January 2012
Let's not fight; let's work together." A noble sentiment, unless spoken by business rivals; then it could be the crime of collusion. Competition Law No. 3 (2005) was meant to foster a fair and competitive market, resulting in better-quality products at lower prices. But enforcement was left to the discretion of individual ministers and thereby subject to political influence. Until now.
A decree signed last month by then-prime minister Essam Sharaf authorized the Egyptian Competition Authority (ECA) to send cases directly to the prosecutor's office. Competition Law No. 3 stipulated that the authority could refer cases only to "the appropriate minister" for enforcement. The new decree makes it possible for the ECA to sidestep the Cabinet - traditionally a hotbed of political influence - a procedural change that could make the law more effective.
Legal scholar Mohamed El Far says monopolies "restrict output, chill innovation and increase prices; this has a detrimental effect on the society as a whole, and more specifically on consumer welfare." In an article published last spring in the Mediterranean Competition Bulletin, he argued that lax enforcement of Law No. 3 played a significant role in creating the conditions that led to the uprising in Tahrir Square. Fair and effective enforcement of the Competition Law would have been one tool against "unjust enrichment arising from anti-competitive practices," he wrote.
More than two-thirds of the 93 cases studied by the ECA since the law took effect in 2005 resulted from complaints by individuals, with 13 initiated by the ECA and 14 by other government bodies. The ECA board found violations in eight cases and referred them to the competent ministers. Only one of the eight, cement, was taken up by the prosecutor's office, which won a conviction in court.
The ECA is under the umbrella of the Ministry of Foreign Trade & Industry. In an article in the Global Antitrust Review assessing the authority's independence, former ECA legal researcher Yassmine Afifi recommends greater budgetary control by allowing the ECA to negotiate directly with parliament and granting it the power to settle competition lawsuits rather than referring them to "the appropriate minister."
Although he describes the decree as "a great success," Ibrahim Abdel Rehim, head of communications and international relations at the ECA, says it is not enough. "We need more than a decree from the prime minister delegating authority; after all, he can always take it back, so we need it stated by law that the ECA can independently refer cases to the prosecutor directly," he says.
Despite this small victory, Abdel Rehim says the ECA is drafting a comprehensive new law for parliament's consideration in 2012. He says several key factors need to be discussed and included in the new competition law, such as budget and decision-making structures, composition of the ECA board, procedures for referring cases to prosecution and the degree of autonomy for the authority.
Throughout its short history, the ECA served mainly in an advisory capacity to the government, providing studies and recommendations, and advocating for greater competition in the marketplace. Since the revolution, Abdel Rehim says, the ECA has started a dialogue with civil society, especially political parties, to raise awareness about the Competition Law. "Of course, we couldn't do this before the revolution, but now some parties are even including the independence of market regulators, such as the ECA, in their platforms," he says. The authority also would like to establish an academy to offer training for post-graduate students and professionals.
According to the Competition Law, anti-competitive behavior can be "horizontal," such as price fixing, or "vertical," involving agreements with clients or suppliers. It also prohibits "abuse of dominance," meaning the biggest and most influential players are forbidden from taking any action that would unfairly inhibit competition, such as controlling production or distribution of a particular product or forcing suppliers not to do business with competitors.
Ahmed Ghoneim, an economics professor at Cairo University, says these types of anti-competitive behavior are pervasive in the Egyptian market. In addition to widespread horizontal agreements, he says, "vertical behavior, such as making deals with certain suppliers, is also there, but people are unaware that it is against the law; it's seen as normal."
Mona Yassine is a former chairperson of the ECA and co-founder of the Egyptian Association for Competition, an advocacy group that works to raise awareness in the business community. "We tell them: 'If you create a cartel, what will stop others from doing the same throughout the economy?' In the end, we will all suffer from high prices and poor quality products," Yassine says.
Anti-competition tendencies are not only entrenched in the private sector, they are widely seen as being part of government culture as well. "The government, in many cases, was the main problem," says Abdel Rehim. "They invite companies to meet and fix prices, not only on subsidized items, but to stabilize prices of certain products, as occurred in the cement and milk industries." He said the ECA has had to remind ministers that such practices are against the law.
Yassine says price-setting by the government was widespread, as officials often would meet with executives in a particular industry in an effort to lower prices. "They might be trying to eliminate sectorwide inefficiencies that increase the price," she says. "Of course, the best way to lower prices is by increasing competition, but that is a long-term process and they didn't have time."
Since the revolution, there have been attempts to legitimize government price interventions. In September, the Cabinet approved amendments that would allow price-setting for strategic commodities, but they have yet to be enacted by the SCAF.
Abdel Rehim advocates a government-wide competition policy, not just a law. "The ministries, especially Foreign Trade & Industry, should have a checklist to make sure their daily decisions, especially related to setting prices and trade regulations, such as prohibiting certain imports, do not hinder competition," he says. He also proposes establishment of a parliamentary committee to ensure that proposed legislation complies with the law.
Other amendments approved in September and awaiting SCAF action are the "full leniency" clause, which would exempt whistleblowers from fines, and another that would increase fines for violations from LE 50 million to LE 300 million. Ghoneim says a full exemption for whistleblowers is the best way to end collusion, as it would undermine trust among the conspirators who would wonder which one of them will blow the whistle first. However, Yassine believes LE 500 million fines would be counterproductive. "We don't want companies to go out of business," she says. "We want them to pay the fine and not do it again."
Yassine says the ECA should strive for full transparency, publishing not only the board's decisions, but the reasoning behind them. "When I was at the ECA, we were under a lot of pressure from media and stakeholders after decisions were issued," she says. "People should be able to review the facts of the case to fully understand the case."
Abdel Rehim says the ECA will operate in whatever economic system the parliament leans toward, whether a regulated free market or more centrally controlled. "Some have even mentioned having profit ceilings; regardless, a new competition law and policy should be part of a national economic strategy," he says, adding that the ECA's goal will be to ensure the best quality products at fair prices through fair competition.
Let's not fight; let's work together." A noble sentiment, unless spoken by business rivals; then it could be the crime of collusion. Competition Law No. 3 (2005) was meant to foster a fair and competitive market, resulting in better-quality products at lower prices. But enforcement was left to the discretion of individual ministers and thereby subject to political influence. Until now.
A decree signed last month by then-prime minister Essam Sharaf authorized the Egyptian Competition Authority (ECA) to send cases directly to the prosecutor's office. Competition Law No. 3 stipulated that the authority could refer cases only to "the appropriate minister" for enforcement. The new decree makes it possible for the ECA to sidestep the Cabinet - traditionally a hotbed of political influence - a procedural change that could make the law more effective.
Legal scholar Mohamed El Far says monopolies "restrict output, chill innovation and increase prices; this has a detrimental effect on the society as a whole, and more specifically on consumer welfare." In an article published last spring in the Mediterranean Competition Bulletin, he argued that lax enforcement of Law No. 3 played a significant role in creating the conditions that led to the uprising in Tahrir Square. Fair and effective enforcement of the Competition Law would have been one tool against "unjust enrichment arising from anti-competitive practices," he wrote.
More than two-thirds of the 93 cases studied by the ECA since the law took effect in 2005 resulted from complaints by individuals, with 13 initiated by the ECA and 14 by other government bodies. The ECA board found violations in eight cases and referred them to the competent ministers. Only one of the eight, cement, was taken up by the prosecutor's office, which won a conviction in court.
The ECA is under the umbrella of the Ministry of Foreign Trade & Industry. In an article in the Global Antitrust Review assessing the authority's independence, former ECA legal researcher Yassmine Afifi recommends greater budgetary control by allowing the ECA to negotiate directly with parliament and granting it the power to settle competition lawsuits rather than referring them to "the appropriate minister."
Although he describes the decree as "a great success," Ibrahim Abdel Rehim, head of communications and international relations at the ECA, says it is not enough. "We need more than a decree from the prime minister delegating authority; after all, he can always take it back, so we need it stated by law that the ECA can independently refer cases to the prosecutor directly," he says.
Despite this small victory, Abdel Rehim says the ECA is drafting a comprehensive new law for parliament's consideration in 2012. He says several key factors need to be discussed and included in the new competition law, such as budget and decision-making structures, composition of the ECA board, procedures for referring cases to prosecution and the degree of autonomy for the authority.
Throughout its short history, the ECA served mainly in an advisory capacity to the government, providing studies and recommendations, and advocating for greater competition in the marketplace. Since the revolution, Abdel Rehim says, the ECA has started a dialogue with civil society, especially political parties, to raise awareness about the Competition Law. "Of course, we couldn't do this before the revolution, but now some parties are even including the independence of market regulators, such as the ECA, in their platforms," he says. The authority also would like to establish an academy to offer training for post-graduate students and professionals.
According to the Competition Law, anti-competitive behavior can be "horizontal," such as price fixing, or "vertical," involving agreements with clients or suppliers. It also prohibits "abuse of dominance," meaning the biggest and most influential players are forbidden from taking any action that would unfairly inhibit competition, such as controlling production or distribution of a particular product or forcing suppliers not to do business with competitors.
Ahmed Ghoneim, an economics professor at Cairo University, says these types of anti-competitive behavior are pervasive in the Egyptian market. In addition to widespread horizontal agreements, he says, "vertical behavior, such as making deals with certain suppliers, is also there, but people are unaware that it is against the law; it's seen as normal."
Mona Yassine is a former chairperson of the ECA and co-founder of the Egyptian Association for Competition, an advocacy group that works to raise awareness in the business community. "We tell them: 'If you create a cartel, what will stop others from doing the same throughout the economy?' In the end, we will all suffer from high prices and poor quality products," Yassine says.
Anti-competition tendencies are not only entrenched in the private sector, they are widely seen as being part of government culture as well. "The government, in many cases, was the main problem," says Abdel Rehim. "They invite companies to meet and fix prices, not only on subsidized items, but to stabilize prices of certain products, as occurred in the cement and milk industries." He said the ECA has had to remind ministers that such practices are against the law.
Yassine says price-setting by the government was widespread, as officials often would meet with executives in a particular industry in an effort to lower prices. "They might be trying to eliminate sectorwide inefficiencies that increase the price," she says. "Of course, the best way to lower prices is by increasing competition, but that is a long-term process and they didn't have time."
Since the revolution, there have been attempts to legitimize government price interventions. In September, the Cabinet approved amendments that would allow price-setting for strategic commodities, but they have yet to be enacted by the SCAF.
Abdel Rehim advocates a government-wide competition policy, not just a law. "The ministries, especially Foreign Trade & Industry, should have a checklist to make sure their daily decisions, especially related to setting prices and trade regulations, such as prohibiting certain imports, do not hinder competition," he says. He also proposes establishment of a parliamentary committee to ensure that proposed legislation complies with the law.
Other amendments approved in September and awaiting SCAF action are the "full leniency" clause, which would exempt whistleblowers from fines, and another that would increase fines for violations from LE 50 million to LE 300 million. Ghoneim says a full exemption for whistleblowers is the best way to end collusion, as it would undermine trust among the conspirators who would wonder which one of them will blow the whistle first. However, Yassine believes LE 500 million fines would be counterproductive. "We don't want companies to go out of business," she says. "We want them to pay the fine and not do it again."
Yassine says the ECA should strive for full transparency, publishing not only the board's decisions, but the reasoning behind them. "When I was at the ECA, we were under a lot of pressure from media and stakeholders after decisions were issued," she says. "People should be able to review the facts of the case to fully understand the case."
Abdel Rehim says the ECA will operate in whatever economic system the parliament leans toward, whether a regulated free market or more centrally controlled. "Some have even mentioned having profit ceilings; regardless, a new competition law and policy should be part of a national economic strategy," he says, adding that the ECA's goal will be to ensure the best quality products at fair prices through fair competition.
© Business Monthly 2012
