Notable Amendments to the Fair Competition Act of 2003

The need for effective regulation of market practices is crucial in a rapidly evolving global economy. In Tanzania, the Fair Competition Act of 2003 (the FCA) has long stood as a cornerstone of the country's legal framework for promoting fair business practices, curbing monopolistic behaviour, and fostering a competitive marketplace.

In response to the evolving demands of a competitive global economy, Tanzania has introduced amendments to the FCA through the Fair Competition (Amendments) Act of 2024 (the Amendments). The Amendments aim at fostering fair competition in commerce while enhancing consumer protection against unfair practices.

In this month’s legal update, we delve into the transformative changes brought by the Amendments as passed on 3 September 2024. In particular, we analyse the impact of the Amendments in key areas such as market allocation, merger thresholds, and penalties for anticompetitive conduct, providing insight into what these changes mean for businesses and consumers in Tanzania.

Key Interpretations 

The Amendment introduces several new terms, including a revised definition for the term “consumer” to replace the previous one. The new key terms are defined as follows: 

• “Consumer” means a person who purchases or offers to purchase goods or services or a person who uses such goods or services with the approval of the buyer but does not include a person who purchases goods or services for the purpose of resale or using them in the production or manufacture of any goods or articles for sale;
• “Cross subsidisation” means an internal transfer within an entity of profits resulting from one line of business to less profitable line of business;
• “Essential facility” means an infrastructure or resource that cannot reasonably be duplicated, and without access to which, competitors cannot reasonably provide goods or services to their customers; 
• “Loyalty discount and rebate” means a discount offered on a condition that the customer engages in a loyal purchasing behaviour by repeatedly purchasing goods or services from the same supplier and refraining to purchase from other suppliers; 
• “Margin squeeze” means a pricing practice where the margin between the price at which a vertically integrated firm, which is dominant in an input market, sells a downstream product, and the price for which it sells the key input to competitors does not allow downstream competitors to compete effectively; 
• “Re-sale price or condition maintenance” means an agreement between a supplier and a re-seller whose object or effect or likely effect is, directly or indirectly, to fix a minimum selling price or condition to be used by the re-seller when re-selling goods or services to customers; and 
• “Vertical agreement” means an agreement between persons each of which operates, for the purpose of the agreement, at a different level of the production or distribution chain and relates to the conditions under which the parties may purchase, sell or resell certain goods or services. 

Notable Changes

The Amendments have generally brought about crucial changes to the Act. A preview of these changes is outlined below:

Exclusive jurisdiction vested on the Fair Competition Commission (the Commission) 

The Amendments replaced the terms “court of competent jurisdiction” and “court”, previously provided in the FCA, with the term “Commission”. The substitution essentially grants the Commission exclusive jurisdiction in handling competition in trade and commerce and consumer protection matters, a responsibility that was previously vested in courts only. 

Prohibition on “market or customer allocation” and “output restrictions between competitors” 

Section 9 of the FCA dealt with prohibition of anti-competitive agreements irrespective of their effect on competition. The Amendments have added two offences to section 9 namely: allocation of market or customer; and output restrictions between competitors. The Amendments specifically define “allocation of market or customer” as an anticompetitive practice where competitors agree to divide markets or customer groups among themselves so as to limit the choice of doing business within a defined geographical territory, a defined product category or certain specified customers. As an effect of the Amendments, competitors are now prohibited from allocating markets or customers among themselves to prevent a reduction in competition within the market, which could ultimately harm consumers. 

Leniency programme 

The Amendments introduce section 9A immediately after section 9 of the FCA, providing leniency for offenders who voluntarily disclose information about prohibited practices. This new provision empowers the Commission to administer a leniency programme, allowing for the reduction or exoneration of penalties for individuals who disclose the existence of agreements and cooperate with the Commission's investigation of prohibited practices which include:

1. price fixing between competitors;
2. output restrictions between competitors;
3. allocation of market or customers;
4. a collective boycott by competitors; and
5. collusive bidding or tendering.

The objective of having a leniency programme is to aid the Commission in uncovering anti-competitive arrangements, simplifying the investigation process, and fostering collaboration in combating prohibited practices.

Prohibited conducts 

The Amendments provide prohibited actions which include the abuse of dominant market position by individuals in relevant markets, which may likely prevent, restrict or distort competition. This is specifically referred to as misuse of market power. The amendment aims to ensure fair competition and consumer access to goods or services at competitive areas. Furthermore, section 10A is introduced to prohibit vertical arrangements which are anti-competitive trade practices between persons of different levels in a market chain. In essence, this amendment is aimed at promoting fair competition among market participants and ensuring that consumers have access to goods or services at prices that reflect competitive market dynamics.

Mergers resulting from substantial public benefit 

The Amendments introduce section 11A to govern mergers with substantial public benefits. As it stands, the Commission may approve a proposed merger which prevents, restrains or distorts competition, only if the Commission is satisfied that the proposed merger is likely to result into substantial benefits to the public which surpass any negative impact it may have on competition prevention, restraint, or distortion, and such benefit outweighs the detriment caused the by prevention, restrain or distortion of competition caused by the proposed merger.

When assessing substantial public benefits, the Commission shall consider the following factors: 

1. the degree to which the proposed merger will enhance resource allocation efficiency; 
2. the potential for the proposed merger to foster technical or economic advancement and skill transfer, or enhance the production, distribution, or service provision in Mainland Tanzania; 
3. the financial distress faced by the target firm and whether the proposed merger presents the least anti-competitive utilization of business assets;
4. the potential for the proposed merger to stimulate exports from Mainland Tanzania or employment opportunities within the region;
5. the impact of the proposed merger on specific industries or regions;
6. the potential impact of the proposed merger on the competitiveness of national industries in regional and global markets; and
7. the potential impact of the proposed merger on the competitiveness of small businesses.

Determinant factor of prohibited mergers 

Section 13 of the FCA has been amended to revise the criteria for identifying prohibited mergers, with emphasis now being where the relevant merger results in weakening competition rather than strengthening dominance. In essence, the objective is to align the criteria for prohibited mergers with the actual competitive landscape across regional, and international markets.

Specifying general penalties 

Section 60 of the FCA is amended with the addition of a new subsection immediately following subsection 1. This new provision will delineate general penalties applicable to implied Part VI and VII of the FCA, concerning implied conditions in consumer contracts and the obligations of manufacturers. The objective of this amendment is to enhance clarity and consistency in the provisions of the FCA.

Appeal to the Court of Appeal of Tanzania

Sections 61 and 84 of the FCA are amended to allow individuals aggrieved by decisions of the Fair Competition Tribunal (the Tribunal) to appeal to the Court of Appeal. Consequently, section 85 is amended to bestow all the powers of the High Court to the Tribunal. This amendment removes the finality of decisions rendered by the Tribunal in the previous provision, aiming to provide aggrieved parties a chance to seek recourse from a higher appellate judicial body. 

Tenure of members of the Tribunal

Section 83 is amended by providing tenure of the Chairman and members of the Tribunal. The composition of the Tribunal remains the same, with six members in total. Following the Amendments, the Chairman and three members of the Tribunal shall serve for a term of four years while the other three members shall serve for a term of three years. This change aims to enhance the operational efficiency of the Tribunal by ensuring that there is always a blend of seasoned members and new perspectives, thus facilitating consistent and informed adjudication of competition-related matters.

Stay of execution of orders

Section 91 is amended by removing automatic stay of the execution of orders of the Commission pending determination of an appeal to the Tribunal, and instead, stay shall be on application. The amendment to section 91 of the FCA changes the approach to staying orders from an automatic process to a discretionary one. Previously, an appeal against a Commission order would automatically stay the order unless the Tribunal decided otherwise. Following the Amendments, a stay of the order is no longer automatic; instead, the Tribunal may grant a stay only if a party specifically applies for it, giving the Tribunal greater control over whether the Commission’s order remains effective during the appeal process. The aim of this amendment is to discourage unscrupulous litigations and to expediate determination of appeals by Tribunal. 

Conclusion 

The Amendments provide improved clarity and significantly enhances the framework for promoting fair competition and consumer protection in Tanzania by introducing new definitions, prohibiting anti-competitive practices, and establishing a leniency program for offenders, hence fostering a more equitable marketplace. These changes aim to empower the Commission with exclusive jurisdiction over competition matters and to ensure that both businesses and consumers benefit from a more transparent and competitive economic environment.