|
LAWMAKERS SOFTEN ANTITRUST PROVISIONS
BY GEOFFREY CRAIG
Last January, Egypt’s anti-monopoly watchdog proposed a series of amendments meant to sharpen the teeth of Competition Law 3/2005. The amendments proposed by the Egyptian Competition Authority (ECA) raised the maximum financial penalties for violations to a percentage of sales, and inserted a whistleblower provision to help break up cartels.
But the People’s Assembly stripped these key provisions and approved, instead, a watered-down version on June 15, which critics say failed to strengthen the three-year-old competition law. Moreover, they believe that powerful business interests influenced the outcome, evidence of the steep uphill climb the ECA faces to change the status quo.
“Any law or piece of legislation between its conception and promulgation goes through give-and-take,” says Samir Radwan, lead author of the “Egyptian Competitiveness Report,” an economic benchmarking study. “And the give-and-take represents the effect of relative interest groups that influence the final analysis and shape of the law.”
In this case, the same industries targeted for monopolistic practices, such as cement, fertilizers, iron and steel, successfully lobbied lawmakers to tweak the legislation in their favor. “It was the weight of the producers that prevailed,” Radwan adds.
The fact that the amendment of the competition law was a front page story in the local media is a far cry from the decade-long silent struggle to pass Protection of Competition and Prohibition of Monopolistic Practices Law 3/2005, a significant step towards creating a legal framework for the market and internal trade.
But from the outset, some analysts have criticized the legislation, stating that the penalties imposed for those companies convicted of monopolistic practices weren’t harsh enough to deter violators, and that the ECA, the body created by Law 3/2005 to oversee competition and investigate alleged violations, was in essence a toothless organization.
At the time, Minister of Trade and Industry Rachid Mohamed Rachid, whose ministry oversees the ECA, emphasized patience, but acknowledged that amendments would be necessary to boost the law’s credibility.
The ECA’s board of directors recommended raising the fine for violators from LE 10 million to LE 50 million, or the equivalent of 10 percent of the sales of products deemed in violation of the law, whichever is greater, and doubling the penalty in case of repeated violation.
Instead, parliament capped the fine at LE 300 million, while dropping the provision about the percentage of sales. The higher fines are still considered “progress,” says ECA chair Mona Yassine. “But we had proposed to make the penalty a percentage of sales. [This would] deter big companies that might violate the law.”
Radwan agrees. Simply put, the size of the fine is insufficient to dissuade a violator from changing its behavior. “It may sound large, but it’s not that large given the amount of profit that can be made from being a monopolist.”
The ECA had also recommended granting leniency to the first company within an industry cartel that comes forward with evidence. The authority could then use this evidence in a case against the other cartel members. Providing immunity, the reasoning goes, would encourage companies to blow the whistle on their co-conspirators.
“There’s evidence abroad that this type of approach works, even though it’s a new approach for competition agencies around the world – the United Kingdom adopted the principle [in 2002] and the European Union followed suit a couple of years later,” Yassine adds.
Instead, parliament granted only partial immunity, making a company still subject to half of the applicable penalty, a move that Yassine disagrees with. This version of the leniency clause is “not an effective amendment,” she argues, as companies will be reluctant to cooperate, knowing they will still have to pay a hefty fine.
Mohamed Talaat, a partner in law firm Baker & McKenzie, also derides the amendment. “The leniency clause, as it turned out, was a joke,” he says. “The concept of the antitrust law is still new in Egypt, and the government didn’t properly educate the parliament [before introducing the amendment for a vote]. You shouldn’t assume that members of parliament would understand the gist of the leniency clause. They thought it was simply about acquitting a criminal.”
Talaat feels the amendment represents “a step backward. You’re not encouraging anyone to come forward,” he says.
Originally, parliament had dropped the ECA’s recommendation for a leniency clause altogether. But Ahmed Ezz, a member of the People’s Assembly and chairman and managing director of Ezz Steel, Egypt’s largest steel producer, which controls about 65 percent of the domestic market, introduced the modified amendment that was eventually passed.
This set off a firestorm of criticism from the local press and opposition parties, which charged that Ezz had influenced lawmakers to adopt this new amendment. Afterwards, Ezz spoke out publicly, dismissing the claim that he had played any role in passing the legislation.
Speculation around the status of Ezz’s company Ezz Steel and its market share has long been a source of debate. Rising steel prices, blamed for higher construction costs, have placed the company and, in many ways, its chairman, in the spotlight. Critics say the steel industry is controlled by a handful of producers who dictate prices of a strategic commodity, an accusation steel producers continue to deny. Instead, they argue that higher raw material costs are to blame for the rise in steel prices.
The ECA itself has been investigating these allegations of anti-competitive and monopolistic practices by steel producers for more than two years, but that report has been delayed. It’s uncertain when it will be issued.
For his part, Rachid has stated that the process that unfolded during the debate of the proposed amendments was no different than when any other draft law is presented to the People’s Assembly. It is subject to change. The minister told local press that the passed amendments, “while different from those proposed, will improve the overall situation.” He also pointed out that amending any competition law and effectively enforcing it takes time.
“The project of amending the protection of competition law and prohibiting the monopolistic practices that the ministry has presented is a transitional amending phase and there will be further amendments in the protection of competition law [that] the government will present to future parliaments,” he stated.
Although, in some regards, Yassine was disappointed by the outcome, she agreed with Rachid that the amendments passed are a step in the right direction. Others agree, noting that the country is still learning how to enforce the competition law. “This is the first time ever for a law like this, and an institution is being set up to protect competition and fight monopoly,” says Radwan. “And, therefore, one would not expect any such attempt to be perfect right from day one.”
And the legislation itself still needs further analysis to deepen the understanding of the law by the business community and the public, he adds. For instance, there is still some disagreement over what constitutes an illegal monopoly. The statute defines a monopoly as a company or group of merged companies with at least 25 percent of market share – a criterion that several major companies would meet. But market share isn’t the sole factor to consider. The law also lists unfair business practices, such as price fixing, obstructing competitors or suppressing volume to jack up prices.
Trying a few cases in the court system would help resolve legal ambiguities. But so far, there has been only one case put before the judicial system. In January 2008, the minister of trade and industry forwarded a case to the public prosecutor against 20 cement executives for allegedly colluding to fix Portland cement prices between 2005 and 2006. The ongoing trial began last February.
According to the law’s executive regulations, the Ministry of Trade & Industry and the ECA both have the right to initiate an investigation into a sector’s activities. The public also has the right to file complaints with the ECA, informing it of any monopolistic practices. The ECA then conducts an investigation and determines whether a violation occurred. Based on that decision, the trade minister decides whether to forward the case to the public prosecutor’s office, to conclude that no monopolistic practices have taken place or to keep the information on file.
In a climate where charges of conflicts of interest between business and politics are rife, the ECA’s job as a regulator is particularly important, analysts note. “I think a strong ECA is a guarantee both for the consumer and the investor,” Radwan says. “The investor knows there is a fair and transparent institution that is going to look into [allegations of unfair business practices].”
Yassine says her agency strives to be such an independent body. “We advance no one’s agenda in business or politics, but rather gather data and [investigate] according to internationally accepted criteria, without fear or favor from powerful interest groups.”
The recent amendments have made the task of the ECA somewhat easier, but what most people will remember is a lost opportunity to have strengthened the competition law even further.
|
Penalties apply
It’s not easy to persuade monopolists to change their practices. Monopolists stand to make fortunes by warding off competitors. Some of the biggest names in business have been at the center of antitrust cases – AT&T, Standard Oil and Microsoft – to name a few. Antimonopoly regulators use financial penalties and even imprisonment as their main weapons to punish and dissuade monopolists. In 1890, the US’s Sherman Antitrust Law set the penalties at one year of imprisonment and a fine of $5,000, a big amount in those days.
Of course, the penalties have been raised since then. Today, the Sherman Act imposes penalties of up to $1 million for an individual and $100 million for a corporation, or twice the amount the violators gained from the illegal acts, or twice the money lost by victims, whichever of these options is greatest. There is also the possibility of a 10-year jail sentence.
The EU, on the other hand, sets a fine of 10 percent of a company’s worldwide turnover. The largest fine levied by the EU was E992.4 million in 2007 against the elevator and escalator industry, including a single fine of E479.7 million against Germany’s ThyssenKrupp.
In Egypt, under the recent amendments to the country’s competition law, violators face a LE 300 million ($56 million) fine and no imprisonment. The amendments granted partial immunity to the first cartel member of an industry that provides evidence to the Egyptian Competition Authority.
Leniency clauses already exist in the US, Canada, Europe and elsewhere. However, other countries usually allow for full immunity. The concept has already proved to be an effective tool to fight against cartels elsewhere, regulators say, resulting in scores of convictions and fines. The only downside may be the administrative burden of sifting through the flood of immunity applications that come pouring in afterwards.
|
Submit
your comment
Top
|
