Competition Amendment Bill, 2008

PRESENTATION TO THE SELECT COMMITTEE OF FOREIGN AND ECONOMIC AFFAIRS

DATE: 28 AUGUST 2008

Zodwa Ntuli – DDG: Consumer and Corporate Regulations Division (CCRD)

Fungai Sibanda – CD: Policy & Legislation (CCRD)

Nomfundo Maseti – D: Competition & Consumer Policy & Law (CCRD)

Segoane Monnye – DD: Competition & Consumer Policy and Law (CCRD)

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Purpose

• The Bill is not intended to overhaul the current Competition regime but focused on key areas aimed at –

Strengthening the existing provisions of the Competition Act to deal effectively with anti-competitive practices;

Deal with prevalence of cartels that harm consumers and the economy through high fixed prices, collusive tendering and market division;

Enabling the Competition Commission to play a more proactive role in investigating markets & take measures to ensure market transparency.

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Introduction

Need for a focused review of the existing Competition Law regime

To respond to the industrial policy objectives such as promotion of competitiveness;

Observations on the challenges of the competition authorities in dealing with uncompetitive outcomes resulting in artificially high prices to the detriment of consumers; e.g. competition problems resulting from complex monopolies or multi-firm conduct such as the bread and banking sector;

To strengthen efforts on cartel enforcement by introducing personal liability on directors who cause their firms to engage in cartel activities. This will complement fines imposed on firms and enforce responsible behavior on part of directors or officers of firms.

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Scope of the Bill

The Bill focuses on five broad areas:

Market Inquiry – It is exploratory in nature and intended to inquire on the competition deficiencies. It serves as a tool to enable the Commission to play a

more proactive role in investigating markets.

Complex Monopolies – It is intended to deal effectively with uncompetitive outcomes resulting from a multi-firm conduct that restricts or distorts

competition to the detriment of consumers.

Personal Liability – It is intended to provide an effective deterrent on cartel activities by introducing criminal sanctions against individuals who caused the

firms to engage in illicit cartel activities.

Incorporation of Leniency Policy – It is a tool used to detect cartel activity by encouraging those involved in cartel activities to come forward and disclose information to the Competition Commission in return for immunity.

Concurrent jurisdiction – It is intended to deal with inconsistencies arising from the Competition Act and the EC Act in dealing with competition matters in regulated industries, in particular, in the telecommunications sector.

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Market Inquiry

 Market inquiry provisions

Problem

• Sec 21(2)(b) of the Act already gives the Commission powers to conduct market inquiry and report findings to the Minister;

• However it doesn’t provide for action to be taken to address findings of the inquiry;

• Further, the Commission was unable to exercise its powers to summons documents;

• Rationale: is to amplify existing provisions of market inquiry to enable the Commission to undertake more structured, effective and transparent inquiries

Recommendation

• Make the initiation process of such inquiry explicit e.g. Inquiry to be initiated by the Commission on its own or on request of the Minister;

• Provided for the Commission to invoke its subpoena powers in terms of Sec 49Aof the Act e.g. require parties to provide information under oath

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Market Inquiry Cont:

  • As a safeguard, the Bill provides for grounds for initiation of the market inquiry;

• That is, reason to believe that there is a distortion of competition within a particular market, or

• achievement of the purposes of the Act.

Outcome of the Market Inquiry

• Allow for appropriate remedies to be taken by the Commission.

• Refer matters for enforcement action or further investigation by the Commission.

• Provide report to the Minister on issues relating to policy review, changes in laws and regulations.

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Complex Monopolies

  Complex Monopoly provisions

Problem

• Chapter 2 of the Act prohibits anti-competitive conduct if two or more firms engage in the conduct as a concerted practice or pursuant to an agreement between them;

• The requirement of a specific contact or agreement inhibits the Commission’s ability to investigate, take action or seek a remedy for a multi-firm conduct or complex monopoly;

• Complex monopoly occurs where two or more firms act in a cooperative manner or

conduct their business affairs in a coordinated way without a specific contact or agreement e.g. parallel pricing, common trading policies, exploitative pricing to downstream players/consumers.

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Complex Monopolies Cont:

  Recommendation

• The Bill introduces a new provision which empowers the Commission to investigate the existence of complex monopoly conduct i.e. coordinated conduct or parallel conscious conduct in highly concentrated markets;

• The intention is to deal with uncompetitive outcomes manifested through high entry barriers, exclusion of other firms, excessive pricing and refusal to supply goods and services;

• The Bill provides for firms to advance efficiencies or other pro-competitive gains as a defense for their conduct.

Remedies

• Commission may apply to the Tribunal for a declaratory order against the firms engaged in a complex monopoly conduct;

• Declaratory order serves as a yellow card (No admin penalty for first contravention).

• Contravention of this order constitutes a prohibited practices which may result in admin penalty being imposed

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Personal Liability

   

Personal Liability Provisions

Problem

• The Act does not provide for remedies against directors or officers of firms that cause firms to engage in cartel activities;

• In many competition jurisdictions, cartel activity is subject to criminal sanctions including the possible imprisonment of individuals found guilty of cartel conduct; This weakens the ability of the competition authorities to fight and deter cartel behavior.

Recommendation

• Introduce financial sanctions against individuals but cap the fine, that is, liable for a fine not exceeding R500 000 or 10 years imprisonment or both (incorporated section 74 of the Act).

• As a further disincentive – disbarring of directors convicted of cartel conduct will be dealt with in the Companies Bill.

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Leniency clauses

  Problem

• The Act does not expressly provide for leniency or excusal of respondents from a complaint if they disclose information on their involvement in cartel activities;

• Currently the Commission excuse respondents through its Leniency Policy;

• However there exists legal uncertainty regarding the Commission’s Leniency Policy.

Solution

leniency for firms

• Provide express authority for the Commission to grant leniency to firms;

• This will not preclude any person that suffered damages from pursuing civil claims against that particular respondent.

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Leniency clause cont.

Leniency for individuals• The Bill provides for individuals to be certified as

deserving leniency

Consequences of certification• Commission may not seek or request criminal

prosecution of such person;• Commission may make submission to National

Prosecuting Authority in support of leniency;

Payment of fines• Firms are prohibited for paying criminal fines on behalf

of its directors

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Concurrent jurisdiction

  Concurrent jurisdiction provisions

Problem

•Sec 3 of the Act provide for concurrent jurisdiction in respect of competition matters in regulated industries;

•Such concurrency has to be managed through agreement between the Commission and the regulatory authority for the relevant industry;

•There exist inconsistencies in the Electronic Communications Act (EC Act) and the Competition Act in the exercise of authority on competition matters in the telecommunications sector;

•Section 67(9) of the EC Act removes concurrency by stating that the Act is subject to EC Act; This raises legal uncertainty on the jurisdiction of the Competition Authorities in dealing with anti-competitive behavior in the telecoms sector;

•This effectively changed the general policy stance on concurrent exercise of authority over competition matters in regulated industries;

•In addition, the Act is silent as to which institution has final authority on competition considerations.

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Concurrent jurisdiction

Recommendations• As a general policy, the Bill proposes that the Competition Act should be the

central governing statement of competition policy in SA but recognize other industry specific legislation through concurrent jurisdiction;

• Sector regulatory authority to exercise primary authority necessary to establish conditions within the industry (ex ante regulation);

• Commission has authority to detect and investigate prohibited practices within any sector and power to review mergers (ex post regulation)

• MOA to provide framework for cooperation between sector regulator and competition commission on competition matters in regulated industries;

• The Bill also proposes consequential amendment to sec 67(9) of the EC Act to reinstate the concurrency and provide certainty e.g. by merely replacing the word “subject to” with “ despite”.

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Consultation Process

• The dti commenced with the consultation of key stakeholders in April 2007 on the policy framework. The following stakeholders were consulted on both policy and Amendment Bill:

Competition Commission & Competition Tribunal Business Unity of South Africa (BUSA) Economic Cluster / Forum Of South Africa’s Directors-General National Treasury Presidency Dept of Communication South African Property Owners Association (SAPOA) Labor Constituency of Nedlac (Food and Allied Workers Union, Congress of South African

Trade Unions and National Union of Metal Workers of South Africa) Dept of Transport Dept of Minerals and Energy National Energy Regulator of South Africa (NERSA) Independent Communications Authority of South Africa (ICASA) Competition Law Committee of the Law Society of Northern Province Dept of Justice and Constitutional Development

THANK YOU