ANISH JAIPURIAR & TESTS OF SIEC AND AAEC IN M&A:

SARITA RAUT A COMPARATIVE STUDY

TESTS OF SIEC AND AAEC IN M&A: A

COMPARATIVE STUDY OF COMPETITION ACT,
2002 AND EU COMPETITION LAW

Anish Jaipuriar* and Sarita Rout**

Abstract

In the European Union (EU), the substantive

test for merger control is to ascertain whether
a prospective merger would significantly
impede effective competition (SIEC) in the
common market, while under India’s
Competition Act, the substantive test for
combinations is to determine whether there is
an appreciable adverse effect on competition
(AAEC) within the relevant market. The two
tests therefore play a significant role in
fulfilling what is called the aim of any
competition law and being the sole criteria in
each of the law a clear, definitive and market
friendly scope has to be established. This
paper therefore discusses and compares the
two tests in terms of any similarity or
differences and tries to establish a standard

*
Anish Jaipuriar is a fourth-year student at National Law University, Odisha. The
author may be reached at [email protected].
**
Sarita Raut is a fourth-year student at National Law University, Odisha. The
author may be reached at [email protected].

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scope for achieving the objective of the

competition law.

I. INTRODUCTION

In the wake of the economic liberalization and growing industrial and

trade policies, foreign investment rules, capital controls, etc., a need
was felt for a new and modern Competition Law in the place of the
old Monopolies Restrictive Trade Practices Act, 1969 (hereinafter
“MRTP Act”).1 The background to the enactment of the Competition
Act was succinctly explained by the Supreme Court in the case of
Competition Commission of India v. Steel Authority of India Ltd2 that
the main objective of competition law is:

“to promote economic efficiency using competition as one of

the means of assisting the creation of market responsive to
consumer preferences. The advantages of perfect competition
are three fold: allocate efficiency which ensures effective
allocation of resources, productive efficiency which ensures
that costs of production are kept at a minimum and dynamic
efficiency which promotes innovative practices.”3

Mergers and acquisitions (for simplicity combinations, concentrations

or M&A) legally and physically compound the corporate status of the
merging company with which it has merged and the merging
company’s autonomy is lost in its entirety to the merged company.
The main rationale behind pursuing such combinations is synergy i.e.

1
Ranjit Anantrao Shedge, Need of Second Generation Economic Reform,
http://www.legalindia.in/need-of-second-generation-economic-reform.
2
(2010) 10 S.C.C. 744.
3
Id.

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to acquire the additional advantage of business operations that the

merging firms separately could never have achieved. In India
combinations are regulated under three different legislations viz.
Companies Act, 1956, SEBI Act, 1992, Competition Act, 2002 (also
referred to as “CA”) which aim at fulfilling three different and
mutually exclusive objectives. When on the one hand, the Companies
Act, 1956 tries to protect the interests of the secured creditors the
SEBI Act, 1992 tries to protect the interests of the investors. The
Competition Act, 2002 is aimed at “preventing practices having
adverse effect on the competition, and to protect the interests of the
consumer and to ensure fair trade carried out by other participants in
the market in India and for matters connected therewith or incidental
thereto.”4

In the European Union (hereinafter “EU”) mergers are mainly

regulated through the European Council Merger Regulation, 20045
(hereinafter “ECMR”) which replaced the earlier EC Merger
Regulation 4064/896 (“Old Merger Regulation”). ECMR changed
the test for prohibition from ‘the creation or strengthening of a
dominant position’ to a ‘significant impediment to effective
competition’.7 The test is a compromise between the concept of
dominance as part of the substantive assessment (particularly
Germany) and those who favoured the adoption of a ‘substantial

4
Id.
5
Council Regulation (EC) No.139/2004 on the control of concentrations between
undertakings (2004) O.J. L24/1,
http://www.wipo.int/wipolex/en/text.jsp?file_id=181665.
6
Council Regulation (EEC) No.4064/89 on the control of concentrations between
undertakings [1989] O.J. L395/1, http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31989R4064:EN:HTML.
7
Shearman and Sterling LLP, The New European Merger Regulation, 1 (April
2004), http://www.shearman.com/files/Publication/f2849061-ee0c-4352-ae1d-
0fbdfbf3aadc/Presentation/PublicationAttachment/11539f1e-5e5c-4640-b1e6-
22379dbc21bf/AT_0404.pdf.

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lessening of competition test’ (hereinafter “SLC”), used by the UK,

Ireland and several other jurisdictions including the U.S.8

The purpose based study of the above stated legislations (mainly

ECMR and CA for the sake of this paper) is significant so as to
recognize the contrasting features of the Significant Impediment of
Effective Competition (hereinafter “SIEC”) under the ECMR and
Appreciable Adverse Effect on the Competition (hereinafter
“AAEC”) under the CA.

This paper tries to compare the two tests. The purpose of the paper is
to draw differences and thereby establish if there exists a need to
modify the current law in India. The idea behind the comparative
study is to ascertain the loopholes in the Indian legislation if any and
thereby devise plans to overcome it. The paper will be divided into 3
basic subheads. Part I deals with detailed analysis of AAEC
regulation in CA, 2002. Part II deals with detailed analysis of test of
SIEC. Part III will contrast and compare the two tests in terms of
what does each test tries to achieve and whether if the purpose of the
tests are same then which test has ultimately served the purpose in a
more efficient and effective manner. Thereafter the paper will
proceed with the conclusion which will point out the summary of the
analysis done in the whole paper with certain intelligible remarks.

Neil Horner, Unilateral Effects and the EC Merger Regulation – How the
8

Commission Had its Cake and Ate it Too, 2 HANSE. L. REV. 23, 24 (2006).

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II. APPRECIABLE ADVERSE EFFECT ON THE

COMPETITION

The phrase Appreciable Adverse Effect on the Competition appears

around 23 times in the CA, 2002. However not even once has the
legislation tried to define AAEC except in Sec 20 (4) of CA which
provides nothing more than tools for the Competition Commission of
India (hereinafter “CCI”) to identify AAEC. The provisions to
regulate combinations have been the subject of intense discussion in
recent times.9 The Act defines a "combination" as any M&A in which
the firms' combined assets or turnover exceed Rs 1,000 crore
(approximately $ 250 million) and Rs 3,000 crore (approximately $
750 million) respectively in India or $ 500 million and $ 1,500
million worldwide, M&As that fall below these thresholds are not
considered in the expression combinations and are outside the ambit
of the Act.10

The legal debate encircling the provisions of combinations is mainly

because of the lacking nexus between the threshold and the test of
AAEC. Further, the domestic nexus test i.e. only those combinations
where at least Rs 500 crore of the combined worldwide assets or at
least Rs 1,500 crore of combined worldwide turnover of the merging
parties is in India, would come under the purview of the Act has been
highly criticized.11

The International Bar Association (hereinafter “IBA”) and the

American Bar Association (hereinafter “ABA”) in their submissions
to the government and the CCI have pointed out that a multi-national

9
Manish Agarwal and Aditya Bhattacharjea, Are Merger Regulations Diluting
Parliamentary Intent?,43 ECONOMIC AND POLITICAL WEEKLY 10 (2008).
10
The Competition Act, 2002, § 5, No. 12, Acts of Parliament, 2003 (India).
11
AGARWAL & BHATTACHARJEA, supra note 9, at 10.

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firm whose Indian operations are substantial enough to satisfy the

domestic nexus test would still have to notify its offshore acquisition
of a firm with no Indian interests whatsoever, if the combined
operations of the parties crossed the threshold for worldwide assets or
turnover.12 They argue that such combinations do not raise any
competition concerns and should be kept out of merger review.

The above contention raised by the two international bodies is

interesting as it points at an undefined area of law. The question is
whether Sections 5 and 6 of the CA, 2002 are independent of each
other or inter-dependant or there exists a unilateral dependence of the
two sections on each other. The prima facie answer may be simple
that only when a particular combination attracts Sec 5 can it be
further examined as per Section 6.

The study of the correctness and practicality of the answer above is

ancillary to the main purpose of this paper because the correct answer
will help us in determining the opposite legislative intent behind the
suitable scope of AAEC. Prima facie relying on the specific threshold
limits in Section 5 an implication is deducible that those combinations
that exceed the threshold are bound to have AAEC and therefore such
combinations will necessarily have to go under the scrutiny laid down
in Section 6. Section 5 states that any combination that exceeds the
threshold limits specified in the Act in terms of value of assets or
turnover can be scrutinized by the CCI to determine whether it will
cause or is likely to cause an appreciable adverse effect on
competition within the relevant market in India. 13

12
IBA Memoranda, http://www.ibanet.org/legalpractice/AntitrustWGIndia.cfm;
ABA Letter, http://www.abanet.org/antitrust/at-comments/2007/11-07/Comments-
lndianCompetition.pdf.
13
Subhadip Ghosh and Thomas W. Ross, The Competition (Amendment) Bill 2007:
A Review and Critique, 43 ECONOMIC AND POLITICAL WEEKLY 35 (2008).

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The above conclusion attaches an inherent restriction on the powers

of CCI as only those combinations which trigger the provisions of
Section 5 will stand reviewable under Section 6. In other words
Section 6 cannot be triggered independently to review those
combinations which first do not invoke Section 5. This conclusion
ultimately defeats the purpose of the CA, 2002 which reads:

“An Act to provide, keeping in view of the economic

development of the country for the establishment of a
Commission to prevent practices having adverse effect on the
competition…”

Provisions of CA, 2002 relating to combinations seems to be based on

the assumption that combinations with large turnovers/assets
ownership can only adversely affect the competition. If this premise is
true then the scope of the test of AAEC is automatically narrowed
down. While if reliance is placed on purposive interpretation i.e.
Section 6 can operate independently of Section 5 then the scope of
AAEC widens to a great extent and calls for a deeper analysis in
giving it a proper structure.

CA, 2002 being a relatively new legislation such questions has not
been judicially scrutinized. Therefore this paper for simplicity will
proceed on the second interpretation i.e. Section 6 can be triggered
independently without application of Section 5 so to promote and
safeguard the primary objects of the CA, 2002.

To support this view reliance is placed on the approach under the

relevant competition law legislations of US and Canada. Here,
mandatory pre-notification thresholds has been defined as simply a
level at which reporting to the authority becomes an obligation, but
this level does not have to limit the authority's ability to review any

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combination that it feels might harm competition. 14 This approach

realizes that in some markets, competition can be harmed even by the
combination of relatively small firms.

Another reason for the reliance on the purposive interpretation is that

throughout CA, 2002 there is only one specified competition test; it
requires that, to be condemned, an action or agreement must have an
AAEC. So, it will be against the interests of the consumers and will
further restrict the powers of CCI if AAEC is narrowly defined.

The question of defining AAEC revolves around another question i.e.,

how large must an effect be to be deemed appreciable? For example,
will it be any effect beyond a de minimus effect or will it be more like
the ‘Substantial Lessening of Competition’ tests of other countries
(e.g., Canada, USA),15 or beyond or equivalent to the opinions laid
down for dominance test and its successor SIEC under the EU
competition law.

There are various approaches which influence the scope and

definition of AAEC. Few such factors include:

A. Time centric
B. Money centric
C. Consumer centric
D. Market Centric

A. Time Centric

Time as a factor plays a significant role in determining the scope of

AAEC. The Act grants the CCI the power to investigate a
combination only up to one year after "such combination has taken

14
Id. at 39.
15
Id. at 37.

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effect".16 This obviously limits the CCI’s power to address concerns

when a merger results in anti-competitive effects that show up
gradually over a few years. In contrast, in Canada for example, the
Competition Bureau may make an application to the Competition
Tribunal regarding a merger up to three years after the merger has
been "substantially completed". 17 Australia also has, in effect, a three-
year limitation period. 18 There is no statutory limitation on the US
government's authority to review mergers after they have been
complete.19

So, if only one year limitation is available then the test of AAEC is to
be narrowly construed in terms of application within a span of time. If
a combination gradually turns out to have AAEC after a period of one
year then the CCI’s powers will be restricted to inquire into such
combinations. This is an area which requires an immediate attention.

B. Money Centric

As have already been discussed the questionable threshold restricts

the powers of the CCI to inquire, control and thereafter achieve the
purposes of CA.

C. Consumer Centric

Consumers are the ultimate point of judgement of a particular

combination. If a combination is adversely affecting the consumers in
terms of unfair pricing strategy, deliberate creation of shortage of
supply, abuse of the dominant position which the combination intends

16
The Competition Act, 2002) § 20 (1), No. 12, Acts of Parliament, 2003 (India).
17
The Competition Act 1985 (Canada), § 97.
18
Trade Practices Act 1974 (Australia), § 81(2).
19
GHOSH & ROSS, supra note 13, at 39.

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to form etc. So, only a broad scope of AAEC can achieve what the
consumers’ desire.

D. Market Centric

When assessing the permissibility of horizontal mergers, one must

first establish what the relevant market is. This requires a focus on the
demand side to establish whether or not the products are close enough
substitutes. On the supply side, it is important to identify the market
shares of the firms. It is important to assess how the relevant market
is likely to evolve in the near future. This would depend on whether
entry is easy and whether there are potential entrants that could easily
enter.20

Further another factor is whether the higher concentration in the

market resulting from the merger will increase the possibility of
collusive or unilaterally harmful behaviour. Collusion is more likely
in industries producing relatively homogeneous products and
characterised by small and frequent transactions, the terms of which
cannot be kept secret. The merger is likely to be unilaterally harmful
when the two merging firms produce similar products in a
concentrated differentiated product market. 21 It has been noted that

20
S. Chakravarthy, India's New Competition Act 2002 - a Work Still in Progress, 5
BUS. L. INT'L 240, 258 (2004).
21
SVS Raghavan Committee, Report of High Level Committee on Competition
Policy Law,
http://rapidlibrary.com/source.php?file=ulzwbwmxnbi89on&url=http%3A%2F%2F
www.globalcompetitionforum.org%2Fregions%2Fasia%2FIndia%2FReport_of_Hi
gh_Level_Committee_on_Competition_Policy_Law_SVS_Raghavan_Committee2
9102007.pdf&sec=9e890c44eb0d4554.

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the definition of market frequently determines whether a particular

merger is judged anti‐competitive and unlawful. 22

The core component of any merger control regime is the assessment

of proposed mergers to determine their possible effects on
competition. Every system of merger control sets out a substantive
test to determine whether or not a merger ought to be blocked and
must decide upon a standard of proof required before a competition
authority can block a merger. 23 A substantive test usually involves the
examination of various factors such as:

a) Market Shares and Market Concentration

Market shares of firms are an important factor taken into account in

the context of impacts on competition as they can indicate the market
power of the firm. Market shares, prior and subsequent to the merger,
are also used to determine the level of concentration in the market
which in turn indicates the level of competition in the market. 24 Many
jurisdictions today however employ the Herfindahl‐Hirshman Index
(HHI) to determine market concentration. This method involves the
calculation of the sums of squares of individual market shares of all
competitors in the market. A total less than 1000 indicates low
concentration and one greater than 1800 indicates high
concentration.25

22
OECD/World Bank, A Framework for the Design and Implementation of
Competition Policy and Law (1999),
http://www.oecd.org/dataoecd/10/30/27122278.pdf.
23
RICHARD WHISH, COMPETITION LAW 788 (2005).
24
ALAN H GOLDBERG, COMPETITION LAW TODAY: CONCEPTS, ISSUES AND THE LAW
IN PRACTICE100-101(1st ed, 2007).
25
Neeraj Tiwari, Merger Under The Regime of Competition Law: A Comparative
Study of Indian Legal Framework With EC and UK, 23 BOND LAW REV.117, 136
(2011).

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b) Barriers To Entry

Barriers to entry, as the expression indicates, refers to a situation that

makes the costs of a new entrant to the market higher than the cost of
firms already in the market which creates a range within which firms
in the market can raise their prices above the competitive level
without attracting new entry.26 ‘Barriers to entry’ finds place among
the various factors to be taken into account by the CCI in determining
whether a proposed combination has or is likely to have an
appreciable adverse effect on competition. 27 The nature and extent of
vertical integration in the relevant market is also to be considered by
the CCI.28

c) Actual And Potential Competition

The determination of the effects of proposed mergers on competition

involves the examination not only of the actual levels of competition
in the relevant market and the likely consequences of the transaction
but also the impacts of the transaction on potential competition. 29
Indian Competition law requires the consideration of ‘actual or
potential competition’ but this is qualified by the words ‘through
imports’.30 At the same time, another listed factor is the ‘extent of
effective competition likely to sustain in the market’. 31

26
Id. at 137.
27
The Competition Act 2002, § 20 (4) (b), No. 12, Acts of Parliament, 2003 (India).
28
Id. at § 20 (4) (j).
29
TIWARI, supra note 25, at 137-138.
30
The Competition Act, 2002, § 20 (4) (a), No. 12, Acts of Parliament, 2003 (India).
31
T. RAMAPPA, COMPETITION LAW IN INDIA: POLICY, ISSUES AND DEVELOPMENTS
209(2006).

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d) Welfare Objective And Benefits To The Customers

While competition law is essentially concerned with economic

objectives, social welfare objectives and consumer benefit also
constitute an important part thereof. The regulation of mergers may
also involve the consideration of such objectives.32 The CAincludes
the nature and extent of innovation among the factors to be assessed
in merger regulation and also mentions the benefits of the
combination in general. Although as such consumer interest does not
find a mention in the law, it is likely that in examining the benefits of
the combination or its impact, the effects on consumers would also be
taken into account.33

The emergence of globalisation and privatisation has increased the

need to regulate M&As in a global market perspective. The existence
of a sound regulatory mechanism increases the faith of incoming
foreign investors.34 The effect and the efficiency of the functioning of
the Act although yet to see, a lot of literature seems to have developed
with differing views. The scope and extent of application of AAEC is
largely contested.

Appreciable has been defined as capable of being measured or

perceived,35 and adverse is defined as having an opposing or contrary
interest, concern, or position. 36 So, in order to attract the CCI’s
attention a combination must have a negative impact on the free and
fair competition. The problem which arises is the impact analysis as
the impact can be both quantitative and qualitative. The quantitative

32
TIWARI, supra note 25, at 139.
33
The Competition Act 2002, §19(3), No. 12, Acts of Parliament, 2003 (India).
34
Jitheesh Tilak, Regulating M&As an Insight into Competition Laws in India, 32
INT'L BUS. LAW. 161, 165 (2004)
35
BLACK’S LAW DICTIONARY 117 (9thed. 2009).
36
Id. at 62.

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aspect may still be measurable easily but qualitative aspects such as

customer satisfaction, fairness of pricing structure etc. may prove to
be difficult to measure and if somehow measured, the genuineness of
the data will always be doubtful.

The CA has come a long way to establish a sound regulation as far as

combination is concerned, but the prevalent ambiguous concepts and
tests are preventing the statute from achieving an optimum level of
enforcement.

III. SIGNIFICANT IMPEDIMENT ON EFFECTIVE

COMPETITION

The Treaty of Rome established the European Economic Community

in 1957. It has been known as the European Community (EC) since
the Maastricht Treaty of 1992. The Treaty does not contain any
specific provisions relating to mergers. Historically, mergers were
dealt with by the application of Articles 81 and 82. However, this was
considered to be an inadequate way of governing mergers and so, in
1989, the ECMR was introduced. The present rules are contained in
Council Regulation (EC) 139/2004.37

In the last twenty years, the application of EC competition law by the

Commission has been increasingly informed by economics. 38 In the
field of merger control it has operated an economically enlightened

37
George Metaxas and Hector Armengod, EC Merger Regulation and the Status of
Ancillary Restrictions: Evolution of the European Commission’s Policy, 9 E.C.L.R.
500 (2005).
38
D. Neven, Competition economics and antitrust in Europe,21(48) ECONOMIC
POLICY 741 (2006); See also, M. Monti, EUROPEAN COMPETITION FOR THE 21ST
CENTURY 257 (B. Hawk ed., 2002).

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regime as a whole, however its policy on conglomerate mergers and

ambiguity over the role of efficiencies have received adverse
comment.39 The most significant reform that resulted from the review
of the ECMR that took place between 2001 and 2004 was a change in
the substantive test for analysing mergers, and is the focus of this
essay.40 Unlike the reforms noted above, it did not result from any
significant criticism of the merger regime, so the need for a new test
and its possible impact is uncertain and worth exploring, especially in
light of some experience with the operation of the new ECMR.41

As originally drafted the ECMR prohibited a merger ‘which creates

or strengthens a dominant position as a result of which effective
competition would be significantly impeded in the common market or
a substantial part of it’ more commonly known as Dominance test. 42
During the review of the ECMR, economists and lawyers debated and
raised issue whether the dominance test was sufficiently supple to
apply to unilateral effects in oligopoly markets.43

39
D. E. Patterson and C. Shapiro, Transatlantic Divergence in GE/Honeywell:
Causes and Lessons, 16 ANTITRUST 18 (2001).
40
The process began with the Green Paper on the Review of Council Regulation
(EEC), No. 4064/89 COM (2001) 745, http://eur-
lex.europa.eu/LexUriServ/site/en/com/2001/com2001_0745en01.pdf.
41
Giorgio Monti, The New Substantive Test in the EC Merger Regulation – Bridging
the Gap Between Economics and Law? 2 LSE LAW, SOCIETY AND ECONOMY
WORKING PAPERS 10/2008,http://ssrn.com/abstract=1153661.
42
Council Regulation (EEC) No 4064/89 on the control of concentrations between
undertakings art.2(3) (1989) OJ L395/13,
http://ec.europa.eu/comm/competition/mergers/legislation/regulation/consolidated/
en.pdf.
43
N. Horner, Unilateral Effects and the EC Merger Regulation – How The
Commission Had its Cake and Ate it Too, 2(1) HANSE LAW REVIEW 23 (2006); S.
Baxter and F. Dethmers, Unilateral Effects Under the European Merger
Regulation: How Big is the Gap?, ECLR 380 (2005); C.D. Ehlermann, S. Volcker
and G.A. Gutermuth, Unilateral Effects: The Enforcement Gap under the old
ECMR, 28(2) WORLD COMPETITION 193(2005) ; J. Vickers, How to Reform the EC

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Observing the insufficiency of the test, a need to change the

regulation was brought to the fore which was then furthered in the
case of Volvo/Scania where the EC Commission blocked a merger
that would have created a dominant manufacturer of heavy goods
vehicles in several Member States. 44 This case gave rise to the
following questions: if the merged entity is not the biggest player on
the market but it is able to raise price or restrict output unilaterally,
how can we block these mergers with the ‘dominance’ test?
Thereafter another concern arose that if the dominance test was to be
altered then the EC might end up losing all the case laws,
jurisprudence and literature developed in this regard, as the EC
proposed to alter the dominance test to SLC test used in USA, UK
and Australia.45

So a compromise was brought in the new ECMR provides that a

merger would be blocked if ‘it would significantly impede effective
competition in the common market or in a substantial part of it, in
particular as a result of the creation or strengthening of a dominant
position.’46

Regulation 139/2004 introduces a new substantive test, according to

which EC may block a transaction, which would significantly impede
effective competition (SIEC), in the common market or in a
substantial part of it, in particular as a result of the creation or
strengthening of a dominant position.

Merger Test? (G. Drauz and M. Reynolds (eds)), EC MERGER CONTROL: A MAJOR
REFORM IN PROGRESS (2003).
44
Volvo/Scania [2001] OJ L 143/74.
45
Enterprise Act 2002 (UK), § 35; Trade Practices Act 1974 (Australia), § 50;
Clayton Act 15 USC 18 (US),§ 7.
46
Council Regulation (EC) No 139/2004, Art. 2(3) [2004] OJ L24/1. Recital 25
clarifies that the only reason for this is to fill the gap in horizontal merger cases.

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The new substantive test will specifically allow the Commission to

take into account so-called unilateral effects, that is, price increases
arising because the transaction eliminates some existing competitive
constraint that had been holding back the price level in the market.
Adoption of the Significant Impediment Test will bring EC
competition law more in line with standard applied in the USA and
Canada.47

What exactly does SIEC mean? Is it the same as SLC? One

interpretation is that they are synonymous. Another is that 'substantial
lessening' relates to how much competition is lost, while 'impediment
to effective competition' has to do with how much competition
remains post-merger.48 Another source to answer the above question
can be that the notion of SIEC:

“should be interpreted as extending, beyond the concept of

dominance, only to the anti-competitive effects of a
concentration resulting from the non-coordinated behaviour
of undertakings which would not have a dominant position on
the market concerned”.49

This says that SIEC extends, in a disciplined way, beyond dominance,

and it makes clear that the new test covers non-coordinated effects,
thus disposing of the problem of the gap. Thus the key question now
relates to how a merger affects competition, not whether it reaches a
threshold of dominance.50

47
Anniek van Zutven and Hans Urlus, New EU Merger Regulation and Reform of
EC Antitrust Enforcement EC Treaty (Alert, June 2004).
48
OLIGOPOLIES AND JOINT DOMINANCE IN COMMUNITY ANTITRUST LAW, FORDHAM
CORPORATE LAW INSTITUTE(Barry Hawk ed.2001).
49
Supra note 46 at recital 25.
50
John Vickers, Merger policy in Europe: retrospect and prospect,
http://oft.gov.uk/shared_oft/speeches/spe0104.pdf.

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Dominance, as the Commission acknowledges will remain the main

scenario, but the new test will clearly also encompass duopolies and
oligopolies and beyond. It thus seems that the test to pass has become
stricter and that this will lead to more prohibitions or approvals
subject to conditions.51 The new test is intended to fill a (perceived)
gap by covering cases of “unilateral effects” i.e. where the fear is that
the merged entity could raise prices even though it will not become
the largest player (sole dominance) and without the need of any tacit
coordination with other players (joint dominance). 52 It has also been
observed that the change is mainly procedural and an attempt to make
abundantly clear what was clearly inferred in the dominance test.

In a recent Oracle/PeopleSoft review, for example, any likely adverse

finding would not easily fit into the dominance test. Oracle and
PeopleSoft are the second and third largest competitors for high-end
business software applications and the combined company would
only have around 30% of the market. SAP, the market leader, has
more than 50%. It is possible that such a transaction could be
interpreted as constituting a SIEC but not creating or strengthening a
dominant position.53

The EC has continued to apply an economics-focused approach to the

assessment of mergers, indicating that its policy towards mergers has
not changed as a result of the move to the SIEC test; however, it is
generally perceived that the SIEC test gives a wider degree of
discretion to the EC.54 SIEC aims to fill the gaps under the old

51
Stibbe, New EU Merger Control Regulation,
http://www.stibbe.be/assets/publications/newsletters/new%20eu%20merger%20con
trol%20regulation.pdf.
52
Supra note 7, at 1.
53
Id. at 1.
54
Slaughter and May, The EU Merger Regulation: An Overview of the European
Merger Control Rules,http://www.slaughterandmay.com/media/64572/the-eu-
merger-regulation.pdf.

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dominance test, in particular if a merger raised serious competition

concerns but resulted neither in a firm enjoying a strong No. 1
position of say 40-50% or more in a market (indicative of single-firm
dominance) nor in the creation or strengthening of an oligopolistic
market structure conducive to tacit collusive between a small group of
players (indicative of collective dominance). Some of these concerns
were driven by the fact that in 2002 the court of first instance
annulled 3 prohibition decisions on the basis that the Commission had
failed to prove that the deals were caught by the old Merger
Regulation’s dominance test. 55

Following are some of the important criteria taken into account in

assessing mergers:

A. Market Shares And Market Concentration

In the EU, the Competition Commission would consider accretion of

market power on the buying as well as selling sides. In determining
whether a concentration might have adverse horizontal effects, the
Commission will look predominantly at the increase in the combined
entity’s market share through other factors would also be taken into
account as this alone would not provide any insight into the loss of
potential competition that the concentration might entail. 56 An
instance in which market shares were looked into by the commission
is that of Syngenta CP/Advanta,57 in which the parties which were
engaged in crop protection, breeding, production and processing, etc.
of seeds respectively. The Commission took into account the facts
that the merged entity would have 15‐80 per cent market share in
various types of seeds to come to the finding that the operation would

55
Id. at 21.
56
RICHARD WHISH, COMPETITION LAW 838, 839 (2005).
57
COMP/M.346 [2004] EC Comm. 53.

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give rise to serious concerns of being likely to significantly impede

effective competition.58

B. Barriers To Entry

In the EU, the EC considers whether the vertical effects of the

concentration could foreclose access to markets. In
59
Skanska/Scancem where the merged entity would have a very
powerful presence in the market for raw materials (cement),
construction materials (concrete) and the construction industry, the
EC directed Skanska to divest Scancemʹs cement business as well as
its entire shareholding in Scancem.60Article 2 of the ECMR, which
deals with the appraisal of concentrations and sets out the factors to
be taken into account by the Commission in this process mentions,
access to supplies and ‘any legal or other barriers to entry’.

C. Actual And Potential Competition

The Commission must, in making its assessment, look into actual and
potential competition from both inside and outside the communities. 61
The EC in Telia/Telenor 62 expressed concern over the fact that the
merged entity would have an increased ability and incentive to
eliminate actual and potential competition from third parties.

D. Welfare Objectives And Benefits To Consumers

The ECMR gives importance to consumer welfare in the process of

merger analysis, requiring the Commission to look into the interests
of the intermediate and ultimate consumers as well as the

58
Id. at 60.
59
Case No. IV/. 1157, [2000] 5 CMLR 686.
60
Supra note 57, 840.
61
ECMR, art.2 (1) (a).
62
COMP/M. 1439[2001] 4 CMLR 1226.

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development of technical and economic progress, provided that it is to

consumersʹ advantage and does not form an obstacle to competition.
Therefore, the above analysis establishes that the SIEC test is an
attempt to fill the gaps the old dominance test had created. It was out
of abundant caution that the reform was brought in.

IV. SIEC VIS-A-VIS AAEC

The SIEC test overall as discussed earlier in addition to filling the gap
in the old dominance test it aims at achieving an effective
competition, while the AAEC test aims to prevent any measurable
adverse effect on the competition.

The SIEC test allows greater flexibility and gives more powers to the
Commission: while it is still based on the concept of dominance, it is
only by example and is no longer the primary criterion for assessing a
concentration. It has been observed that the SIEC test is a much more
powerful economic tool to analyse the costs and benefits of a
proposed merger in terms of balancing its pro‐competitive and anti‐
competitive effects. 63 On the other hand, The CA, however does not
define or elucidate the meaning of the expression AAEC, merely
enumerating various factors, all or any of which are to be taken into
account to determine whether a combination has such an effect. It
would be up to the CCI, the CAT and the Supreme Court to define
how large an effect would qualify as an appreciable adverse effect
and whether this term would include any term above the de minimis.64

63
TIWARI, supra note 25, 136.
64
Id. at 136.

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The words ‘significant’ and ‘appreciable’ seem to be two sides of the

same coin. But a close examination establishes a difference in terms
of degree i.e. ‘significant’ applies in cases where the impact on the
competition is larger in comparison to appreciable impact. If this is
the case then scope of AAEC in contrast with SIEC is wider.

The two tests are equally new and have to undergo a lot of scrutiny to
establish the effectiveness of the competition. The only advantage
that SIEC has is the presence of abundant jurisprudence in terms of
cases and literature due to the old dominance test, while AAEC is a
new development under the CA post-MRTP and therefore no such
jurisprudence is available.

It may also be interesting to note that in the report of the High Level
Committee there is no reference to the dominance test of EC, also the
UK and US competition law has been referred but not the SLC. It
compels the deduction that the AAEC is an independent test
established to regulate combinations in a way not being done by the
other jurisdictions. So, a probable conclusion that SIEC and AAEC
are one and the same thing is unacceptable at this juncture.

The ultimate purpose of any competition law legislation is the

protection and preservation of an independent, effective and efficient
market to protect the consumers. SIEC and AAEC are different tools
for the same purpose. The question therefore is which of the two tests
has done the job better. In order to compare the two tests on this point
the differences in the market must be noted i.e. India and Europe. The
two markets are absolutely different in terms of tastes, nature,
consumer preferences, and market players. So a measure which might
prove efficient in one market may fail utterly in the other market.

Emerging market consumers are rapidly becoming more like their

affluent market counterparts, is true. But the rate of change is not as
rapid as contended. In most emerging markets, the mass market will
remain poor well beyond the current planning horizons of most

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multinationals. And even as they grow more affluent, it is far from

certain that Chinese and Indian consumers’ preferences will converge
with those of Europeans or Americans. 65 Market as that of Indian is
mostly culture driven and as a result the style and pattern differ.

AAEC and SIEC are instruments for two different markets when on
one hand the former is a completely new concept with its roots from
Russia, US, UK as its source, while on the other hand the latter is
merely an extension to a somewhat successful dominance test under
the old EC merger code. If the market difference is to be kept
constant then based on the available data such as case laws and
literature SIEC is most likely to achieve the goals of a competition
law more efficiently compared to AAEC. This deduction is mainly on
the basis of absence of the judicial scrutiny of the test in India, which
compels the author to point that the preliminary judicial examination
whenever arises will ultimately first rely on jurisprudence available
with regard to SIEC and Dominance test on a reference basis to reach
any decision.

V. CONCLUSION

It is as a matter of fact that there appears to be much in common

between the competition laws in the European Union and India. EU
and Indian competition systems also have similar objectives. They all
seek to advance the interests of consumers and protect the free flow
of goods in a competitive economy as well as protect the rights of
competitor’s access to markets and protect to some extent consumer’s

65
Niraj Dawar and Amitava Chattopadhyay, Rethinking Marketing Programs for
Emerging Markets, 3 Working Paper Number 320,
http://deepblue.lib.umich.edu/bitstream/2027.42/39704/3/wp320.pdf.

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freedom of choice and seller freedom from coercion to bring about

the ultimate aim of total welfare. 66

However, as discussed, there are also numerous differences in the

provisions in the context of definitions, notification, time limits for
review of notifications by the competition authorities, and the
substantive test applied for determination of impacts on competition.
The substantive assessment of mergers in all three jurisdictions
involves the same basic steps, namely the identification of the
relevant market, the assessment of the merger as per the substantive
test set out in the respective laws, and in this process, the
consideration of various factors including market shares,
concentration, possibility of foreclosure and also welfare objectives.67

The basic substantive test for the analysis of mergers differs. EC law
requires the determination of whether the merger causes significant
impediments to the effective competition, which although it implies
the distortion of competition, may not require the impediments caused
to be ‘substantial’. The test in Indian law requires the assessment of
whether the merger is likely to cause ‘appreciable adverse effects on
competition’ in a manner somewhat ‘measurable’.

66
Veena V. Rajes, Competition Act, 2002 in comparison with the
Antitrust/Competition Laws in force in the USA and European Union with
Reference to Cartels,http://cci.gov.in/images/media/ResearchReports/veenafeb12.
67
TIWARI, supra note 25, at 140.

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