South Africa, Walmart / Massmart Merger

Gerhard Erasmus, a tralac Associate and Paul Kruger, a tralac Researcher, discusses the Walmart/Massmart Merger - The Role of International Law in Regulating Competition, Investment and Trade.


BACKGROUND

The recent hearings before the South African Competition Tribunal on the proposed Walmart/Massmart merger were dominated by arguments about the impact of the proposed deal on jobs and local procurement.  Some have argued that the Tribunal should decline permission for the merger, and that if it could not do so, it should impose restrictive conditions on Walmart, which wants to buy 51% of Massmart for about R16.5bn. The South African trade unions, the government and some retailers want specific conditions about future labour practices and imports to be imposed as part of the conditional approval for the transaction to go ahead.

A number of important international legal issues have also been raised. Arguments on behalf of Walmart suggest that several international agreements impact on the domestic regulation of trade, competition, investment and related aspects. These matters are often connected. This paper discusses these issues and the reasons why international trade law applies to investment, competition and this particular merger. The relationship between national and international law also needs clarification, as does the role of the government in this matter.  One of the additional questions to consider is whether private parties can invoke these agreements; or do they only apply on the inter-state level?

Walmart has subsequently offered certain concessions but during the hearings before the Competition Tribunal its legal representatives have argued that restrictive conditions (depending on how they are formulated) may violate South Africa’s obligations under the WTO agreements. It would be impermissible, they argued, to discriminate against Walmart by obliging it to comply with obligations which do not bind its competitors. What are these international obligations and why would the suggested conditions constitute violations of international rules? Do these international agreements apply domestically? 

IS IT ABOUT PROTECTIONISM?
There have been suggestions that the intervention by the South African government before the Competition Tribunal is inspired by protectionist motives. The implication seems to be that it is improper for the authorities to be involved in these hearings. There is nothing improper about the government being concerned about an investment of this kind and to raise questions about its consequences. The other parties and commentators are free to entertain different views. They may challenge assumptions that employment can be protected in the manner proposed by the government and the unions and may offer alternative ideas on how best to secure welfare gains and consumer benefits. They may even pass judgment on the government’s motives and call them ‘protectionist’. The fact that the government raises its concerns now is, however, not wrong or inappropriate.   These hearings take place before a public forum and the purpose is to obtain information from the parties concerned and to test the evidence; before making a final ruling on the conditions applicable to the merger. Ultimately the criteria laid down in South Africa’s competition legislation apply, while certain international obligations should also be considered. There is a qualification though; the government’s concerns can, insofar as they relate to binding international legal arrangements, only be accommodated within the ambit of permissible exceptions, in addition to complying with the Competition Act and general administrative law requirements. The accommodation of the international dimension is one of the challenges now facing the Competition Tribunal.  

Governments are, as a matter of course, involved in matters of this magnitude; overseeing foreign investment is an accepted governmental function. Many states have legislation dealing with foreign investment and official permission is often required; as happened when foreign investors bought shares in Absa and Standard Bank in South Africa a few years ago. 

In the globalised economy national market regulation measures frequently have international ramifications. Compliance with international obligations then enters the equation. There are many examples. Only last week the WTO Appellate Body gave a ruling in the EU/USA dispute about state subsidies paid to the Airbus and Boeing companies and the effect thereof on fair trade. It does not come as a surprise that the same consideration (the effect of the state’s international obligations)
applies to measures about competition and mergers involving foreign companies. 

The procedure with respect to the present merger is not at fault. The transparent involvement by the government, together with other parties, acknowledges a basic rule of law requirement. The issues are openly debated. In South Africa (and in certain neighbouring countries) questions concerning the promotion of competition are regulated by law. The Competition Tribunal is an independent forum and will give a decision on the merits and in terms of its legal powers. If a particular party with the necessary standing feels aggrieved about the final ruling, it will be possible to take the matter to the Competition Appeal Court and even to the regular courts. South Africa has a dedicated legal arrangement consisting of detailed legislation and institutions (Competition Commission, Competition Tribunal and Competition Appeal Court) to investigate, decide and review competition related questions and rulings. This includes procedures for protecting the rights of parties and to ensure that the applicable legal norms are fully adhered to. Remedies will be granted where due. 

This happened in Namibia with respect to Walmart’s recent merger notification in Windhoek. The facts of that case are mentioned below in order to highlight an important aspect of the present matter, the general rules-based nature of the procedure and the fact that decisions by competition authorities should be justiciable.

THE REGIONAL CONTEXT
The competition hearing in South Africa is the final hurdle for Walmart’s entrance into Africa, as the necessary approval has already been obtained in the other African states with competition regulators. Massmart operates in 14 African countries, but only six of these countries require competition approval for the acquisition. The competition authorities in Tanzania, Malawi, Swaziland and Zambia gave their unconditional approval for the deal. Namibia and South Africa are the two outstanding jurisdictions. 

South Africa represents by far the most important market for Walmart in Africa; as 93 percent of Massmart’s revenues are generated in this country. If the merger is refused, or too strict conditions are imposed on its South African operations, it will seriously frustrate Walmart’s entry into Africa. 



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