International Trade Administration Commission, and Competition Commission: 2011 Strategic Plans

Economic Development

30 March 2011
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

The International Trade Administration Commission (ITAC) briefed the Committee on its 2011 to 2016 Strategic Plan. ITAC had been established in June 2003, and currently consisted of two full time Commissioners, and six part-time Commissioners, who would meet monthly to evaluate investigations and formulate recommendations to the Minister. Although ITAC fell under the Department of Economic Development, its recommendations and reports were also used by the Department of Trade and Industry. ITAC had two investigation units, whose work was divided into sectors. There were also two units working on trade remedies like anti-dumping, countervailing and safeguards, all of which were explained to the Committee. There was another unit working on import and export permits and enforcement. ITAC noted that the New Growth Path (NGP) set out the new economic policy for South Africa, which was dominated by the need for job creation, and it was important for ITAC to look into trade policy directions and the sectors that had been prioritised for job creation. These included the infrastructure sector, the green economy, the agriculture value chain, the mining value chain and the manufacturing sectors. ITAC outlined the factors taken into account when evaluating tariff applications, and also tabled a slide explaining its methodology for investigations. Trade remedy instruments existing to enable fair trade, sustain domestic production, retain and create jobs and promote international competitiveness.

Members asked whether a total ban could not be put on the export of scrap copper in order to stop cable theft. Members asked who enforced the tariffs that ITAC decided upon, and a full description was given of the role of ITAC and the role of South African Revenue Services Customs unit. Membes also asked for, and received a full explanation of the relationship between ITAC and the World Trade Organisation, particularly the roles respectively played by ITAC and the
International Trade and Economic Development (ITED). Members noted that many foreign products still found their way to South Afirican retailers and asked about the position of goods offered for sale by informal traders. Members wondered if tariffs were high enough, or whether it was still cheaper for retailers to import products than purchase from local manufacturers, and noted the huge under-invoicing that was still being done. Members asked what perspective ITAC would use when determining best interests and national interest, and noted that consumers did pay some price for supporting domestic manufacturers. They queried, in particular, import duties on medical devices used exclusively for physically-disabled people. Members asked whether there were any initiatives to develop an African block for trading, questioned if ITAC had special arrangements for small enterprises, and how it would attempt to redress inequalities and create jobs. Members also wondered how any attempts by Southern African Customs Union (SACU) member countries to pass goods off as SACU-originating goods, would be detected and dealt with. Members were given a short briefing on the delays in appointing a SACU Tariffs Board. Members asked specifically about import duty on soya protein concentrate, work with the Department of Agriculture, arrangement with the BRIC countries, and stressed the need for planning and efficiency. They also questioned when the amendment Bill was likely to be tabled, and asked for further details on the staff and Board.

The Competition Commission reported on its strategic plans and budget for 2011 to 2014. The Competition Commission (CC) was a statutory body that must investigate, control and evaluate restrictive business practices, abuse of dominant positions and mergers in order to achieve equity and efficiency in the South African economy. Its main aims were to expand its human resources, build management capacity, and strengthen information and knowledge management in order to cope with its increasing workload. Certain issues were prioritised, according to the impact that they would have on lower-income consumers, the costs of and impact upon businesses, whether these practices hindered growth and development, and its own experiences. The CC had prioritised investigations into the sectors of food and agricultural processing, infrastructure and construction, intermediate industrial products and network industries, such as banking and telecommunications. The CC fought  anti-competitive behaviour that retarded growth, broke up cartels and bid-rigging activities, contributed to the expansion of public works programmes and supported small enterprises. It also reduced youth unemployment through its own graduate trainee programme, and would place conditions on mergers to try to reduce job losses. It outlined its major challenges as lack of office space, the difficulty in predicting litigation costs, particularly where costs were awarded against the CC, and adverse and constraining decisions by courts. At the request of the Chairperson, the CC then outlined the situation in the Wal-Mart merger, the Woodlands and Milkwood milk issues, and the construction sector.

Members all complimented the Competition Commission on its good work, and commented that the rationale behind the Wal-Mart merger was sound. Members asked when a merger or acquisition would become subject to a competition investigation, asked why small enterprises and cooperatives were separately dealt with, asked how many people were in the graduate programme, heard about the success of the programme, and asked whether the graduates were being more widely sourced. They enquired whether the Competition Commission could make recommendations for parallel legal action against companies engaging in uncompetitive practices, and when legislative amendments were likely to be tabled. The Commission explained the position with the Competition Amendment Bill, which, although signed by the President, had not had any implementation date assigned. The Commission further explained some of the challenges arising through conflicting decisions by different courts, and the Committee commented that there seemed to be a need to hold seminars, or perhaps do training of judicial officers, on the intention and import of the legislation. It was explained that the main concerns with the new Amendment Act were the criminalisation of uncompetitive behaviour, and the corporate leniency provisions, which had proved a fairly effective tool, would fall away. The Committee agreed to find out the current status of this matter, and then consult further to decide what might be the best course of action. Members asked in what areas the Competition Commission would have to cut back its activities if it did not receive the budget it had requested, and undertook to take up the question of office space with the Department of Economic Development.


Meeting report

International Trade Administration Commission (ITAC) Strategic Plan 2011/12 to 2015/16
Mr Siyabulela Tsengiwe, Chief Commissioner, ITAC, noted that the International Trade Administration Commission (ITAC) was established in June 2003 by the International Trade Act of 2002. Previously, there had been a Board of Tariffs and Trade, and a Board of Trade and Industry.

ITAC had two full time commissioners, being the Chief Commissioner and a Deputy Chief Commissioner, as well as six part-time commissioners. The Commission met monthly to evaluate investigations and then made recommendations to the Minister of Trade and Industry. The administrative arm of the Commission had a staff complement of 130.

The Commission had two Tariff Investigation Units. Unit 1 investigated the agriculture and agro-processing, chemicals, textiles, clothing and footwear, textiles and clothing industries. Unit 2investigated the motor and related industries, as well as the metals and machinery industry.
There were two units working on trade remedies like anti-dumping, countervailing and safeguards. Another unit was working on import and export permits and enforcement.

Mr Tsengiwe reminded Members that the New Growth Path (NGP) set out the new economic policy for South Africa, in which job creation had a central position. The direction of trade policy and sectors that had been prioritised for job creation, known as the Job Drivers, were of importance to ITAC. The NGP advocated a number of developmental trade policies, which included the promotion of exports of value-added manufacturing, addressing unfair competition against domestic manufacturers, and active support for new trade opportunities, including newly established industries. There were reciprocal commitments on applicants for tariff changes and rebates addressing areas of investment and employment creation. The NGP further aimed to take a pragmatic and evidenced based approach to pursuing socio-economic objectives. An unnecessary adherence to narrow interests or failure to respond to real economic needs was seen as harmful.

The sectors of particular relevance to ITAC, which had been prioritised for job creation, were the infrastructure sector, the green economy, the agriculture value chain, the mining value chain and the manufacturing sectors.

Mr Tsengiwe outlined the factors taken into account when evaluating tariff applications. These included the domestic productive capacity and potential for the product, employment, investment, trade flows ( calculated both on imports and exports), cost structures, price differentials (which coul be disadvantageous or advantageous), the market share of domestic producers, demand and supply, and the financial state of the industry.

ITAC had established a methodology for conducting tariff investigations, which he tabled to the Committee (see attached presentation for details). He also noted that trade remedy instruments existed to enable fair trade, in order to sustain domestic production, to retain and create jobs, and to promote international competitiveness.

Mr Tsengiwe explained that “dumping” was a term used for the selling of goods to a foreign market at prices less than the country of origin. Anti-dumping measures were measures aimed at halting this practice. Countervailing measures were used against imports from other countries that were subsidized by governments in those countries, and therefore could threaten or cause harm to domestic manufacturers. He noted that the term “safeguards” would be used to describe actions taken against any trade that could be regarded as fair if taken strictly in isolation, but which could nonetheless have the effect of overwhelming domestic producers.

Discussion
The Chairperson said that South Africa had to escalate its production for export purposes. The country also had to lessen imports on key products. It had to stimulate business activity by keeping the price of doing business in South African to acceptably low levels. She appreciated the presentation and the effort that Mr Tsengiwe had gone to in ensuring that his explanations were uncomplicated and accessible, as this was a very technical subject.

Dr S Marais (ANC) said that ITAC played  an important role in supporting and stimulating economic growth and global competitiveness. He asked who enforced the rules and tariffs that ITAC decided upon.

Mr Tsengiwe said that South African Revenue Services (SARS) Customs branch enforced the tariffs.

Mr Z Ntuli (ANC) asked what the working relationship was between ITAC and Customs. When the Portfolio Committee had paid an oversight visit, it was difficult to determine who was responsible for monitoring.

Mr X Mabasa (ANC) said at the Lebombo border post between South Africa and Mocambique, recovered vehicles were stored in a way that made them vulnerable to being stolen. He asked how this could be overcome, and whether ITAC felt that the situation was under control.

Dr Marais asked how Customs enforced control, and whether, for instance, containers would be opened as they came off the ships. He said that many foreign products still found their way to the supermarket shelves in South Africa.
Dr Marais asked whether the tariffs were high enough, and whether it was still cheaper for retailers to import products than to buy them locally.

Mr Tsengiwe said that the domestic prices were compared with the landed import prices. With agricultural products, the subsidy was factored in.

Dr Marais asked for a further explanation of the role of ITAC, saying that he was not sure whether its role was administrative, or whether it also performed enforcement.

Mr Tsengiwe replied that ITAC set the duties, but the enforcement of these lay with SARS at the border posts, ports and airports. Tariffs on clothing were set at 45%.The biggest problems were illegal and fraudulent imports and under-invoicing. Under-invoicing was so enormous that it eroded the 45% tariff. A task team had been formed at the National Economic Development and Labour Council (NEDLAC) as well as a SARS unit, to look at this issue.

Mr Tsengiwe added that ITAC attended to enforcement of import and export control regulations. 177 subheadings were listed under export control. Once ITAC issued permits, it had to ensure that the users complied. He noted that there were rebates on motor vehicles, but it was quite complicated to access them. If the Portfolio Committee needed more details these could be provided.

Mr Tsengiwe replied that the Southern African Development Community (SADC), Common Market for Eastern and Southern Africa (Comesa) and the European Economic Community (EEC) all had free trade agreements (FTAs). ITAC would provide advice, based on the experience gained from investigations .Once agreements were in place, they were then enforced by SARS.

Dr Marais said that the World Trade Organisation (WTO) ruled global trade. Despite the WTO rules, unfair competition still happened. He asked how ITAC would liaise with the WTO to ensure that unfair competition did not happen.

Mr Tsengiwe said it was necessary to understand the distinction between ITAC and other bodies. ITAC
aimed to create an enabling environment for fair trade, through efficient and effective administration of its trade instruments, and by giving technical advice to the Department of Economic Development (EDD) and the Department of Trade and Industry (dti). The division for International Trade and Economic Development (ITED) aimed, on the other hand, to develop trade and investment links with key economies globally, and to promote economic development by negotiating preferential trade agreements, supporting a strong, equitable multi trading system and fostering economic integration with the Continent, within the framework of the New Economic Partnership for Africa’s Development (NEPAD). He stressed that it was ITED that dealt with the WTO.

Dr Marais asked whether ITAC looked at unfair competition from the perspective of the best interest of the consumer, or from a business perspective. He also asked if it took job creation, lower prices or fighting inflation into account, and what would be considered to be “the national interest”.

Mr Tsengiwe replied that the national objectives were outlined in the New Growth Path. He noted that tariffs would raise prices, but the other side to this was that they were used to protect domestic manufacturing and jobs. Hard policy choices had to be made. There was a price to be paid to protect domestic manufacturers, and that price was paid by the consumer.

Dr Marais said that products that were exclusively used by people with disabilities, such as under-vehicle lifts, or lifts to lower people into swimming pools, were not made in South Africa and therefore all had to be imported. He wondered if ITAC could offer tariff reductions on the import of these products, to make them accessible for people with disabilities.

Mr Tsengiwe said that Dr Marais could discuss the specifics of these cases with him.

Mr Mabasa said that most cities now saw informal trading happening on the streets. He wondered what influence this kind of trading had on job creation. He asked what the status was of the jobs that were imported and being sold by informal traders, and whether they were illegally imported.

Mr Tsengiwe replied that street trading also fell under the jurisdiction of Customs. Proper product import controls were needed. There were some second hand goods that were allowed to be imported, such as warm overcoats for low-income earners, and these imports would also fall under Customs.

Mr Mabasa said that he assumed that ITAC would be able to appreciate the value and possibility of Africa trading as a unit. The advantages of the block approach could be seen in the way the European Union (EU) and the United States of America (USA) did business. The negative attitudes that African countries had towards each other were hindrances to achieving this goal. He asked for ITAC’s comment.

Mr Tsengiwe replied that he agreed with Mr Mabasa about enlarging the market for manufactured goods. South Africa should go regional and international. There was a process under way to expand regional and international markets, and this fell under ITED.

Ms D Tsotetsi (ANC) said that when government engaged SMMEs, it always concentrated on the challenges of access to finances and mentoring. It never discussed the import and export dynamics, nor the impact that this had on SMMEs. She felt that this information had to be shared with SMMEs through public hearings or briefings, as it would be very informative for them.

Mr Tsengiwe replied that ITAC was unable to differentiate, in its approach, between SMMEs and bigger businesses. Applications for tariffs came from large associations, such as the Grain Farmer Development Association, and when tariffs and rules were applied, they were applied industry-wide. Some flexibility on the import of second-hand equipment was allowed for small-scale farmers. ITAC, given the way that it operated currently, had very limited scope to hone in on SMMEs as a separate category, as opposed to dealing with the whole industry.

Mr Ntuli asked how ITAC fought inequalities.

Mr Tsengiwe replied that the New Growth Path had a number of provisions that would enable ITAC to contribute to employment, and this was the main way in which it addressed inequality.

Mr Ntuli asked whether ITAC’s reports to the dti contained the same information as it reported to the EDD.

Mr Tsengiwe replied that the EDD was responsible for ITAC. ITAC did investigations, but could make recommendations also to the dti on the outcomes of its investigations.

Dr P Rabie (DA) noted that 97% of trade amongst SADC partners was duty free. He wanted to know which products were taxed to account for the extra 3%.

Mr Tsengiwe said that 3% of goods were excluded from free trade, but he did not have the details with him.

Dr Rabie wanted to know whether it was possible to control import and export. He referred, for instance, to whether a total ban could not be placed on the illegal export of copper cabling, or any other proactive steps to stop export of stolen cable.

Mr Tsengiwe agreed that ITAC had a role to play when it came to copper cables, as it would visit premises and do inspections, and would then grant permits for scrap to be exported. However, there was a problem at export point when the scrap was placed in containers, with copper cabling being hidden under other scrap. He agreed that this was a major problem, but said that it was then up to SARS to open the containers and investigate the content.

The Chairperson asked whether there was any collaboration.

Mr Tsengiwe said that there could not be collaboration when SARS/Customs had to open the containers.

Mr Mabasa asked how South Africa could deal with the situation where Southern African Customs Union (SACU) countries might break trade agreements. He noted that this Union consisted of South Africa, Botswana, Namibia, Lesotho and Swaziland, who had entered into multilateral agreements with each other to simplify trade amongst themselves, reduce prices and protect each other’s economic interests. However, he cited an example that one of these countries could, for instance, buy partially completed garments made elsewhere in the world, and then do the final steps, such as sewing on buttons, and label them as made in a SACU country.

Dr Marais noted that if the Minister of Trade and Industry had made SACU a free trade area, then the alignment of tariffs and levies, as well as the enforcement, became very important. In a free trade area, the tariffs and levies had to be aligned.

The Chairperson asked Mr Tsengiwe for a short briefing on SACU. She was aware that there was recently a meeting between the SACU heads of state, and she asked for a brief update on developments there, as well as the nature of South Africa’s trade relations with Swaziland. She pointed out to Members that the Minister would normally attend to these briefings, but was not present at this meeting, where the questions arose.

Mr Tsengiwe said that the Strategic Document relating to SACU noted that ITAC must take recommendations to the SACU Tariffs Board when that became operational, but that in the meantime, SACU itself would be doing investigations. There was very little progress in the other countries who were part of SACU around establishing their own local equivalent bodies to ITAC. ITAC was also not very enthusiastic about this process, because of the turnaround times. When the other countries’ equivalent bodies were ready, decisions would have to be made by consensus, and this would delay turnaround times.

There was agreement that policies must in place before these institutions became operational, otherwise there would be no policy parameters guiding the business. A new Revenue Formula was being drawn up by National Treasury. Revenues had dwindled, and Swaziland was the hardest hit. In SACU the current focus was on infrastructure development, so tariff matters were not receiving as much attention. When it did its investigations, ITAC would apply the methodology that was set out earlier in the presentation (see attached document).

Mr Tsengiwe added that he would send the Portfolio Committee a report on what resolutions were taken at the last SACU meeting for heads of states. There was actually very little progress; South Africa had asked for evidence of progress and had provided the ITAC model for other countries to adopt, but had received no feedback. ITAC was part and parcel of the process, but reiterated that there seemed to be little push to establish the Tariffs Board.  

Mr Ntuli asked who coordinated customs matters.

The Chairperson replied that it was SARS.

Mr Ntuli asked whether the new agency had been formed to coordinate border control.

The Chairperson replied that it had not been formed.

The Chairperson asked why ITAC did not allow for duty-free importation of soya protein concentrate, whether there were other competing products, whether ITAC had looked at the benefit of soya concentrate, as also whether there were other issues under consideration.  

Mr Tsengiwe replied that with ITAC worked with National Manufacturing Advisory Centres (NAMAC) and the Department of Agriculture, Forestry and Fisheries. ITAC believed that if it did allow duty-free importation of soya bean concentrate, this would have a negative effect on the domestic soya bean market. It therefore had had to decline the application. It was likely that South Africa, at some point, would produce its own soya bean concentrate. There was a huge problem with the maize surplus, and the alternative was to look at splitting crops, between maize and soya.

Dr Marais asked how South Africa, having now entered the BRIC (Brazil, Russia, India, China) group, would now deal with those countries in relation to trade. South Africa was a junior partner in this alliance, but its own products still had to be protected.

Mr Tsengiwe replied that as a new member of BRIC, which was not a formal organisation, South Africa did not have any formal trade agreements with any of these countries. The same rules applied to them, as applied to all other countries.

Ms Tsotetsi said sometimes good policies had unintended negative results, such as job losses. She asked if ITAC could give an account of the number of jobs lost and the number of jobs created as a result of its interventions, and whether it could assess its progress towards the national targets.

Mr Tsengiwe replied that when it was trying to set employment targets, ITAC did not yet know how many applications it would receive and have to deal with. Therefore, it was very difficult for it to assess how many people it was likely to need to employ.

Ms Tsotetsi said that she thought ITAC had misunderstood her question, as government had to set itself targets.

The Chairperson said that the explanation of how ITAC took its decisions had illustrated that it was actually looking at matters from the perspective of job creation, innovation and creativity in the country.

The Chairperson had commented that when she had visited Dubai, she had been told that South Africa was inflexible when it came to trade. One example given to her related to the growing of mangos. South Africa mangos were of high quality, but Indian mangos were preferred for their particular aroma. However, South African farmers were apparently inflexible and did not wish to grow the variant that would spark a bigger global demand. This she saw as a trading weakness. Some other emerging economies understood the thinking that made it possible for them to open up markets where South Africa had not managed to do so. Heads of State met and agreed on particular issues, and technocrats developed policies, ensuring that events would take place at the right time within considerations of free trade. She said that it was easier to trade once policies were in place. Proper planning might stop foreigners from coming into Africa and convincing people to do things that were against South African interests. ITAC was influential, and could put pressure on the Minister to accede to bi- or multi-lateral agreements, or to influence decisions that would lead to organising Africa as a trading block.

The Chairperson said that she agreed with Mr Tsengiwe that ITAC did contribute to efficiency. She cited some examples of lines of good that were zero-rated, and said also that imported motor vehicles had a tariff of 25%, which was to South Africa’s benefit, as if this tariff was removed it meant that it would be far cheaper to import all cars to South Africa and the motor vehicle industry in this country would collapse.

The Chairperson said that ITAC had promised, in October 2010, that it would be tabling an amendment Bill, yet this presentation suggested that it would now only be tabled in February 2012, and she asked why.

Mr Tsengiwe said that ITAC had not made a formal submission to the EDD. There was a draft in place. It would certainly meet the April target.

The Chairperson said that the process would take until February 2012.

Mr Mabasa asked about the staff component of ITAC, and how this had been set up to meet the challenges mentioned.

Mr Ntuli asked whether ITAC had enough staff, noting that there were only two full-time commissioners, and asking whether ITAC was satisfied that they could handle the volume of work.

Mr Marais asked who the board of ITAC was, how it was constituted and whether Mr Tsengiwe could make an organogram available.

Mr Tsengiwe replied that there were six part-time commissioners, including the Chairperson of the Board of Commissioners. Mr Tsengiwe held the position of Chief Commissioner, and he and the Deputy Chief Commissioner were the only full time commissioners. The other commissioners did not take part in the day to day running of ITAC. All commissioners would meet monthly to evaluate, collectively, the outcomes of investigations and to make recommendations to the Minister. He named the other commissioners, and added that he and the Deputy Chief Commissioner also sat on the Board.

The Chairperson said that South Africa had a commitment to help its neighbours develop, and Africa as a Continent had to become more integrated. South Africa was an organized country, and other countries were relying on it to come up with solutions to realise the potential for growth. The issues were pertinent. South Africa could trigger change, and changes in the culture of how things were done, but had to partner with other countries to achieve this.

Competition Commission (CC) Strategic Plan 2011 to 2014
Mr Shan Ramburuth, Commissioner, Competition Commission, noted that the Competition Commission (CC or the Commission) was a statutory body constituted in terms of the Competition Act, No 89 of 1998, and was empowered to investigate, control and evaluate restrictive business practices, abuse of dominant positions and mergers in order to achieve equity and efficiency in the South African economy.

The main strategic aims for the Competition Commission, for 2011 to 2014, were to expand its human resources, build management capacity and strengthen information and knowledge management in order to cope with its increasing workload. Its criteria for prioritising issues were based on the impact on low income consumers, the cost of doing business, alignment with growth and development policies, and its own experience. The sectors  prioritised were food and agricultural processing, infrastructure and construction, intermediate industrial products and network industries, such as banking and telecommunications. It was aligned to the Department of Economic Development outcome of decent employment through growth, because it actively fought anti-competitive behaviour that retarded growth, by breaking up cartels and bid-rigging activities. This also contributed to the expansion of public works programmes, and support to small, medium and micro enterprises (SMMEs). Mr Ramburuth explained how this prioritisation would work in practice. CC would take on cases that raised the cost of living of end-consumers, such as food prices, or costs to businesses, like telecommunications and banking.

CC reduced youth unemployment through its own graduate trainee programme, as well as by placing conditions on mergers, aimed at reducing job losses. The CC wanted to operate in a way that made its impact on the economy both visible and measurable. One way to achieve this was by targeting high impact industry sectors, markets and cases.

The CC also wished to create a competitive environment for economic activity, and attempted to do so by aligning itself with the social and economic policy priorities of government, and by influencing the behaviour of stakeholders in line with competition principles. In order to achieve its goal of being a high performance competition agency, it would develop management skills in its leadership, manage and appy organisational knowledge, implement good Human Resource (HR) practices that developed its staff, aim to retain those staff, and develop career paths and succession plans.

The CC outlined its main challenges as office space constraints, difficulty in predicting litigation costs, especially when it had to pay the costs of the other party if decisions went against the Commission, and adverse and constraining decisions by the courts.

The Chairperson asked Mr Ramburuth to brief the Committee on the Wal-Mart issue, the Woodlands and Milkwood milk issues, and the construction situation.

Mr Ramburuth firstly outlined the Wal-Mart merger, which was  well publicised on in the media, so all the information was in the public domain. The CC had considered the merger, and the Competition Tribunal (CT) had recommended an unconditional approval. However, the trade unions then objected. The CC was not involved in any serious way, having merely advised the Minister on the supermarket sector. The Department of Economic Development set up a forum to mediate between the merging parties and civil society, and try to reach commitment, although there was no legal basis to argue against the merger, since the CC had judged the matter on the basis of analysis. Once the CC had indicated its position, the partners had “dropped” the unions. The Departments of Economic Development (EDD), and Trade and Industry (dti) and the agricultural sector then formally intervened in the process, and evidence was prepared and legal evidence was evaluated. The unions and EDd were legitimate participants in the process. The CC might disagree with their analysis of the situation, or their position, but it had to protect their right to participate.

Mr Ramburuth outlined that there were two main fears. Firstly, the unions were concerned that Wal-Mart would undermine labour standards, as it had already done this elsewhere in the world, where it had a very bad labour reputation. However, when the CC put this point to the merging parties, they had promised to comply with South African labour legislation. This was accepted by the CC, because South Africa did have strong institutions to enforce labour law, such as the Commission for Conciliation, Mediation and Arbitration (CCMA) and the Labour Court.

The second fear was that Wal-Mart’s procurement strategies, which included buying cheap goods from countries who used child labour and exploited their workers, would undermine manufacturing in SA. When the CC looked closely at the situation, it found that Wal-Mart bought from Massmart. Investigations by the CC into Massmart suppliers revealed that most products were imported, and the CC had asked what the effect would be if it stopped supplying to Wal-Mart. Massmart responded that it supplied many other companies and if it did not supply Wal-Mart, this would not have a dramatic effect.

Mr Ramburuth summarised that because there was a broad commitment by the parties to comply with the labour legislation, there was thus no basis to oppose the merger. One point that was pro-competitive was that one more player had been added to the supermarket sector, which meant greater competition, which in turn tended to lower prices to the consumer. Wal-Mart was an overseas company that was contributing to foreign direct investment. The questions around anti-competition, whether companies were obliged to procure locally and whether they were obliged to develop South Africa’s manufacturing industry had all been considered, and were fully outlined in the papers.

Mr Ramburuth then turned to the investigations into the Construction Industry sector. Government spent a significant amount of infrastructure development, and when it had looked more closely at products, it became apparent that there was bid-rigging, with companies not bidding competitively. Instead, they would collude in advance, agree on a minimum price, and effectively pre-decide who would win the bid. This situation was not unique to South Africa, but had been discovered also to be widespread in the Netherlands and United Kingdom (UK).

The CC had decided to ask companies in this sector to confess if they had been involved in any bid-rigging activities. If they did, they could qualify to have reduced penalties imposed on them for the collusion, but if they did not come forward themselves, and were implicated by another company, and subsequently found by the CC to have colluded, then they could be obliged to shoulder the full penalties, which, as Mr Ramburuth pointed out, could be substantial. For each separate transgression a company could be fined 10% of its turnover. This meant that if a company had been involved in ten cases of bid-rigging, it would have to pay 100% of its turnover.

Mr Ramburuth stressed that the CC was determined to clean up the industry. Over the next few years both the South African government and the governments of other African states would spend vast amounts on infrastructure development. If these cartels were not broken up now, governments would lose millions to bid-rigging, hampering development in the region and in the rest of Africa.

The due date for construction companies to declare their activities was 15 April 2011. There was an incentive for all to tell the truth. In the recent past, these “corporate leniency” applications had been instituted, to good effect.  The CC was enlisting the help of a person in the Netherlands and the outcome of this process in the construction industry would be seen during the next financial year.

Discussion
Dr Marais complimented the CC on the good work it was doing. He said that the explanation Mr Ramburuth had given on the CC’s approach to the Wal-Mart merger was based on a good rationale, and was constructive.

Dr Marais asked when a merger or an acquisition would become subject to a CC investigation. He also asked under what circumstances behaviour would be found to be anti-competitive, and not in the best interests of the consumer.

Mr Ramburuth explained that there were certain circumstances when a merger would be subject to notification and others when it would not. He stressed, firstly, that mergers were necessary to create a climate where rationalisation and economies of scale would be beneficial. The Minister would, in the Government Gazette, publish thresholds. Those companies who had assets and turnover above a certain declared amount would be obliged to give notification of a proposed merger. Two thresholds would be set out in the Government Notice. Everything above the higher threshold would be considered large, everything between the two was called intermediary, and everything below the lower threshold would be termed as small.

Intermediate and large mergers would be notifiable. Intermediate mergers could be decided by the CC alone. In the case of large mergers, the CC would do an investigation and make recommendations to the Competition Tribunal, which would then, having listened to inputs from all interested parties, make its final decision. This was the process that the Wal-Mart merger was going through at the moment. .

The thresholds were raised in the recent past to exclude the bulk of mergers. As the value of money decreased, the amounts increased, so the threshold amounts had to increase. Mr Ramburuth explained that only three or four, out of perhaps 500 mergers assessed within a particular year, would be opposed. When a merger was opposed this created the impression, in the public mind, that the system was not working. Wal-Mart was a big merger, and the company had a bad reputation. The high profile that this received in the media was quite legitimate, because it was important to have the opinions of stakeholders heard and to have their views discussed.

Mr Ntuli also expressed his appreciation for the presentation and the job that the CC was doing. He asked how many people the CC had in its graduate programme.

Mr Ramburuth replied that there were currently fourteen graduate trainees in the programme, and they were contracted for a one year period. This meant that 10% of the staff (who totalled 140) were trainees. Previously, the CC had suffered from a high turnover rate of staff, and skills shortages. The successful graduate training programme had now enabled the CC to “grow” its own people, with the necessary staff, and many programmes had been put in place by the HR department to enhance staff satisfaction and retain staff. Many of the current senior staff members had started out in the graduate trainee programme.

The Chairperson asked whether the CC still sourced its graduates from the same universities.

Mr Ramburuth said that the graduates now came from a broader range of universities. Many historically black universities, however, still did not offer courses that graduates needed in order to work for the CC. The Economics Departments of University of Cape Town (UCT) and Witwatersrand (Wits) were considered amongst the best in the world, and many trainees had graduated from there. He was satisfied that the CC selected its graduate trainees in a non-discriminatory and equitable way.

Mr Ntuli noted that page 6 of the presentation had referred to SMMEs and cooperatives separately, and he wondered why.

Mr Ramburuth said that SMMEs were now regarded as small to medium enterprises, but the definition of cooperatives was concerned with the nature of the business’ ownership. The same attributes and definitions were not applied to both.

The Chairperson also commended the CC and said its contribution did not go unnoticed. She commented that during previous discussions with the Committee, the CC had talked about closer cooperation with law enforcement agencies. She pointed out that the CC should not only be offering opinions, but also making recommendations for parallel action to be taken. She therefore asked when the CC was expecting that legislative amendments to assist it would be tabled before Parliament, and whether this was likely to take place in 2011/12.

Mr Ramburuth replied that the CC had recently cooperated with police and prosecuting agencies where witnesses appearing before the Competition Tribunal had lied, such as a case involving a person from Pioneer Foods, although there were about three or four similar matters. Where a person lied, criminal action could follow.

Mr Ntuli noted that one of the challenges listed was the possibility of adverse court findings. He wondered if this meant that the CC wanted the legislation to be amended, and asked what legislation should be amended.

Mr Ramburuth said that when legislative changes were made, this did not always give quite the expected result, as many stakeholders had an interest and were entitled to push their views, so it was possible that the legislation eventually passed may worsen the position for other stakeholders. The CC had no control over when its recommendations would be heard, and was told that it was an  implementer, not a policy maker or a legislator. He understood why the requests were being delayed, and pointed out that they were controversial and that threats had been made by organised business to challenge the proposed amendment in the Constitutional court. This was beyond his area of responsibility so he did not wish to say much more on the issue.

The Chairperson asked whether she understood Mr Ramburuth correctly as saying that there was a Bill before Parliament, but its constitutionality had been called into question.

Mr Ramburuth said that there was a Bill that was presented to the Third Parliament, in other words prior to this Committee being created. The Portfolio Committee on Trade and Industry had dealt with the Competition Amendment Bill, at a time that there was a flurry of activity to pass a number of Bills through Parliament, the Third Parliament had adopted the Billl and it was sent to the then-President, Kgalema Motlanthe for signature. His legal advisors, however, suggested that it was unconstitutional and had returned the Bill to the Portfolio Committee, who disagreed with that opinion. President Zuma had then later signed off the Bill, but no date was set for implementation. Businesses in South Africa maintained that it contained unconstitutional provisions and was ill-advised. The main issue of contention was the proposed criminalisation, and if this was implemented, then a whole new range of institutions would be involved, such as the National Prosecuting Authority (NPA), and the corporate leniency provisions would no longer apply. Many of these issues were not clearly thought through when the Bill was passed by the previous Portfolio Committee. There were now suggestions that another set of amendments should be prepared, which would either override the amendments made, but not yet implemented, or that they could be adjusted to address some of the contentious areas.

Mr Ramburuth added that a further complication during this time was that the Competition Commission moved from the control of the Department of Trade and Industry to the Department of Economic Development, causing further disruption.

Mr Ramburuth noted that amending the legislation would solve some issues, but careful thought had to be given to all the implications, and the participatory process, which sought to accommodate a number of views, something shifted the focus away and caused unintended consequences. The end objectives of amendments to legislation had always to be borne in mind.

The Chairperson said that it was the first time that she had heard of the history of this Bill, and she asked the Committee Secretary and Researcher to find out how far the process was, so that the Portfolio Committee could think about the best way to deal with it. The Presidency could refer the Bill back to Parliament again. Before any new legislation was tabled, this Committee would have to be apprised of what had been suggested, and passed, previously.

Dr Marais stressed that this Portfolio Committee would have to be briefed fully on all issues, and agreed that the legislation eventually passed must serve the purpose for which it was intended.

Mr Ramburuth said that Ms Zodwa Ntuli, Deputy Director General, Department of Trade and Industry, had dealt with the Bill, and others in EDD had “inherited” the matter from her.

 who was a DDG in the DTI, at the time dealt with it as well as people within EDD which inherited it from DTI.

The Chairperson said that the Committee would, once it knew the current status of this Bill, consult with Mr Ramburuth and other relevant parties.

Mr Ramburuth said that the CC had a memorandum of understanding with the National Consumer Commission, which played a complementary role to that of the CC.

The Chairperson was pleased to hear that the CC wanted to establish agreements and relationships with other regulatory bodies, especially on trade issues. Trade regulations existed on paper, but were not enforced.

The Chairperson noted that although Mr Ramburuth had mentioned inconsistency of judgments from the courts to be a challenge, he had not mentioned inconsistency of rulings from the Competition Tribunal, which affected not only the reputation of the Tribunal but had an effect upon the CC.

Mr Ramburuth said that inconsistent verdicts were not found from the Competition Tribunal, but from independent courts. It was true that the Competition Appeal Court (CAC) and the Supreme Court of Appeal (SCA) sometimes contradicted each other.

He explained that the CC was establishing agreements with regulatory bodies who did not operate within the confines of the Competition Act, but in line with other legislation, and this would include the Independent Communications Authority of South Africa (ICASA), the National Energy Regulator (NERSA) and similar bodies. The Competition Act had set up a hierarchy of entities, being the CC and the Competition Tribunal, but there was also the Competition Appeals Court, the Supreme Court of Appeal and the Constitutional Court who could adjudicate on competition matters.  It would be inappropriate for the CC to have agreements with institutions who must adjudicate on the CC”s decisions, but if some way could be found in which these institutions checked their decisions against each other for consistency, or found commonalities in interpretation, this would assist. The question of what the policy makers were trying to achieve had to be asked, and the Courts had to have a common purpose. He suggested that the Justice College and the CC could perhaps cooperate on educational programmes around the desired policy objectives and outcomes.

Mr Ntuli noted that the CC had requested R151 million, and was granted R126 million budget. He asked what this would mean in real terms, and what the CC would not be able to do when it received a budget less than it requested.

Mr Ramburuth replied that without the budget to execute its brief, the CC would not be able to pursue risky matters. This was not correct in principle, as the CC should be in a position to challenge matters, even if it lost. He added that big business and their legal representatives sometimes held the view that the CC was becoming too powerful and needed to be restrained. However, the public was confusing the criminal and civil matters. Administrative penalties that were imposed presently were of high monetary value, but they were civil in nature. Some people held the view that a criminal standard of proof should be applied in the procedures leading up to the imposition of these penalties, and that the barriers to sanctions had to be raised.

The Chairperson noted the difficulty in predicting the litigation costs, and said that if better cooperation and collaboration could be introduced, then matters should flow better. She suggested that perhaps it would be useful to have a seminar where all interacting bodies could be made aware of the need for cooperation and collaboration, and to identify areas where this could happen. The CC could ask for assistance from the Committee in this regard.

The Chairperson said that the Portfolio Committee and CC were both on a mission to transform the South African economy, and it was necessary to adopt a bold approach. The CC would obviously encounter many hurdles, and it needed to have partners in its efforts, to share, collaborate and cooperate so that everyone understood its position, and perhaps synergies could be found with other organs of State and civil society. More people needed to be exposed to the information.

Mr Mabasa agreed that the Portfolio Committee could help the CC to overcome certain challenges, particularly around alignment of policies. He conceded that space constraints were posing a challenge.

The Chairperson asked why this was so, pointing out that the EDD had a budget and could surely provide office space for the CC. She agreed that there was a Memorandum of Agreement between EDD and the dti, but this should not hamstring the CC. She asked how often this agreement was revised, and said that there should be a clear way to resolve space challenges. The Portfolio Committee would make recommendations, in the budget vote, that the office space for the CC should be funded. She also reminded the CC that it must report to the Portfolio Committee on the legislation and policies that needed to be reviewed. She reiterated her thanks for the good work it was doing.

The meeting was adjourned.



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