On 9 July 2018, the Democratic Republic of Congo (“DRC”) joined the group of African countries that have recently established modern domestic competition law regimes, after President Joseph Kabila signed into law the Organic Law no. 18/020 on Pricing Freedom and Competition (the “Competition Act” or the “Act”).
Since its coming into effect on 9 August 2018, it abrogated and replaced a set of laws dated from colonial and post-independence times. The DRC’s competition legal landscape consisted of merely three fairly basic texts that addressed only unfair competition1, pricing regulation2 and the creation of a competition commission3. This note provides an overview of some of the key changes introduced by the Competition Act.
The Act applies to all production and provision of goods and services in the DRC by any natural or legal person, whose operations or behaviour affect competition within the domestic market or in a substantial part of it4.
The main objective of the reform being the modernisation of the DRC’s outdated legislation on pricing and competition, the Act addresses the deficiencies of previous laws by introducing more elaborate antitrust and merger control rules. The latter is the most noteworthy improvement as mergers meeting pre-determined thresholds must now be notified for scrutiny and technical opinion to the competition commission, and require authorisation by the minister of economy before they can be implemented.
Thresholds triggering notification requirements and the detailed powers of the competition commission, especially those relating to merger control, are yet to be defined. Implementing regulations will, therefore, be particularly important to watch. However, according to Article 85, pending the signature and entry into force of a decree establishing the new commission, the powers conferred on it by the Act shall be exercised by the commission created by the Order establishing the Competition Commission of 1987.
2. Free pricing and power of the Minister of Economy to determine prices of goods and services
The Competition Act proclaims that freedom of trade and industry is guaranteed in the DRC, which is in line with Article 35 of the Constitution. Accordingly, suppliers of goods and services can set prices freely, like under previous laws. Yet this liberty is limited by the provisions of the Act itself5:
- After having freely set a price, suppliers of goods and services must submit supporting commercial documents to the minister of economy in order for him to exert an ex-post control of prices6. On the basis of these documents, the minister has the power to lay down the method for calculating the price and determine the maximum profit margin authorised for tradesmen other than liberal professionals7;
- Resale at a loss is in principle forbidden8;
- Prices for hydrocarbons and public transportation are set by the minister of economy or, with respect to electricity and water, jointly by him and the ministers respectively responsible for power and water9;
- In order to combat excessive price increases, the minister of economy can recommend that the Government regulate goods and services prices, when free competition can no longer be ensured because of situations of de facto monopoly or severe supply restrictions10;
- In case of exceptional circumstances affecting supply and storage capacities, the minister of economy can likewise recommend that the Government regulate goods and services prices.11
3. PUBLIC COMPETITION WITH THE PRIVATE SECTOR
The Competition Act introduces rules that regulate potential public restraints on competition and sets four conditions under which public or state-owned entities are allowed to conduct business activities in competition with the private sector:
- Market failure;
- The service in question relates to the legal functions or powers of the public entity;
- To satisfy its own needs;
- Improvement of service supply for the greater good.12
4. ANTI-COMPETITIVE PRACTICES
In the Competition Act, anti-competitive practices are defined as:13
- Cartels (whether through a formal agreement or concerted practice): the Act prohibits all cartels which may (a) restrict access to the market by competitors; (b) enable businesses to carve up markets amongst them or fix prices; (c) hamper production, outlets, investments or technical and technological advances; or (d) skew the outcome of a competitive bid.14 However, authorisations may be granted by the competition commission in respect of cartels which contribute to promoting economic progress, job creation and maintenance;15
- Abuse of a dominant position: under Article 32, it is prohibited for a dominant firm 16 to (a) refuse to supply goods or services; (b) sell goods or services on condition that the buyer purchases separate goods unrelated to the object of the contract; (c) impose discriminatory prices and conditions of sales; and (d) abusively terminate business relations;17
- Abuse of economic dependence is prohibited. Yet, while defining economic dependence18, the Act does not specify what behaviour amounts to an abuse in such case.
Any agreement, contract or clause relating to anti-competitive practices is void under the Act.19
5. RESTRICTIVE BUSINESS PRACTICES
Restrictive business practices are listed as follows:20
- Imposing a minimum resale price, in violation of the freedom to freely set prices;21
- Among professionals: refusing to supply, except in cases of (a) legal ban on sale; (b) bad faith on the part of the buyer; (c) unavailability of the product; or (d) because of unusual nature of the demand;22
- Discriminatory sale practices are all forbidden under Article 39. Any abuse of dependence, excessive pricing, abusive termination of business relations or establishing a selective or exclusive distribution network may trigger the application of this provision.23
6. UNFAIR COMPETITION
This is a major improvement of the Competition Act since the Ordinance-law on Unfair Competition of 1950 mainly dealt with issues relating to intellectual property, thus excluding a whole range of topics. In that regard, the Act covers five main issues:24
- Disparagement of a competitor, its products or services, or its personnel, in which case the person, the company or the product must be clearly identifiable;25
- Disruption of a competitor through unlawful commercial methods, such as the disclosure of trade secrets or dumping and deceptive practices;26
- Usurpation of others’ rights or reputation through slavish imitation or parasitism that may create confusion in the minds of the public about the nature or origin of products;27
- Sale with a bonus;28 and
- Pyramid selling or schemes.29
7. MERGER CONTROL
This is the major innovation of the Competition Act, given that merger control has never been directly addressed in domestic Congolese law before.
Whilst prohibiting economic concentrations that amount to anti-competitive practices,30 the Act establishes a national regime for transactions such as the transfer of ownership of goods, rights or shares, the creation of a joint venture, or any agreements ensuring an influence on the composition and decisions of the administrative bodies of a company,31 provided that they meet one of the following thresholds:
- The pre-tax turnover generated in the DRC by the natural and legal persons involved in the project of merger equals or exceeds the amount fixed in a future implementing decree;
- The natural and legal persons involved in the project together hold a market share of at least 25% in regard of the products or services concerned;
- The general economy of the project creates or reinforces a dominant position.32
Prior to their implementation, those transactions must be notified for scrutiny and technical opinion to the competition commission, which must in turn submit its technical opinion within 45 days upon notification to the minister for the economy for potential authorisation.33 A proposed transaction can only be implemented if it has been authorised by the minister. The latter must issue his decision within 60 days – or 90 days, if additional investigations are required – upon receipt of the technical opinion.34
Implementing legislation will provide a list of the supporting documents to be filed with the notification.35
The minister’s decision may consist in simple approval or refusal. But it can also direct the parties to modify their project, i.e. impose conditions, in order to preserve effective competition or require measures likely to foster economic and social progress in order to compensate for damage to competition.36 Furthermore, in cases where a merger would give rise to an abuse of dominance or economic dependence, the commission can recommend that the minister for the economy order the businesses concerned to modify, complement or terminate by a set deadline any agreement or transaction that led to the abuse, even if that transaction had previously been properly reviewed by the commission and the minister.37
Any omission from notification or misrepresentation of the project constitutes a violation of merger control rules under the Act38. In the event of a failure to notify a transaction to the commission, the minister can inquire whether it has been implemented and forward the information to the commission.39 Further detail regarding the procedure for this filing will be provided for in the following implementing regulations.40
Decisions of the competition commission and the minister of the economy, which shall be reasoned and published in the Official Journal, may be challenged before the supreme court of the administrative branch (“Conseil d’Etat”).41
8. Enforcement of Act
As before, the enforcement of the rules on competition is entrusted with the competition commission. We are yet to know the exact differences between the new commission and the previous one, since the implementing regulations in this regard remain to be issued.42
The Competition Act differentiates between:
- Pricing offences, which notably include illicit price practices, hoarding, the absence of invoices or the non-disclosure or display of prices.43 The non-observance of the rules on pricing is punishable by a fine of up to 100 million Congolese francs (approx. USD 61.000 in August 2018) and/or imprisonment of up to 3 years;44
- Competition offences, which cover anti-competitive practices, unfair competition practices, and restrictive business practices, as well as those relating to merger control provisions.45 Violators of the rules on anti-competitive practices may be fined as much as 50 % of their profit or 20 % of their turnover realised in the DRC during the financial year before the year of their participation in the infringement.46 Non-compliance with merger control provisions exposes offenders to the temporary closure of the establishment.47 Moreover, the Tribunal of commerce48 may, at the request of any person proving a legitimate interest, require the cessation of any practice of unfair competition49 and impose fines up to 100 million Congolese francs (approx. USD 61.000 in August 2018).50
- Deliberate obstruction of agents of the competition commission.51 As in the Decree-law on Prices, the Act confers on these agents the status of judicial police officers.52 Provided that an order or a warrant has been issued by the competent authority they can use investigation powers and thus conduct searches (even outside normal working hours)53 and collect documents.54
1 Ordinance-law no. 41-3 of 24 February 1950 on unfair competition (the “Ordinance-law on Unfair Competition”).
2 Decree-law of 20 March 1961 as amended and supplemented by Ordinance-law no. 83-026 of 12 September 1983 on pricing regulation (the “Decree-law on Pricing”).
3 Departmental Order of 15 June 1987 establishing the Competition Commission (the “Order establishing the Competition Commission”).
4 Article 2.
5 Article 3.
6 Articles 4 and 6.
7 Article 7.
8 Article 18.
9 Article 8.
10 Article 9, new.
11 Article 10, new.
12 Article 26.
13 Article 29. Until now, there was no definition of these practices. Article 4 of the Order establishing the Competition Commission simply enumerated them.
14 Article 30.
15 Article 31.
16 See Article 5 (1) and (9).
17 Article 32.
18 See Article 33 according to which a business is in economic dependence when it cannot source a substitute product from alternate suppliers on normal terms, or conversely, when the supplier cannot find a reseller on similar conditions, because of the nature or characteristics of their commercial relations.
19 Article 28.
20 Article 34.
21 Article 11.
22 Articles 35 to 38.
23 Article 39.
24 Article 41
25 Article 42.
26 Article 43.
27 Articles 44 to 47.
28 Defined in Article 5 (19) as a sale in consideration of which the buyer receives complementary gifts as a reward for his or her purchase.
29 Defined in Article 5 (17) as the situation where a buyer is promised goods for free or at a discounted price, on the condition that he or she recruits new buyers.
30 Article 49.
31 Article 48.
32 Article 50.
33 Article 50.
34 Article 51.
35 Article 55.
36 Article 53.
37 Article 54.
38 Article 56.
39 Article 52
40 Article 55.
41 Article 57.
42 Articles 58 and 59.
43 Article 60.
44 Articles 64 to 70.
45 Article 61.
46 Article 71.
47 Article 74.
48 Article 84.
49 Article 74.
50 Article 75.
51 Article 62
52 Article 77.
53 Articles 79 and 80.
54 Article 78.
The contents of this publication, current at the date of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2018