TRADE AND INDUSTRY CHAMBER

Competition Policy Workshop

DRAFT NOTE OF THE WORKSHOP ON THE COMPETITION SECOND AMENDMENT BILL HELD ON 13 JULY 2000, NEDLAC OFFICES, JOHANNESBURG

1. WELCOME AND APOLOGIES

1.1. A. Hirsch, in the chair for government, opened the workshop and welcomed all present.

1.2. Apologies were received from H. Campher and F. Treganna of labour.

2. ADOPTION OF THE AGENDA

2.1. Government stated that the input on the experience of the Competition Authorities provided the context for the proposed amendments, and added that the agenda items would therefore be more meaningfully addressed in that order.

2.2. The agenda was adopted with a reversal of the order of items 4 and 5.

  1. INPUT BY GOVERNMENT ON THE NATURE OF THE WORKSHOP

3.1. Government indicated the following:

3.1.1. The workshop would focus on the second amendment to the Competition Act.

3.1.2. DTIís position was that the amendment remained within the agreement reached at Nedlac on the original act in 1998. However, as the legislation was an important element of the business environment, and the earlier interaction at Nedlac had been valuable, government wished to have an engagement with business and labour on the amendments.

3.1.3. It was unfortunate that labour was not present in the workshop. However, if they had substantive proposals on the amendments, an additional interaction might be arranged to consider these.

3.2. The secretariat reported that labour had indicated that they were likely to have a mandated position by Wednesday of the following week.

3.3. Business stated the following:

3.3.1. They did not see that it was necessary to have a strictly mandated position for this interaction, but rather to have a broad sense of what would resonate with oneís constituency.

3.3.2. The issue of competition policy was an important one in the context of the Trade and Industry Chamberís broad focus on making South Africa the leading emerging market and investment destination. It was important to inspire confidence in competition policy institutions, in order to address potential negative perceptions both internally and externally.

3.3.3. It was hoped that the dialogue on competition policy and its implementation could be ongoing, in order to increase a shared understanding of the issues.

4. THE EXPERIENCE OF THE COMPETITION COMMISSION AND COMPETITION TRIBUNAL

4.1. Competition Commission

Advocate M. Simelane of the Competition Commission distributed a document providing statistics on the activities of the Commission since its inception. He reported the following:

4.1.1. Through various interactions with stakeholders, much of the information on the work of the Commission was already widely shared.

4.1.2. Mergers:

(a) Approximately 80% of the Commissionís time had been spent on mergers.

(b) Many extensions had been granted.

(c) Problems experienced included the following:

(i) Insufficient information had been received from parties, especially in the first few months of operation, perhaps because parties had been unfamiliar with what was required of them. This had tended to delay completion of processes, leading to an average of 60 to 90 days to complete consideration of a case. This had improved in 2000, with the average time falling to between 40 and 45 days. While the target was less than 30 days, it was unlikely to fall below 21 days because of the legislative requirements to inform the Minister of Trade and Industry and trade unions.

(ii) The workload was excessively high. 72 cases filed in late May, June and July 2000 still required completion. The workload per staff member was 7 to 8 cases, in comparison to an international standard of 2 to 3 cases per person. They were trying to address this by filling positions that had been vacated and drawing in more resources.

4.1.3. Complaints (Abuse of dominance and restrictive practices):

(a) Approximately 113 complaints had been received. None had been initiated by the Commission itself, primarily because of time pressures.

(b) The main sectors involved were pharmaceuticals, agriculture and insurance.

(c) About 62 cases had been related to abuse of dominance. Some had been referred to the Tribunal, such as cases in franchising and pharmaceuticals.

(d) In general there had been cooperation from parties, and a willingness to meet with Commission staff. However, in the past few months, some resistance had been encountered.

(e) Many complainants claimed confidentiality to avoid retribution. The Commission considered such requests, but sometimes could not allow confidentiality. In some cases names might need to be disclosed, especially if the case reached the Tribunal.

4.1.4. Exemptions:

(a) The expected flood of applications for exemptions in September 1999 had not materialised. Only 2 applications had been received, namely for the Hospital Association and the General Council of the Bar.

(b) There might potentially be a flood of applications at the end of August 2000, when the 21 exemptions granted by the Competition Board expired.

4.1.5. Jurisdictional issues and Section 3(1)(d):

(a) A major concern for the Commission had been jurisdictional issues, centred around the application of Section 3(1)(d), which excludes "acts subject to or authorised by public regulation" from the jurisdiction of the Act.

(b) The Commission had tried to claim jurisdiction wherever possible, and had sought senior council advice.

(c) 3(1)(d) had been inserted into the legislation at a later stage during the parliamentary process to accommodate the situation in regulated sectors. However, it was not achieving its original intention, which had been to make some allowances for specificities of sectors with regulators.

4.1.6. It was of concern that unions had not participated more fully. This might partly be related to insufficient information being provided by companies, which had to be provided by the Commission at later stages. In some cases, unions had indicated their opposition to a merger, but had not provided their reasons.

4.2. Competition Tribunal

4.2.1. D. Lewis of the Competition Tribunal noted that most issues had been covered in the input from the Commission.

4.2.2. He added that it was of concern how much energy was expended on procedural issues rather than on core competition issues. While it was almost inevitable that in judicial processes adherence to procedure would be important, it was of concern that procedure was being used obstructively by parties. This would be addressed by some of the proposed amendments, which would smooth procedures e.g. "interim relief" procedures.

4.2.3. Mergers were taking longer to reach the Tribunal than would be preferred.

(a) The likely reasons for this included teething problems, both for merging parties and the Commission, and the workload of the Commission.

(b) Potential solutions to these difficulties could include increasing the resources allocated to the competition authorities, or changing the thresholds.

4.2.4. Experience had taught that restrictive practices involved complex investigations. Restrictive practices were important, but had received fewer resources than the mergers division. They had also encountered a large imbalance between the resources available to the firms and those of the competition authorities to deal with cases.

4.3. Discussion

4.3.1. Business thanked the competition authorities for the statistics circulated, which they had found informative.

4.3.2. Informational issues.

(a) Business stated that, although there had been numerous interactions between business and the competition authorities, this information was not always fully disseminated, and questioned what mechanisms could be used to encourage a shared understanding.

(b) The Commission responded as follows:

(i) They were in the process of preparing an "idiotís guide", which would be available shortly.

(ii) They were cautious about producing guidelines, as these might be used for purposes other than their intended one. In addition, it was difficult to predict future responses of the Commission, and it would be problematic to be bound to guidelines that were no longer appropriate. The preferred approach was to encourage parties to meet with Commission staff to clarify matters and give direction without providing a binding opinion.

(c) The Tribunal added that while guidelines might be developed on specific areas in due course, the institutions had not been in place long enough to have sufficient experience to know what should be in comprehensive guidelines.

4.3.3. Perceptions of competition authorities.

(a) Business stated that many companies perceived the competition legislation and processes as punitive, and this needed to be changed, by building the educative role of the authorities, and building confidence in them.

(b) The Tribunal responded that they were trying to encourage an attitude that the process was not a trial, but rather an enquiry. Business should encourage its members to take a more active role in processes, rather than allowing them to be driven by legal council.

4.3.4. Business queried how many advisory opinions had been issued. The Commission responded that the figure was between 55 and 70. Some parties made a lot of use of this facility, and the Commission would welcome requests from new sectors.

4.3.5. Business queried whether a complaint could, in terms of the legislation, lead to an application for exemption. The Commission responded that if restrictive practices were found, it would be taken forward, but application could be filed for an exemption. The sequencing of such actions was significant. They added that Section 62 of the existing act allowed for application for an adjournment if the party felt there was a reasonable likelihood of an exemption being granted.

5. PROPOSED AMENDMENTS TO THE COMPETITION ACT

5.1. Input by government

S. Rajoo of DTI outlined the most important proposed changes to the legislation:

5.1.1. Deletion of Section 3(1)(d)

(a) Government did not feel that the deletion of this section would necessarily lead to confusion.

(b) Its removal would result in some areas of exclusive jurisdiction (where no sector regulator existed) and others of concurrent jurisdiction (where a sector regulator was in place). In merger cases where there was concurrent jurisdiction, if either institution felt the merger should not go through, it would be rejected. It was envisaged that the two processes could be complementary, as the regulator would consider those aspects related to the needs of the sector, while the Commission would consider competition-related issues, and the good of the economy as a whole.

5.1.2. On the matter of restrictive practices and Section 21(1)(h), the amendments would seek harmonisation. Discussions would take place between the sector regulator and the Commission in order to seek common ground through consent agreements.

5.1.3. Thresholds

(a) The category of "small merger" had been introduced to try to address the workload issue. "Small mergers" would fall below the threshold, and would have no legal obligation to notify, but could voluntarily notify. The Commission would nevertheless be empowered to investigate particular small mergers at their own discretion.

(b) Under the existing legislation it was required to wait 5 years before changing thresholds. In order to make the system more flexible, and allow it to respond to changing conditions, the amendments proposed that the Minister would be empowered to change the thresholds through the following process:

(i) The proposed thresholds would be published in the Government Gazette, and written submissions would be invited.

(ii) The Minister would have a maximum of six months in which to make a final determination on the threshold levels. The finalised thresholds would then be gazetted.

(c) The new thresholds were already being considered, and a recommendation would be given to the Minister, so that the new thresholds could be instituted shortly after the new legislation was published.

5.1.4. Other miscellaneous changes

(a) Advice letters regarding applications for exemption would no longer be issued. There were concerns that these letters had been used for unintended purposes.

(b) The definition of "parties to a merger" had been clarified.

(c) The process of adjudicating claims of confidentiality had been specified.

(d) A complainant with regard to prohibitive practices would no longer have to wait for the Commission to accept their complaint before they could apply to the Tribunal for interim relief. This would speed up the process to some degree.

5.2. Way forward

Government clarified that the process for finalising the amendments would be the following:

5.2.1. After incorporation of any input from the Nedlac interaction, the proposed amendment bill would go the State Law Advisor for certification between 17 and 21 July 2000. The numbering was likely to be changed in this process in order to conform to the State Law Advisorís requirements.

5.2.2. The bill would be published for public comment between 24 and 28 July 2000.

5.2.3. Responses would be processed.

5.2.4. Public hearings would be held through the Parliamentary Portfolio Committee for Trade and Industry between mid-August and early September 2000. The confirmed date for these hearings would be gazetted with the draft bill.

5.3. Discussion


5.3.1. Mergers

(a) Business agreed that the thresholds needed to be changed, but added that the definition of the "acquiring firm" was still problematic. Government responded that the definition had been kept wide for the purposes of information-provision, but the definition would be narrowed through regulations for the calculation of the threshold and therefore the associated fees. The definition of the target firm had been amended.

(b) Business added that it was of concern that the Commission was not required to respond to an applicant until all notification requirements had been met, as this could potentially be used to delay processes. The Commission responded that there had been an incentive for firms to not provide all the information if firms were seeking delays. It was proposed that a new form be developed for completion on notification. The Commission would be allowed a certain timeframe to accept or reject the notification. If the Commission did not respond within that timeframe, parties could assume that the notification had been accepted.

(c) The meeting discussed the setting of thresholds, and agreed that the process was an imperfect science, but that the experience gained since the application of the act would enable more appropriate thresholds to be set.

5.3.2. Jurisdictional issues

(a) Business requested clarity on the extent to which sector regulators were accountable to the competition authorities, using the example of tariff structures in telecommunications parastatals. The competition authorities responded that if such institutions were operating within what their specific legislation empowered them to do, the competition authorities had no authority. However, if such institutions stepped out of their domain and used their licensed monopoly to leverage their position in another area, then they would be under the jurisdiction of the competition authorities.

(b) Business stated that they still felt jurisdictional issues would be problematic, for example in terms of which legislation would apply in court. They added that this problem might be alleviated by defining the criteria for "competitive gains". The Competition Tribunal responded that problems were most likely to be experienced in marginal cases, and this problem would not be fully removed without much broader legislative changes. Although there was wide potential for conflict, such conflict was only likely to become manifest where parties saw potential benefit in being heard by one authority rather than the other. Where the competition authorities were not able to act directly, they could use their advocacy role to inform parliament.

6. REGULATORY ISSUES

Business stated that they had had numerous interactions with the competition authorities, and had been satisfied by many of their responses. However, two issues remained of primary concern, namely:

6.1. The definition of the acquiring firm should be more flexible. This had implications for fees payable.

6.2. The fees structure was felt to be inappropriate. The competition policy had as its objective the public good, and the general fiscus should therefore carry the costs. Companies might contribute a small fee as they too benefited. From an economic perspective, the current high fees were of concern as they might discourage investment.

7. CLOSURE

7.1. Business expressed their thanks for a useful and informative interaction, and stated that they hoped the dialogue would be ongoing.

7.2. The competition authorities expressed their willingness to continue to interact.

7.3. The chairperson closed the workshop.

Attendance: 13 July 2000

Business:

A. Lamprecht

C. Mtshali

F. Dowie

N. Vermeulen

P. Black

J. Pienaar

A. McAllister

J. Counilan

B. Gasa

Government:

A. Hirsch

S. Rajoo

Competition Authorities:

D. Lewis

M. Simelane

S. Ramburuth

N. Manoim

Secretariat:

M. de Bruyn