Tanzania Tightens Competition Rules: Critical Amendments to Tanzania Competition Act

Tanzania Tightens Competition Rules: Critical Amendments to Tanzania Competition Act Tanzania aims to tighten the competition environment and avoid abuse of the market, to the detriment of the consumer/customer. Accordingly, the Fair Competition Act ( FCA)1 has been amended as follows: 1. Introduction of new definitions which have led to introduction of new restrictions and obligations: 1.1. “Cross subsidisation” means an internal transfer within an entity of profits resulting from one line of business to less profitable line of business. 1.2. “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. 1.3.

“Loyalty discount and rebate” means a discount offered on a condition that the customer engages in a loyal purchasing behavior by repeatedly purchasing goods or services from the same supplier and refraining to purchase from other suppliers. 1.4. “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. 1.5. “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. 1.6.

“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 re-sell certain goods or services. 2. Aside from introduction of new definitions as highlighted above, the following are the new amendments: 2.1. A person has a dominant position in a market if both acting alone, or with another person can profitably and materially restrain or reduce competition in that market for a significant period of time; and the person’s shares in the relevant market, severally or jointly, exceeds forty percent. Initially, dominance in the market position was assessed based on a single person acting alone and such person holding 35% of the market share.

Following the recent amendments, the dominant position in the market is assessed on the person either acting alone or with someone else and either severally or jointly have ability to materially and profitably restrain or reduce competition, and the market share is now set at 40% 2.2. Removal of intentional or negligent act to determine liability Initially, several provisions of the FCA provided as follows: A person who intentionally or negligently acts in contravention of the provisions of this section, commits an offence under this Act. 1 https://www.fcc.go.tz/en/legal-framework

The recent amendments removes the requirement of intention or negligence to find a person liable for breach of the FCA provisions. The provision now reads as follows: A person who acts in contravention of the provisions of this [FCA] section, commits an offence under this Act. 2.3. Introduction of prohibition against output restrictions between competitors and allocation of market or customer Prior to amendments of the FCA, there was no express prohibition of the two activities but now it is an offence to have output restrictions between competitors and allocation of market or customer is prohibited.

The FCA has further defined: “output restrictions between competitors” means to prevent, restrict or control the production by a party to an agreement of goods or services to be supplied in competition with any other party to the agreement; and “allocation of market or customer” means the allocation of a market or customer among competitors so as to limit the choice of doing business within a defined geographical territory, a defined product category or certain specified customers. 2.4. Introduction of Leniency Programme The FCA now allows the Fair Competition Commission (the FCC)2 to show leniency by exonerating penalty for any person who engages in prohibited agreements if such person voluntarily discloses the existence of the agreement and cooperate with the FCC in the investigation on the prohibited practice.

The amendment provides that there will be rules published which will provide further on the leniency programme. In practice, this was already implemented by the FCC provided the person self-reports on the FCA breaches it has committed. 2.5. Exploitation of customers by person(s) who are in a dominant position now prohibited Persons who are in dominant position are prohibited from using their position of dominance to exploit customers. Note that, as per the preceding paragraph 2.1, the position of dominance is now amended to include a person either acting alone or with someone else, jointly or severally and has/have 40% of the market share.

To bring more clarity, the FCA has further elaborated on what abuse of dominant position means (includes): a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; b) limiting or restricting production, market outlets or market access, innovation, investment, distribution, technical development or technological progress to the prejudice of consumers; c) predatory pricing; d) margin squeeze – defined under paragraph 1.4; e) cross subsidisation – defined under paragraph 1.1; f) refusal to deal; g) denial of access to an essential facility – defined under paragraph 1.2; h) tying and bundling; 2 https://www.fcc.go.tz/

i) discrimination in price or trading conditions to the prejudice of suppliers or consumers; j) loyalty discount and rebates that harm competition – defined under paragraph 1.3; k) abuse of an intellectual property right; and l) making agreements subject to acceptance of supplementary conditions which by their nature have no connection with the subject matter. 2.6. Introduction of new prohibitions regarding restriction of movement of goods, control of re-sale prices and foreclosing of customers or competitors The FCA is amended to clearly prohibit any agreement which involves: a) re-sale prices or conditions maintenance; b) foreclosing customers or competitors from access to sources of supply or from access to outlets; or c) restricting movement of goods or services between different geographical areas.

The FCA has allowed a person to recommend a minimum re-sale price to the reseller of goods or services if- (i) the supplier or producer makes it clear to the re-seller that the recommendation is not binding; and (ii) the product has a price stated on it and the words “recommended price” appear next to the stated price. 2.7. FCC given authority to approve prohibited merger if the result will bring substantial benefits to the public The FCC is now allowed to approve a merger which would otherwise be prohibited if it is satisfied that the proposed merger is likely to result into substantial benefits to the public which would outweigh any detriment caused by the proposed merger on preventing, restraining or distorting competition.

In determining whether or not to exercise this power, the FCC shall consider the following factors: (a) the extent to which the proposed merger shall contribute to the greater efficiency in the allocation of resources; (b) the extent to which the proposed merger would, or is likely to, promote technical or economic progress and the transfer of skills, or otherwise improve the production or distribution of goods or the provision of services in Mainland Tanzania; (c) the extent to which, the target firm faces actual or imminent financial failure and the proposed merger offers the least anti-competitive alternative use of the assets of the business; (d) the extent to which the proposed merger shall boost exports from Mainland Tanzania or employment in Mainland Tanzania; (e) the extent to which the proposed merger shall affect a particular industrial sector or region; (f) the extent to which the proposed merger may affect the ability of national industries to compete in regional and international markets; and (g) the extent to which the proposed merger may affect the ability of small businesses to become competitive.

2.8. Time cap of three and six years now removed

Prior to the amendments, the FCC could issue compliance orders (among others) within a period of three years from the date of acquisition. However, with the recent amendments, the time cap of three years is now removed, hence the powers of the FCC to impose compliance orders, which includes the power to reverse transaction does not appear to have a time limit. Also, the FCA used to have a time limit of six years within which the FCC was allowed to impose penalties against persons who are in breach of the FCA. Now the time limit of six years is removed meaning the FCC may impose any penalty, including a penalty of not less than five percent but not exceeding ten percent of annual turnover which has a source in Mainland Tanzania, at any time it becomes aware of such breach.

2.9. Introduction of new penalties on breaches of manufacturers’ obligations and implied conditions in consumer contracts The new penalties which are imposed (in addition to others) are as follows: (a) in case of a body corporate, a fine of not less than thirty million shillings but not exceeding fifty million shillings or 3 percent of his annual turnover in the preceding year, whichever is greater; and (b) in case of a natural person, a fine of not less than ten million shillings but not exceeding thirty million shillings or 1.5 percent of his annual turnover in the preceding year, whichever is greater. 2.10. The FCC given more mandate to determine disputes and impose penalties/fines There are several amendments in the FCA which shifts the power from court to the FCC.

Accordingly, the FCC is now authorized to impose penalties, order payment of compensation, fines etc. which was previously bestowed on Tanzania courts. Also, there is now a right to appeal to the Court of Appeal whilst previously, the decision of the Fair Competition Tribunal3 was considered final. Please note that the above list is not an exhaustive list of all amendments passed under the FCA. Disclaimer The views expressed in this paper are those of the author only and should not be considered as an official interpretation, defamatory or interference of any legislation, laws or policies of any country including Tanzania. The contents of this paper should not under any circumstances be reproduced or used without our express written consent. It should not be considered as a legal advice to any of its recipient(s) and should not be relied upon without obtaining further legal advice.

We accept no liability for any loss occasioned or suffered due to the contents of this paper. 3 https://www.fct.or.tz/