THE Competition Appeal Court on Friday dismissed an application by the government to review and set aside a decision of the Competition Tribunal to approve the merger between Walmart, the US retail group, and South Africa's Massmart with conditions.

The application had been brought by the ministers of economic development, trade and industry, and agriculture, forestry and fisheries.

The court had to decide whether the merger approval was correctly granted or whether public-interest concerns justified more stringent conditions than those set by the tribunal when it approved the deal in June last year.

The R16,5bn transaction, which gives Walmart a 51% stake in Massmart, has been marred by accusations, hostility and protests from workers fearing the reputation of the US retailer.

The court upheld, in part, an appeal by the South African Commercial, Catering and Allied Workers Union (Saccawu) that 503 workers who had been retrenched from Massmart shortly before the merger were entitled to reinstatement.

Judge Dennis Davis said there was not enough evidence to conclude that public-interest concerns regarding the merger's effect on employment and on small and medium-sized businesses were sufficient to refuse the merger.

"The evidence indicated that consumers will benefit from lower prices and that these lower prices may, in turn, generate greater job creation than the job losses that may result from the merger," he said.

"The court was not able to determine this question with precision but it was able to conclude, on the probabilities, that there was insufficient evidence to conclude that the detrimental effects of the merger would outweigh the clear benefits to consumers, which had been accepted by the various experts," Judge Davis said.

The court ordered a study on the proposed R100m development programme for small and medium-sized suppliers set as a condition for the approval of the merger.

Judge Davis said in his 110-page judgment that there was insufficient evidence before him to indicate how such a condition would operate and "whether it would fulfil the statutory requirements of the protection of public interest".

He ordered that the study be commissioned by three experts, representing Saccawu and the ministers of economic development, trade and industry, and agriculture, forestry and fisheries.

The three experts have to be appointed within one month and, once they have completed their report, the parties must be given an opportunity to react to it.

Only then will the court be in a position to formulate the mandate and the conditions for such a fund "or similar proposal" to operate.

Judge Davis dismissed the argument that Saccawu was entitled to a condition subjecting Massmart to a closed-shop agreement and that there should be group centralised bargaining. The union could not obtain these protections through competition law.

The Competition Commission had initially approved the deal without conditions, but several unions and the three government departments asked to be part of the public hearings before the tribunal to give evidence on the effect Walmart would have on the economy.

Their main concerns were that workers' rights would be curtailed or even ignored by Walmart, that union agreements with Massmart and its subsidiaries would not be honoured, and that local suppliers would be put out of business by cheap imports.

Judge Davis had listened to two solid days of legal argument. At one stage, he said Walmart was like a globalisation storm hitting South Africa, and asked whether it was the task of competition law to protect the economy against it. He had his own opinions on the state of local manufacturing, suggesting suppliers look at ways to become more efficient and react quicker to competition with lower prices rather than seeking protection.