Competition Commission briefing on the Competition Act of 1998 and its subsequent amendments

Economic Development

03 May 2010
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

Members of the Competition Commission and Competition Tribunal briefed the Committee on the Competition Amendment Act, 2009. The amendments came as a result of the policy review of 2006 and within the context of public outrage to exposures such as the bread cartel in 2007/8. The Act had been signed off by the President in August 2009 but was not yet in force as the President needed to set a date for it to come into effect.

There were 4 key amendments were presented namely Complex Monopolies; the Criminalization of Cartel Conduct; Market enquiries and Concurrent Jurisdiction. 

Members questioned whether the legislation was not too vague and that getting a successful prosecution would be a difficult task. They raised their concern whether the whole process was not an exercise in futility. They wanted to know the date the amendment would be implemented. They asked for further clarification and that the legislation should not be rushed to implementation.

Meeting report

Competition Commission Briefing
Mr Shan Ramburuth, Commissioner of the Competition Commission, prefaced his briefing with a quick overview of the principle Act. He said it was intended to deal with anti-competitive behaviour where markets were concentrated in the hands of one or two firms. It tried to deal with this through merger control, to prevent future control of markets and on the other hand by prohibiting restrictive practices to change the behaviour of firms who colluded with each other and who charged excessive prices because of their dominance in a market. The rest of the act dealt with the institutions and procedures, which would enforce the Act.

The amendments came as a result of the policy review of 2006 and within the context of public outrage to exposures such as the bread cartel in 2007/8, to which government had responded positively. The Act had been signed off in August 2009 but was not yet in force as the President needed to set a date for it to come into effect.

Key amendments were:

Complex Monopoly
Amendments would allow the Commission the opportunity to investigate concentrated sectors even where specific anti-competitive conduct was not clearly discernable. These were markets where 75% of the goods and services were supplied by 5 or fewer firms and two or more of these firms conducted business in a coordinated manner, without overt agreement and the effect of this was a substantial lessening or prevention of competition in that market.

The commission may then apply for a declaratory order against two or more companies only if one of the firms had a minimum of 20% market share and this complex monopoly had resulted in high entry barriers, exclusion of other firms, excessive pricing, and refusal to supply goods or other characteristic indicating co-ordinated conduct.

A complex monopoly could be declared illegal without sanction of a fine.  However if their practice continue it would attract a fine.   Alternatively the provisions of cartel law, which had stronger sanctions, could be used. Firms however had the opportunity at the Tribunal to give good reasons why their behaviour should be allowed to continue.

Criminalization of Cartel Conduct
This allow ed the Competition Commission to target individuals who caused or knowingly comply to a firm’s collusive conduct to be liable for criminal prosecution. The penalty was a fine of not more than R500 000 and/or 10 years in jail.  These individuals could be a director or any other person with management authority. The National Prosecutions Authority (NPA) would undertake the criminal prosecution. Until now the Commission had only worked on the civil law legal standard which was a lesser standard than criminal law which demanded evidence to be beyond reasonable doubt.

The Commission was concerned with this aspect of the legislation as until present they had had a lot of success with a corporate leniency policy, where informants told everything in exchange for leniency. The Competition Commission needed insiders to bring them information. With the Amendment, the criminalization would be a disincentive as individuals might be prosecuted in their personal capacity. The decision to prosecute or not did not rest with them but with the NPA. All the Competition Commission could do was certify a person as deserving of leniency. Criminal prosecution could only proceed if the firm acknowledged cartel conduct or the courts made a finding of cartel conduct.

Market Enquiries
The Commission would now have investigative powers to inquire into markets if it had reason to believe competition was being affected. It would be able to subpoena information or documents. The Minister could request a formal market inquiry.

Concurrent Jurisdiction
The amendment clarifies concurrent jurisdiction between Commission and other regulatory authorities. It gave primary authority to the Competition Commission to investigate anti- competitive conduct.
In certain sectors where there was concurrent jurisdiction, for example in the telecommunications sector, the Electronic Communications Act (ECA) had assumed full jurisdiction. However the amendments to the Competition Act would confirm the authority of the Competition Commission and deter “forum shopping”.
New Challenges facing Competition Commission

The Department of Economic Development and the Department of Trade and Industry (DTI) were still working on drafting the regulations that would give effect to the provision of the Amendments. Some sections of the business community were unhappy with the Amendments and would oppose them on constitutional grounds. They had started discussions already with the NPA over how the two bodies would co-ordinate cases, how to synergise civil/criminal procedures, and clarify how leniency would work. The Competition Commission also faced resource constraints as there would now be expanded market enquires and investigations demanding a different and higher level of expertise.  They had briefed the Minister of Economic Development on the implementation of the Act.

Mr Norman Manoim (Chairperson, Competition Tribunal) said the Complex Monopoly definition was to target firms where there was no proof of an agreement amongst them although they might be colluding by monitoring published price information. He said the legislation had been seen as very vague even leading it to be declared unconstitutional. He said civil procedures and evidence led in the initial case against firms would be challenged as inadmissible in the criminal case against the individuals involved.  America had only one anti- trust department, which dealt with firms and individuals. Other countries like England, Canada, Ireland and Australia had the dual civil/criminal system. The dual system had yet to show its effectiveness in these countries.

Other issues he raised included magistrates not seeing these cases as serious (as compared to a rape case for example), the length of time before cases were finalised would most probably be greater than 3 years and the fact that a decision of leniency was for the court rather than the NPA to decide.

Discussion
The Chairperson expressed her view that the process appeared to be an exercise in futility.

Mr P Rabie (DA) asked the Commission’s views on what Mr Peter Leon had said in 2008 that the amendments were extremely vague and its application would be difficult to prove and that there would definitely be legal action against it.  When would the law be implemented? He wanted further clarification from experts as he did not want the legislation to be rushed through.

Mr Ramburuth said that everyone agreed that there was a need to stop the negative behaviour of firms. What was at issue was how to discourage companies from anti-competitive behaviour. Currently, firms could only be fined one years turnover. The moral outrage after the bread cartel had been exposed had created a push for greater sanctions. He said there was uncertainty with all new laws. Regarding Peter Leon, he said the Competition Commission had not consulted with the private sector as it was up to the custodian body the DTI to do that. He said it was natural for new legislation to play itself out over a five to six year period. The amendments meant that the Competition Commission had a few more tools to use as and when appropriate.

Ms Yasmin Carrim (Member, Competition Tribunal) said that their work had provided insights into what was happening in the market. She said the Competition Commission’s actions had brought about behavioural change by shareholders and boards of companies.

The Chairperson wanted to know why the firm was also not prosecuted when individuals were prosecuted. She said she would follow up with the Minister on the date the Amendments would come into effect. She wanted the regulations finalised and the Competition Commission ready to enact the law immediately it came into effect.

Mr Manoim said that the existing system had worked well. The focus was on changing company behaviour through exposure to punitive fines and to public exposure.

The Chairperson asked who was responsible for pricing

Mr Ramburuth said the Competition Commission never set prices; they focussed on the anti- competitive behaviour that resulted in higher prices. Parliament was responsible for regulating markets, as this was a political decision. He said the impact of the Competition Commission work had been big (the board of Pioneer Foods had changed as a consequence of the Competition Commission work). He wanted other organisations like the consumer councils and trade unions to provide information and to create the conditions to assert themselves in the market and hold companies accountable.

Mr Manoim said the Competition Commission and the Competition Tribunal were there to break collusion on higher prices by firms.  Price setting was not the solution for collusion.

The Chairperson encouraged collaborative effort by the Competition Commission with all stakeholders

The meeting was adjourned.



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