BUSINESS SOUTH AFRICA (BSA)
SUBMISSION TO PARLIAMENTARY PORTFOLIO COMMITTEE FOR TRADE & INDUSTRY
BSA is fully supportive of the basic principles underlying the Competition Act of 1998 and the proposed amendments under discussion here. Our response to the amendments will focus mostly on the relevant micro and macroeconomic implications not the legal ramifications. Our proposals are essentially aimed at improving the desired end product and ensuring a high degree of business confidence in the Act itself and in the various implementing agencies.
- JURISDICTIONAL ISSUES
- We generally accept the need for concurrent jurisdiction on the part of sector regulators and the competition authorities. It is clearly important that competition policy be applied consistently across all sectors and industries in the economy, partly to minimise the distortionary effects of differentiated price regimes.
- From a practical point of view, however, it is equally important that sector regulators be fully apprised of the provisions of the amended Act, and are fully aware of the relevant jurisdictional demarcations.
- Input by Agri SA: The Agricultural Products Marketing Act, and products included in the schedule to this Act, is currently exempted from the Competition Act through Section 3(1)(d). The removal of this section may cause uncertainty about the kind of measures that may be considered and approved in terms of the Agricultural Products Marketing Act. However, it is also untenable to exclude the application of the Competition Act simply by virtue of listing a product in the schedule of the Agricultural Products Marketing Act. It would make sense to only exclude specific arrangements approved, i.e. the terms of the Agricultural Products Marketing Act, from the jurisdiction of the Competition Act. We take it that this will still be possible if Section 3(1)(d) is terminated, and would appreciate confirmation on this point.
BSA is happy with the proposed amendments, in particular
- the discretionary powers given to the Minister to change thresholds more frequently not only to relieve administrative pressure, but also and especially because the current low levels could well undermine the dynamic (re)allocation of capital resources and impact negatively on FDI flows to the country; and
- the introduction of a new "small merger" category which would be exempt from notification primarily because it would cut down on otherwise prohibitively high transaction costs.
- As far as the definition of the "acquiring firm" is concerned, BSA has been assured that the broader definition will be used only for purposes of acquiring information and analysing individual cases; whilst the narrower definition (i.e. the acquiring entity only not the holding structure) will be used for purposes of calculating thresholds and determining fees. Such a differentiated approach will in our view help to reduce costs and facilitate efficiency-enhancing mergers and takeovers of SMEs by larger firms.
The proposed amendments are however silent on this issue, defining an "acquiring firm" merely as one that acquires a "significant interest in the whole or part of the business of another firm". Apart from the need to indicate clearly what is meant by a "significant interest", we feel that the above differentiated approach in respect of both the acquiring and the target firm should be spelt out explicitly in the Act.
- DOMINANT FIRM
- As far as the definition of a dominant firm is concerned, it is not clear to us how the various market shares are currently determined. It seems an opportune time now to ensure that the amended Act provides at least appropriate generic definitions, indicating inter alia whether or to what extent close substitutes feature in the definition of a "market" and, in the case of firms having less than 35% of a market, how precisely "market power" is defined.
- Prohibiting dominant firms from charging "an excessive price" is in our view both inappropriate and impractical. Price levels depend on many things other than the degree of competition, including the relevant price and income elasticities of demand, indirect taxes and changing demand and supply conditions. Rather it is the underlying (non-competitive) market structure that matters here.
- Much the same can be said about the prohibition of "selling goods or services below their marginal or average variable cost". Whilst dominant firms do not as a rule charge monopoly prices for reputational reasons or because their markets are "contestable" those who do price "below marginal or average variable cost" may end up supplying goods and services at prices below their competitive equivalents.
This clause should say what it means, i.e. that "selling
below marginal or average variable cost" is prohibited when it is done explicitly to prevent potential competitors from entering the market.
- Similarly, the prohibition of "buying-up a scarce supply of intermediate goods or resources required by a competitor" should be qualified by adding that it applies only when such buyers have "non-competitive" intentions.
- NOTIFICATION FEES
- Although not a legislative issue as such, BSA feels that the current fees are much too high compared to those in Australia (R 60 000), Canada (R104 000), the UK (R50 000), EU (nil) and the USA (R276 000). Our fees could be seen as an additional barrier to investment, raising the cost of capital and preventing large firms from taking over smaller firms, thus discriminating against the latter and possibly undermining black empowerment initiatives.
- More to the point, BSA feels very strongly that a user charge is not appropriate in the present case. It is the broader community that stands to benefit from the provisions of the Act which aim to "
advance the social and economic welfare of (all) South Africans". The policy should therefore be paid for by the general fiscus.
- SOCIO-POLITICAL CONSIDERATIONS
BSA appreciates the reasons why government wants to include criteria relating to size, employment and disadvantaged status, but feels that these criteria do not belong in the Act. They are best pursued through other legislative and regulatory procedures.
It is critically important that these criteria should not prevent the policy from achieving its stated objective of an efficient and equitable allocation of resources. It may be worth adding a point to this effect in the amended Act.
- In the absence of block exemptions, BSA would like to see a more cost-effective and efficient procedure which would make provision for the exemption of sector-specific generic agreements or practices classified as "restrictive" but nonetheless defensible on grounds specified in the Act. It is not clear whether the current "category of agreements / practices" makes sufficient provision in this regard.
- In addition to the current grounds for exemption e.g. promotion of exports, small businesses and sector stability BSA would like to add here the exemption currently applying to restrictive horizontal and vertical practices, i.e. proof that "
any technological, efficiency or other pro-competitive gain resulting from (a restrictive practice) outweighs its effect in terms of substantially preventing or lessening competition in the market".