Introduction
The United Nations Conference on Trade and Development (UNCTAD) is the UN’s primary forum for entertaining the issues pertaining to competition and consumer protection. The United Nations General Assembly (UNGA) has entrusted UNCTAD under 35/63 of the General Assembly Resolutions 1980 with the mission to strengthen market efficiency, thereby reducing poverty and accomplishing the Sustainable Development Goals.
UNCTAD carries out this purpose through three primary functions:
- Providing a forum for intergovernmental discussions involving a group of experts,
- Conducting research, and
- Policy analysis through a partnership platform and providing technical support to developing countries.
These efforts are intended to create a competitive environment that promotes innovation, economic growth, and consumer welfare. However, anti-competitive practices remain prominent due to business conduct that restrains competition through price fixing, cartels, etc., and also government regulations that negatively impact competition, like stringent licensing regimes. Countries with developing economies are more sensitive to these means due to inadequate business infrastructure, complicated regulatory systems, and a lack of strong regulations and enforcement bodies. Cross-border competition issues further exacerbate the situation, necessitating regional and global cooperation. Thus, UNCTAD strives to provide a level playing field for all firms by addressing the corporate practices that restrain competition and government regulations that impede it, thereby encouraging inclusive economic growth and long-term development.
This article will focus on the UNCTAD Model Law on Competition, particularly the merger control provisions and their interaction with regulatory agencies, as well as the associated public interest considerations. This examination is grounded in the UN Set of Principles on competition, a multilateral agreement that offers a comprehensive framework for countries to create and enforce competition laws with a view to equitable rules and international cooperation. In addition, the content will include case studies and best practices, such as Zimbabwe’s merger control experience, which will demonstrate the practical application of the Model Law’s concepts.
Merger Control and Its Need
The need for merger control is centred on the notion that it is necessary to prevent market concentration and domination by one or two companies. Allowing all mergers to proceed unsupervised would significantly diminish competition in some markets, resulting in a less effective allocation of resources, higher prices, and less pressure on enterprises to keep costs low. The corporate community does not agree with this perspective in favour of merger control. They often contend that all merger transactions, including horizontal mergers, are influenced by a desire to improve efficiency and reduce costs rather than to acquire monopolistic profits. In fact, as they point out, monopoly profits cannot exist unless there are serious barriers that prevent entry into the market.
It would be preferable to have policies that minimize such barriers rather than prohibiting mergers with an anti-competitive objective. Second, it is proposed that competition law should focus solely on anti-competitive behaviour and abuse of market power rather than the market structure. Merger restrictions are intended to keep market concentration from rising above a specific threshold. However, empirical studies demonstrate that excessive market concentration does not always result in weak competition. A market with only two or three competing enterprises may have price wars, low earnings, and numerous introductions of new innovative products.
UNCTAD on Competition Policy And Law
UNCTAD- Policy Formulation Process
UNCTAD plays a vital role in formulating competition policy and assisting developing countries in drafting and implementing competition laws employing a three-step procedure. This approach, based on the UN Set of Principles and the Model Law on Competition, helps developing countries build strong and well-structured competition systems. First, it conducts an economic mapping and legal inventory to identify key market structures, competitive barriers, and regulatory shortcomings. This procedure also includes assessing market concentration and constraints in key economic sectors as well as focusing on areas such as privatization and intellectual property rights. The legal inventory examines the existing local and international laws to make sure that these laws are harmonized with the ideal competition principles. Second, a framework for competition policy should be formulated, taking into account the public interest, regulatory enforcement methods, and development goals of the nation’s government. Lastly, the procedure involves the formulation of the competition legislation.
Role and Provisions of Model Law
The UNCTAD’s Model Law on Competition points out the main goals of competition policy. It aims to control and eliminate restrictive agreements and misuse of dominant positions that limit market access and harm trade or economic development. Incorporating public interest considerations expands the range of more groups that can support competition policies, providing legitimacy, which makes it easier to enforce. The Model Law focuses on the importance of considering a society’s needs and self-perception in competitive law enforcement. Mergers and acquisitions are legal transactions in which two or more businesses combine ownership of assets that were previously owned independently, including takeovers, concentrated joint ventures, and other control decisions.
The accurate definition of mergers and acquisitions is covered under Chapter 2 of UNCTAD’s Model Law.
Chapter 6 of the Model Law focuses on the
- prohibition,
- notification and
- investigation of the mergers affecting the market.
The provisions include the notification of such transactions when at least one firm is incorporated within the country and when the combined market share is about to gain market power, particularly in industries with high market concentration, entry barriers, and a few alternatives. Prohibited transactions are those that skyrocket a company’s market power or decrease competition, which enables them to keep prices higher than competitive levels. The investigation process for such transactions is top-notch and thorough. Before completing a merger, companies have to wait for a period during which the competition authority can ask for documents and testimonies. If it is determined that the merger might affect the competition environment, the deal can be stopped or reversed. This thorough and vigilant process assures that competition laws are effectively enforced and benefit the public as a whole.
Pre-notifications – Merger Control
Many countries’ competition laws require compulsory notification of planned mergers or acquisitions larger than a specific threshold size. Prior notification, whether voluntary or mandatory, has several substantial benefits, thereby ensuring that the competition authority receives the necessary information to undertake a thorough merger review as soon as possible. Whatever objections the authority may have to the merger can be discussed with the acquiring firm, and proposals to resolve those issues can be considered more quickly. There may also be benefits to setting a threshold size for merger deals that must be reported in advance, like in the United States and South Africa.
However, price/cost margins may be significant and steady in other markets with the same degree of concentration, making new product offerings exceptional. Given these concerns regarding the impact of increased concentration on competition, it is stated that the ideal strategy would be to allow mergers to take place and then take action if it is revealed that the merged entity is abusing its market position. Suppose the value of the transaction is less than the threshold level; in that case, the merger parties can be assured that they are not in violation of competition law and will not have to report any specific information to the competition authority. Setting the threshold value takes careful study and consideration. The higher the threshold, the lower the administrative costs incurred by the competition authority and merging firms (since fewer mergers are notified). However, a higher criterion raises the possibility that certain anti-competitive mergers, which are unjustified in the public interest, may go unchecked.
Comparative Approach to Mandatory Merger Control Regimes of Various Countries
| COUNTRIES | MERGER CONTROL REGULATIONS |
| CANADA | The Competition Act of 1985, as amended on 12th December 2017, establishes many regulatory thresholds. These include a size-of-transaction threshold when the target’s assets or revenues in or from Canada exceed $86 million. A size-of-parties requirement applies when the parties to the transaction, including their affiliates, have combined assets in Canada or earnings from sales in, from, or into Canada totalling more than Can$400 million. The size-of-equity threshold is triggered by acquiring more than 20% of voting shares in a public corporation, more than 35% of voting shares in a private firm, or more than 35% stake in a non-corporate entity. |
| EUROPE UNION | The European Commission Merger Regulation requires concentrations with a community dimension to be reported to the competition authority. The only exception is when each party generates more than two-thirds of its total turnover in a single member state. A Community dimension is determined based on turnover thresholds; if the aggregate worldwide turnover of all parties exceeds 5 billion euros and the Community-wide turnover of at least two parties exceeds 250 million euros, the concentration must be notified. |
| SWEDEN | A concentration must be reported to the Swedish Competition Authority if the combined aggregate turnover of all the undertakings involved in the preceding fiscal year was over one billion in its country’s currency. Additionally, at least two businesses concerned had a turnover in the same year that exceeded 200 million Swedish Kronas for each undertaking. For instance, the thresholds used under Swedish merger control only apply to the turnover of Swedish undertakings. |
| UNITED STATES | The Hart-Scott-Rodino Antitrust Improvement Act requires notification when specific requirements are met. First, the commerce test requires either the acquiring or acquired party to be involved in U.S. commerce or any related activity. Second, the size-of-transaction test requires that the quantity of voting securities or assets arising from the purchase exceed a certain monetary level, which was $84.4 million in 2018 and is updated annually. Third, the size-of-the-parties criteria apply to transactions of $337.6 million or less and are met if one party has global sales or assets of $16.9 million or more and the other has sales or assets of $168.8 million or more, with these values modified annually. |
Case Analysis- Role of UNCTAD’s Model Law In Zimbabwe Competition Policy
The newly formed Zimbabwean competition authority also started to benefit from UNCTAD’s capacity-building program and technical cooperation, which includes training programs and documentation on competition policy and law, as well as reviewing the model law. The World Bank and UNCTAD training programs pointed out the competition law enforcement challenges inherent in Zimbabwe’s competition law, the Competition Act 1996. The provisions addressing competition concerns were dispersed throughout the Parts and Sections, necessitating the interpretation of a highly skilled competition practitioner. For example, anti-competitive practices were not expressly forbidden in the Act, but their prohibition was implied in the clauses dealing with fines and remedies.
Shortcomings of Zimbabwe’s Competition Statute
In 2012, a UNCTAD peer reviewer addressed that “while the Zimbabwe Competition Act recognizes various forms of objectionable behaviours, such as unfair business conducts, prohibitive agreements and unfair trade practices, it lacks a provision for the prohibition of anti-competitive agreements”. The term ‘abuse of dominance’ was not defined explicitly in the Act, but practices usually linked with the abuse of dominance were included in the definition of ‘restrictive practice.’ Therefore, the dominance test laid down in the mentioned legislation was subjective, giving the competition authority broad discretion in assessing dominance. The word ‘anti-competitive agreement’ was neither defined nor explained in the Act. Additionally, the legislation complicated the treatment of these numerous agreements in the Act. In the context of merger control, the term ‘merger’ was defined to include only horizontal and vertical mergers. The term ‘relevant market’ was not specified in the legislation, where the essence of market definition would help in investigating and assessing competition issues involving abuse of dominance and mergers and acquisitions.
Role of UNCTAD’s Model Law in addressing and refining the shortcomings of the statute
The Commission was thus forced to base its examination and evaluation of the issues on international best practices advocated by the World Bank and UNCTAD. In this situation, the Model Law was extensively used to understand the best practice goals of Zimbabwean competition legislation in determining dominance and abuse. As mentioned before, the primary drawback of Zimbabwe’s Competition Act 1996 was the limitation of notifiable mergers to only horizontal and vertical mergers, while in the Model Law, it is recommended that the definition should also cover conglomerate mergers and “include takeovers, concentrative joint ventures and other acquisitions of control such as interlocking directorates”. Conglomerate mergers were common in Zimbabwe, having a negative impact on the relevant markets. Anti-competitive joint ventures and cross-directorial relationships were also prevalent. Merger notification was also voluntary. The Competition Commission sought revisions to the Competition Act of 1996 in response to its deficiencies, and the Model Law was widely used in the amendments’ preparation.
Enactment of the Amendment Act
The Competition Amendment Act of 2001 enacted the first substantial revisions to the Act. The definition of merger was expanded to include all potential combinations. New merger notification provisions, including pre-merger notification, were implemented in accordance with global best practice, and the factors examined in determining the merger control substantive test of substantial prevention or weakening of competition. The provisions of the Amendment Act were revised to provide that the Act applies to all economic transactions within or having an influence within the Republic of Zimbabwe in accordance with the Model Law. The link between the competition authority and sector regulatory bodies was also defined, with the competition authority granted ultimate authority on mergers and acquisitions. The Competition Amendment Act 2001 further expanded the competition authority’s trade policy functions to include aiding local industry through the import tariff system. This resulted in the authority’s name being changed from the Industry and Trade Competition Commission to the Competition and Tariff Commission.
Conclusion
In conclusion, we came to know that controlling mergers prevents excessive market control and the abuse of misuse of dominant positions, resulting in fair economic competition. As we discussed, UNCTAD’s approach to policy formulation, which includes economic mapping, policy-making, and developing laws, has helped developing countries formulate strong competition policies. Offering guidelines on restrictive agreements, market dominance, and review of mergers, it’s evident that the Model Law stresses the need for careful checks to protect the public interest. We witnessed in our comparative approach that Canada, the European Union, Sweden, and the United States have set notification thresholds for mergers, and only specified deals are reviewed while reducing administrative burdens.
Our case analysis of Zimbabwe’s Competition Policy shows the importance of a clear legal framework. At first, the Competition Act of 1996 did not have clear rules on many essential elements like anti-competitive agreements, merger definitions, and market dominance, leading to challenges. With UNCTAD’s support, Zimbabwe adopted the Competition Amendment Act 2001, which expanded merger definitions, introduced pre-merger notifications, and clarified regulatory authority. This adoption brought competition laws in line with global best practices, strengthening the role of Zimbabwe’s competition authorities in promoting fair trade. Thus, the United Nations Conference on Trade and Development has contributed significantly to and is still contributing significantly to the area of international competition policies.
