7.3.4 Competition Law and Policy
In recent years, Ethiopia has taken steps toward opening several sectors of the economy to competition and to encourage and facilitate new entrants into those sectors. The Ethiopian business community has responded very positively to these openings, as demonstrated by a number of new Ethiopian entrants into the banking, textiles and floriculture sectors, for example. The process of introducing free competition into the economy, however, is far from complete.
Despite new entry, important sectors are still overwhelmingly dominated by State-owned enterprises, and the retail sector and financial services are, for the most part, closed to competition from foreign firms. Government monopolies also continue to exist in energy and other sectors.
Even in those sectors where economic liberalization has taken place through reducing barriers to foreign competition and privatization of industry and services, expected economic benefits can be short-circuited by private cartels, barriers created by dominant firms and by public regulations. On April 17, 2003, to safeguard against private and public impediments to free competition taking place, and as part of the move to introduce free market forces into the Ethiopian economy, the Ethiopian Parliament passed the Trade Practices Proclamation No. 329/2003 (“TPP”). This legislation states that the government is committed to “[establishing] a system that is conducive for the promotion of a competitive environment, by regulating anti-competitive practices in order to maximize economic efficiency and social welfare.” It prohibits anticompetitive behavior and unfair or deceptive conduct by one competitor against another; authorizes regulation of prices for basic goods and services in times of shortage; and requires disclosure on labels of basic consumer information such as weights and measures. The law also provides for the creation of two implementing institutions, the Trade Practices Commission and the Trade Practices Secretariat.
Aspects of the law and institutions, however, make it difficult to use them as effective tools for enhancing consumer welfare. First, the law has disparate goals—prohibiting anticompetitive conduct, regulating unfair and deceptive conduct between individual competitors, prohibiting importation of goods at prices that are below wholesale in the country of production, regulating prices for basic goods and services, and regulating product labelling—that divert enforcement from the most harmful anticompetitive conduct and dilute limited enforcement resources. Second, the Trade Practices Commission that has responsibility for addressing abusive conduct by dominant players, many of whom are government-owned and controlled enterprises, is itself part of the government’s Ministry of Industry and Trade. Its members are high-level officials of other Government agencies such as the National Bank. Third, the Commission has no staff of its own and virtually no budget. The Trade Practices Secretariat does have a small staff of approximately five, but it has a clerical, non-investigative, and non-prosecutorial function. Fourth, legal and economic training in competition policy and law enforcement at the university level does not exist.
The TPP has five parts: (a) definitions, objectives, scope, and exceptions; (b) prohibited trade practices; (c) enforcement bodies and appellate rights; (d) labelling and pricing regulations; and (e) remedies for violation. Although the framework law contains the substantive prohibitions and remedies needed to preserve and enhance competition policy, it also gives a great deal of room for interpretation and leaves power to grant exemptions in the hands of a Commission composed of high government officials and the Minister of Trade and Industry. Therefore, to paraphrase what one prominent Ethiopian private businessman said, if the government has no will or desire for competition to drive a sector of the economy, it will not happen, no matter what budgetary or
human resources are given to the Commission.
Definitions, Objectives, Scope, and Exceptions
A noteworthy and important feature of the TPP is that State-owned enterprises are subject to the law. They are included in the definition of “persons” and “trader(s)”, and Article 5, which clearly exempts commercial activities exclusively reserved for the government, does not list commercial activities in which the government participates on a non-exclusive basis. Three Articles in this section of the law are, however, problematic. First, “basic goods and services” are defined vaguely as “goods or services related to the daily material needs of [the] consumer.” Because later provisions of the TPP permit the Minister of Industry and Trade to make recommendations to the Council of Ministers for regulating the price of goods (Article 22) and exempt “basic goods and services” from the TPP (Article 5(3)), the vagueness of this definition may have significant ramifications. It likely grants the Minister, Council of Ministers, and Commission broad and flexible powers to exempt many consumer goods from competition. This power to regulate prices, when viewed in conjunction with the fact that the retail sector is largely closed to foreign companies, suggests lack of confidence in and commitment to competition as an effective regulator of supply and demand for consumer goods and services.
Second, significantly missing from the list of definitions is a definition of “dominance.” In discussions with those who must enforce Article 11(2)’s prohibitions against abuses of dominance, it was acknowledged that this poses a difficulty. Since the law’s passage in 2003, the gap has not been filled by the application of Article 11 to factual circumstances in cases or by the issuance of regulations or guidelines. The Commission lacks the power to issue implementing regulations that may fill some of this gap, but the Council of Ministers or Regional Councils do have the power to do so (Article 29). In the only two actions that the Commission has brought that have involved, among other issues, alleged abuses of dominance, actions brought against total and mobile oil, apparently no analysis was done to determine if the parties were dominant in their markets.
Third, the Commission has the authority to exempt (1) any enterprises that have “significant impact on development and [are] designed by government to fasten growth and facilitate development;” and, (2) “basic [goods] or services that are subject to price regulations” (Article5). It appears that an exemption on these grounds may be granted, after an alleged violation of the law has taken place. The broad discretion of the commission to exempt enterprises from the law, and to do so ex post facto, does not provide the assurances and predictability that would encourage innovation, expansion, or entrance by entrepreneurs whose success depends upon free competition.
Prohibited Trade Practices
The substantive provisions of the law prohibit anticompetitive agreements (Article 6) and abuses of dominance (Article 11) and “unfair competition” (Article 10). It should be noted that the TPP does not have a specific provision addressing mergers or advocacy responsibilities. Presumably, some mergers could be addressed under Article 11’s abuse of dominance provisions, as it is done in some countries. It would be helpful if some provision were made to make clear that the commission has an official role to play as advocate on behalf of competition.
The prohibited practices are fairly typical of those found in antitrust laws around the world and follow the EC-Treaty Article 81 and 82 models. Specifically, Article 6 prohibits price fixing, bid rigging (“collusive tendering”), market and customer allocations, and refusals to deal. The Ministry may authorize exceptions to these prohibitions when “the advantages to the nation are greater than the disadvantages” (Article 7). This exception seems to authorize exceptions for national champions and may be used to discriminate against foreign companies, even in those sectors in which foreign firms may participate fully. Article 11(2) prohibits, for the most part, the same kind of monopolistic conduct listed as prohibited in many jurisdictions. It prohibits, for example, price discrimination, tying arrangements, refusals to deal, excessive prices, and predatory pricing. Some of this conduct is not considered illegal in the United States, but is illegal in other developed countries. Prohibiting excessive pricing puts the commission in the position of being a price regulator of a sort, a position that is antithetical to the notion that the market sets prices and output.
Most unusual about Article 11(1), however, is the class of persons to whom the prohibition applies. The language of this Article is not clearly directed at those firms that are likely to achieve dominance. It says that “no person may carry on trade . . . having or being likely to have adverse effects on market development.” This is unusually broad in that it is not limited to persons who are dominant or likely to achieve dominance, and the effect is that it focuses instead on “market development.” Prohibiting single-firm conduct without regard to the firm’s dominance opens the possibility that either competitively neutral or, even, pro-competitive conduct will be prohibited. It would be reasonable to interpret Article 11 as applying only to those who have dominance because the Article falls under the general heading of “Abuse of Dominance.” But, as indicated above, in the two cases in which this Article was invoked, no analysis of market power or dominance appears to have been conducted.
Article 10 of the proclamation prohibits what are generically called “acts of unfair competition.” It is unusual in that it addresses two different categories of conduct. Articles 10(1) and (2)(a)-(g) address what in the United States are referred to as tortious interference with business, disparagement, misuse of trade names and trade secrets, deceptive comparisons of product performance, and other Lanham Act violations. It is not uncommon to find these provisions in competition laws in Europe, but the provisions should not be confused with the “unfair methods of competition” that are prohibited by Section 5 of the U.S. Federal Trade Commission (FTC) Act. As used in the FTC Act, unfair methods of competition are generally limited to anticompetitive agreements and some of the abuses of dominance that are listed in Ethiopia’s TPP. The FTC would usually become involved in such matters only if there is harm to consumers, and in such cases the focus would be on protecting consumers rather than on protecting one competitor from another. As a general rule, the types of conduct addressed by Article 10 of Ethiopia’s law are handled in the United States as private disputes that competitors resolve in private law suits or alternate dispute-resolution mechanisms such as those provided by the Better Business Bureaus.
In fact, until the passage of the TPP, such disputes were also handled as private matters in Ethiopia. Articles 130-141 of Ethiopia’s Commercial Code of 1960 contain almost all of the same prohibitions contained in Article 10 of the TPP. Now, it appears that the courts have taken the position that the trial of such practices must take place at the Commission level, and the judiciary is involved only for appellate review. Two drawbacks exist when a competition law gives a competition commission jurisdiction over these kinds of disputes between competitors. First, these disputes often siphon a very large percentage of resources away from enforcement against cartel and abusive behavior that harms consumer welfare as a whole. After handling these individual disputes, competition commissions have little time and resources to investigate and proactively uncover cartel conspiracies and other anti-competitive conduct. A competition commission can easily become bogged down in handling individual disputes which aggressive businessmen keep bringing to the commission’s attention.
Trade Practices Commission and Judiciary
The TPP creates a Trade Practices Commission within the Ministry of Trade and Industry that is accountable to the Minister. It also creates a Trade Practices Secretariat. The legal framework for these implementing institutions, along with that of the judiciary, is discussed in the next section, along with an analysis of the functions of these bodies.
Labeling and Pricing Regulations
Articles 20 and 21 of the TPP require prices to be posted and goods to be labeled with country of origin, weight, material content, warranties, and similar matters of interest to the consuming public. Disclosure of such basic information is useful so that consumers can shop and compare goods. The ready availability of accurate information helps competition to thrive. If given the resources to enforce such disclosure requirements, it is appropriate for the Commission to have authority over them.
Article 22 gives the Minister and the Council of Ministers authority to regulate the prices of basic goods and services. In a great understatement, one professional who has studied the TPP called it “paradoxical” to have the Minister of Industry and Trade be responsible both for preventing price fixing agreements and for setting prices. With “basic goods” undefined, investors in many different sectors are assuming a risk that the calculations that they made when deciding to invest may suddenly be mooted out by price controls.
The Commission has rather substantial tools to prevent conduct that is harmful to competition and to deter future conduct. In addition to being able to order the offending party to cease and desist from the harmful conduct, it may order the offending party to take affirmative action to restore the injured party’s competitive position or completely cancel the offending party’s license to do business. In addition, it may assess substantial fines up to 10% of the value of total assets or 15% of gross total sales. It may also fine individuals who cooperated in the harmful conduct.