosecute and adjudicate competition activities under the Protocol.
The Protocol also establishes the AfCFTA Competition Tribunal (Tribunal), which is responsible for hearing appeals against decisions taken by the AfCFTA Authority in respect of the implementation of the Protocol, and whose decision will be final.
The establishment of an independent Tribunal is conducive to enhancing investor confidence. It is noted that matters such as the constitution/ tenure of the Tribunal members and its procedural rules will need to be legislated.
The Protocol applies to: ‘all economic activities by persons or undertakings within or having a significant effect on competition in the AfCFTA Market’; and ‘conduct with continental dimension and having significant effect on competition in the AfCFTA Market’.
In addressing the question of jurisdiction, the Protocol is clear that it does not apply to competition matters that fall within the jurisdiction of national competition authorities or regional competition authorities, which it acknowledges as building blocks for an integrated competition regime in Africa. However, the Protocol clarifies that the AfCFTA Authority assumes primary jurisdiction where there is a conflict between the provisions of the Protocol and those of regional economic communities (RECs).
Operationalisation of the Protocol will therefore need to cater for proper interfacing mechanisms between the various regulatory tiers made up of member state competition agencies, REC competition agencies and the AfCFTA Authority to ensure that there is predictability that supports the Protocol’s objective of creating a unified and integrated approach across the continent.
These mechanisms should address issues such as merger thresholds (to avoid overlapping jurisdiction/ multiplicity of merger filings) and coordination of investigations (to insulate companies from dual jeopardy while at the same time ensuring convergence in regulatory analysis and avoid contradictory decision-making).
The Protocol prohibits traditional anticompetitive practices that bear resemblance to several African national and regional jurisdictions. However, the AfCFTA Authority’s implementation approach and analysis will ultimately depend on the subsidiary legislation it will develop. This will be critical in providing clarity on matters such as the interfacing mechanisms mentioned above, as well as others including specific market share thresholds to determine dominance, and the definition of the term ‘significant effect’, to name two.
It is also expected that subsidiary legislation will be developed to guide the process of imposing penalties, fines, and sanctions.
The key provisions of the Protocol include:
- Abuse of economic dependence
The Protocol introduces a novel area in competition regulation - the abuse of economic dependence aimed at regulating the abuse of superior bargaining positions enjoyed by platforms, which create inefficiencies in the supply chain that negatively affect trade and the regional integration agenda.
The Protocol provides that platforms may also be designated as gatekeepers and will be prohibited from self-preferencing or using business user data to compete against the business user, among other prohibitions.
The novelty and complexity of regulating platforms means more research will be required to appreciate the role and effect of platforms in Africa so that optimal regulation is developed that supports the growth of the African economy while ensuring the existence of efficient supply chains.
- Restrictive business practices and abuse of dominance
The Protocol prohibits restrictive horizontal practices such as price fixing, bid-rigging, restraints on production quotas and market allocation. Other horizontal and vertical practices that have the effect of distorting, preventing, or restricting competition in the AfCFTA market are also prohibited, unless there is evidence proving technological, efficiency or other pro-competitive gains resulting from the agreement, decision, or concerted practice that outweigh that effect.
Minimum resale price maintenance and restrictions on passive sales are also outrightly prohibited unless it is made clear that the recommendation is non-binding.
The abuse of dominance, either by imposing unfair prices, limiting production, setting prices below cost or any other action that prevents, restricts, or distorts competition in the AfCFTA market is also prohibited. Dominance will be determined either by market share and level of concentration, or by market power considerations, which are yet to be determined.
- Merger control
Merger transactions, which will be triggered when a change of control occurs on a lasting basis, are notifiable if they are of continental dimension (i.e., have a significant effect (yet to be defined) on competition in a market of at least two state parties that do not share the same jurisdiction of an existing regional economic community) and the financial thresholds (which have yet to be determined) are satisfied.
The assessment of a merger is based on both competition and public interest factors. Bearing in mind the ongoing discussions across the globe regarding the (in)adequacy of the traditional competition analysis economic frameworks involving mergers in the digital economy and platforms, it will be interesting to see if the AfCFTA merger rules/ regulations will adopt a different approach in market definition and thresholds setting.
Financial penalties for competition law contraventions are set at a maximum of 10% of an undertaking’s (i) continental turnover in the preceding year (for those undertakings operating within the AfCFTA market); or (ii) worldwide turnover in the preceding financial year (for those undertakings operating outside the AfCFTA market).
The Protocol was published in January 2023 and adopted by the African Union in February 2023, but it is not yet in effect. To take effect, each state party will now be required to ratify and domesticate the Protocol into its national laws, as explained by Xolani Nyali and Sarah Honey in Part two of this series (here) in relation to the process in South Africa (which also applies to many other African countries).