• Saturday, July 13, 2024
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Anti-competition regulations: Shipping companies under scrutiny

A few days ago, the Nigerian anti-competition regulator, Federal Competition and Consumer Protection Commission (FCCPC), announced ongoing investigations of shipping companies over the costs of shipping. Recall that in October 2021, armed operatives of the FCCPC raided the offices of five shipping companies, which caused a measure of consternation within the industry.

Following that event, at the beginning of the year, the Nigerian Shippers’ Council (NSC) and the FCCPC signed an agreement referred to as a ‘Memorandum of Understanding’, expected to enhance synergy between both bodies on anti-competition regulation.

In the United States of America (US), shipping companies and costs have come under recent scrutiny. Shipping companies in the US enjoy immunity from anti-trust (anti-competition) laws. However, President Biden, in his State of the Union address, expressed strong misgivings about the rising costs of shipping and called on Congress to act.

For a natural person, the punishment for contravention of the prohibition of agreements in restraints of trade is imprisonment not exceeding a term of five years, or a fine not exceeding N5,000,000.00 or both the fine and imprisonment

Last month, Rep. Jim Costa, D-Calif, introduced the ‘Ocean Shipping Antitrust Enforcement Act bill,’ purposed to remove the anti-trust immunity for ocean carriers under the Shipping Act of 1916.

This bill would go further than the Free Market Immunity Reform (FAIR) Act bill, proposed in 1999-2001, which would have eliminated the exemption for ocean carriers while preserving the exemption for marine terminal operators. It remains to be seen if Rep. Costa’s bill will pass in its proposed form.

Conversely, the European Union, despite its stringent competition restrictions under Article 101 of the consolidated version of the Treaty on the Functioning of the European Union (TFEU), has a Block Exemption Regulation (Commission Regulation (EC) No 906/2009) granting anti-competition immunity to shipping companies in some specified areas. This exemption is underpinned by the recognition of the large economies of scale involved in shipping.

In Nigeria, the FCCPC has far-reaching powers including the power to enter and search premises, summon and examine witnesses, call for and examine documents, and do such other things as it considers necessary for the effective performance of its functions. The anti-competition restrictions under Nigerian law, by virtue of the Federal Competition and Consumer Protection Act 2018 (the Act) can be summarised as follows:

1. Prohibition of agreements in restraint of competition (Section 59 of the Act): This generally includes agreements that: directly or indirectly fixes a purchase or selling price of goods or service; divides markets by allocating customers, suppliers, territories or specific types of goods or services; limits or controls production or distribution of any goods or services, markets, technical development or investment; fixes minimum resale price, and withholds service/product from a dealer

Agreements authorised by the FCCPC, which contribute to the improvement of production or distribution of goods, services or the promotion of technical or economic progress, while allowing consumers a fair share of the resulting benefit are exempted from the provisions of Section 59.

In addition to specific exemptions, there are general exemptions for collective bargaining agreements between employers and employees, activities of professional associations designed to develop or enforce standards of professional qualification; contract or an arrangement among partners, none of whom is a body corporate in relation to the terms of the partnership or the conduct of the partnership business.

For a natural person, the punishment for contravention of the prohibition of agreements in restraints of trade is imprisonment not exceeding a term of five years, or a fine not exceeding N5,000,000.00 or both the fine and imprisonment. For a body corporate, the fine should not exceed 10% of its turnover in the preceding business year.

2. Prohibition of abuse of dominant position (Section 70): The act provides that a dominant position in a relevant market exists where an undertaking enjoys a position of economic strength enabling it to prevent effective competition being maintained on the relevant market and having the power to behave to an appreciable extent independently of its competitors, customers and ultimately consumers. The FCCPC is mandated to publish the size of the market that may constitute dominant position in particular markets

A company is said to abuse its dominant position where it charges an excessive price; refuses to give a competitor access to an essential facility when it is economically feasible to do so; and engages in an exclusionary act unless it can show that the technological efficiency and other pro-competitive gains outweighs the anti-competitive effect.

However, this part of the law does not apply to exclusive dealing arrangements or market restrictions between or among affiliated or interconnected undertakings like subsidiaries.

The punishment for contravention is a fine not less than 10 percent of its turnover in the preceding business year or such higher percentage as the court may determine under the circumstances of the particular case.

3. Prohibition of Monopoly (Section 70): The FCCPC may cause an investigation to be held where there is reasonable suspicion that a monopoly situation may exist in relation to the supply of goods and services or import and export of goods and services of any description from Nigeria. Where a monopoly situation is found to exist by the FCCPC, it may make a recommendation to the Tribunal. The Tribunal has far-reaching powers to make orders remedying the adverse effects of the monopoly situation including powers to provide for the division of any undertaking by the sale of any part of its shares and assets.

4. Price Regulation (Section 88) : The Act provides that for the purpose of facilitating competition, the President of Nigeria may, from time to time, by order published in the Federal Gazette, declare that the prices for goods or services specified in the order shall be controlled in accordance with the provisions of this Act

5. Merger Control (Section 93): The Act provides that proposed mergers, falling within the prescribed thresholds, shall not be implemented unless it has first been notified to and approved by the FCCPC. Under the Act, a merger occurs when one or more undertakings directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another undertaking. This may achieved through the purchase or lease of the shares, an interest or assets of the other undertaking in question, (ii) the amalgamation or other combination with the other undertaking in question, or (iii) a joint venture.

Read also: ‘Maritime sector has suffered neglect despite its ability to stimulate the economy’

The FCCPC may refuse approval to a merger where the merger is likely to substantially prevent or lessen competition, unless its technological efficiency or other pro-competitive gain outweighs the anti-competitive effects. The FCCPC may also refuse approval to a merger on ground of substantial public interest.

Conclusion: In all matters relating to competition, the provisions of the Act overrides the provisions of any other law. Note also the prohibition of conspiracy to restrain competition under section 108. The FCCPC Tribunal is established to adjudicate over prohibited conducts.

The Tribunal has powers to review decisions of the FCCPC. However request for review of decisions of the FCCPC must first be made to it as first resort. The Nigerian Court of Appeal hears appeals from the decision of the Tribunal.

The Nigerian anti-competition agency has adopted a recent aggressive posture in enforcement of the anti-competition regulations with respect to shipping companies. It is important that in dealing with businesses especially in sectors as pivotal as shipping, regulatory agencies should exercise statutory enforcement powers judiciously. The FCCPC has powers to call for and examine document and witnesses, this invariably means it should resort to raiding premises only when necessary.

Some believe that the rise of shipping costs is driven in the main by the market forces of demand and supply and not by any untoward acts on the part of the shipping companies. The MOU between the FCCPC and the NSC is a step in the right direction.

However more concrete measures needs to be adopted to ensure that the Nigerian anti-competition rules are implemented in a business friendly way that promotes competition rather than create a toxic fear-inducing environment that impedes growth.

This may necessitate the need for stakeholders in the shipping industry to lobby for an exemption from anti-competition regulation similar to what is obtainable in the EU under BER regulations.

This type of regulation will provide needed clarity in the areas in which the Shipping companies may co-operate and pool their resources rather than the generally couched exemptions under the Act. It is equally important for the regulators to diligently consider the historical basis for the grant of anti-trust immunity to shipping companies in other parts of the world in order to identify the applicability of those previously compelling factors to Nigeria having regard to the stage of our economic development, the need to encourage foreign investment and other peculiar circumstances.