Setting competition free

By Gamal Essam El-Din
The Ministry of Economy and Foreign Trade last week finished the drafting of an anti-trust law that is expected to tide the economy over the difficulties facing Egypt's free market regime. The bill seeks to fill in the legislative gap that must be addressed if the country is to promote a competitive domestic market and embrace the global free trade system.
"An anti-trust law has become a basic necessity for dealing with the consequences of economic deregulation, as well as the pressures of globalisation," said the bill's explanatory note.
The 39-article bill, known as the Anti-Trust and Regulation of Competition Law, consists of eight chapters aimed at tightening control on a number of monopolistic practices that can negatively affect free competition and expose consumers to financial risks.
In an exclusive interview with Al-Ahram Weekly, Minister of Economy and External Trade Youssef Boutros Ghali said, "The new draft law defines a monopoly as the practice that could negatively affect free competition on the local market." This, he added, applies to all individuals and companies involved in any financial or economic activity. According to Ghali, economic activities encompass the trade, industry and services sectors. However, Ghali explained, a number of state-owned strategic authorities will not be subject to the application of this law. "These include water, gas, electricity and petroleum authorities. In addition, the president is empowered to decide .. [which other entities] will not come under the jurisdiction of the proposed law," Ghali said. Similarly, the activities of various white- and blue-collar trade unions and syndicates and the exercise of intellectual property rights will be exempted from adhering to the law.
The draft law's first six chapters are devoted to dealing with four main forms of monopolistic practices, Ghali said. The first two, he explained, are what the bill calls "horizontal" and "vertical" monopolies. In a horizontal monopoly, Ghali said, businessmen agree to use their influence in one business sector to muscle in on other sectors. "So, the law bans all agreements aimed at securing a monopolistic edge in the areas of production, distribution, manufacturing and marketing of goods or services through manipulating their prices or restricting their supply in the market. Businesses are also prohibited from concluding certain agreements or coordinating together with the objective of imposing their control on certain segments of the market or on consumers of certain products for any period of time," Ghali explained.
Another form of horizontal monopoly is the winning, by a small circle of bidders, of privatised government monopolies in several sectors such as financial services, telecommunications and infrastructure.
Vertical monopoly, on the other hand, was defined by Ghali as one in which major enterprises turn their businesses into monopolies at the expense of consumers. "For example, two major producers of an important raw material such as fertilisers might agree to use their dominant position in the market to impose a monopolistic price on fertiliser products or reduce the competitiveness of rival producers," Ghali elaborated.
The third form of monopoly the anti-trust bill deals with is called "the dominant share monopoly." This form of monopoly applies to businesses that corner 70 per cent of trading in a particular product or commodity or the provision of a certain service on the market, Ghali said. The bill, however, will only apply to these businesses if any of them moves to create a monopoly. In other words, the draft law does not measure a monopoly by a company's size or its dominant share in the market, but by the ethics of its business practices. Ghali gave this example: A company like Ezz Steel Rebars Company is not considered a monopoly although it controls 70 per cent of the steel market because the import of foreign steel is not banned. The same thing, he added, applies to the major brokerage house EFG-Hermes Group. "EFG-Hermes now controls a dominant share of the securities market. They will remain safe, however, from the anti-trust law, until the group moves to conclude mergers with companies in its same field of business, or with companies in other areas, such as book publishing or artistic production," Ghali said.
The bill devotes a special chapter to what is called "monopolistic mergers and acquisitions." It bans all kinds of mergers which could adversely affect competition on the local market. In more specific terms, the draft law bans the merging of two companies if the turnover of each is above LE50 million at the end of the last fiscal year, in which case they would have a price monopoly and drive their rivals away from the market, Ghali said.
To guard against the emergence of monopolies, the draft law decrees the setting up of an Independent Anti-Trust and Competition Protection Council (ACPC), which will be affiliated to the Ministry of Economy and Foreign Trade. "The ACPC will have the power to monitor closely the effect of any monopolistic deals on free market competition," Ghali said.
The bill's explanatory note said ACPC's head will be empowered to form a special fact-finding committee entrusted with inspecting certain dangerous monopolistic practices. Among other functions, ACPC will be empowered to oversee the licensing of mergers. The bill states that parties to a merger must notify ACPC within 15 days of drawing up the agreement, after which they are to await a written reply from ACPC. At the end of the 15-day period, if the parties have not received either a formal approval or refusal, they would be free to complete their merger plans. Failure to comply with these guidelines could result in imprisonment and a heavy fine.
In an initial reaction to the draft law, Bahaaeddin El-Ghamri, managing director of the People's Assembly Research Centre, said that if combating monopolistic practices is essential in any free market system, it is especially important in emerging market economies such as Egypt's. El-Ghamry deplored what he described as the government's failure to submit an anti-trust law to parliament for the last seven years. "This is despite the fact that, in the past four years, there has been a surge of monopolistic deals on the local market, which witnessed 83 acquisitions and 13 mergers," El-Ghamri said.
A new study by the state-run National Council for Production and Economic Affairs (NCPEA) demonstrated that government monopolies in the fields of cement and fertiliser production, retail and wholesale marketing and metallurgical industries were replaced by private ones. "The deregulation of state monopolies also led to private dual monopolies in the area of mobile phones and soft drinks," the NCPEA study said.
On the other hand, Amin Mubarak, chairman of the Industry Committee of the People's Assembly, lauded the anti-trust draft law for not deeming size as the main criterion for labelling businesses as monopolies. "In emerging countries, the merging of two big companies should not be dubbed a monopolistic practice. On the contrary, this kind of merger should be considered beneficial to the national economy because of the possibilities that it brings in terms of technology transfer, quality upgrading and increased investments," Mubarak said.
In response to a question as to why the government refrained three times from submitting an anti-trust bill to parliament, Ghali revealed that former prime minister Kamal El-Ganzouri was against the bill. "El-Ganzouri did not believe in this law at all. For my part, I have never stood against submitting this law to parliament. As a matter of fact, it was I who first prepared the main guidelines of this bill way back in 1985," Ghali said.
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