CHAPTER ONE GENERAL INTRODUCTION

In this chapter the reader will be introduced to the subject of the dissertation and the problems to be analysed. The problems will be presented as well as arguments regarding the delimitation. At the end, a hallucination of intended structure will give the reader the chance to see how the author visualizes the flow and structure of the dissertation.

1.1 Introduction to the Research Problem
There is feasible convergence linking the objectives of competition policy and consumer protection policy.1 The foremost purpose of competition policy and laws is to protect and uphold competition,2 so as to ensure efficient allocation of resources in the economy followon the best feasible choice of quality, the lowest feasible prices and satisfactory supplies to consumers.3 Competition law guarantee that consumers get a reasonable share of the market in the economy,4 however, it is well known that the purpose of competition law is economic efficiency and overall welfare to the society.5 The aim of this paper is to look at the interaction between competition law and consumer interest, it is well know that competition law aims at consumer welfare, however one need to understand how competition law enhance consumer welfare. This paper has researched on the relationship between competition law and consumer protection, to what extent is the competition law in Tanzania effectively protecting consumer’s interest. Moreover, the paper also address whether the Fair Competition Act 2003 is an effective tool for protecting consumer’s interest and whether there are certain consumer problems that the Act cannot address. It is an interesting area because the researcher has no knowledge of any existing paper that has research on the new competition law (Fair Competition Act 2003) and the protection of consumer interest. Apart from that there is lack of extensive legal literature on Tanzania competition law; therefore this work will raise
1
2

Cseres Katalin Judit, Competition Law and Consumer protection (Kluwer Law International, 2005) pg 403 Neelies Kroes,Eurpean Commissioner for competition policy,exclusionary abuses of dominance-the European commission enforcement priorities, Fortham University symposium, New York,25 September 2008 available at http://europa.eu/rapid/pressReleasesAction.do? reference=SPEECH/08/457&format=HTML&aged=0&language=EN&guiLanguage=en 11/06/2009 3 OECD, Global forum on competition “the interface between competition and consumer policies” 5, June, 2008 DAF/COM/P/GF (2008) 10 unclassified. 4 Cseres Katalin Judit, Competition Law and Consumer protection (Kluwer Law International, 2005) pg 407 5 Ibid.,

awareness to legal researchers to research on this subject area, in future time Tanzania will have extensive legal literature under competition law. The Fair Competition Act, 1994 was enacted to encourage competition, regulate monopolies and prevent restrictive trade practices.6 Tanzania has been identified to be among the first African countries to have competition policy and legislation. However there is lack of case laws at the appeal level all competition cases end up at the court of first instance (the Commission). This paper explores the main reasons behind lack of case laws in Tanzania despite the fact that the law was enacted since 1994. Is the area of competition law stagnating in Tanzania? What are the means that the country can apply to make sure competition policies are effectively enforced.

The economy in Tanzania is mainly agriculture 80% of the population are engaged in the sector. The manufacturing sector is very small and weak.7 Tanzania is at the early stage of institutional building of competition policy and law enforcement.8 The current new law is Fair Competition Act, no 8 of 2003;9 the act is well drafted and takes into account changes in the global competition regime. Although the competition policy and laws are comprehensive and takes into account changes in the international arena, there is still a problem of enforcement in Tanzania10 Tanzania has little practice in the enforcement and implementation of competition matters, the country needs to take note of precedents and procedures in developed jurisdiction. South Africa competition law existed from 1955 (the regulation of monopolist condition Act 1955) its experience is suitable for point of reference for Tanzania as an African country. The dominance objective of the South Africa competition law is to provide consumers with

6

Godius Kahyarara, “Competition policy, manufacturing exports, investment and productivity: Firm-level evidence from Tanzania manufacturing enterprises,” Competition, Competitiveness and Development: Lessons from Developing Countries (UNCTAD 2004) pg 39 7 Economy watch at http://www.economywatch.com/world_economy/tanzania/ 18/05/2009 8 Mkocha Godfrey.Director General Fair Competition Commission Tanzania, “The role of economic analysis in competition law enforcement” presented at panel III fifth UN Conference to renew all aspects of the set of multilaterally agreed equitable principles and rules for the control of restructure business practices, Anatalya, Turkey 14th to 18th November 2005 pg 8, at http://www.unctadxi.org/Sections/AntalyaConference/docs/ConferencePresentations/tdrbpayt05065_en.pdf 9/05/2009 9 The Fair Competition Act can be sourced under the United republic of Tanzania Act no 8. 2003 printed by the Government printer, Dar es Salaam at http://www.parliament.go.tz/bunge/act.php?search=2003 9/05/2009 10 OECD Global forum on competition, Challenges faced by competition authorities in achieving greater economic development through the promotion of competition, contribution from tTanzania 9/01/2004 pg 1-7 at http://www.oecd.org/dataoecd/18/63/23733551.pdf 11/05/2009

product choices and competitive prices.11 The research has also surveyed other jurisdiction such as EC and US, so as to evaluate what Tanzania can learn from them, in order to develop her competition policy, law and implementation. The paper is divided into five chapters, chapter one introduce the reader to the research problem, the purpose for the research and what other authors have written on the subject. It also gives the reader an understanding and formulation of competition law in Tanzania. Chapter two describes various instruments on competition law from the global level to the case studies, it introduce competition law and policy to the reader. Chapter three which forms the main aim part of the paper access the relationship between competition law and consumer protection, the chapter answers whether the aim of competition law is consumer interest. Chapter four gives the study findings and analysis, it answers whether competition law is an effective tool to protect consumers interest. Finally, chapter five gives the research conclusion and recommendations for further research.

1.2 Literature Review
Cseres Katalin Judit12 has identified the relationship between competition law and consumer protection. Competition law make certain that market remains competitive by cheering new market entrants at the same time it creates incentive for innovation, therefore competitive prices will be promoted at the same time it increase product choices. Cseres has attempted to fill the gap, of how competition law benefits consumers and how consumer protection benefits the whole process of competition in the market. The author has shown to what extent consumer protection law will exist on a market where effective competition rule operate. In some other circumstance there is no need of enacting ineffective law which it aim is already covered by another legislation, this results into wastage of tax payers money and government time. This research paper has gone further to research whether competition law is effective tool to protect consumers. The study has taken into account the developed jurisprudence of competition law that is US and EC, with the developing jurisprudence of competition law that is Tanzania.

11

Mankga, Boaz, “When is price discrimination prohibited as anti-competitive?” Juta’s Business law, Vol 15, Issue 2, pages 23-28, 2007.pg 26 12 Cseres Katalin Judit, Op.Cit pg 1-407

Kahyarara13 has examined different competition policy, regulations and upcoming institution that regulate the activities of dominant firms to avoid monopoly through mergers and anticompetitive behaviours in Tanzania. His research was part of the initiative taken by the United National Conference on trade and development. He has extensively surveyed the results of monopoly through mergers and anticompetitive behaviours in Tanzania. That consumer will be limited in terms of choices and prices, this robes consumer’s utility, as they will buy products unwillingly. This research paper will go further to study how the Fair Competition Act of Tanzania protects consumers. Hans Vedder,14 in order to identify the relationship between competition law and consumer protection, he has first and foremost defined what is the objective of competition law as an economic phenomena. He comes to the conclusion that, the link between competition law and consumer protection is limited to the restriction of competition regulations that have some consumer protection objective. However, one can criticise Hans Vedder on the point of view that the main objective of competition rules and regulation is economic effectiveness, when defining the word economic effectiveness it includes consumers’ welfare, if consumers lack competitive prices and arena for choices that means the economy is not effective. Hans W Micklitz15 the author has discussed on the relationship between antitrust law and consumer law in the EC, the EC has formed several directives that relates to the consumer protection in EC such as Directive 2003/5416 and 2003/5517, the coming into force of these directives have reaffirmed the relationship between antitrust and consumer law. Hans W Micklitz has raised an emphasis that, private enforcements are of vital importance for the development of competition law and consumer protection relations. This dissertation paper will go further to study the relationship of competition law and consumer protection in US, EC, South Africa and evaluate what lessons Tanzania can learn from these countries.

13 14

Godius kahyrara, Op. Cit pg 30-39 Hans Vedder, “Competition law and consumer protection: How competition Law can be used to protect consumers even better- or not” European Business Law Review, Volume 17, Issue 1, 2006, pg 83 15 Hans- W Micklitz, “Consumers and competition – Access and compensation under the EC law” European Business Law Review, Volume 17, Issue 1, 2006 pg 69 16 OJ 2003 L 176/37 17 OJ 2003 L 176.57

OECD,18 the paper discussed on how competition policy and consumer protection share common goals and how they complement each other. The two policies share a common goal that is both aim at the welfare of consumer, they both speak the same language with the same goal. In this case this research paper will research if there is a need of having two legislations with the same aim, the paper will evaluate if competition law is effective tool to protect consumers or there are some consumers’ problems that cannot be protected under competition legislations. The WTO centre for international trade, Economics and Environment, under CUTS International conferences on competition policy published an article
19

for the purpose of

helping consumers to generate minimum awareness on anti-competitive behaviours in the market. So that consumers can alert the government as well as competition authority in the implementation of competition legislations. Furthermore the article raise emphasis that, consumers gain a lot from healthy competition in the market, due to the fact that competition enables undertakings to function efficiently. Also competition presents to consumers a greater choice of products at lower prices. The article purports that developing countries should design their competition structure based on their economic, social and historical factor not based on the developed nations. CUTS International Conference on competition policy,20 this article has a report on competition regime in Tanzania, it makes a critical analysis and review of the competition structure and regime in Tanzania. The research was conducted during the period when the Fair Trade Practices was in the process been amend to Fair Competition Act. Therefore it is based on the first competition act of Tanzania, as opposed to this research will go further into assessing the competition regime of Tanzania basing on the new Competition Act, that is the Fair Competition Act of 2003. The report narrates that competition policy and law should attach to the process of liberalisation, privatization and de-regulation in Tanzania. The enactment of the Tanzania Trade Practices Act is the milestone of Tanzania competition regime, as it protects
18

OECD,global forum on competition, interference between competition law and consumer welfare, DAG/COMP/GF/2008 at http://www.oecd.org/competition 01/07/2009 19 CUTS, Competition policy & law made easy, monographs on investment and competition policy, no.8 (CUTS centre for international trade, economics and environment 2001) pg 1-20 20 CUTS, Competition Law and Policy a tool for Development in Tanzania (Japur printer P. LTD 2002) pg12

consumer’s interest in the market foundation economy. The report has structured down sections from the act which shows references to the consumers’ interest. Finally, in the conclusion the report recommend that more studies of competition policies and law are indispensable in Tanzania, as well as the significant area of consumer protection and advocacy.

1.3 Objectives of the Study
This study seeks to find a better means for enforcement of the competition law in Tanzania. It raises serious concern over the state of Tanzania competition Act in relation to consumer protection. The study narrates and analyse the research findings and gives recommendations thereto. Eventually this work will relatively contribute to the development of interaction between competition law and consumer protection in Tanzania.

1.4 Significance of Study
The study is significant in several different ways; first it gives answers to how competition law protect consumer’s interest, whether competition law is an effective tool to protect consumers. The study will analyse if there is a need of consumer protection legislation when efficient competition rules operate, the result will help the government to stop legislating inefficient rules which cost money and time. This scenario has been discussed from the international arena to national arena, from developed countries, developing countries to the least developed countries. Secondly, it will contribute much in the academic field, as it adds reference materials on this subject since there is insufficiency literature in Tanzania concerning this subject. Moreover, as a secondary issue the study will provoke and inspire other researchers to direct attention to this subject in Tanzania.

1.5 Hypothesis
This research is governed by the following the test that competition law is an effective tool to protect consumers. Therefore the government does not need to enact other legislation for the protection of consumers.

1.6 Research Methodology
This research was carried out by employing both methods of data correction, the primary and secondary method. On the primary method data was collected by way of feedback questionnaires and telephone interviews. The questionnaires were sent to various stakeholders such as staff from Fair Competition Commission Tanzania, Tanzania National consumer advocacy bureau, Chief Executive officer Confederation of Tanzania Industries and individual consumers in Tanzania. A sample feedback questionnaire has been attached as annexure the results from the feedbacks have been shown in Chapter four of this dissertation. On the part of secondary method different libraries have been visited such as the Institute of advanced legal study, British Library, Cambridge university library and Queen Mary University library to obtain different monograms and edited collection. Apart from that electronic data from different website such as the Westlaw and lexis Nexis where different journals were consulted such as competition law insight, competition law international, competition law review, journal of competition law and Economics, journal of world competition law and OECD journal of competition law and policy. Other website are different governmental website from United States, European Community (EUROPA), South Africa and Tanzania

1.6 Definition of important terms
Competition Law or Antitrust Law Competition law is a branch of law that safeguards competition in a free market economy.21 The main objective of competition law is economic efficiency.22 Economic efficiency is achieved through prohibiting unfair business practices which distort fair competition in the market. However, the law is not clear on what explicit objectives are considered necessary to be achieved through the utilization of competition law. It is constantly straightforward to perceive the disadvantages that consumers will come across, where there are no competition and competition regulation in the market.

21 22

Alison Jones and Brenda Sufrin, EC competition law 3rd edn, (Oxford University press, 2008) pg 1 Ibid.,

Consumer protection Consumer protection is the upholding of consumer’s interest, this is a scenario where by attention is paid to the consumer.23 In every decision made the centre of consideration reaching to a conclusion should be the consumers. These are measures designed at general safeguarding and promotion of consumer interest. Includes, first of all maintenance of the pricing behaviour so that it will not change to the detriment of consumers. Secondly, information should be accurately disclosed. However, a widespread perception exist that information plays a fundamental function in consumers’ lives.

Consumer welfare The general definition of consumer welfare is defined by Brodley as maximization of consumer surplus, this is part of the total surplus that is given to consumers, the express and precise economic benefit received by consumers of a particular product has calculated by its price and quality.24 This means that, consumers must gain individual settlement from a consumption of a particular product. Consumer welfare standard does not seek to maximize total surplus, it is only concerned with consumer surplus.25 Total surplus is the combination of producers, government and consumers surplus.

23 24

Katalin, Op.Cit pg 155 Brodley, J.F. The economic goals of antitrust: efficiency, consumer welfare and technological progress, 62 New York University Law Review. 1020, 1987 pg 1033 25 Katalin, Op.Cit pg 48

1.7 Foundation of Competition Law in Tanzania
“Increasing competition within an economy is no easy task. People often fear for their futures when free-market policies are introduced. Tanzania, however, has shown that promoting fair play through competition policy improves the performance of manufacturing firms. This translates into gains for the overall economy.”26 Quoting Mark Joelson, “no one claimed credit for having organised the world’s first cartel. Conversely, no one is certain as to the earliest antecedents of the concept that governmental vigilance is needed to protect the free market from private anticompetitive restraints”
27

Competition law emerged more than a hundred years ago in the developed jurisdiction such

as United States. In Canada the principles were codified in 1879 and in USA it was in the 1889,28 In Tanzania competition law emerged after 1980.29 Before 1980 Manufacturing undertakings were state owned in Tanzania therefore the government found that there was no need for competition policy. Such assumptions were doubtlessly reinforced by the perception that it is the government that controlled all the major means of production.30 With time the state sector left much of their productive capacity idle, therefore the results were inefficient allocation of resources and the firms relied on state subsidies which led to privatization of the manufacturing firms.31 In commentary, one can see that competition policy is significant to any development process to ensure effective utilization of resources regardless of who is in control of the market. According to the United States Agency for International Development (USAID), Tanzania is considered to be among the world’s poorest nation with per capita gross domestic product (GDP) of US$ 382.32 The country mainly depend on the agricultural sector has the backbone of the economy, surprisingly enough the agricultural sector contributes only 45% to the GDP

26

IDRC, Competition and development the power of competitive market , legislation on competition brings productivity and business investment to Tanzania at http://www.idrc.ca/uploads/userS/12093977971Comp_Case4_e_Tanzania.pdf 22/06/2009 27 Mark Joelson, An International Antitrust Primer, A guide to the operation of US, European Union and other key competition law in the Global Economy, (Kluwer International Law, 2006) 28 Known as anti trust law in the US , Korah, Valentine, An introductory guide to EC competition law and practise4th edition, (Oxford, Oxford University press, 2000) pg 108 29 Godius kahyrara, Op.Cit pg 36 30 In 1967 the major means of production were nationalised , the government controlled the prices under the regulation of prices Act 1973 as illustrated by Jones, J, Resources and industry in Tanzania: use, misuse and abuse (Dar es Salaam, Tanzania publication house, 1983) pg 46-48 31 Ibid., 32 USAID, Tanzania annual report at http://pdf.dec.org/pdf_docs/Pdacd882.pdf 22/06/2009

of the country.33 Hence forth, Tanzania encourages higher levels of investment and productivity in order to restructure the economy and fight against poverty.

Chart No. 1 Tanzania GDP Per Capita

Source: United Republic of Tanzania, National Bureau of Statistics (a) Source derived from the IMF (b) Data estimation and projection based on instigator calculations

33

National Bureau of statistics Tanzania at http://www.nbs.go.tz/agric_presentations/Highlights%20for %20launch.pdf 22/06/2009

Chart No. 2 Tanzania Real GDP Growth (%)

1.7.1 Why competition law in Tanzania?
In 1980s, Tanzania opened the doors to free market and investment, manufacturing sectors were institutional and privately owned. This was the period when the country was in transition from socialist mode of production to capitalist mode.34 Therefore there was a need for laws to regulate trade liberalization, privatization and deregulation process.35 As time surpass the market became subject to concentration, this gave rise to monopoly in the market. One can see that the need for regulation to control anti-competitive behaviour will automatically rise; otherwise undertakings will adopt unfair means to extracts maximum from consumers’ income. In order to safeguard consumer’s interest the government had to regulate competition policy for market and goods to avoid private monopoly in the market. Therefore the government embarked on the progress of repealing the laws that had been in control of the planned economy. In 1993 the Price Control Act of 1973 was tabled in the Parliament for
34

Lutfried x Mbunda, “anti-monopoly law and free market economy: policy and basic issue” African journal of finance and management, vol 9, issue 2, 2001 pg 6 35 CUTS, competition law and policy: a tool for development in Tanzania at http://www.cutsinternational.org/Tanzania-report.pdf 24/06/2009

the possible amendment, afterwards the government set up task force to research on the legal structure and institutions operating in the developed market economy.36 This is when the Fair Trade Practices Act, 1994 came into existence. The milestones for competition policy in Tanzania was the passing of the Fair Trade practice Act in 1994, the act main objective inter alia, was to protect consumers, and it set out regulations for consumer protection.37 It should be clear from the foregoing discussion that, the first Competition Act in Tanzania main objective was consumer protection, from the Fair Trade Practice Act words in the title state that and I quote: “An act to encourage competition in the economy by prohibiting restrictive trade practices, regulating monopolies, concentrations of economic power and prices, to protect the consumer and to provide for other related matters.”38 If we look at the market operation and the first legislation on competition law in Tanzania, one can conclude that the main objective of competition law in Tanzania is the protection of consumers’ interest. Reading thoroughly, from the first competition Act there are provisions which are found from other consumer protection legislation. Part six section fifty one to ninety three of the Fair Trade Practise Act 1994, comprehensively set down the principles for the protection of consumers’ interest. The Act prohibits inter alia, unfair trade practices to the detriment of the consumers, misleading advertising and conducts and it impose an obligation to the firms their products in the market should be labelled so as to enhance transparency. Finally however, Tanzania need to set rules that will prevent the foreign firms taking advantage of trade liberalisation process, privatization and foreign direct investment by dumping second-rate products which are vulnerable to consumers.

1.7.2 The Fair Trade Practices Act
The Act was enacted in 1994; it introduced a significant development in Tanzania on competition law and policy. The Act outlawed three main types of business activities which are: restrictive business practice from horizontal agreements to vertical agreements39, control
36

G, Mkocha commissioner Fair Competition Commission Tanzania, challenges/obstacles faced by competition authorities in achieving a greater economic development through the promotion of competition, contribution from Tanzania, a paper submitted at the OECD global forum on competition, on 12th February 2004, CCNM/GF/COMP/WD(2004)12, unclassified pg 3. 37 Godfrey Mkocha, Op. Cit pg 6 38 The United Republic of Tanzania, The Fair Trade practices Act, Act no. 4 of 1994 39 Ibid, See section 16,17,18,19 and 20

of monopolies in the market through mergers and acquisition40 and abuse of market power. However, it had a number of weaknesses which are: first it accorded unbalanced discretions to the minister of industry and trade in regulation of certain cases. Going through section thirty-one to forty the minister has the power to identify unwarranted concentration of economic power, his approval is required for mergers and takeover also he has the power to fix prices. Some scholars argue that the competition Commission was operating under the minister mandate.41 It should be clear from the foregoing discussion, that for proper implementation of competition policy and laws the Commission should be an independent and impartial body, operating free from favour and fear. In the parliament presentation of the Surface and Maritime Transport Regulatory Authority Act (SUMATRA) Act of 2001 and the Energy and Water Regulatory Authority (EWURA) Act of 2001, these two acts had a conflicting power with the Fair Trade Practices Act. It was suggested that concurrent amendments had to be put into the FTPA which are now part of the EWURA Act.42 These changes are first, the top decision maker is no longer the Trade practise Commissioner but the amendment creates the commission with five members headed by the executive chairperson and a secretary. Second, the Commission becomes an independent body standing on its own not part of the Ministry of Industry and Trade.43

1.7.3 Fair Competition Act
In 2003 the Parliament of Tanzania, voted for a new fair Competition Act that attempts to accurate countless shortfalls in the 1994 Act. The 2003 Act has strengthen competition law in Tanzania, in particular by establishing the Fair competition commission,44 giving it power to hold inquiry and impose direct sanctions for severe infringement45 on an undertaking that has conducted unfair competition.

40 41

Ibid, section 31 N. Nditi, Consumer protection law and practice: its relevance and reality in a developing economy with special reference to Tanzania, PhD theses, Toronto University, 1987 pg 23 42 Schedule No.4, EWURA Act 2004 43 CUTS, competition law and policy a tool for development in Tanzania, Loc. Cit pg x 44 See section 62, The Fair Competition Act can be found from The United Republic of Tanzania,Acts Supplement No. 5 of 23rd May, 2003, Printed by the Government Printer, Dar es Salaam. The Act was passed by the parliament on the 2nd April, 2003 and assented by the president on 23rd of May, 2003. 45 Ibid, Section 68

Unlikely, the repealed Act the Fair Competition Act 2003 sets out its objective at the beginning of the sections. Section 3 of the Fair Competition Act of 2003 stipulates that: “The object of this Act is to enhance the welfare of the people of Tanzania as a whole by promoting and protecting effective competition in markets and preventing unfair and misleading market conduct throughout Tanzania in order to: (a) increase the efficiency in the production, distribution, and supply of goods and services; (b) promote innovations; (c) maximize the efficient allocation of resources; and (d) “protect consumers.” The above quotation demonstrate that, whoever has to enforce the Act would have to come to grips with protecting consumers as indicated in the objects of the Act

1.7.3 The way forward
It is unfortunate that, market forces by themselves are not protected from the actions restricting competition. The state’s role is to shield the market against any manifestation of monopolist and unfair competition which leads to the detriment of consumers.46 The Tanzanian government has partly established its role by the creation of The Fair Competition Act, 2003 this is the current competition legislation operating in Tanzania, which in the researcher’s opinion is, clear and has most of the standard principles of whichever competition law would have. But an excellent Act alone is not enough, for the reason that adopting legislation merely is not sufficient enough. In order to have a workable competition regime enforcement should be done appropriately. The government should be able to control market concentration and dominance occurrence.

Finally it should be noted that, due to globalisation, Tanzania also has to keep pace with the changes in the developed economy. Having a well drafted Act is one step, the next step should be institutional and capacity building for proper implementation of the law. In terms of capacity building one step has been done that been the creation of the Fair Competition Commission as an independent body. Furthermore much needs to be done, since the Commission consist of fewer than twenty experts in the competition area, eight administration staff and fourteen supporting staff.47 The less than twenty experts come from
46

UNCTAD, Commission on trade in goods and services and commodities, issue relating to competition law of particular relevance to development: preparation for a handbook on competition legislation, TD/B/COM.2/CLP/17, 8th Feb, 2001. 47 Figures derived from the FCC website at http://www.competition.or.tz/page.php?9 29/07/2009

all over the country including academician. Tanzania needs to introduce competition law as part of legal training so as to increase number of experts in the country.

Table No. 1 Number of Staff employed in the Fair Competition Commission
FIELD NUMBER EXPERTS IN COMPETITION MATTERS YES YES YES YES NOT ALL NOT ALL NO

CONSUMER AFFAIRS AND 5 ADMINISTRATION COMPLIANCE ADVOCACY ANTI- COUNTERFEIT INVESTIGATION ENFORCEMENT OTHERS 4 4 3 4 5 22

Source: FCC research department. (2009)

CHAPTER TWO THE LEGAL PRINCIPLES
“Today all around the world, policy makers recognise that a system of competition law is essential to successful operation of a market economy and the protection of consumers” by Philip Collins Chairman OFT, Opening keynote speech to the British Institute of International and Comparative Law’s Conference.48

Competition law emerge to be one of those fields of law that the objective forward is not self explanatory, while with consumer protection legislation every person knows what is protected. Competition law emerge to be something different in the sense that it protects, competition and that is something more abstract to relate. Competition law protects consumers by a guarantee that market remains competitive;
49

it encourage

new market competitor and create incentive for innovation. Strong consumer safeguard depends as much on guideline of competition. An elevated level of protection throughout strict principles helps to make the domestic financial system extra competitive by causing undertakings to improve the quality and pricing of goods and services to the community.50

2.1 The role of International competition law in protecting consumers
The United Nations Conference on Trade and Development UNCTAD has published a model law on competition so as to support different states in drafting and enlightening their legislations. Further support for this analysis can be derived from chapter VIII;51 the chapter culminate on how the prohibition of restrictive business practices can also protect consumers. It goes further into apprehend that competition law should contain chapters devoted to consumer protection. On 22nd of April, 1980 the United Nations Conference on Restrictive Practices approved different doctrine and set of laws on competition guidelines and laws. Thereafter the UNCTAD was created as a body responsible of implementing them.52 According to
48 49

Reform of Article 82’, 24 February 2006. Available at: www.oft.gov.uk (accessed 4 August 2006), p1. Hans Vedder, Op. Cit. pg 83, emphasis added by the author 50 Michael, Porter, “On Competition” (Harvard Business School Press, 1998) pg 187 51 United Nations, UNCTAD Model law on competition, TD/RBP/CONF.5/7/Rev.3 2007 pg 64 52 Ibid., pg 3

UNCTAD the universal objectives of competition policy and law are: to implement and protect consumer welfare, to implement the production of quality products and services at reasonable prices to consumers, to restrain restrictive business practices in the economy and lastly, to control monopoly or exploitation of power and unjustifiable concentration of market power.53 Section 15 of the General Assembly Resolution54 reinforce on the measures describing the control of restricted and other offensive business practice which may be detrimental to consumers, as well as means for enforcement of such measures. It should be clear from the foregoing discussion that the main focus of UNCTAD principles is protection of consumers’ welfare through the goal of economic development. In 2005 UNCTAD organised the International conference on competition policy in Turkey to reaffirm the legitimacy of the existing codes on restrictive business practices and urge states to enhance teamwork linking their competition authorities. The extensive effort of UNCTAD has been carried out by the OECD competition Commission jointly with the World Bank.55 The most topical review of the general recommendation by OECD is the 1995 recommendation of the Council concerning Cooperation between member states on anticompetitive practices affecting International Trade.56 Part A deals with the guiding principles for notification of anticompetitive behaviour which harms consumers between member states. In 1998 OECD Competition Commission, adopted a recommendation concerning effective action against hard core cartels.57 The commission went further in concluding that such cartels are “the most egregious violation of competition law” predominantly as they damage consumers worldwide through increasing prices and restricting supply.58 The recommendation identified hard core cartels as understanding among competitors to fix prices. These includes inter alia: bid riging, market division and restrict output. 59 Member states were strongly advised to make sure that their competition laws present effective sanction and deterrents in order to fight cartels. In one critical respect, the OECD Council work by adapting recommendation. Turning to the pattern of International law,
53 54

Ibid., 39/248 of 9 April, 1995 55 Ratnakar Adhikari and Malathy Knight-John, “what type of competition law and policy should a developing country have?” South Asia Economic Journal at http://sae.sagepub.com/cgi/content/abstract/5/1/1 28/07/2009 56 Trade 27 July 1995, C(95)130 / FINAL 57 Adopted in 25 March, 1998 C(98)35/FINAL 58 Mark Joelson, Op.Cit pg 560 59 Ibid.,

recommendations do not legally bind member states. Into some extent, this will cause the initiative of OECD be ineffectively, due to national interest a country might not adopt the recommendation. The World Trade Organisation, created new rules on the interaction between trade and competition policy, this was established at WTO Singapore Ministerial Conference in December 1996. In 2001 the ministerial Declaration at Doha conference of WTO documented multilateral structure to improve competition policy interferences with international trade hence enhances consumers’ welfare.60 If we look at the trend of development and global economy, it is of fundamental to have international cooperation in competition matters. Regional cooperation will only fight anti competitive behaviour within the region. International cartels and other anti competitive behaviours will have an adverse effect to consumers. As part of its work in 2006 to 2007 the International Competition Network, published major recommendations on the competition law and consumer affairs. The report identified consumers as the beneficiary of antitrust law and policy.61 Finally, however the ICN best practices are just mere recommendation. When the ICN reach consensus on the “best principles” it is the role of the competition authority for each state to make a decision whether to execute the recommendations known as “best practice”. Under international competition law, there are three types of enforcement instruments namely: the bilateral, tripartite and multilaterally agreed principles and rules under international competition law, which protects consumers’ interest.62 Asian Pacific Economic Cooperation (APEC). Its member states include Asian nations, the United States and Russian federation.63 The cooperation implements competition policy and market openness to enhance consumer welfare in the region.

60

John Jackson, The emerging principles of International Competition Law, (Oxford University Press, 2008) pg 478 61 International Competition Network, competition policy implementation working group, subgroup 2 consumer relations “report on activities undertaken and lessons learned” at (http://www.internationalcompetitionnetwork.org/media/library/conference_4th_bonn_2005/Consumer_Relatio ns.pdf 08/05/2009 62 UNCTAD, revised report by UNCTAD secretariat “experienced gained so far on international cooperation on competition policy issues and the mechanism used” TD/B/COM.2/CLP/21 8 May 2001 63 Mark Joelson, Op.Cit pg 563

On the other hand, there is a considerable debate on the extent of the role of international competition law; some scholars argue that, while competition law are converging, it would be impracticable and undesirable to consent on a common set of rules appropriate worldwide. 64 Therefore one can see that, International competition law is unsuccessfully when it comes to global networking compared to regional and bilateral agreements. Withstanding the inadequacy of International competition law, the fact is currently, International competition law is not an effective tool to protect consumers. Taking into consideration universally economic difference, it is inappropriate to have the same approach of competition law. On this matter, therefore there is a need of international consumer protection law, outside the ambit of competition law such as the International Network of Control and Protection of Consumers (ICPEN)

2.2 How competition law protects consumers in the US
The objective of the US competition law is advancement of consumer interest and shields the free flow of goods in a competitive financial system.65 US antitrust law is commonly perceived as been supplementary focused on economic efficiency or consumer welfare. 66 The American Chicago school of thought advocates that the single goal of antitrust law is consumer welfare.67 This interpretation can clearly be sustained from the wording of section 2 of the Sherman Act, which prohibits monopolization, endeavour to monopolise and conspiracy to monopolise. The rationale of this section is maintaining total welfare, in US total welfare is defined to include consumer welfare.68 When a firm is in a monopoly position, it can reduce output and raise prices to the detriment of consumers. Unlike Section 7 of the Clayton Act and Section 1 of the Sherman Act, section 2 of the Sherman Act explicitly marks single firms who are in monopolisation or attempting to. Moreover, the Clayton Act and Sherman Act, stipulates that any consumer who may be injured by anti competitive conducts that are prohibited in the US antitrust law is entitled to

64 65

John Jackson, Op. Cit pg 562 Eleneor M, Fox, US and EU competition law a comparison, Global competition policy, at http://www.piie.com/publications/chapters_preview/56/10ie1664.pdf 06/06/2009 66 H.Hovenkamp, Federal antitrust policy: the law of competition and its practice 3rd edn, (St Paul, Minn:West, 2005) Chap 1. 67 Albert. Foer, “The goals of antitrust thoughts on consumer welfare in US” found in Philip Marsden (ed) “Handbook in Trans-Atlantic Antitrust (Edward Elgar Publishing LTD, United Kingdom, 2007) pg 566 68 Bork, “The Antitrust Paradox” 1978 pg 90.

compensation.69 In the important decision of Copperweld Corp v Independence Tube Corp70 the Supreme Court went further into interpreting the objectives of Section 2 of the Sherman Act. That it is quite similar as the core US antitrust law meaning it focus on the effective allocation of resources by boost economic growth and exploit the wealth and prosperity of the nation. The end result will be lowest possible prices, highest quality and material advancement. Turning to the pattern of case law, in the important decision of FTC v Raladam Corp,71 it was held that and I quote “the trader whose methods are assailed as unfair must have present or potential rivals in trade whose business will be, or is likely to be lessened.” According to Thomas Leary72, this judgement created a foundation in section 5 of the Sherman Act, that proof of injury to competitors is not an element of an offence under the aforementioned Act. This suggests that, for an act to constitute an offence it must cause harm to consumers and not a particular consumer. Ironically, the US antitrust law protects competitors and forgets about consumers, when it stipulates that prove of actual harm is essential in predatory pricing behaviours. This was decided in the case of Booke Group Ltd. v Brown & Williamson Tobacco Corp.,73 for a predatory pricing case to be established evidence of recoupment stage must be provided.

2.3 How competition law protects consumers in EC
Neelie Kroes,74 made a statement that competition law is not concerning cases only. It is on the subject of regulating conditions for undertakings to deliver improved goods and services to consumers. Competition law aims at competitive markets; the European approach towards this aim is embodied in Treaty of Lisbon,75 which is based on the concept of social market
69

Deborah A. Garza Chair, Jonathan R. Yarowsky Vice-Chai. Antitrust Modernization Commission, Report and Recommendations. New York: April 2007 at http://govinfo.library.unt.edu/amc/public_studies_fr28902/enforcement_pdf/070320_us_chamber_inst_for_legal _reform.pdf 10/06/2008 70 467, US 752,767 (1984) 71 283 U.S. 643, 649 (1931). 72 Thomas Leary, Competition Law and Consumer Protection Law: Two Wings of the Same House, 72 ANTITRUST L.J. 1147 (2005).pg 5 73 Booke Group Ltd. v Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993) 74 European Commissioner for competition policy on: EU and EC antitrust policies our shared believe in competitive markets; initial contribution at 56th Annual Spring Meeting of The American Bar Association Section of Antitrust Law; Washington DC, 28 Mar.2008 75 Article 2( 3), Treaty of Lisbon amending the Treaty on European Union and Treaty establishing the European Community signed at Lisbon, 13 Dec. 2007

economy. This is considered as the most successful method to congregate the demand from consumers for goods and services.76 After the adoption of Regulation 1/2003,77 the European Commission initiated an extensive reorientation of its policy that is reinforcement of private enforcement.78 This means that consumers can, potentially, be well thought-out as holders of compensation entitlement under competition law. In 1993, Advocate – General van Gerven raised and affirmed that, there is a need for compensation to professional traders from the abuse of Article 81.79 After seven years in the case of Courage v Crehan Ltd80 Advocate-general Mischo supported the idea of compensation but made an establishment that also consumers should be considered as holders of compensation entitlements under competition law. However there considerable uncertainty on the organisation of private enforcement81 in order for an individual or collective consumer groups to claim compensation privilege, one has to be entitled to subjective rights from Article 81 and 82.82 Article 81 (3)
83

point 13 of the guidelines provides that the goal of European competition

law is the protection of competition on the market as means of enhancing consumer welfare and ensuring an efficient allocation of resources. 84Article 82 paragraph (b) provides for the protection of consumers.85 The Article prohibits “limiting production, markets or technical development to the prejudice of consumers”. 86

76

Doris Hilderbrabd, The Role of Economic Analysis in the EC Competition Rules, 3rd edn., (Kluwer Law Series,2009) pg 4. 77 OJ 2003 L 1/1 78 Hans- W Micklitz, Op. Cit. pg 3 79 Case 128/92, Banks, [1994] ECR 1-1209 Opinion, paras 36-45 80 Case C-453/99, [2001] ECR 1-6324 Opinion, para 38 81 Kj Ceres, Competition law and consumer protection: a love-hate relationship, PhD thesis, 2004, university of Utrecht pg 34 82 EC regulation 1400/2002 83 EC Commission papers on the Application of Article 81(3) of the Treaty [2004] OJ C101/97, [84]; Discussion Paper number 3 (55) 84 R Whish, 6th edn “ Competition law” (Lexis Nexis, United Kingdom, 2008) p129, also noted from Commission Guideline on the application of Article 81 (3) EC [2004] OJ C 101/97, para 84 85 Case C-203/96, Dusseldorp, [1998] ECR 1-4075 in this case the European Court of Justice interpreted the notion of consumer to include inter alia companies active in waste treatment business 86 P. Akman, “consumer welfare and Article 82 EC Practice and Rhetoric” (ESRC Centre for competition policy) at http://www.uea.ac.uk/polopoly_fs/1.104683!ccp08-25.pdf 10/06/2009

Article 2(1) (b)87 stipulates that in assessing merger, the Commission should take into account the consumer welfare if it will be an advantage to consumers and the merger will not be an obstacle to the community competition.88 This means that the efficiency should be substantial and beneficial to consumers. Article 153(2) EC treaty, has the basic words in defining consumer protection.89 Turning to the Community case law, one can evidently see in practice that EC competition law main aim is the protection of consumers rather than competitors. In the case of British Airways v. Commission, the court interpreted Article 82 as there is no need of prove of direct harm to consumers, the rationale of competition law is to avoid artificial market distortion. When a dominant firm enter into anti competitive agreements with its agencies the interest of consumer in medium or long term basis are harmed.90 Therefore prove of actual harm is immaterial under EC law. Looking at the terms in consumer contracts the European Court of Justice held that “under community law concerning consumer protection the provision of information to consumer is considered one of the principal requirements”91 In EC law unfair competition is interpreted under the section of consumer welfare. 92 An act will be will fall under the category of unfair competition if directly or indirectly harm consumers. Lastly, the competition Commission has appointed “a consumer Liaison Officer” he is responsible for primary contact person for consumer organisation. Also an individual person (consumer) is competent to contact the officer straight on competition connected issues. 93 Finally, however the EC competition legislation provides for effective competition. Consequently, while the word “effective competition” has not been undoubtedly defined, at the outset this leads to academic debates on the proper application of the law.

87

The control of concentrations between undertakings, Regulation 139/2004 [2004] OJ L 24/1 (Merger Regulation) 88 M.Dubbah, “EC and UK Competition Law:commentary cases and materials” (Cambridge University Press, 2004) pg 486. 89 NML Dhondt, Intergration of Environmental protection into other EC policies (Groningen: Europa Law Publishing 2003) pg 73 90 [2004] CMLR 1008 para 264 91 Case C-362/88 GB-INNO-BM v Confederation du commerce luxemburgeois [1990] ECR 667, 689. 92 Christopher Wadlow, Is it time to reclaim unfair competition law from the consumer lawyers? ( presentation at oxford Intellectual Property research centre, 7th Feb, 2006) pg 6 93 JuanAtonio, “competition enforcement and consumers” in Philip Marsden (ed) “Handbook in Trans-Atlantic Antitrust (Edward Elgar Publishing LTD, United Kingdom, 2007) pg 596

2.4 How competition law protects consumers in South Africa
The South Africa competition policy is based on the principle of economic efficiency. Reading the policy intensely it goes further into the primary fundamental purpose that is promotion and maintenance of competition.94 The policy has a fundamental feature that it aims at competitive prices and choices for consumers. It is argued that the content of South Africa competition law has incorporated both US antitrust principles and into some extent it has EC competition principles.95 Section 496 strictly prohibits horizontal agreements which distort completion in the market. Further support of the prohibition can be derived from Section 4 (1) (b), the Act goes further into including per se enforcement in anti- competitive acts such as price fixing, market division and collusive tendering. Collusive tendering occurs when firms coordinate their bids on contracts so as to fix prices.97 On the other hand, the section provides a shield for consumers’ interest when it comes to pricing, but in another hand it is difficult to enforce. This is because one, the Section prohibit the above mentioned anti- competitive agreements in specific undertakings and “any other trading conditions” while the any other trading condition have not been broadly defined in the Act, this is a loophole in enforcement. Second, yet in terms of practical experience there has been less enforcement actions on horizontal agreements. The South Africa Competition regime has a pecuniary feature in terms of consumer protection. This is found in Section 5(2) and (3)98 the prohibition of resale price maintenance if resale price is offered it must be branded as recommended price. One may misunderstood this point by thinking that in other jurisdiction there is no such law. The peculiarity features comes to the point that in other jurisdiction resale price is regulated under consumer protection law and not competition law. Section 8 (a) deals with abuse of dominance. Where by a list of prohibited practice are prohibited this comprise charging an excessive price that is detrimental to consumers. Section
94

Thomas Wilhelmsson, “Cooperation and Competition Regarding Standard Contracts Terms in Consumer Contracts” Business Law Review, Volume 17, Issue 1, 2006 pg 23 95 OECD, “Competition law and policy in South Africa at http://www.oecd.org/dataoecd/52/13/2958714.pdf 12/6/2009 pg 21 96 The republic of South Africa, The Competition Act, Act no. 35 of 2001, published by the government printers 97 OECD, Glossary of statistical terms at http://stats.oecd.org/glossary/detail.asp?ID=3334 12/6/2009 98 The Republic of South Africa Loc. Cit

8 (d) prohibits tying or forcing unrelated contracts, selling below marginal cost and price predation. This section makes Competition Act a foundation of price control; in 2001 the Competition Commission received a complaint on the excessive prices for retroviral drugs for AIDS. As a result the Commission imposed stiff penalties on the international pharmaceutical firms which distorted competition by entering into agreements that prevented distribution of cheaper drugs.99 Section 12(a) (i) and (ii) has a list of ground based in the process of approving a mergers. Inter alia this includes public interest according to the Act commentary. Public interest has been defined to include the notion of consumer welfare. In the case of Nedcor- stanbic100, also the judicial appeal in this case made a significant change to the South Africa Competition Act which is the application of concurrent jurisdiction linking regulatory bodies and the SA competition authority. Also in the important decision of Pioneer food v SAD holding Ltd101, a merger was approved by the SA Competition Tribunal, since it was seen that it would increase different consumer products in the market. It is immediately apparent the end results will be more choice for consumers. However, when it comes to export market, consumer welfare becomes the second priority after market efficiencies.

2.5 Tanzania Market
The market in Tanzania has passed through different phase from the colonial era to the current market orientation system. Since the question that we are trying to answer is which approach is relevant for Tanzania market at a glance, therefore it is essential to understand the current market operation in Tanzania. historically, during the colonial period export increased at a rapid rate, upon attaining independence Tanzania from the period of 1961 to 1965 after independence, the involvement of manufacturing sector to the country’s GDP was relatively from 3,701-4,324102 Tanzania million shillings.

99

Mpheane, A. Lepaku, “competition law in the South African law curriculum: a sorry state affairs, Codicillus, Vol 45, Issue 2, pages 20-25 2004 pg 34 100 High Court on 31st March, 2000 101 Competition Tribunal Republic of South Africa, case no. 23/LM/APR/02 102 United Republic of Tanzania, National bureau of statistics at http://www.tanzania.go.tz/budgetspeech/2009/Hali%20ya%20Uchumi.pdf 08/08/2009, in 2009 the conversion rate is 1500 Tanzania Shilling is equivalent to 1 US dollar

The market trend of manufacturing industries in Tanzania is monopoly, large firm benefit from market power than smaller firm these are mainly the food process, beverage and tobacco. No comprehensive analysis has been approved concerning the pricing behaviour. 103 Yet, in terms of practical terms the beer and cigarette industry monopoly power is extremely noteworthy owing to limited competition. Studies taken in 2008 on the market system in Tanzania, shows that currently there have been a higher degree of openness. However the altitudes of imports have been higher compared to the altitude of exports.104 This has led the country to register a depressing trade balance. Also the export GDP percentage has proved to be diminishing due to the decrease in export capacity. In the year 1995-1999 Tanzania experienced a massive downfall of manufacturing industry production due to the closure of the firms caused by increasing cost of production and stiff competition from imported goods.105 The manufacturing sector in Tanzania principally comprises of food processing, tobacco and beverage this covers over 70% of manufacturing. The rest is textile, basic metal, rubber, petroleum account for the remaining percentage.106

103

OECD, NEPAD and UN Global Impact, “integrity environment and investment promotion, the case of Tanzania” a paper presented to the conference alliance for intergrity government and business roles in enhancing African standard living, in Addis Ababa on 7-8 March 2005 available at http://www.oecd.org/dataoecd/11/37/34571058.pdf 27/07/2009 104 L. Rutoshobya and I. Allan, “SME and network governance structure in Tanzania” Faculty of commerce and management, University of Dar es Salaam at http://www.usbe.umu.se/forskning/pub/Business.Studies/IMP2001.pdf 30/07/2009 105 CUTS, Op.Cit pg 4 106 Louise G et all, “Determinants of Exports and Investment of manufacturing firm in Tanzania” Credit Research paper at http://www.nottingham.ac.uk/economics/credit/research/papers/cp.98.5.pdf

Chart no. 3 Tanzania manufacturing industries breakdown

2.6 Which approach is relevant for Tanzania
According to Adam smith, consumption is the sole end reason of production.107 Therefore the concern of the producer ought to be upholding consumer’s interest, no consumption no production. It also seems reasonable to suppose that competition law should focus on protecting consumers rather than competitors. It is immediately apparent from the survey above that the current changes made in the EC, that is shifting the focus point of competition law to protect consumers’ interests first, would be the relevant approach for a developing country like Tanzania, because the market is characterised by few undertakings. Therefore there is a room for monopolisation. In this situation competition legislation ought to protect consumers’ interest. However, from the nature of market system, particularly the manufacturing sector which is still at its infant stage, Tanzania needs to incorporate some elements of the US approach with minor transformation so as to protect small developing firm. In the establishment predatory pricing cases actual harm should not be a fundamental requirement. This will prevent the
107

Adam smith, The wealth of nations, book 4, chapter 8, 1776.

dominant firm from creating barriers of entry for the small firms. Finally, consumers will be able to have wide range of choices at reasonable prices.

CHAPTER THREE Relationship between competition law and consumer protection
The purpose of this Chapter is to quantify and examine the objective of competition law in the arena of consumers’ welfare. How are competition law and consumer law related? In order to answer the posed question; survey has been carried out on different jurisdictions. At the end the author evaluate on the legal framework for protecting consumers in Tanzania.

3.1 The notion of consumer protection and competition law
Once there is market failure, this means that there is lack of efficiency. This chapter will focus on competition law and consumer law. Relationship between competition policy and consumer policy exist in two different ways. Firstly, is what is known as regulatory level these are the competition rules in a particular jurisdiction. 108 The second way is through the application of these rules, this consists of decisions from the judicative authority of competition matters. Before 1938 competition law and consumer law were two different paths having the same goal. The situation changed in the case of FTC v Raladam Corp, when the Supreme court ruled that “ the traders whose method are assailed as unfair must have present or potential rivals in trade whose business will be, or is likely to be lessened”109 from this case is when the 1938 Wheeler- Lea Amendments evolved. This is the amendments to the Federal Commission Act, which authorised the Federal Trade Commission to prohibit unfair means of competition particular deceptive acts. The Act added the words “deceptive acts or practices” into Section 5 of the Sherman Act, thereafter injury to competitors was not a fundamental ingredient of anti competitive offence.110 It is important to understand the Sherman Act, in considering the emergence of consumer protection principles into competition law. Since the Sherman Act is the mother of the world competition law. Competition law and consumer protection both originates from a common root, and that is the analysis of economic terms.111 Competition law creates competitive market by ensuring that competitors approach the market fairly. Apart from that competition law also creates
108 109

Hans Vedder, Op.Cit pg 86 283 U.S. 649 (1931) 110 Thomas Leary, Op. Cit pg 1147 111 D. Brown and G. Wood, “competition consumer welfare and monopoly power” (consumer welfare and monopoly power (Cowles foundation for research in Economics Yale University, Discussion paper No. 1466R pg 7.

incentive for innovation therefore encouraging economical prices and increasing range of choices for consumers. Competition policy and consumer protection policy have historical nature. 112 A good

example is the development in the United States; the federal antitrust law emerged in 1890. At that time the jurisprudence of consumer protection was not into existence, thereafter FTC was created within antitrust jurisdiction in 1914.113 In some countries such as France, Poland and Hungary competition law enclose a subdivision dedicated to consumer protection.114

3.1.1 Competition policy and consumer policy
Competition policy embarks on the prevention of unfair competition conduct in the market such as vertical and horizontal agreements and misuse of monopoly power. Therefore one can conclude that competition policy approaches market from the supply side, with the objective that consumer benefits from the regulation by having widest range of choices at a reasonable price. While consumer policy embarks on the market from the point of demand, consumer becomes the main objective consumer law protects the buyer’s interest.115 This suggest that, the supplementary competitive the market the greater the consumer superfluous, it should be clear from the foregoing discussion that these two policies are dependant. For economic development, it is important for competition policy and consumer policy to be administered by one authority. Looking at the goals of competition policy and consumer policy, both aim at competitive working markets.116 Robert Bork advocates that, there can only be one goal for the competition policy, and that is the notion of consumer welfare.117 Aim at adjusting market failure in different aspects, competition law correspond to consumer needs by regulating free market, it encourages new market entrance and generate incentives for innovation. Therefore the end result will be to increase product choices, motivate sellers to provide correct
112 113

Ibid., M. Joelson, “an International Antitrust Primier, a guide to the operation of US, European Union and other key competition laws in the global economy” 3rd edn (Kluwer Law International, 2006) pg 34 and American Bar Association, How history inform practice- understanding the development of modern U.S competition policy, Antitrust Section Fall Forum, Washington, DC, November 19, 2003 available at http://www.ftc.gov/speeches/muris/murisfallaba.pdf. 20/07/2009 114 OECD, Journal of competition Law and policy, Paris, 1999, vol. 1 no. 3 p 169-246 115 Ibid., 116 Katalin cseres Op. Cit pg 56 117 R. Bork Op.Cit pg 198

information concerning quality, price and other stipulations of sale.118 Consumer protection policy objective is geared towards the enhancement of consumer interest. Therefore the policy endeavour for correct information concerning quality, increase product choice and lower prices for consumers.119 It should be clear from the foregoing discussion that, in some aspects competition policy does not identify issues such as health and safety standards. Thomas Learly, commented that competition policy and consumer policy advocate for one goal and that is, consumer welfare.120 However, initially, there are a number of competition policy goals therefore it is ironic to say that the main goal of competition policy is consumer welfare. The concept is logically, acceptable and understood by academicians. But if we look at the practical terms competition policy main goal is overall economic efficiency in the society, which leads to consumer welfare. Further support for the analysis can be derived from the fact that there are some consumer problems that are not addressed by competition policy such as health, safety and some other social objectives of a consumer. However one might conclude that competition policy and consumer policies are two different roofs that cover the same house, whereas on the other hand they might be two separate roofs that cover different houses. In order to determine if consumer policy and competition policy have the same goal it depends on what is defined as consumer welfare.

3.1.2 The Complimentary role
Competition and consumer protection are both intended to improve consumer sovereignty and effective consumer choice. Looking at the rationale behind these two set of law is the address of market failure, market failure occurs when market operation and outcomes fall short to serve the consumer needs.121 The two concepts are deemed as two sides of the same coin under the coin of consumer sovereignty 122. When competition law and consumer protection law are misinterpreted the end result will be undesirable harm to consumers. Since competition law creates market choices and lower prices for consumers, while consumer
118 119

Katalin Cseres, Loc. Cit. Donald Brown, and G. Wood, “Competition, consumer welfare and monopoly power” Cowles foundation for research in Economics, Yale University Discussion paper No. 1466R pg 14. 120 Thomas, Learly Op. Cit pg 1112 121 D. Ireland, “Competition Policy and Consumer Protection” at http://www.irpp.org/po/archive/oct97/ireland.pdf 29/07/2009 pg 28 122 S. Waller, Professor and director institute for consumer antitrust studies, Loyola University “Competition and Consumer Protection: Breaking down the walls” speech available at http://www.luc.edu/antitrust 20/07/2009

protection law is designed to protect consumers against damaged, faulty, dangerous goods as well as unfair business practices that are detrimental to consumers.123 The interaction between Competition policy and consumer policy works when competition law provides consumers with a range of choices from the market, and consumer protection law gives the consumers the opportunity to exercise the choices. 124 The linkage between consumer protection and competition is created when consumers need market which encourage perfect competition. In the important decision of California Dental Ass’n V FTC, it was noted that, false or misleading advertising is an offence under the competition law.125 A practice is regarded as deceitful if it misdirects the consumer’s buying decision.126 In US, under antitrust law misleading advertisements fall under per se rule offences. This means that once a firm has practice misleading advertisement there is no need to justify the circumstances for the misleading, therefore it will be regarded as an offence under the Act. This implies that the US law is protecting consumers directly.

3.1.3 The opposing role
There are some consumer issues related to consumer protection that are not found under competition law, such as health, safety and sales contract to children or other people who, in one reason or another fall under the category of vulnerable buyers. Consumer protection law set standards for the protection of children such as the educating on the effect of junk food to children. There is a tension; however it is difficult to prohibit advertisement of junk food for the sake of protecting children. An agreement by competitors not to sale junk food in school might fall under anti competitive conducts in the competition law. Turning now to the opposing role, under competition law the focus point is not on the consumer, the consumer is not a special actor. Competition law does not directly focus on the standard of living of people and how these standards should be improved.127 But one can still
123

Webster new world Law Dictionary at http://www.yourdictionary.com/law/consumer-protection-law 20/07/2009 124 N. Averitt and R. Lande “Consumer sovereignty: A Unified Theory of Antitrust and consumer Protection Law,” 65 Antitrust L.J 713 (1993) pg 234 125 526 U.S 756 (1999) 126 Thomas, Learly Op. Cit pg 1149 127 Katalin, Cseres Op.Cit, Chapter 2

argue into the dissenting, that competition law, protect consumers through maintaining economic efficiency. In the important decision of United States v Brown University128, the Supreme Court made a rule that pro competitive practice and pro consumer features might be different, it depends on the organisation and whether it is of a commercial nature129. Looking at the enforcement level, consumer protection requires direct enforcement; this means that site visiting is essential. Comparing to competition law is an arm extent from the state. The development of consumer protection is more when there is a perceived market breakdown or political disaster.130 In the case of California Dental, FTC brought a complain that a private dental society was misleading the public under antitrust law by using the words “pain free dentistry” the FTC applied the per se rule under antitrust. But when the case was taken for appeal, the court ruled that the matter is not under antitrust theories, the matter fall under consumer protection.131 Competition law is premised on the thought that economic welfare will be enhanced by endorsing the competitive pricing of goods and services.132 While consumer protection is mainly centred with ensuring that consumers are provided with a wide range of choice, flexibility and information.

3.2 Consumer protection in EC, US and South Africa
Before World War 1, the jurisprudence on consumer protection in the world was minimal, hence lack of legislation to protect consumers.133 Thereafter movements for the supplement of consumer remedy under common law became recognizable in the 1910s. Different states started to codify consumer protection in their legislation.

128 129

5 F 3d 658,677 (3d Cir. 1993) Goldfarb v Virginia, 421 U.S 773 S. Ct 2004 130 D. Ireland Op.Cit pg 28 131 Cal. Dental Ass’n v FTC, 526 U.S. 756 (1999) 132 John Jackson, Op.Cit pg 64 133 M. Jasper, “Consumer Rights Law”, oceana’s Law for the layperson, New York (Oxford University Press, 2008) pg 1

In US, we base our vision on the Federal Trade Commission Act which was established in 1914.134 Section 5 (a) (1) of the Federal Trade Commission Act 1914 as amended prohibits “unfair or deceptive acts or practice in the market place”. In order to succeed in such an action a consumer has to demonstrate that an act or practice is unfair or deceptive, sometimes the consumer should prove that he or she has suffered damage from the unfair deceptive practise or act. Thereafter the aggrieved consumer can bring a law suit against the seller, under section 5 (a) (1).135 This section if enforced by the United State department of justice Antitrust Division and the United States Federal Trade Commission.136 Ironically, in some jurisdiction there is a requirement that the consumer should send a notice to the seller before instituting a suit, the rationale behind this is to limit the flooding of court with consumers’ actions and that some buyer and seller disputes can be reached into mutual consensus amicably. However, in one critical respect the rule is for the detriment of consumer interest. Since that consumers might see that before going to the justice of the court there is a bureaucracy procedure to pass to. One might see that his justice will be delayed, as for a lawyer perspective justice delayed is justice denied. Apart from the legal instruments, in US there are other bodies that deal with consumer protection these are: the Federal citizen information centre, this is a department found under the US general service information. This is assigned with the task of providing supportive resources information to consumers. The other organisation is the US consumer product safety commission (CPSC)
137

an independent regulatory organ, it has been established in

1972 under the Consumer product safety Act, the body is charged with the responsibility of protecting the public from irrational risk of serious injury or death from a number of consumer products. US also has a national consumer organisation and consumer advocacy group, these are consumer organisation that act on behalf of consumers so as to promote consumer interest.138 They aid consumers in filling complaint and dealing with all consumer concerns. Somewhere along the line, these bodies work independently they have no enforcement authority.

134 135

1914, (15 U.S.C 41-58 as amended) M. Jasper, Op.Cit pg 6 136 15 U.S.C & 45, Stephanie Kanwit, Federal Trade Commission (2003) http://www.ftc.gov/ogc/healthcarehearings/docs/030425kanwit.pdf 01/08/2009 137 Ibid., pg 19 138 National Consumer Law Centre,” fair credit report” at http://www.consumerlaw.org/publications/index.shtml 18/07/2009

Turning to the perception of consumer protection in European community, in this part it is important to have an understanding of the member countries consumer law. Currently EC is benefiting the internal market of four hundred and ninety million Europeans;139 therefore one can see the backbone of European economy depends on consumers. The EC consumer considers free flow of information as the main pillar for protecting consumers’ interest. 140 In the case of 6-Korn,141 this was a company producing jam, in the advertising it referred as a “naturrein” maans naturally pure, while in actual sense the jam was not natural pure. The ECJ declared the advert as misleading to consumers. However, the European judge made law is decided on a case to case basis,142 the content of what is misleading advertisement changes with every new decision, although in practice ECJ normally follows its own previous decision. In the case of Clinique Laboratories SNC and Estee Lauder143 ECJ principally applied the directives on misleading advertising, cliniques Laboratories used the term Clinique to market its cosmetic products, the national court in Germany considered this has a misleading element to the consumers, the case went to appeal in the ECJ and the Court interpreted the meaning of misleading advertisement in line with EC treaty on the free movement of goods. Finally, the court decided that the term was not sufficient enough to fall under misleading advertisement. The Directive on misleading advertisement,144it has laid down the minimum standard in evaluating misleading advertisement and it is applies throughout EC member states.145 Article 1 of the directive stipulates the purpose of the directive that is consumer protection. Article 2 defines advertising in a pioneering way; the definition includes promotion of the supply of goods or services in any form. Article 4, call upon member countries to take legal actions against misleading advertisements. There is a considerable debate about the directives definition of the word “misleading”.

139

Speech by Meglena Kuneva “consumer and competition policies- both for welfare and growth” European Commissioner for consumer protection, at the OECD Global forum on competition, 2008 pg 1 at http://www.eaea.org/news.php?k=14968&aid=14968 01/08/2009 140 Case C-362/80 GB Inno para 18 cited in Katalin Cseres Op. Cit. Pg 210, original citation from “Study on the feasibility of general legislative framework for fair trading (2000) pg 70 141 Case No. C-210/96, 1998 ECR 1-4657 decision of the ECJ made on July 16, 1998 142 R. Hilty and F. Frauke (eds) “ Law against Unfair competition toward a new paragim in Europe” ( SpringerVerlag Berlin Heidelberg, 2007) pg 105 143 Decision of the ECJ on February 2,1994, Case C-315, 1994 ECR 1-317 144 Directive 84/450/EEC council directive of September 10, 1984 oJ L 250/17 at http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31984L0450:EN:HTML 01/08/2009 145 R.Hilty Op.Cit pg 113

In South Africa, consumer protection provision are scattered into different statutes. First and foremost is the ground norm of the country it provides for the bill of rights inter alia, such as right to safety under Section 12146, Section 29 providing for the right to be informed. Therefore consumers in South Africa have the right to safe goods and get the required information about a product before making the decision of purchasing. Section 24 and 34 provide for the right to healthy environment and the right to redress147 Competition Act of South Africa aims at the regulation of free market economy to enhance consumer interest.148 Other Acts which adhere to consumer protection are the Business Act149 which makes mandatory requirements for business to have a licence, the Standard Act
150

promote the

standards of goods and services offered to consumers. South Africa has more than twenty pieces of legislation which have provisions for the protection of a consumer. In the year 2008, a new bill on consumer protection has been approved by the cabinet and taken to the parliament for approval. The new bill aims at creating one piece of legislation that will unify all the provision on consumer protection from other legislation. Since the aim of this paper is to evaluate what Tanzania can learn from the developed world on the issue of consumer protection. In these circumstances it is vital to consider why SA has come up with such changes and not the past practice. In the year 2007 South Africa made a remarkable change on the consumer protection, this is the approval of 3rd draft consumer protection bill by the cabinet which will be tabled to the parliament and possibly might be passed into law in 2010.151 The bill has put all consumer protection provision from different statutes into under one piece of legislation. This bill has a peculiarly feature imposing liability to the manufacture, retailer or distributer on consequential damage suffered by a consumer as a result of their product. The defence of negligence is inapplicable here. As consequences of somewhat simplicity reading of section 50 of the new bill, it is a fundamental requirement that “all agreements for consumers must be in plain language”. Upon passing of this bill, consumers in South Africa will have the best statutory protection worldwide.

146 147

Constitution of the United Republic of South Africa, Act no 108 of 1996 Ibid., 148 The Republic of South Africa, Act no 89 of 1998 149 Act No. 71 of 1991 150 Act No. 29 of 19993 151 MARSH, International Bulletin “New consumer protection bill in South Africa” July 2008 at http://global.marsh.dppl.com/documents/Internationalbriefings/Consumer_Protection_Bill_in_South_Africa.pdf 23/0/2009

3.2.1 Consumer protection in Tanzania
When interpreting the concept of consumer protection in Tanzania, one has to start with the Constitution of the United Republic of Tanzania. This interpretation can clearly be sustained from the words of Part III Article 30 (2) section (b) of the Tanzania constitution which provide for “defence, public safety, public morality, public order, and public health”152 in commentary, in any activity of development the country’s interest shall be enhancing public benefit. Part 11I Article 20 (1) of the CURT provides for consumers freedom subject to the laws of the country to liberally and peacefully cooperate, unite or assemble on the matters affecting consumers, they have the right to form or join association. Notwithstanding the fact that consumer rights are recognised from the mother law, the fact remains that consumer abuse have continue to increase in Tanzania. A good example is the magnitude increase of counterfeit products estimated at 50% to 90% of the good found in Tanzania market. 153 Statistics from Tanzania Food and Drug Authority (TFDA) estimates market value of counterfeits at about TZS 925 billion which is estimated to be equivalent to US $715 million. Part III, Para 15 to 21 of the Fair Competition Act, 2003 stipulates that misleading or deceptive conducts against consumers shall be prohibited and part VIII para 48 stipulates on the necessity of product safety and product information to consumers. This provision is complimented with the constitution Article 18 (2) “provides for the freedom of expression”154 that citizens have the right to be informed on all state matters that have an impact into their lives. Part II para 8 to 14 of the Fair Competition Act provides for the right to choose, that consumers have the right to choose from a range of products that they came across. Further support for this analysis can be derived from section 12 to 14 of the Fair Competition Act, 2003 where details of anti competitive agreements conducts are laid down for the consumers to take note. Part IV para 22 of the Fair Competition Act provides for the right to redress, consumers have the right to compensation for unsatisfactory goods or services, subject to hearing. Apparently, consumers in Tanzania are not aware of their rights, this is due to several factors namely, and government publications are not easily accessible for the public. One might argue on the contrary that the statutes are easily accessible from the parliament
152

United Republic of Tanzania, Constitution of the United Republic of Tanzania 1977 (as amended from time to time) 153 Elizabeth Karua, “Trademark law and counterfeits: A case of cosmetic industry in Tanzania” A dissertation submitted in a partial fulfilment of the requirements for the award of degree of bachelor of laws (LL.B) of the faculty of law University of Dar es salaam, May 2008 pg 7 154 Ibid.,

website, this is actual truth. Such truth will be in doubt reinforce by the fact that the level of adult illiterate was 20%
155

apart from that majority of the population have no access to

internet facilities. Therefore it is absolute correct to conclude that majority of consumers in Tanzania do not know their rights. The government has enacted other sectoral regulation for the promotion of consumer rights; inter alia these include EWURA Act, 2001 which provide for the energy, water and utilities. The SUMATRA Act, 2001 which provide for the transport sectoral, The Tanzania Communication Regulatory Authority Act, 2003, Tanzania food and drug Authority Act 2003 and Tanzania bureau of standard Act, 1975. All the aforementioned acts aims at consumers satisfaction need, they regulate on all basic needs such as food, water and shelter. Reading comprehensively the Fair Competition Act, 2003 part VI para 26-36 has a very important aspect on consumer protection and this is the condition in consumer contracts. Worldwide, even in the developed jurisdiction of consumer protection, consumer rights are mainly abused under consumer contracts. The part provide that consumers should be well informed before entering into the agreement with the seller also the agreement should be of satisfactory quality, fit for their purpose as described.156 Finally, however there is a well drafted law on the protection of consumer in Tanzania, the problem is the implementation, it is estimated that more than eighty percent of consumers suffer from lack of understanding of consumer’s rights most of them do not even know the existence of the Tanzania Consumer Advocacy Society. Having a good law is one thing and implementation is another thing, for proper implementation Tanzania government should work towards raising consumer awareness on their statutory rights. Turning to the few cases on consumer protection, in the case of Ministry of industry and trade v Bonite Bottlers Ltd, the matter was heard at the Trade practice commission. That Bonited Bottlers the manufacturers of Kilimanjaro drinking water had a false advertisement deceiving the public that the water is from a “natural spring” while in actual terms their water was from a dripped well, the commissioner ordered Bonite Bottles to change their advert the advert was changed to “pure drinking water” the matter did not go on appeal. 157 Another similar case is Permanent Secretary Ministry of industry and Trade v Associated Breweries
155 156

In 2007 data from Tanzania National bureau of statics at http://www.nbs.go.tz/education.htm 2/08/2009 Fair Competition Act, 2003 157 The matter was decided on 1st June, 1999 by the Trade Practice Commissioner

(Tanzania) Ltd,158 the matter was brought at the Trade practice Commissioner that Associated Breweries had been deceiving the public that their beer is a guarantee that there is no hangover and “no sugar added” which was not true. The Trade practice Commissioner which now is the Fair Competition Commission barred such deceives and the order was complied. Making a critical analysis from these cases it is worth noting that the complainant is the Ministry of Industry and Trade, this shows that individual consumers are not aware of their statutory rights. Therefore it is the role of the government to create public awareness that consumers can institute direct suits against misleading advertisement.

3.2.2 Evaluating lessons for Tanzania
From the survey above, the practice in US, European Community, South Africa and the actual practice in Tanzania. There is one major problem that Tanzania needs to address, namely implementation of the drafted law especially on the consumer awareness of their statutory rights. The Tanzania government has wasted a lot of public funds on the funding of codification of all the above mentioned consumer protection law, while on the other side the people who ought to know these rights are not aware of their existence. Consumers are robbed so many things by the sellers such as comfort, reliability and personal safety irrespective of the fact that the statute prohibits conducts which leads to consumers detriment. Looking at the changes that South Africa is expected to make in the year 2010 after passing of the new consumer protection bill. It is also essential for the government of Tanzania to take further look into that. In Tanzania several legislation have consumer protection provision, however there is no specific legislation that cater for consumer issues only. Hence it is difficult for a layperson to understand the proper application of law. Finally, from the US, EC and South Africa consumer protection legislation, we can evaluate that Tanzania legislation on consumer protection has a gap. An aspect of consumer compensations is missing; EC had to go major reforms in the angle of consumer protection so that consumer should be individually compensated. Apart from that, Tanzania should also increase the level of consumer awareness by providing public education and increasing the accessibility of legislation that protect consumers. Therefore, as a developing country,
158

The matter was decided on August, 1998 by the Trade Practice Commissioner

Tanzania should have attention to the financial status of consumers, being able to distinguish the group of vulnerable consumers in the legislation of consumer related laws. For the maximum consumer protection it is also essential for Tanzania to have a competition regime, which will have the power to restrain anti competitive behaviours within the privatized large undertakings, limit mega-corporation abuse of market power and lastly promote development.159 Promote development in the sense that the policy should aim at raising the standard of living by encouraging investments into the country. Tanzania is characterised by low rate of manufacturing firms, when investment is high this will also benefit consumers, because number of manufacturing firms will increase. The end result will be increase of product choices and lower prices.

159

UNCTAD, discussion paper series, competition and competition policy in emerging market: international and development dimension at http://www.unctad.org/en/docs/gdsmdpbg2418_en.pdf pg 15 12/08/2009

CHAPTER FOUR STUDY FINDINGS AND ANALYSIS

“Anti- competitive conducts are the most egregious violation of competition law and ... they injure consumers in many countries by raising prices and restricting supply, thus making goods and services completely unavailable to some purchasers and unnecessarily expensive for others”160

1.1 How and why anti competitive conducts abuse consumer’s interests
Anti competitive conducts may be referred as an extensive range of business activities that an undertaking or a group of undertakings is engaged in, certainly the types of conduct that are regarded as anti-competitive vary from one jurisdiction to another.161 Conspiracy among sellers is regarded as a natural character, this was advocated by Adam Smith. “People of the same seldom meet together even for merriment and diversion, but the conversion ends in a conspiracy against the public or in some contrivance to raise prices.”162 The force underpinning these disruptive behaviours of sellers is profit motive; each undertaking is willing to apply different techniques so as to increase its profit. In the end almost all of these techniques are detrimental to consumers inter alia these are cartels, price discrimination, predatory pricing and abuse of a dominant position. According to the study by Hungarian national report on anti competitive conducts, these conducts also have a direct or indirect effect on all market participants.163 This chapter will deal with the detriments to consumer as a result of the anti-competitive conducts. Since the consumer is the sole end of production,164 without a consumer the production process is fruitless. Below different anti-competitive conducts will be discussed in terms of their effects on consumers.
160 161

The preamble of OECD council effective action against hard core cartels, 1998 reccomendation UNCTAD, consumers International in the Asia Pacific, “Competition policy and law in the consumer and development interest” http://www.cid.harvard.edu/cidtrade/Papers/sothi.pdf 2/08/2009 162 Adam Smith, Loc. Cit. Pg 67 163 LIDC-Amsterdam Congress, “Should the objectives of the rules on unfair competition be protection of competitors, or consumer, or of other interest? How should any conflict between these objectives be resolved?” athttp://209.85.229.132/search? q=cache:AG4hgxNfnGEJ:www.ligue.org/files/amsterdam_rapportbsudois.doc+unfair+competition+affect+cons umers&cd=2&hl=en&ct=clnk&gl=uk 20/08/2009 164 Adam Smith, Op. Cit

1.1.1 Anti-competitive agreements
Anti- competitive agreements which involve agreements by competitors to fix prices, restrict output and rig bids (collusive tenders), are the most serious and detrimental violations of competition law, that have a direct impact on consumers.165 Eventually, consumers will be injured by the supply restriction that will cause prices to rise. When anti-competitive agreement is successful consumers have no choice but to pay the price above competitive level. Some scholars argue that it is difficult to quantify the actual harm caused by anti-competitive agreements, thus it is reasonable to apply the per se (proxy rule) in dealing with anticompetitive agreements cases.166 In the case of Vicenzo Manfredi v Lloyd Adriatico Assicurazion SpA167 consumers in EC brought a claim that the undertaking operated a horizontal agreement. The ECJ made an important decision that the interpretation of Article 81 EC can include any individual as a consumer. So if an undertaking has engaged in prohibited conducts, including agreements, and there is harm suffered, a claim for compensation will suffice. Research done by the OECD’s Competition committee in an attempt to learn more the harm caused to consumers, reflected that out of 119 cases 70% of the cases it was difficult to estimate the harm.168Having researched different jurisdiction and cases, it is possible to suggest that there is no one rigid principle, each case is judged on its own merit. In the case of United States v Socony Vacuum oil ltd, it was laid that in US price fixing is illegal per se, regardless of the market power, intention or business justification of the participating undertaking.169 Firms adopt different means so as to compete with each others, sometimes undertakings of the same level enter into an agreement so as to fix prices with the intention of eliminating other competitors or create entry barriers for emerging competitors. This form of agreement is restrictive and unfair, for the market and consumers. The consumers will be limited in terms of choices, and the dominant firms will manage to dominate pricing so they can

165 166

Hylton, K. Antitrust law (Cambridge University Press, 2003) pg 30 Jacobson, J.M Antitrust law development (SIXTH) vol. 1 (America Bar Association 2007) pg 49 167 Case 295/04, judgement of the Court third chamber July, 2006 168 OECD, Report on the nature and impact of hard core cartels and sanctions against cartels under national competition laws, DaffE/Comp (2002)7/Unclassified pg 4 at http://www.oecd.org/dataoecd/16/20/2081831.pdf 17/08/2009 169 310 U.S 150, 1950.

maximise profit from consumers. Since there are no other competitors consumers will be forced to buy their product or services. Some firms may enter into agreement to select market, so as to avoid competition among them. They can fix this according to their targeted customers or geographically.170 The danger of these agreements is the occurrence of price fixing. When prices are been fixed consumers lose their autonomy of choice with regard to price, prices can escalate and they will have no choice.

1.1.2 Abuse of Dominant position
In the OECD glossary the term abuse of dominant position is defined as, an anti-competitive business practice, whereby a dominant undertaking engages in unfair business practices so as to maintain or increase its position in the competition.171 The dominant undertaking usually abuses its position by price discrimination, charging excessive prices, refusing to supply or sell, predatory pricing and exclusive dealing or third line forcing. When a firm charges excessive prices according to the total cost of production it is a prima facie that the firm is abusing its dominant position. However, these conducts are classified abusive depending on the jurisdiction and case by case basis. In the case of Wanadoo Espana v. Telefo’nica172 Telefonia was charged with imposing unfair prices in terms of marginal squeeze which harmed consumers using broadband in Spain. The court held that the commission described this as abusive conduct because marginal squeeze pricing had created a foreclosure in the market, resulting into entry barriers for other competitors. Therefore consumers became victims of higher prices, lack of choice and innovation. In the case of British Airways v. Commission the ECJ established that exclusionary abuse by British Airways is prejudicial to consumer within the meaning of subparagraph (b) of the second paragraph of Article 82 EC treaty.173 In commentary, the agreement that a travel agent will get tributes by selling more British Airways ticket is a prejudice to consumers in the sense that, consumers will be limited in terms of choices.

170 171

Jacobson, J.M, Loc. Cit pg 46 OECD, Glossary of statistical terms created on 2002, at http://stats.oecd.org/glossary/detail.asp?ID=3136 25/08/2009 172 Case COMP 38/.784 Wanadoo Espana v. Telefo’nica, 2008 /C83/05 173 Case 95/04 P, British Airways v. Commission, 23 Feb 2006, para 28

In the case of U.S. v. Microsoft Corporation, Microsoft paid hundreds millions of dollars to develop Internet Explorer and then it offered IE at a zero price. The IE was built into Microsoft windows and no other company could provide it. This created “application barriers to entry”174 and consumers suffered the effects of monopolization. When there is competition law, consumers are protected against misuse of market power by dominant undertakings.

1.1.3 Price predation
In the OECD glossary, price predation is defined as a form of strategic behaviour, which aims at eradicating rivals from the market, usually conducted by a dominant firm, selling its products below production cost, so that rivals will fail to compete.175 In interpreting the framework of predatory pricing, it is immediately apparent that, at the very beginning of predation, the end result will be lower prices which benefits consumers. The predator has to lower its prices to be an outstanding low.176 Once the predator is in control of the market (monopoly), the predator will have to increase prices above reasonable so at to gain the loses suffered during the initial stage.177 At this stage is when consumers will suffer high prices and lack of choices. Economists argue that it is very unrealistic for recoupment to take place. 178 Such assumption is doubtless reinforced by the perception that, during recoupment stage, other rivals will enter into the market. Writer Richard Zerbe argues to the contrary. He advocates that from the point of price distortion consumers will gain loses in the long run.179 He supports his argument by stipulating that, when prices are below actual cost there is wastage of resources, which in return affects other markets. To put the subsequent discussion in its proper perspective, his argument is meaningful, since prices below marginal cost create wastefulness. In long run the society will have inefficient allocation of resources, hence consumers will suffer the consequences of lack of resources.

174

U.S. v. Microsoft Corporation, 253 F.3d 34 (DC Cir. 2001) from the article by Robert W. Crandall and Clifford Winston, “Does Antitrust Policy Improve Consumer Welfare? Assessing the Evidence,” Journal of Economic Perspectives, Vol. 17 (4), Fall 2003, pp. 3-26. 175 Ibid., 176 L. Gormsen “The conflict between economic freedom and consumer welfare in the modernisation of Article 82 EC” European Competition Journal 2007, 329 pg 51 177 OECD., Op. Cit pg 4 178 Crane, Daniel,”The perverse effects of predatory pricing law” Regulation, vol 28 No 4 pp 26-31, Winter 2005 179 Richard Zerbe “does predatory pricing exist” Antitrust Bullet 949-985, winter 2006 pg 1

In the European case of Irish sugar v Commission it was stated that any undertaking which holds a dominant position, if it engages in conduct aiming at the elimination of competitors and creating barriers into entry, commits an offence under Article of the 82 EC treaty. 180 Finally it should be noted that in EC, recoupment is not an essential element for price predation case to succeed. In the case of France Telecom v the Commission181 it was held that, “prices below average variable cost are ground for presumption that they have the aim of eliminating competitors and prices below average total cost but above average variable cost, are presumed abusive when they consist part of a plan to eliminate competitor.” Predatory pricing has an anti competitive impact on consumer, eventually consumers will be faced with high prices and lack of choice.182 In the US predatory pricing is regulated differently from the EC. The actual harm must be tangible for a price predation case to succeed. In the case of Brooke Group Ltd v Brown & Williamson Tobacco corp,183 the Supreme Court laid that for the plaintiff to succeed in price a predation case he must first prove that, prices complained are below cost.184 Secondly, the plaintiff should demonstrate that the competitor had intended to eliminate other competitor, in other words the evidence of recoupment must be feasible. On this matter, therefore one might conclude that the U.S approach is protecting a particular competitor, compared to the EC approach.

The approach in South Africa is an application of the EC system, although the SA competition Act incorporates both US and EC approaches but when it comes to predatory pricing, EC approach is applied. Much cannot be said in the system on Tanzania since there are no decided cases about predatory pricing. The Tanzania government should be prudently advised to follow implementation approach that will enhance economic development. It will be wise to conclude that the EC approach is relevant for Tanzania, since there is a growing need to protect consumers rather than a particular competitor.

180

Case T-228/97, [1999] ECR 11- 2969 para 191, the same findings were held in the case T-203/01 Michelin v Commission [2003] ECR 11-4071 para 241 and 242 181 At the Court of first Instance, Case T-340/03, the commission used the management staff documents and formal presentation to establish whether there was predation plan. Therefore the commission understood what the management had in mind. 182 J. Temple and R. O’Donoghue (2002) 144 183 U.S Supreme court, 509 U.S 209 (1993) 184 The Court also reffered to the case of Cargill Inc v. Monfort of Colorado, Inc 479 U.S 104, 117

1.2 Efficacy of Fair Competition Act, 2003 and consumer protection
Table 2: Comments from the stakeholders

SN Respondent

1.

Government organs -FCC -TCAS -NCAC

Knowl Assessment of edge effectiveness of the Regul ations Effect ed Yes Effective as the regulations set forth attack the gravity problems attacking consumers such as deceptive and misleading advertisements and product counterfeit. They have also proven to be the best regulations so far in implementing and facilitating proper channels of combating consumer problems.

Observations on whether further reforms are needed

Specific Recommendations

New reforms can only be set in respect of adding more strength on the subject matter

More education to consumers so as to increase awareness on their statutory rights as consumer. Apart from the sectoral regulatory laws, the government should enact one law that will deal with consumer central issues. The Fair Competition Act cannot address some of the consumer issues such as health and safety.

2.

Producers and manufacturers

Yes

Regulations have enabled at a certain higher degree restoration of faith from the customer. This is because consumers are aware that the government regulating laws that enhance at consumer protection

The Fair Competition Act, should also focus on protection of the market by protecting the competitors through encouraging fair competition The provision on mergers should be amended to accommodate international mergers that are for the welfare of the national.

The Government in collaboration with manufactures and other undertakings should conduct public awareness that consumers are the sole end of any production. Hence forth they should build their trust with manufacturers.

3.

Academician Faculty of law and Faculty of commerce and management, University of Dar es Salaam

Yes

Implementation of the regulation took time to be put into place by the government

There should be private enforcement of competition; consumers should have a locus standi for compensation. Currently, adjudication of

Training and capacity building is needed for the country to develop its competition awareness.

Need to introduce competition courses in

Source: feedback from the sample questionnaires

1.3 Consumer problems that cannot be addressed by competition law and authority in Tanzania
Consumer protection is usually associated with economic growth of the market system, in Tanzania. In assessing the role of Tanzania national consumer advocacy, Dr. R Tenga 185 put forward that the consumer group is the largest group, yet in practice it is the weakest group. Consumers rely heavily on the sellers for market information and in most cases they end up uninformed. This is done through advertisement and marketing strategies on the quality and product information. From its establishment the Tanzania competition Commission has dealt with only two cases of this nature namely Ministry of industry and trade v Bonite Bottlers Ltd and Permanent Secretary Ministry of industry and Trade v Associated Breweries (Tanzania) Ltd as cited above. Undertakings use sophisticated methods of advertising to make misleading or untruthful statements in their product information. In order to minimize these problem consumers need to be educated so as to understand their rights and be able to identify misleading product information. For Tanzania to reach this goal, it is vital for the consumer education and advocacy to be under different authorities not competition law authorities only. The Constitution of the United Republic of Tanzania provides for public safety, public defense, public health and public morality.186 These rights applies to consumers when they enter into contract with the seller, reading thoroughly at the Fair Competition Act the aspect of consumer health is not addressed. One can see that the rights in the Constitution need to be complimented by a particular statute. Also consumers have the right to satisfaction of their basic needs, in Tanzania this is provided under EWURA Act 2001 and SUMATRA Act 2001. Competition law does not provide for this right directly. It only compliments indirectly by prohibiting anti competitive conducts in part 11 para 8 to 14 of the Fair Competition Act. Consumers need to have their rights directly

185

Tenga, R.W. Consumer Protection in Tanzania - Challenges and Prospects for Ncac - May 2007 at http://www.scribd.com/doc/18533961/Tenga-rw-Consumer-Protection-in-Tanzania-Challenges-andProspects-for-Ncac-May-2007 24/08/2009

186

Article 30 (2) (b) Constitution of the United Republic of Tanzania

provided, since majority of consumers in Tanzania regard pieces of legislation complicated. Therefore the government should have legislation that clearly provides for consumer’s rights. This research has found out that, consumers in Tanzania are affected by the caveat emptor principles “buyers beware”. In some cases the terms and conditions are placed beyond consumer’s vision, therefore many firms escape liability. This problem harms consumers’ freedom, still there is no consumer law that protects consumers from such principles. Also the change of mind freedom does not operate in Tanzania, if a consumer made a mistake upon buying a product he or she has no right to return it. The competition law and competition authority does not address any of the above mentioned consumer problem. The Tanzania Fair Competition Act is an antitrust law designed to prohibit abuse of monopoly power, cartels and other anti-competitive agreements which have an adverse effect on economic efficiency and consumers. Although the Act has a specific part that provides for consumer protection still it is important to have other pieces of legislation on consumer protection.

1.4 Why Tanzania lacks case law on competition law and consumer protection.
With globalization, promotion of competition law has become an international issue. Tanzania is part of this international community, hence it is fundamental for the country to keep pace with the changes in the community. Looking at the practical level one may conclude that, Tanzania is lagging behind on competition law and enforcement. This is because there is a very minimal amount of case law on competition issues and consumer protection. The few cases end up at the FCC tribunal, the alleged undertakings implements Commission decision. No appeals have gone up to the High Court Commercial Division, as a consequence Tanzania lacks jurisprudence and precedents on competition law. Why no case law in Tanzania? Before analysis of the above question it is very important to understand the economic and legal history of Tanzania. Before attaining independence in 1961 the degree of industrialisation and liberalization was very low, although currently things have changed but still the number of industries is very low. Tanzania is heavily dependent on export goods. Looking at the legal system before and ten years after independence Tanzania

had very few legal practitioners.187 Therefore matters were not brought to Court. They were solved by leaders in a particular society. Currently, the numbers of legal practitioners has increased but in most cases legal proceeding are very slow; hence people are discouraged from taking cases. Competition in Tanzania is a fairly new trend, and the number of manufacturers, wholesalers and retailers is not adequate for competition. For a perfect competition to occur there should be many firms operating in the market, so that no particular firm will be able to affect market price. Apart from that the public is not well informed on the issue of competition and consumer protection. Hardly any consumers in Tanzania recognise their statutory rights hence it is difficult for them to institute civil proceedings when their rights are violated. There is a need for public education awareness on their rights as consumers. Another reason is lack of human resources. From the judiciary to academics Tanzania lacks enough experts on competition matters. Refer to Table number 1, on the number of staff employed by the FCC, it is difficult for the few experts to tackle all anti-competitive behaviours in the country and brought them the Courts.

CHAPTER FIVE CONCLUSION AND RECOMENDATIONS FOR FURTHER RESEARCH

1.1 Conclusion
Competition law benefits consumers in the following ways, first of all it ensures efficient allocation of resources, secondly it ensures better quality of products at a reasonable price and lastly, it regulates fair competition in the market. When a country introduces deregulation and privatization this creates opportunities for new firms in the market, “hence boosts” the economy. Therefore firms will enter into competition to win the market power, in doing this they will be forced to produce quality goods or services at affordable prices. The end results will be benefits to consumers. However, sound legal drafting on competition matters is vital, otherwise a country will have competition legislation but still consumers will not benefit from the system. Finally, one can conclude that well drafted competition policy is part and
187

Dr Fauz, T. “The legal profession in Tanzanian” (Law Africa Pub, 2008) pg 14

parcel of an effectual consumer protection policy. Competition law opens the doors for market so that firms can compete but the law is not a judge in the competition to choose who wins. It makes regulation to regulate the game as a referee, who supervises how the game should be played fairly and no harm to audiences which are the consumers.

For the maximum protection of consumers, competition should be maintained in the market. This can only be achieved whereby there is proper drafting and implementation of competition regulations. Herein comes the role of the state and its institutions involved with competition matters. The state needs to develop and promote market concentration, at the same time monitoring unfair means of competition. It is clear therefore that, consumers’ interest will be protected rather than a particular competitor. Design and structure of competition regulation vary from one country to another depending on historical, economic and political factors.188 Developing countries like Tanzania must have competition legislation that is flexible. This means that the law can change from time to time so as to strike a balance between economic efficiency and consumer protection, Tanzania competition law should take

188

Godius kahyrara, Op. Cit pg 32

into account development issues such as employment and encouragements of small scale and medium scale undertakings. There is a need for Tanzania to harmonise her competition laws into one piece of legislation. Currently, sector regulators are created by separate pieces of legislation incorporating part of competition rules in the particular sector. These laws should be deliberately harmonised into one piece of legislation and that is the Fair Competition Act, 2003. Moreover the competition authority (FCC) should have concurrent jurisdiction in all competition matters and sector competition matters. Research findings have shown that staff in different sectors such as Energy, Water and Utility Regulatory Authority (EWURA) and Tanzania Communication Regulatory Authority (TCRA) usually seeks advice from the Fair Competition Commission concerning competition matters. It will be meaningful for the Fair Competition Commission to regulate these sector bodies through the Fair Competition Act. The main cause of unsound policies in Tanzania is poor leadership, in order for Tanzania to develop her competition policy and law emphasis should be on appointment of strong leadership. An outstanding competition authority requires strong and determined leaders the problem of corruption should be tackled down appropriately. Apart from that, the FCC should also recruit experienced lawyers and economists on competition issues. However, it is impossible to have experienced staff on competition matters if competition is not part of courses taught in Tanzania universities. The government should take the responsibility to hire foreign experts’ to teach competition courses in the universities and other higher learning institutions. In years to come Tanzania will have sufficient experts on competition matters, therefore the government will not need to employ foreign expatriates in drafting competition legislation and giving advice to the government. Since competition law is a new phenomenon in Tanzania, it is important for the judges and magistrate to be trained on the subject matter. Magistrates and judges are the uppermost in decision making, therefore knowledge of competition matters is essential for them in order to make logical and fair decision. It is immediately apparent that, the government will waste tax payers’ money and time, if no training is provided to the decision makers of competition litigations.

Due to globalisation, there is growth of cross boarder trading and foreign direct investment by transnational cooperation. Henceforth, competition has become an international trend. Therefore international cooperation is essential for proper control of anti competitive behaviours, particular cartel. National competition authorities have limited jurisdiction power they cannot investigate cases which are out of its jurisdiction. Therefore international cooperation is necessary. Different countries have signed bilateral and tripartite agreements for the proper enforcement of competition regulation within the region. Regional cooperation will only fight anti competitive behaviour within the region. International cartels and other anti competitive behaviours at international level will have adverse effects to consumers if there is no multinational cooperation.

1.2 Recommendations for further research
The researcher is aware that there are some problems associated with the research topic, which have not been analysed in detail. Hence would like to recommend them for further research so as to develop the area of competition law and consumer protection particular in Tanzania. The point where Tanzania lacks case law on competition law, deserve further investigation. Tanzania has been identified to be among the first African countries to have competition policy and legislation. However there is lack of case law at the appeal level all competition cases end up at the court of first instance (the Commission). As a result there is lack of jurisprudence and precedents on competition law. Chapter three has given out the reasons for and how to overcome the problem. Still further research is needed to find out whether competition law is stagnant in Tanzania. It is a contradictory issue, because when reading literature on competition law in Tanzania authors argue that competition law is developing in Tanzania,189 however they admit that their research is limited by absence of case law on competition in Tanzania. Generally, the research community in Tanzania needs to research more on this issue. Another area which needs further research is the enforcement of competition policy and law in Tanzania, the line of demarcation between current legal and institutional enforcement need
189

Mkocha Godfrey, Loc.Cit

to be identified. There is a need of understanding of how enforcement procedure works, and how the competition authority can interlink with the judiciary. It is also seen reasonable to have a paper which will analyse the Fair Competition Act, 2003 its main features and the application of the provisions. This will help to build an understanding of the law to the public, particular lay persons. From the research findings there is a high degree of ignorance in Tanzania on the competition law, some consumers do not even know that the Act is intended to protect their interest they think it is a legislation that protects competitors in the market. Since Tanzania is on the early stage development of its competition law jurisprudence, it is essential to have extensive literature on the subject for proper implementation and drafting of the law. The researcher has faced the problem of lack of sufficient literature on Tanzania competition law. As this research paper will contribute to reference material, further research in Tanzania need to direct attention into competition issues. It is good thing that we have a well drafted act, which has been drafted by experts. Eventually, law changes with time and possible transform in the society. Therefore one can see that amendments are inevitable, the body empowered by Tanzania constitution to make amendments is the legislature. If there is lack or no literature development in this area of law, members of parliament will have no knowledge of what needs to be changed for the betterment of the national. Otherwise the well drafted piece of legislation will be turned into inactive and atrocious law. All in all, for Tanzania to develop her competition policy, law and consumer protection, there is a need for the government to implement recommendations from this research paper. Moreover more research is needed on the area of competition law. The researcher is of the opinion that everything evolves from knowledge, if you don’t recognise what you have is the same as having nothing. Tanzania has good and clear competition Act, which clearly provides for consumer protection but ninety percent of consumers do not know about the Act and the remaining five percent who know do not understand if they are protected by it.190 The five percent who knows about the Act are civil servants and other stakeholders of competition issues in the country.

190

Data compiled from consumers questionnaires (feedback form)

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