By Amine Mansour*
Under the Law n° 06-99 relating to Freedom of Prices and Competition, merger control is characterized by a concentration of power in the hands of the executive while the Competition Council (CompetC) has a consultative role.
Translated in practice, this means that once the Prime Minister (PM) has received a complete file in connection with a notified merger, he can, inter alia, seek the assessment of the CompetC in case the operation entails a risk of distorting competition. Some would say nothing is abnormal in such a procedure. At the end, the prime minister is sovereign in his appreciation and can choose to request or not the CompetC’s expertise depending on his perception of the competitive harm. This is exactly what happened in the case of Holcim and Lafarge (H/L) merger. The Moroccan government recently approved, after a quick look, the merger between H/L in what appears to be a normal procedure. However, when highlighting additional facts relating to that case and more broadly the cement sector in Morocco, the risks of a politicized merger control stand out. Let us consider the issue.
On one side, we have the spirit and the letter of article 10 of the law n° 06-99, which obliges the executive to submit the merger to the opinion of the CompetC when the parties’ market shares are above 40% even if the operation does not lead to the creation or strengthening of a dominant position. In this sense, a study initiated by the CompetC gave a broad picture of the state of competition in the Moroccan cement sector. The study found that H/L’s combined market share in the year 2009 was of about 66, 5% (Lafarge 40, 9% and Holcim 25, 6%). Since then, the market has evolved. Two new operators entered the Moroccan cement market leading to a certain erosion of the H/L’s market share to stand, according to independent sources, at 55%. But most importantly, besides raising several alarming questions, the study stated that we are at least facing « a reasoned management of the market » by the historical producers. The report goes on to say that these producers appear to be satisfied with the statuts quo trying to preserve it as long as possible.
On the other side however, we have the executive that moves in a direction that conflicts or might appear to conflict with such findings. In this regard, the Minster of Economic Affairs (The PM has delegated its powers with respect to competition matters to the Minister of EA) gave an interview (in French) to a Moroccan newspaper (unfortunately, the decision clearing the merger was not published) in which he provides informative details about the assessment of the compatibility of the said merger. First, the minister of economy stated that the companies combined market share is at the highest 40%. Such a figure clearly contradicts with the finding of the CompetC’s study and the updated figures from independent sources. Second, he states that the only condition that the government requested in order to clear the merger was “To protect the interests of employees while safeguarding their jobs”.
Such a conduct by the Minister of Economic Affairs should be regarded as manifestly and seriously exceeding the limits of its discretion to assess the compatibility of a concentration. Several reasons confirm this situation and calls for the following observations.
First, the executive decision not to refer to the CompetC’s analysis is a clear violation of article 10 of the law n°06-99. For instance, in the CMA/CGM case the prime minister asked for the CompetC’s opinion even though the parties’ market shares do not exceed the threshold for individual notification in several relevant markets. The only relevant market where the parties hold more than 40% market share was characterized by the absence of any addition of market share. And yet, the executive requested the CompetC’s opinion.
In the present case, however, the parties would have a combined market share of between (55 and 60%). The executive chose instead to minimize the merged entity’s future market position in order to have a final say on the operation. Even if the CompetC’s opinion in the field of mergers is not binding on the prime minister, he decided not to refer to it because of the risk of taking a decision that may clearly conflict with the CompetC’s opinion.
But beyond having a transparent assessment procedure, the CompetC’s intervention would have been very helpful in shedding light on some of the issues raised in the said study.
Second, the quick clearance of the H/L merger raises a huge uncertainty as to the standards according to which a merger is assessed. The Moroccan Competition Act recognizes the hybrid test (SIEC) as the only mechanism for the assessment of the change of competition. On this point there are no signs on whether the executive has assessed or not the anticompetitive effect of the merger.
The Minister of EA asserts that no competition concerns were identified while at the same time he has requested commitments in terms of the maintenance of employment. Such a situation is very peculiar in that it contradicts with the articulation of competition and non-competition issues as organized by the Moroccan Competition Act (Article 42 law 06-99).
The Act requires the approval of any merger where no competitive adverse effect has been identified. The assessment of non-competition public interests issues becomes of potential interest to merger control only when a unilateral or co-ordinate effect has been identified. Moreover, the confrontation of these two dimensions vests in the CompetC. It is therefore an approach that focuses first on the analysis of competition issues while non-competition ones are taken into account only when the merger generates an anticompetitive effect.
The executive adopts a different approach. Its analysis makes non-competition issues prevails over the competition issues regardless of the competition outcome obviously without involving the CompetC.
It is clear that non-competition objectives are given weight in the merger analysis. I have never been opposed to the integration of such objectives in the merger appraisal especially in the context of developing countries. The only source of concern relates to the establishment of a coherent and predictable analytical framework so that enforcement actions do not deviates from principle in texts. This presupposes not only conciliating the assessment of those objectives with competition issues but also a clear indication of the non-competition considerations to be integrated or not in the assessment process.
Connecting those developments to the present case, it appears that limiting the assessment of the merger to the preservation of employee’s right means setting aside a wide range of non-competitive objectives that would have been very helpful in the context of a developing country like Morocco. It’s not insignificant that the executive focused on the maintenance of employment to the exclusion of all other dimension. Its position is best served, from a political and electoral point of view, focusing on such an objective.
Third, the present case has implications for the new Moroccan Competition Act (Law n°104-12). The approach that prevailed in the present case allows some uncertainty as to the intended use of a highly controversial provision in the new Act. This new Act, still waiting for the implementation decrees, transfers the control of mergers to an independent institution “the New Competition Council” and gives to the executive a veto right in case general public interest is at stake. The H/L’s case shows that the executive’s analysis is highly permeable to political considerations. In this context, it is obvious that the minister new powers to override CompetC’s decisions should be greatly restricted since it may render the merger control more politicized than before.
*Co-editor, Developing World Antitrust