By:- Seyoum Yohannes,  Attorney-at-Law, GeTS Law Office

  1. Introduction

Proclamation No. 813/2013 that came into force on 21st March 2014 forms the bedrock of competition and consumer protection laws of Ethiopia. Merger Directive No.1/2016 issued by the Competition and Consumer Protection Authority complements it.

This piece aims at giving a summary of the basic features of the two laws. It, thus, dwells on the objectives of the law, the prohibited activities, namely, abuse of dominance, anticompetitive agreements, merger that has significant impact on competition and acts of unfair competition. It also gives a brief account of the protections due to consumers. Lastly, this work outlines the enforcement mechanisms that the law puts in place.

  1. Objectives and Scope of Application of the Proclamation

The Proclamation was issued with the objective of creating a competitive and free market that at the same time safeguards the interests of consumers. More particularly, its aim is protecting the business community from anti-competitive and unfair practices, thereby accelerating economic development.[1] Regarding consumers, its goal is safeguarding them from misleading market conduct.’[2] Besides, it aims at ensuring the goods and services that consumers get are not only safe and suitable for their health but also fair in terms of prices.

The Proclamation applies to ‘any commercial activity or transaction in goods or services conducted [in Ethiopia] or having effect withinEthiopia.[3] So, it applies even to commercial activities outside Ethiopia in so far as they hamper competition or adversely affect consumers in Ethiopia.

  1. Proscribed Anti-competitive Conduct

The law outlaws certain practices that are deemed anti-competitive. These are abuse of dominance, anti-competitive agreements, merger that has significant adverse impact on competition and acts of unfair competition. The most salient prohibitions imposed by the law include the following.

3.1 Abuse of Dominance

The law proscribes abuse of dominance that a business person may have in the market. Particularly, it prohibits every business person that may have a dominant position in the market either by himself or acting together with others from, for instance, limiting production, hoarding and selling at prices lower than the cost of production to harm competitors. It also prohibits directly or indirectly imposing unfair prices, and refusing to deal with others unjustifiably.[4] It regards as abuse of dominance conduct like imposing restrictions on the manufacture or distribution of competing goods or services, and limiting ‘where, to whom, or in what conditions, or quantities, or at what prices the goods or services shall be resold or exported’ without justifiable economic reason.[5]

3.2 Anti-Competitive Agreements and Concerted Practices

Besides, the law prohibits anti-competitive agreements, concerted practices and decisions by business persons and associations in a horizontal relationship.[6] The outlawed acts include directly or indirectly fixing prices, ‘collusive tendering, dividing markets by allocating customers, suppliers, territories or specific types of goods or services.’[7]

Even in a vertical relationship, agreements that have the ‘effect of preventing or significantly lessening competition’ or that ‘involve the setting of minimum resale price are prohibited. These are permissible if they are justified by technological or other pro-competitive gains that outweigh their anti-competitive effect.’[8]

3.3 Mergers that Cause Significant Adverse Effect on Competition

The Proclamation outlaws agreements or arrangements of merger that cause or are ‘likely to cause significant adverse effect’ on competition.[9] Merger is defined broadly to go beyond the amalgamation of two independent business entities into one. For instance, the joining of hands by two business organizations by pulling together part of their resources for the purpose of carrying on a certain commercial activity could be deemed as merger. Similarly, the direct or indirect acquisition of shares, securities or assets of a business organization is deemed as merger.[10]

To ensure compliance with this rule mergers need approval by the Trade Competition and Consumers’ Protection Authority.[11] The Authority does not automatically prohibit mergers just because the merger is likely to have significant adverse effects on competition. It will consider any remedial measures that may be taken to eliminate the adverse impact of the merger on competition. For this purpose, the businesses involved may be called upon to forward ideas. If measures to this end can be devised then the authority approves the merger subject to compliance with those conditions.[12] In the same vein, the Authority may approve a merger that is likely to have a significant adverse effect on competition if the merger is likely to result in technological, efficiency or other pro-competitive gains that outweigh the adverse impact of the merger on competition.[13]

The Competition and Consumers’ Protection Authority has issued a directive to discharge the responsibilities entrusted to it by the proclamation regarding prevention of mergers that may have significant adverse consequences on competition. Merger Directive No.1/2016 aims at putting in place the criteria for the assessment of merger, procedures to be followed and the time frame within which decision on merger notification is to be made.

The Authority takes into account several factors in its determination of whether the merger has significant adverse impact on competition. These include: whether the transaction results in taking controlling interest in a business organization, the annual turnover of the business, assets, market share of the business, concentration of suppliers in the market and the relevant market itself.[14] The Directive attempts to further concretize the standards for the assessment merger by listing about twenty parameters that help scrutinize the proposed transaction from the vantage point of competition, the market and public interest. These include the considerations that follow.[15]

  1. The obstacles to entering into the same line of business and the potential for the elimination of competitors from the market;
  2. The growth, innovation, price and intrinsic nature of the market;
  3. The potential to cause disruption to suppliers and consumers in the market;
  4. The state of demand and supply of the product/service;
  5. The price and quality standard of the product/service;
  6. The state of the distribution channels of the product/service and
  7. Whether the approval of the merger contributes to the acceleration of economic development.

These standards are very subjective and difficult to quantify. Besides, the directive is not clear regarding the relative weight to be accorded to the various considerations. In sum, a business person will not be able to predict the outcome of the assessment by looking at the standards the Directive has come up with. If that is any consolation, merger applicants with a combined annual turnover, asset or registered capital below ETB 30, 000,000 (thirty million) are not subject to an assessment study.[16]

3.4 Acts of Unfair Competition

The law prohibits acts of unfair competition. In particular, it requires business people to refrain from ‘any act which is dishonest, misleading, or deceptive and harms or is likely to harm the business interest of a competitor.’[17] The law provides a list of acts that are deemed acts of unfair completion when carried out by business persons. The acts that are, thus, outlawed include those listed below.[18]

  1. Acts that cause or are likely to cause confusion with the goods or services offered by another business person;
  2. Disclosure, possession or use of business information belonging to another person without the consent of such person in a manner that is contrary to honest commercial practice;
  3. False or unjustifiable allegations that discredit or are likely to discredit another business person or the goods or services offered by such business person;
  4. False comparison of goods and services with those of another business person in the course of commercial advertisement;
  5. Dissemination of false or unreliable information to consumers regarding the method of manufacturing, place of manufacturing or quality of goods or services of another business person and
  6. Obtaining or attempting to get confidential business information of another business person through the current or former employees of the competitor. 
  1. Consumer Protection

The Proclamation contains several provisions that aim at the protection of consumers. Among other things, these provisions confer on consumers the right to get ‘accurate and sufficient information’[19] as regards the goods and services they buy. They also require the affixing of labels on goods being sold, prohibit false or misleading advertisements and other conduct that is likely to adversely affect consumers.[20]

Besides, under the Proclamation, a consumer has, without prejudice to warranties or more advantageous contractual terms, the right to demand from the seller in case of defective goods for a replacement or refund of the price paid. Similarly, the consumer has, in case of defective service, the right to demand re-delivery of the service free of charge or refund of the fee paid.[21] The Proclamation also vests in the consumer the right to compensation for damage sustained as a result of the use of defective goods or service. Failure to refund or provide replacement for defective goods may also engender the duty to pay compensation where such failure has caused damage.[22] More importantly, contractual waiver of any rights conferred by the Proclamation on consumers is ‘of no effect.’[23]

  1. Mechanisms for Enforcement

The Proclamation has come up with an institutional mechanism to ensure its full implementation. Particularly, it establishes the Trade Competition and Consumers Protection Authority accountable to the Ministry of Trade. It entrusts the Authority with the overall implementation of the Proclamation.[24]  The Authority can conduct investigation where there are sufficient grounds to suspect that an offense that attracts administrative or criminal liability has been committed.[25] The Proclamation also establishes, under the auspices of the same Authority, an adjudicative bench with judicial power.[26] This judicial body has jurisdiction on disputes between traders, consumers and traders and even the Authority itself and persons accused of infringing the Proclamation. The judicial body can order administrative measures, impose fine and even award compensation to victims of anti-competitive behavior and consumers, as the case may be.[27]

The competition law of Ethiopia entitles persons who incur damage as a result of ‘acts of unfair competition’ to payment of compensation in accordance with the ‘relevant laws.’[28] The Civil Code of Ethiopia lays down the basic principle as regards the extent of compensation under Article 2091. The said provision reads: ‘[t]he damages due by the person legally declared to be liable shall be equal to the damage caused to the victim by the act giving rise to the liability.’ That means damages due are compensatory rather than punitive. In contrast to this, some jurisdictions give private citizens incentive to participate in the enforcement of competition law. Under the United States completion law[29], for example, an innocent party to an agreement that breaches competition law, and for that matter a third party that has been injured by the wrongful competition, is entitled to not only compensatory but also treble (punitive) damages.[30]

A person aggrieved by the decision of the judicial bench within the Authority may appeal to the Federal Appellate Tribunal also established by the Proclamation. The decisions of this Appellate Tribunal are final on questions of fact. An appeal lies to the Federal Supreme Court on matters of law.[31] Only regular courts have jurisdiction as regards criminal liability that the Proclamation imposes.[32]

  1. References

[1] Trade Competition and Consumers’ Protection Proclamation No. 813/2013,FEDERAL NEGARIT GAZETTE, 20TH Year, No. 28,  Article 3

[2] Id., Article 3(1).

[3] Id., Article 4(1)

[4] Id., Article 5(2)a to d.

[5] Id., Article 5(2) g and h.

[6] Id., Art. 7(3) c. A horizontal relationship is a type of relationship that exists between competing business persons that operate a certain market. In contrast, vertical relationship exists between business persons and their consumers or suppliers or both.

[7] Id., Article 7(1)b

[8] Id., Article 7(2) and (3)

[9] Id., Article 9(1)

[10] Id., Article 9(3)

[11] Id., Article 9(2), 10 and 11.

[12] Id., Article 11(1)C

[13] Id., Art. 11(2)

[14] Merger Directive No. 1/2016, Article 7.2

[15] Id., Article 20

[16] Id., Article 16

[17] Proclamation 813/2013, Article 8(1).

[18] Id., Article 8(2).

[19] Id., Article 14(1)

[20] Id., Article 16, 19 and 22

[21] Id., Article 20(2)

[22] Id., 20(3).   Other provisions of the Proclamation in, Articles 14 to 26 require access to information, labelling of goods, prohibition against hording and the like in order to protect consumers.

[23] Id., Article 21

[24] Id., Article 27 and 30

[25] Id., Article 36(1)a and b. Breach of some provisions of the proclamation could attract rigorous imprisonment of upto seven years according to Article 43(2). Criminal action is instituted by the prosecutors of the Authority before an ordinary court. The judicial bench in the authority and the appellate Administrative Tribunal established under the Proclamation have  has no jurisdiction as regards criminal liability of offenders according to Article 37(1)b

[26] Id., Article 28

[27] Id., Article 32. The administrative measures it can take include the suspension and even revocation of business license of the offender according to Article 32(2)c. The fines that can be imposed can be as high as 10% of the annual turnover of the offender according to Article 42.

[28] Id., Article 32(1)b

[29] The main competition law in the United States is the Sherman Antitrust Act of 1890. The Sherman Act has been expanded by the Clayton Act and the Federal Trade Commission Act of 1914. See Julian D M Lew QC, Competition Laws: Limits to Arbitrators’ Authority, in  LOUKAS A. MISTELIS and STAVROS BREKOULAKIS (eds), ARBITRABILITY: INTERNATIONAL AND COMPARATIVE PERSPECTIVES 248 (Kluwer Law International 2009)

[30] Id., at 249 to 250

[31] Proclamation No. 813/2013 Article 39(2)

[32] Id., Article 37(1)(b)