Fair Competition Commission: Guidance on the Fair Competition Act
   
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Guidance on the Fair Competition Act

Fair Competition Commission

Fair Competition Tribunal

August 2007

The new law
The Fair Competition Act (FCA) came into operation in 2004. The Fair Competition Commission, established by that Act is now operational since 2nd May, 2007. It will have an impact on everyone but especially on business people.
This dossier provides an introduction to the law. More detailed guidance can be found in the booklet Guidance on the New Competition Law. Anyone who is going to be involved in action taken under the new law should also refer to the text of the law itself. This can be found on the Parliamentary website. For further help you can also contact the Fair Competition Commission, telephone number +255-22-2122481 during working hours, which are 8:00hours-17:00 hours, East African time, Monday to Friday.

Who will administer Competition Law?
The Fair Competition Commission and a Fair Competition Tribunal have been set up to implement the law. Fair Competition Commission will act as a court of first instance and will do most of the work. The Fair Competition Tribunal will hear appeals against the decisions of the Commission and decisions by other multi-sector regulatory authorities namely the Energy and Water Utilities Regulatory Authority (EWURA), the Surface and Marine Transport Regulatory Authority (SUMATRA), Tanzania Communications Regulatory Authority (TCRA).

Overall purpose
The overall purpose of the FCA is to remove obstacles to effective competition in trade and commerce. This is geared towards bringing about the following effects:
• increase economic efficiency
• lower prices for consumers
• more innovation
• increase the rate of economic growth.

What is the role of the Commission?
The Commission is there to promote competition. It has three main tasks:
• to study markets to identify obstacles to competition
• to intervene to prevent companies harming competition, and
• to act as an advocate for competition in government circles

How does the commission decide which cases to take up?
There are five possible ways in which the object of an investigation may be chosen:
• internal research of the Commission
• a complaint from a company
• a proposal from consumers
• the direction of a Minister
• a proposal of an official regulatory body.

How is business affected?
Business can be affected if a complaint is made by another company or from consumers. In these cases the Commission will carry out formal investigations. Where the Commission reaches an adverse finding, it will have the power to take action against a business or group of businesses. It is therefore in the interests of all businesses to understand the implications of the competition law so that they can comply with the law in their undertakings.

Scope of the law
All businesses, from sole traders through to large companies, are affected by the law.
The competition law focuses on agreements, mergers and other practices that may harm competition.

When it comes to agreements, there are a few exceptions. The law does not apply to any agreements that:
• only affect sales abroad
• relate to employment or
• require adherence to technical standards.

Do you need to notify the Commission in advance about what you are doing ?
The general answer is `no’. The Commission operates mainly by the investigation of events and actions that have already taken place. The exception to this is large-scale mergers, where the law requires business to notify them in advance. In practice mean that you cannot lawfully go ahead with the merger until the Commission has approved it.

Approach of the Commission
The Commission seeks to identify where competition is being harmed and then to remedy the situation. It will therefore be looking at issues such as where market power lies and how easy entry is into the market. Its conclusions will be based primarily on economic analysis.

Are there any indications of how the Commission will interpret ‘harm competition’?
One important point for companies to note is that the test is harm to competition and not harm to competitors. Examples of harm to competition would be a higher price level in the market, prevention of innovation or restricting the growth of the market. Harm suffered by competitors counts only in terms of any contribution it might make to harm to the process of competition itself. In any case one firm piece of guidance is that companies will not generally be seen as capable of ‘harming competition’ if their market share is less than 35 per cent. Bear in mind, however, that defining the total market size for the purpose of competition analysis can be a complex matter.

Are there any exceptions to the test of harming competition?
Yes. There are four types of agreement that are always unlawful, and hence the Commission does not need to conduct any economic analysis. These are:
• price fixing
• collective boycott
• agreed output restrictions
• collusive bidding or tendering

Are there any factors that the Commission takes into account in addition to competition?
In the case of agreements and mergers (but not other practices) the Commission is allowed to take into account three other factors:
• economic efficiency
• technical or economic progress
• protection of the environment

The Commission has to weigh up any harm to competition against any benefits under any of these headings.

Procedures of the Commission and Tribunal
Commission
The Commission’s procedures vary according to the task in hand. When the Commission is carrying out a study of a sector or a market or is operating as an ‘advocate’ of competition, its procedures are fairly informal. On the other hand, when it is investigating behaviour that may harm competition – and hence its conclusions may form the basis for taking action against companies – its procedures are much more formal (as set out in the Commission’s External Rules). One feature of these rules is the way in which the Commission takes care to protect the confidentiality of commercial information it gets from companies.

Special rules for mergers
There are special rules that apply only to mergers:
• mergers of a certain size have to be notified in advance and basic information provided
• there is a timetable for processing notified mergers
• the Commission can charge fees for this processing

Tribunal
The Tribunal’s procedures are similar to those of a court. It can consider an appeal against a conclusion of the Commission on any basis. Its own verdict can take any one of five forms:
• confirm the conclusion of the Commission
• set it aside
• amend it
• send the case as a whole back to the Commission for it to consider again
• send one aspect of the case back to the Commission

The Tribunal can also hear appeals on procedural decisions made by the Commission. This may occur if companies feel they are not being fairly treated during an inquiry. These appeals are judged on the basis of the fairness of the procedures used and their legality.

Powers of the commission
Where the Commission reach an adverse finding – that is, they conclude that competition has been harmed without sufficient countervailing benefits – they can apply sanctions and penalties. In all cases these are subject to appeal to the Tribunal. There are two main actions that can be taken as a result of an investigation by the Commission:
• require companies to take actions that will remedy the competition problem; this could include:
• stopping behaviour that was damaging competition
• selling assets
• providing information
• apply a fine which has to be within the range 5 – 10 per cent of turnover

While the Commission would normally take action after its investigation is complete, it can require companies to take the requisite action during the course of the investigation. It would only do this if there was an imminent danger of substantial commercial damage being suffered by other companies.

In addition to the powers just described the Commission can also require a company that has been found guilty of harming competition to pay compensation to other companies that have suffered from its behaviour.

To bring about the requisite action by companies the Commission does not necessarily have to take the legal route of making an order – which can be enforced through the courts. Where it is likely to be effective, it can alternatively reach an agreement with a company about the changes in its behaviour that are needed.

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