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Proposed changes to the Competition Act: Summary and discussion points

By Helen Kean 

On Friday, 1 December, the Minister of Economic Development, Ebrahim Patel, published the Competition Amendment Bill, 2017, for public comment. This Bill proposes important changes to South Africa’s current Competition Act, with a short summary provided by this blog. Importantly, the main aims of the proposed changes are to address firm concentration and ownership issues within South Africa, and to enhance the policy and institutional framework, and procedural mechanisms, for the administration of the Act. The specific focus on concentration and ownership is not a new national issue, having already been raised in February’s Budget Speech by the previous Minister of Finance, Pravin Gordhan. Related issues were also recently discussed by renowned economist Joseph Stiglitz at a recent seminar attended by Econex. Therein it was highlighted that economic issues of equity (or equality) and efficiency cannot be separated.  This view is also shared by various international organizations – especially in recent years – and requires an informed and collaborative local debate. More specifically, whilst the aims may be agreed upon, the means to this end require scrutiny in order to avoid any unintended consequences.

The proposed amendments to the Competition Act may be visualized under three main headings: economic concentration and transformation; aligning competition decisions with other public policies, programmes and interests; and improving the efficacy of the regulatory institutions.

Regarding economic concentration and transformation, the Government’s background paper discusses that a first approach is to propose to the legislature a stand-alone statute (premised on the idea that concentration is bad and providing for explicit measures of de-concentration). A second and the preferred approach however effects changes to the Act. This is preferred given that, inter alia, economic concentration is a necessary feature in certain markets and the outlawing of concentration would not necessarily induce entry or lower barriers. Whilst the amendments proposed are extensive, the below summarizes key points:

  • Collusion: Explicit reference to the outlawing of dividing markets by allocation of market shares, enhancing prohibition of cartels in concentrated markets.
  • Abuse of dominance: Deletion of the of requirements for excessive prices to be shown to be to the ‘detriment of consumers’ (given that excessive pricing may also affect businesses that buy inputs from dominant firms); deletion of the catch-all stipulation for exclusionary acts under 8(c); mandating of the Commission to issue guidelines on how to determine excessive prices; incorporation of a more general cost standard for predatory pricing, including allowance for average avoidable cost and long-run average incremental cost measures; placing burden on the dominant firm to show that its prices are reasonable (after a prima facie case has been brought); insertion of wording to protect against monopsonies or similar circumstances where a firm requires a supplier to sell at an excessively low price; prevention of unreasonable conditions unrelated to the object of a contract being placed on a seller; and explicit accommodation for margin squeezes.
  • Price discrimination: Prohibition of price discrimination by a dominant firm against its suppliers; addressing of the burden of proof provisions such that the dominant firm must show that the action of price discrimination is not likely to have an effect of preventing or lessening competition; and assessment of effects on small businesses and firms controlled or owned by historically disadvantaged persons (when determining whether differential treatment is likely to have the effect of preventing or lessening competition). (Related to the above, proposed amendments to Section 59 provide for the imposition of administrative penalties for all contraventions of the Act).
  • Merger control: Wording adjustments to reflect that the competition and public interest tests for the approval of a merger are equal in status (i.e. due consideration for and balancing of both needs to be addressed in merger decisions); the explicit prevention of creeping concentration (with considerations for relevant shareholdings, common members and/or directors, and mergers engaged in by the parties in the prior three years); and allowance for both the Commission and the Tribunal to make appropriate orders regarding any condition relating to mergers.
  • Market inquiries: A new (and lower) test for market inquiries, where an adverse effect on competition is established if any market features prevent, restrict or distort competition; provision of a more extensive list of such features, including market structure (e.g. concentration, advantages arising from e.g. state support, etc.), outcomes and conduct; provision for the Commission’s potential findings and actions following a market inquiry to be binding (unless challenged in the Tribunal; within this context divestiture is also stipulated as a possible remedy, with the safeguard that this can only be imposed by the Tribunal, following recommendation from the Commission); introduction of a time limit of 18 months for market inquiries to be completed (albeit allowing extension applications to the Minister); and provision for appeals (rather than reviews) to the Tribunal.

Alongside the above, the proposed amendments relating to aligning competition decisions with other public policies, programmes and interests provide the Minister (of Economic Development) with more effective means of participating in competition-related inquiries, investigations and adjudicative processes. Under the proposed provisions, the Minister will be able to initiate market inquiries, and the Minister and Commission will be able to appeal decisions of the Tribunal (addressing a lacuna within the Act).

Finally, the proposed amendments pertaining to improving the efficacy of the regulatory institutions make provision for, inter alia: further retrospective studies by the Commission regarding earlier decisions of the Commission, Tribunal or Competition Appeals Court, i.e. extending the Commission’s advocacy powers. Other provisions allow for extended power by the Commission to include the adoption of a new leniency policy; more specific stipulations for dealing with confidential information; and the encouraging of referrals of competition-related matters from the High Court to the Tribunal.

Taken together, the proposed amendments indicate an increased focus on equality and efficiency within the South African economy. Whilst many of the proposed amendments are objective and allow for a needed update of our framework, others – e.g. relating to an increased focus on public interest in mergers, a renewed focus on market structure (in addition to conduct and outcomes) in assessing the need for interventions, and increased involvement by the Minister – will cause uncertainty which will be negative for investors and managers. Independence of competition authorities will need to be preserved.

Further proposed changes – e.g. relating to the shifting of burdens of proof – are expected to increase capacity requirements by firms. And others – e.g. relating to the proposal for the Commission’s actions following a market inquiry to be binding – may further create significant uncertainty for businesses.

Importantly, the background note accompanying the Bill discusses specific sectors which are highly concentrated and hence may be expected to be under scrutiny going forward. These include the sectors for communication technologies, energy, financial services, food and agro-processing, infrastructure and construction, intermediate industrial products, mining, pharmaceuticals, and transport.

Public comment on the proposed amendments is invited until the end of January 2018. Given the extent of proposed changes, an extension (and significant engagement) may be required.

Author/s: Helen Kean

Nothing in this publication should be construed as advice from any employee of Econex and should be seen as general summaries of developments or principles of interest that may not apply to specific circumstances.

2017-12-06T12:12:56+00:00December 6th, 2017|