By Simon Ng’ona
Business Associations (BAs) can play a productive, pro-competitive role in the development of a particular sector, thus promoting the efficient functioning of that market. BAs, which consist of individuals and firms with common interests in trade, join together to further their commercial or professional goals. Although the principal function of a BS, typically, is to provide services to its members, these associations also have industrial policy and political functions.
BAS frequently perform many valuable functions, and these are elucidated in a number of scattered literature. Through cooperation, BAS can significantly increase the efficiency and performance of a particular sector. Nevertheless, collaboration between otherwise competing firms raises the possibility that cooperation may overflow into coordination, thus lessening competition between these firms or in the market more generally. Consumer harm, in the form of raised prices or lower quality goods or services, is the almost inevitable consequence of such collusion. In a number of instances globally, moreover, BAs have played a central role in the management of a cartel among their members.
On various occasions, the Competition Consumer Protection Commission (CCPC), even in its old outfit as Zambia Competition Commission (ZCC, has encountered, in the course of its enforcement activities, varied situations. Many media articles and annual reports for the Commission, at least those that are in public domain, suggest that where BAs have coordinated, or have been used as a vehicle by which to coordinate, the activities of member firms, the consequence has been that competition between member firms is restricted. In light of these experiences, the Competition Authority has continued to raise specific concerns regarding activities of BAs and their compliance with competition law.
One contemporary issue relate to the Millers Association of Zambia (MAZ). The latter’s recent quest to hike Mealie Meal prices has receive resistant, hostility and squashing responses from varying stakeholders including Government, Consumer Organisation and others.
In as much as the Millers, just like other industry players, are facing both productive and supply side challenges due the economic paralysis Zambia is in, it is business immorality for the association to continue setting prices. This practice has been a tendency by most associations and this is a situation that cannot be allowed to pervade the exiting free market economic setup and requirements.
This abridged article provides information and brief guidance for BAswhich coordinate at horizontal level and their members regarding competition dynamics and price fixing. It provides information about the limits that competition law places on joint or coordinated action by competitors.
Prohibition of price setting and the motives behind it;
Within the category of coordinated activities, it is firmly established that there arecertain practices which are absolutely prohibited, such as price-fixing, as well as many practices which may have an anticompetitive effect,and are thus prohibited. Mr Hanford Chaaba, the Public Relations officer at the CCPC, in his recent statement, draws the public and the MAZ to Section 8 of the Competition and Consumer Protection Act (CCPA) 2010. Despite him not detailing the particulars of this Section in his statement as quoted by media, he has given us the specific provision and individually we can inquire more on what this Section says.
Section 8. says…… “Any category of agreement, decision or concerted practice which has as its object or effect, the prevention, restriction or distortion of competition to an appreciable extent in Zambia is anti-competitive and prohibited”. …..
This Section and the subsequent ones prohibit and make void all decisions taken by associations of undertakings, as well as agreements and concerted practices between undertakings, which have either the object or the effect of preventing, restricting or distorting competition.
But what does competition in the purview of literature and practice mean. To get a clear understanding on whether effective competition has ensued or not, two variables will always have to be factored in mind i.e price and non-price competition.Non-price competition is a form of competition among suppliers where they try to win customers not by lowering prices but by improving their product brand and advertising, offering after-sales-service, using sale promotion tools, etc. On the other hand, Price Competition is a form of competition among suppliers where the suppliers try to win customers by offering them a product at a price which is lower than their competitor’s price.
These two factors collectively form what might be termed as effective competition, although they can be looked at isolatedly. Therefore, any effort to undermine either of the two factors through concerted efforts or price fixing is prohibited under most competition laws.In short, competition law prohibits any coordinated activity between competing firms which lessens the normal uncertainty that should exist between them in relation to pricing policies arrived at independently on the market. Thus, firms are prohibited from entering into agreements which restrict the freedom of the contracting parties in relation to pricing in any way.
But I must admit that, the concept of consented efforts is given a very wide interpretation under the case law that has evolved over time. Discussing case law that has ensued on this particular subjectis outside the scope of this article. However, I will explore the possibility of writing another article on the same.
Moving forward, what could be some of the decisions that could warrant prohibition under competition law? As already indicated, these include, not merely formal decisions adopted by an association under any procedures laid down in its constitution or founding documents, but also the constitution itself, any rules governing the association’s operations, binding regulations made by the association and any nonbinding recommendations made by it, for as long as they are it is distorting effective competition.I am tempted to wonder whether the commission has done anlegal audit of some of the constitutions governing these associations and vet whether there are provisions which promote anti-competitive behaviour. If not, this could be one potential area of work the commission could explore. More importantly, since the CCPA is under review, it is important to include such explicit provisions than leaving it to wider interpretation.
The latter part of the preceding sentence shows that the concepts of agreement and concerted practice among business associations can be been interpreted widely. Agreements can also include unwritten agreements and gentlemen’s agreements as well as formal contracts for as long as they are promoting anti- competitive practice and restrictive business behaviour. The CCPA in Section 9, exemplify a similar situation through definition of a horizontal agreement. “a horizontal agreement between enterprises is said to be prohibited per se, and void, if the agreement; (a) fixes, directly or indirectly, a purchase or selling price or any other trading conditions; (b) divides markets by allocating customers, suppliers or territories specific types of goods or services”. If one closely looks at these potential violations as provided in the Act, the major source for such violations could be through consented practices in associations. Note:these are not the only provisions that relate to this issue.
Now that the law is clear, why has the MAZ eschewed heeding advice from the Commission? Or why has MAZ opted to ignore such provisions and continue to announce prices instead of leaving it to individual players. This applies to all business associations.
Having raised this, I have a premonition that some players or indeed mother associations will be scolding my statement. However, these are facts ladies and gentlemen and legally backed by the current legal framework.
But anyway, could there be any exemption for associations to engage under competition law. The Zambian competition law and others acknowledges that cooperation between associations may, in certain instances; result in some benefits to consumers. If cooperation does not appreciably restrict, prevent or distort competition in the first place, it will fall entirely outside the prohibitions contained in PART III of the CCPA which deals with restrictive business and anti-competitive trade practices. Section 8 and 9 highlighted above are under Part III and goes way till section 23. Please, dear Bas, read these provisions and empower your members with such information. Otherwise, you have no authority to hike price and as Mr Chaaba has indicated, your announcement has triggered anxiety and panic buying among consumers.
The Author is the Centre Coordinator for Consumer Unity and Trust Society (CUTS) International Lusaka. (Dip Journ and PR; BA – Economics; LLM – Trade and Investment Law)