The COMESA Competition Commission (Commission) has published amendments to its merger control regulations. The amendments constitute the last instalment of a reform process which was initiated in 2014 and resulted in the publication of Merger Guidelines in October 2014.

Although the amendments were published yesterday (9 April 2014), they were adopted by COMESA's Council of Ministers on 26 March 2015 and therefore became effective on that date.

Modification of notification thresholds

The amendments repeal the Notice on the Rules for the Determination of Merger Thresholds of 2012, which set merger thresholds at zero. The new Notice introduces, for the first time, a two tier financial threshold system in terms of which transactions will only trigger notification where:

• the combined annual turnover or asset value of the merging parties (whichever is greater) is at least USD 50 million per annum; and
• at least two of the parties, presumably including an acquiring firm and a target firm, each generates turnover of at least USD 10 million.

This represents a significant improvement to the merger control regime. Less than a year ago, the Commission had zero thresholds. This meant that if any of the parties had a presence in COMESA, any transaction they were involved in anywhere in the world (the mere purchase of a grocery store in Brazil) triggered the notification requirements in COMESA regardless of the revenues generated in COMESA.

When a number of parties sought to determine the precise meaning and interpretation of Article 3(2), which seemed to confine the Commission's jurisdiction to conduct which had an appreciable effect on trade between member states or could restrict competition, the Commission introduced its Merger Guidelines in October 2014.

The Guidelines introduced three important elements which helped to mitigate the zero thresholds problem by:

• defining having operations in COMESA as meaning that a party had to have turnover of at least USD 5 million for merger control purposes,
• indicating that where the target had no presence in COMESA, the transaction was not notifiable; and
• noting that where each party generated turnover of at least two thirds of its revenue in one and the same member state, then the transaction was also not notifiable.

While not a perfect solution, this introduced significant improvement to the credibility of COMESA's merger control. The new amendments take this a step further by requiring only transactions of a certain size to trigger notification. The two-thirds turnover rule introduced through the Guidelines is also retained.

At the heart of the amendments is the quest to harmonise the apparent disparity between the provisions of Article 3(2), which defines the scope of application of the Regulations, and the import of Article 23(3), which envisages that a merger where only one of the parties has a presence in the COMESA region could have a regional dimension.

This will give many entities that do business in COMESA the comfort that the merger control regime is aimed at dealing with competition issues at the right level.

Reduction of filing fees

The amendments further address the thorny issue of filing fees.

Prior to this amendment, merging parties were required to pay a filing fee of the greater of 0.5% of their turnover or asset value with a ceiling of USD 500 000. Consequently, a combined turnover of only USD 100 million meant that the parties paid the maximum filing fee.

However, this has significantly changed. Firstly, the percentage has come down from 0.5% to 0.1%. Importantly, the ceiling has also dropped from USD 500 000 to USD 200 000. Although, this is still relatively high, COMESA's willingness to review it shows that it has been listening to the concerns voiced by business.

Clarification regarding the determination of relevant thresholds

The third important change brought about by these amendments is clarification in respect of the determination of the relevant thresholds.

Where a party is selling only a division of its business, whether or not separately incorporated, only the revenue of that division constitutes the relevant turnover for purposes of the thresholds.

On the acquiring side, the amendments make it clearer that the revenues of the acquiring firm, its subsidiaries, its parent companies as well as their subsidiaries, must be taken into account in the computation of the relevant thresholds.

This amendment brings the COMESA merger control regime in line with other authorities in the region.

Conclusion

Although the amendments are a welcome improvement on the existing regime, they do not resolve the problem of Article 3(2) of the Regulations which defines the scope of application of the Regulations.

It is our understanding that the Regulations apply only to conduct that has an appreciable effect on trade between member states and which restricts competition. Consequently, in order to assert jurisdiction, the Commission is required to show that one of the two elements is satisfied.

The Commission has missed the opportunity to resolve this question once and for all. The introduction of thresholds and lowering of filing fees, while helpful, do not address the critical requirements of the scope of application set out in Article 3(2). It would be interesting to see how the COMESA Court of Justice would interpret this provision.

Written by Nkonzo Hlatshwayo, partner at Webber Wentzel