Why is competition law enforcement important to trade unions in Zambia?

1. Why is competition law enforcement important to trade unions in Zambia? Cornelius Dube CUTS INTERNATIONAL

2. Introduction and Outline • Competition and labour laws are often regarded as pursuing conflicting objectives. • Labour laws give workers the right to collective bargaining (shield from competition). • Trade unions prevent labour from being sold strictly on an individual basis • Existence of unemployment a threat to competition principles in labour • Appreciation of social objectives behind labour unionisation saw exemptions in competition laws of union activity • Actually, competition enforcement is largely in the interest of trade unions • Important for trade unions to appreciate why it is in their interest to support competition enforcement • Objective of the presentation

3. What is a competition law? • Legislations, judicial decisions and regulations specifically aimed at creating institutions for preventing anti-competitive business behaviour. • Such behaviour is intended to kill competition and deny enjoyment of competition benefits • Regulation of anti-competitive mergers and acquisitions, prohibition of abuse of dominance and prohibition of anticompetitive agreements among companies • Anticompetitive agreements • Horizontal (cartels); vertical • Anticompetitive mergers • Horizontal, vertical and conglomerate • Abuse of dominance • Exploitative and exclusionary • Important to assess how enforcement of each benefits labour

4. 1. Abuse of dominance • Is done at the expense of other smaller firms and potential entrants, forcing them to scale down operations or close shop • Predatory pricing, forcing competitors out of business or into losses before raising prices substantially to recover losses • instruct subsidiary companies to refuse to deal with its competitors to starve them of raw materials (if vertically integrated). • Results in company closures, laying-off staff, squeezed profit margins and inability to pay competitive remuneration and improved staff conditions • Trade union activity normally divorced from the causal factor but at end result. • Competition enforcement thus can be an ally to trade unions in protecting labour interest

5. Example: Predatory pricing in the Zambia alcoholic beverages market • On 8th June, 2001, ZCC found that Metro Wholesalers was wholesaling the Zambian Breweries “Mosi” and “Castle” clear beers at prices lower than the manufacturer’s (predatory pricing). • Conduct was pushing members out of business and affecting employment, with Metro taking over such failing businesses • local distributors lacked financial power to match such pricing strategies from Metro, part of a group operating in 15 countries • ZCC ordered the favourable credit period awarded to Metro by Zambian Breweries either to be discontinued or to be extended to all the other distributors to create fair competition • In the process, ZCC saved a lot of companies who were already finding the going tough against Metro

6. 2. Anticompetitive mergers • Many competition laws have mandatory notification requirements for mergers • Conditional approval of mergers due to the impact the merger would have on employment levels is common. • Mergers result in duplication of roles and excess labour. • Public interest provisions in competition laws has often come to the defence of employees during merger cases. • Competition authorities have thus tried to safeguard such interest by going beyond competition concerns and imposing conditions that guarantee labour interests • Trade Unions in countries such as South Africa use the competition law as a tool to safeguard employee interests following mergers

7. Example: Merger regulation in labour interest • In 2011, the Competition Tribunal of South Africa analysed the merger between Wal-Mart Stores and Massmart Holdings. • The transaction raised no competition concerns as Walmart’s entry into South Africa would result in more benefits • Trade unions (SACCAWU, SACTWU, FAWU, COSATU etc) opposed the merger on labour grounds. • The Tribunal imposed conditions to take into account concerns raised by trade unions • the merged entity must ensure there are no retrenchments as a result of the merger for a period of two years from the effective date of the transaction; • the merged entity must continue to honour existing labour agreements and will not challenge SACCAWU’s current position, as the largest representative union within the merged entity, for a period of 3 years

8. 3. Vertical agreements • Anticompetitive vertical agreements ensure that rival firms at both the upstream and downstream level face a lot of restrictions in accessing key services they depend on. • Restrained firms would be starved of raw materials or access to markets to such an extent that they would scale down operations or close shop • Vertical agreements thus constrain the operations of the company and its ability to give favourable conditions to employees • Competition enforcement thus becomes key in protecting such companies and hence workers’ interest

9. Example: Vertical agreements restricting company performance • In 1998, ZCC uncovered vertical arrangements involving Hybrid Poultry Farm (dominant day old chicks breeder) and Galunia Holdings Limited (commercial chicken broiler seller). • Hybrid Poultry Farm decided to dispose off part of Mariandale Farm, which specialised in the raising of day old chicks to Galunia Holdings • Agreement terms were that Galunia Holdings would only purchase day old chicks from Hybrid Poultry Farm. • ZCC noted that the parties to this transaction were the two leading players in the poultry sector at their level (downstream and upstream). • Competitors to Hybrid farm, such as Tamba Chicks had been foreclosed; the agreement forced Galunia to buy only from Hybrid Farm • It thus compromised its viability and ability to meet its labour obligations • ZCC thus ordered the termination of the arrangements

10. 4. Cartels • Cartels are often ignored by trade unions, seen as pursuing more profits to translate into more benefits for employees. • Evidence does not show cartels to better employers, as they would be trying to avoid publicising their profitability. • Cartels target basic commodities and critical services such as food, drugs, transportation and construction by raising prices or restricting output • Employees would be forced to part with higher proportion of income than a situation without cartels • put more pressure for wage adjustments • Output restricting cartels constrain the number of people employed to correspond to low output, resulting more unemployment • Trade unions thus have to resort to competition enforcement for cartels for better employee conditions

11. Role of trade unions in competition enforcement • Becoming an important watchdog to monitor the market and trace anticompetitive practices that affect firms • would result in documented cases of anticompetitive practices which can be forwarded to CCPC for action • Engage in discussions with CCPC for minimal job losses in mergers • Failure to ensure that merging parties safeguard employment proved disastrous in Zimbabwe, after the parties reneged on their promise and fired about 115 employees immediately after the merger • Using their structures in the provinces and other levels where the competition authority’s reach faces challenges to increase awareness on competition issues in Zambia. • Using their platform for engagement with business to register displeasure at incidences of anticompetitive practices as a way of discouraging the tendency

12. Conclusion • Competition enforcement has a lot of labour interest benefits • In Zimbabwe the Delta Beverages/ Mr Juicy merger which the competition authority approved created between 95 and 130 new jobs • A condition imposed in the Rothmans of Pall Mall/ British American Tobacco merger in Zimbabwe established another company, Cut Rag Processors, which created 294 new jobs • ZCC negotiations led to a new cement plant in Lusaka with higher production and employment capacities • ZCC discussions with government resulted in lowering entry barriers in the passenger transport business which created more employment opportunities • CCPC and trade unions in Zambia thus have to sit down and discuss possible means of cooperation which should result in an MoU to make the relationship more binding and meaningful

13. THANK YOU • Email: cd@cuts.org lusaka@cuts.org