06 Aug
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Merger Control and Public/Industrial Policy: A Legal and Policy Analysis of Ethiopian Competition Law


I.  A Prelude: Why Merger and Merger Control?

Merger is often simply used to convey a variety of acquisition and takeover transactions; but it specifically depicts to the scenario in which the assets and liabilities of the selling company are transferred to and absorbed by the buying company. Actually, a true merger involves two separate undertakings merging entirely into a new entity; however, it is better to understand that the term merger as employed in competition policy, as stated above, also includes a far broader range of corporate transactions than full or true mergers.

There are many justifications why merger is sought. Many of them are important or at least not baneful to the economy; and some others are more nocuous. To see those beneficial ones: some mergers are good to achieve economies of scale and scope; mergers are taken for efficiency reasons (backward integration is good for supplies and forward integration for taking over a distributer, and to make use of management skills of constituent parts); mergers create national champions in creating large domestic firms; mergers bring management efficiency and market for corporate control; mergers let firms that wish to do so with an opportunity of exiting an industry via avoiding barriers to exit; and mergers increase market power.

In spite of the aforementioned benefits, merger creates or reinforces a dominant position and thus depriving consumers of benefits resulting from effective competition. Mergers may cramp effective competition in redoing the market structure so that companies on a relevant market may probably coordinate and raise prices.  That is post-merger market structure facilitates collusion. Plus, the other deleterious effect of merger to competition may be a reduction of the companies’ abilities and/or incentives to compete.  This, in turn, causes higher prices or lack of innovation. Therefore, Merger control policy comes to avoid the creation of a market structure that considerably facilitates coordination of market behavior between different market players.

Effective merger control, in devising preventive tools using economic simulation models, also helps to keep up competitive market structures bringing better welfare outcomes for consumers. Beyond meeting goals related to competition policy, merger control may also pursue politically defined some public interest goals for reasons of social policy or industrial policy. Thereby, merger control may be used as a tool to block or support business projects that are not necessarily efficient from a competition perspective.


II. Merger Control and Public Policy: A Deviation from Efficiency and Consumer Welfare-Based Competition Analysis

First, what does mean public/industrial policy? Does it have a clear meaning and scope? Public policy is so an elusive concept lacking definitional clarity. Although, it has been defined as an unruly horse in an original and witty way, by Justice Burroughs, still this definition is not helpful to understand the term. The writer, Chapman, also had the following to say:


Public policy is in its nature so uncertain and fluctuating, varying with the habits and fashions of the day, with the growth of commerce and the usages of trade, that it is difficult to determine its limits with any degree of exactness. It has never been defined by the courts, but has been let loose and free from definition in the same manner as fraud. This rule may, however, be safely laid down, that wherever any contract conflicts with the morals of the time, and contravenes any established interest of society; it is void, as being against public policy.


The above paragraph portrays us that public policy is so a fluid concept which varies across time; changes as to the growth of commerce and usages of trade; and its boundary cannot be circumscribed and known. However, public policy is manifested when it is negated whenever any contract is void, conflicts with the morals of the time, and contravenes established interest of society. From this extended meaning given to public policy, we can say that public policy lies at the center of the each community, nation, state and principality. That is why it is said that public policy controls each nation, state, principality; and it is part of the law of the land. Besides, each community has also public policy enforced by public sentiment, as opposed to public policy which is or part of the law of the nation, state or principality enforced through courts. Anyway, whatever kind it is, public policy is based upon the sense of justice.

From the above paragraph, it is possible to deduce that if public policy has such a long-stretched and/or pervasive meaning, the scope of coverage of merger control justifications and practice as to public policy will also be so wide. Thus, an inevitably, we are obliged to deviate from efficiency gains and consumer welfare analysis of competition law and policy. The traditional objective of competition law is improvement of consumer welfare through, at least primarily, efficiency. However, as time went by, competition policy has also been generally pursued to achieve or preserve a number of other policy objectives such as pluralism, de-centralization of economic decision-making, preventing abuses of economic power, promoting small business, fairness and equity, and other socio-political values. And, most of the time, these non-efficiency-related objectives have no or limited role in competition analysis. For this, most appropriately, these non-efficiency objectives are considered as supplementary objectives. As said above, non-efficiency-related objectives in competition analysis, or the inclusion of multiple objectives may increase risks of conflicts and inconsistent application of competition law. Specially, to pursue non-efficiency objectives risks the competition authority restricting severely its independence and may invite political intervention and to compromises.

In spite of the fact that efficiency and consumer welfare based competition policy and law analysis in general and merger control in particular are well founded on basic tenets of neoclassical and behavioral economics, let efficiency and consumer welfare are also somehow not easily measureable and defined, they are not capable to satisfy many benefits of citizens. That is why the exercise of state power through ministerial or administrative policy making is sought; though this is by the very fact, legally or politically difficult. Undeniably, the exercise of such power in the modern administrative state is essential to ensuring that the broad goals identified in legislation and adjudicated in individual cases can be translated into, or applied through coherent and sensible public policy.

As to the debate whether merger decisions to be based on public interest considerations, most OECD member countries, as opposed to arguments for the wider pursuit of public policy, say that in merger assessment, only competition objectives should be considered leaving public interests to be promoted through market efficiency. No room or need of specific consideration of public interests in competition system. To the opposite, others argue for increased public interest considerations, especially in times of financial and other crises. This line of argument carries more weight in emerging economies and OECD non-member countries. The business community also strongly supports the assessment of mergers solely based on competition principles since the introduction of public interest considerations into the merger review analysis increases complexity and unpredictability; is burdensome and costly for businesses, and may possibly pose a chilling effect on pro-competitive mergers.


III. Public Policy Considerations in Merger Control System: an Open and Tense Debate

3.1. Arguments against Public Policy Considerations in Merger Control Review

ICN Recommended Practices for merger analysis says that merger review should focus exclusively on identifying and preventing or remedying anti-competitive mergers; and a merger review law should not be used to pursue other goals. ICC also argues in general that non-competition factors should not be employed in antitrust merger review’. As a result, this line of argument calls for shift from non-efficiency goals and an elimination of, or less frequent or more restricted use of public interest tests or political over-rides in domestic competition laws resulted. Unless otherwise, an anticompetitive merger or restrictive trade practice to proceed on the basis of broader public interest considerations; or a pro-competitive merger or trade practice to be blocked or remedied on the basis of such considerations would happen. Here below, there are three main lines of argument against non-efficiency criteria in merger analysis:

  • Risk of legal uncertainty and unpredictability of the merger analysis would increase.
  • Non-efficiency objectives may be achieved through market efficiency; hence no room or need for specific or special consideration of such objectives within the merger control system particularly and the competition law generally. Public interests other than efficiency would rather be addressed by other more specific policies effectively.
  • Public interest considerations beget a significant obstacle to effective cross-border merger control. Hence, the increasing trend of large, global mergers become challenging for merging parties to comply with the differing merger requirements around the world due to the difference and possibility of conflicting public interest considerations in merger regimes in different jurisdictions.

3.2. Arguments for Public Policy Consideration in Merger Control Review

As opposed to the above line of argument, public interest objectives continued to be employed by developing countries and transitioning economies where competition policy is generally not taken as a sufficient tool to address development objectives. Here, competition law and policy used as one of the different tools by governments to meet a coherent set of multiple development policies. For this, merger control regimes in developing countries frequently comprise considerations even out of the traditional boundaries of competition law. However, here also the traditional, efficiency-based competition policy goals are pursued, including taking other considerations of economic and social needs of a country. Given the stage of their economic development, developing countries have greater influence of vested business interests; and a more pressing need to meet one or more public interest objectives. Besides, developing countries are generally more politically unstable with lower level of economic development so that higher level of government intervention to tackle barriers to trade and unemployment could affect general goals pursued by competition policy. UNCTAD also added that it is inevitable for competition law to pursue other development policy objectives that could be considered public interest. When we question what is behind these notions we can have the following possible reasons:

  • During transitioning from economic structures based on (state) monopolies to more open market structures, developing countries are obliged to use competition policy as an essential role in ensuring economic liberalization. And, since this stage of economic transitioning is often characterized by important social challenges; there is a need to promote other public policy objectives through competition law and policy.
  • Developing countries also entertain significant pressure to conform to international standards, which has led to the dissemination of competition laws in many such jurisdictions. And, by this time, reforms and new policies cannot be detached easily from the history and the domestic needs of each country.
  • Industrial policy is greatly used in developing economies and this leads almost inevitably to consider public interests having a much stronger weight in competition law enforcement than they have in developed economies.
  • The inclusion of public interest considerations in competition enforcement could facilitate greater credibility and legitimacy of competition authorities within the broader institutional framework of developing countries.

IV. Merger Control and Industrial Policy

Though industrial policy has much similarity with public policy considerations in merger control system, since it is a specific policy, or part of public policy that is topical in competition policy and law, it needs to be discussed separately. To begin with its meaning, here below is its operational definition:

In current use, the term ‘industrial policy’ denotes the promotion of specific industrial sectors rather than industriali[z]ation overall… Industrial policies are direct, micro, and selective; they are an attempt by government to influence the decision making of companies or alter market signals; thus they are discriminating… Industrial policy has sometimes sought to support the losers, delaying or retarding their decline; in other cases the goal is to succor or cataly[z]e maturing sectors or to stimulate advancing sectors.

Although the name industrial policy, on the face, depicts as itself as a general policy across industrialization efforts, it is sector specific, micro, and particular attempt by government enabling to impact decision making of companies or change market signals. In doing so, industrial policy is a decisive tool to support those uncompetitive players, or strengthen or motivating those who are advancing in the market. Here, we can also understand that unlike public policy, industrial policy has not much shouldered the wider public morals, interest and other concerns which normally vague and difficult to prove. If so, I believe that industrial policy is much easier for consideration in merger control system with probably known variables/factors and in implementation so that it would not pose as such a Pandora box like mischief which entails many consequential problems.

Another nature of industrial policy is that it may not be usual to be found or crafted in all countries unlike public policy. It is quite vivid that public policy is a concern of all countries, societies, or states; however, when we see industrial policy, for example, U.S. doesn’t have an industrial policy by name. It does not have an industrial policy; rather, its broad policy is free competition and, concomitantly, vigorous antitrust enforcement. And industrial policy necessarily co-exists with other government policies. For example, as a short term measures that are aimed to ease the economic shocks that affect particular industries in troubled times. At various times, measures favoring specific industries have been implemented, at both national and sub-federal levels, that some might see as constituting industrial policy. It is competition policy, not industrial policy just as special details fasten onto one form of industrial intervention or another, which is the main organizing principle of the U.S.’s economic policy.

Now, from the above paragraph, it easily understood that industrial policy for countries like U.S. would not be an issue to be dealt in merger control cases. And, this may be attributed due to the existence of a developed economy quenched it thirsty of industrialization unlike developing and transitioning economies. Or, it may be due to the existence of robust regulatory capacity of different sectors of the economy that can consider industrialization policies as to the need and context of this arena of economic play in developed economies.

Keeping the above scenarios in mind, among the various tools used for the purpose of implementing industrial policy, arranged mergers and acquisitions can be mentioned. National champions may also be created or protected in different ways, among other things, by encouragement of domestic mergers. Countries may also adopt industrial policies for many different reasons, for instance, to correct market failures, these endeavors are in line with promoting long-term consumer welfare and efficiency, there will be hardly be in conflict with competition policy. Anyway, here in industrial policy also, there is both a complementarity and synergy to competition policy in genera and merger control in particular; and other times a conflict. This may be due to the fact that modern competition policy is inspired by the neoliberal ideas of the Chicago school that place great confidence in free markets while industrial policy induces a more interventionist approach, taking the assumption that markets are fallible and that governments should correct their imperfections. For this, it is usual to hear that sound competition law and policy is in tension with industrial policy since it promotes consumer welfare whereas industrial policy promotes government intervention for privileged groups or industries.

Competition, by stimulating efficiency in production, innovation and the allocation of resources, in the provision of products and services ensures sustainable economic growth, employment and economic welfare generally. It is pervasive and long lasting effects on economic performance by affecting actors’ incentive structure, by encouraging their innovative activities, and by selecting more efficient ones from less efficient ones. Therefore, competition policy which is designed to sustain competitive markets is also a key to an industrial policy by enhancing the competitiveness of industry.

In a nutshell, all the above paragraphs though they are entangled with conflicting views as to the consideration of industrial policy in merger control, they conveys us that it is possible to argue that industrial policy can easily be considered in merger control system than public policy. For this, even competition policy may also aim to inject competitiveness in industries so that the probability of using merger to achieve industrial policies would arise, albeit that there are opposing arguments. If it is properly regulated both industrial policy and competition policy in general and merger control system in particular can be synergies in that competition policy enhances efficiency by promoting or safeguarding competition; and industrial policy offsets externalities affecting production decisions by firms. In doing so, both can be mutually supportive than competing and conflicting.

V. Merger Control and Public/Industrial Policy under Ethiopian Competition Law

Competition policy and law cannot be detached from other public policies of a socio-economic nature since the objectives are of a societal kind; and coherence between policies is required. Stemming from the interrelation between competition policy and other public policies it can be said that competition policy should be considered as the fourth cornerstone of government economic framework policies along with monetary, fiscal and trade policies. However the existence of a strong relationship between competition policy and a country’s other economic policies may not always end well; there are times when competition policy adversely collided with other policies. In the case of Ethiopia, the socio-economic policies that may affect competition either positively or negatively, could include, industrial policy, trade policy, regulatory policy, investment policy, public procurement policy, and labor policy. Therefore, it can be safely concluded and it is natural that merger control being is part of the general competition policy and law may be encroached with the aforementioned public policies.

When we examine the TCCP No. 813/2013 from Arts 9-13, they are destined to regulate merger, and there, the test of merger control is ‘Significant Adverse Effect on Trade Competition’. Here, the test required to be employed in merger control system under the proclamation is part of efficiency based merger control analysis, which is the very objective of competition policy and law. However, under the same proclamation, the authority is empowered to approve a merger proposal when a merger is probably brings technological efficiency or other pro-competitive gain that offsets a significant adverse effect of the merger on competition; and if it is believed that such gain cannot be obtained if a merger is forbidden. This provision gives other policies out of the purview of competition policy and law an outlet or the chance to be positively considered to allow merger. Here, the law wants to take simply a cost benefit analysis between the benefits to be gained in allowing the merger and prohibit the same. If so, a public/industrial policy which is believed to bring or enhance technological efficiency, or other precompetitive gain outshining the adverse effect of the merger on competition and which can bring an outweighing benefit than prohibiting a merger do have the opportunity to be prioritized and considered in favor than policy objectives of competition policy and law. In the normal course of events, especially in developing and transitioning economies, such kind of socio-economic policy intermixed application and use is expected so that can achieve their developmental goal.

Another provision of the TCCPP that gives merger proposals the chance to be approved for the reason of public/industrial policy can be inferred from the scope of application of the proclamation. The Council of Ministers is empowered exempt those trade activities from the application of part two the proclamation in which merger regulation is apart by regulation it deems vital in facilitating economic development. Here also, it is plausible to say that the Ethiopian competition law is so kin accommodating the application other non-competition policy and law objectives which can be of public/industrial policy nature as far as they are found to be paramount to facilitate economic development. This provision is so flexible in allowing merger even without doing costs benefit analysis as per Art. 11 (2) of the proclamation if it is exempted from the application of part of this proclamation by a regulation in advance. So, key public/industrial policies which are believed to bring a considerable benefit to meet developmental goals of the country, they can easily be prioritized if they are of vital in facilitating economic development and given leeward from the application of part two of this proclamation including merger regulation.

Last but not least is that TCCPP may not affect regulatory functions and administrative measures to be taken by other laws. Here, this is a marvelous provision, unless abused and applied inappropriately, to allow sector specific laws to regulate merger without adhering the very rules of the proclamation so that merger control system can easily be handled through consideration of laws backed by other sector specific or general public/industrial policies. So, despite the fact that there are no clear rules on how to carryout merger in consideration of public/industrial policy, the Ethiopian competition law is so flexible in that made itself adaptable and responsive to public/industrial policy needs of the country.

The industrial policy of Ethiopia, when it is examined by itself, it is within the framework of the world environment and the free market economy and generated from the Industrial Development Strategy. The key principles of the strategy which constitutes the industrial policy are: recognizing the role that can be played by the private sector as an engine of industrial development; and identifying and avoiding obstacles that hamper the role of the private sector in the eyes of the Government; ensuring rapid industrial development guaranteeing backward and forward linkages between agriculture and industry; facilitate other concomitant sectors having additional benefits of quality improvement; emphasizing on labor-intensive industries; and coordinating foreign and domestic investment and between government and the private sector. And, these principles of the industrial policy doesn’t seem having an appreciable adverse impact against competition and competitiveness.

Therefore, unlike the tense debates and controversies for letting public/industrial policy considerations in merger under merger control system, or regulation, the Ethiopian competition law has already paved avenues for considering public/industrial policies in merger review and has solved all the naggings in advance. It has not yet supported with a regulation or other soft laws having detailed rules in this regard, however. And, the industrial policy of the country, on its part, tried to make it harmonious with principles of competition and competitiveness. Still, what should be underlined is that both the competition law and industrial policy or other policies needs to formulate and supported with respective regulations and soft laws on how to apply competing competition and non-competition policies together in harmony so that merger laws and practices can be predictable and the general merger control system or regulation can be proceed without problem and enforcement of completion law can be facilitated and eased.


VI. Concluding Remarks


Literally, merger refers an instance that one company acquires assets and liabilities of another company via amalgamation, buying shares voting rights, pooling resources, creating backward and forward linkage in vertical markets, and bringing management under control so that the merged companies create powerful market power which can be a fertile ground to dominancy and thereby probably abuse of the dominant position. And, nowadays merger has taken various forms and even some of which are not easily appreciable and considered as merger. For this reason, different countries have devised merger regulation used to control mergers posing devastating effects on competition in the market.

As opposed to the prohibition of merger, there are instances by which merger is allowed. For this, different jurisdictions competition policies and laws have tests that will allow or prohibit merger. In this regard, most developed economies would like to review merger cases as to the very objectives of competition policy and law, in line with efficiency and consumer welfare standards. To do so, such economies due to their developed competition culture and regulatory capacity of different sectors of the economy, they don’t need to employ cross-sectoral application of socio-economic policies. However, when we come to the transitioning and developing economies, competition law, their different socio-economic policies have not yet able to stand independently and require cross-sectoral reinforced application of socio-economic objectives. Hence, even if they formulate competition policy and law, they used it also to meet objectives aspired by other public/industrial policies.

As a result of the above interface application of different socio-economic policies, merger is usually required to be undertaken to achieve different public/industrial polices in the economy. So, merger proposals are not exclusively reviewed as per efficiency and consumer welfare standards. Regarding this practice, there is an intensified debate whether merger is sought to meet non-efficiency and consumer welfare objectives out of the purview of competition law and policy. And, the debate is circumscribed and to be determined as to the stage of economic development different countries achieved.

Last, when we examine merger control and public/industrial policy considerations, the TCCP No. 813/2013, first from its scope allows exemption of trade activities believed to facilitate economic development from the application of merger and other anti-competitive practices so that there will be a scenario where merger cases to be reviewed in light of other public/industrial policy perspectives. Moreover, under part two of the proclamation, under Art. 11 (2), merger is allowed when it is found to result technological efficiency, or other pro-competitive gain which outweigh the significant adverse effects of merger on competition and such gains may not be obtained if the merger is prohibited. The proclamation also tolerates regulatory functions and administrative measures taken by other laws. And, the principles of the industrial policy of the country have been made to facilitate competition and competitiveness. Therefore, pitfalls in merger control can be minimized, if merger regulation is properly undertaken understanding the very positive intents of the competition law and other public/industrial policies. To bring coherent, consistent, uniform, cost-effective, predictable, and efficient application of this proclamation regarding merger control, it would be rewarding if regulations and directives, and other soft laws in the form of guidelines and manuals are formulated.

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Last modified on Monday, 06 August 2018 18:48
Alemnew Gebeyehu

Alemnew Gebeyehu Dessie is a graduate of Debre Markos University School of Law with Great Distinction (June, 2016). He is an Assistant Lecturer of Laws in the same school since July, 2016 on wards. Currently, he is finalizing his study in Business and Corporate Law (LLM) at Bahir Dar University School of Law. He is interested in corporate governance and finance laws, laws of financial markets and institutions, trade and investment laws, law of taxation, competition and consumer protection laws, and other contemporary issues of business and corporate laws.