Competition Amendment Bill: hearings & discussion

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Trade and Industry

29 August 2000
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Meeting Summary

M-Net and Multichoice supported the deletion of s3(1)(d). However the proposed legislation will give rise to many problems for M-Net with regard to the Independent Communications Authority of South Africa. They proposed that steps be taken to minimise the scope of the concurrent jurisdiction of the competition authorities and the various sector-specific regulators. The cases of concurrent jurisdiction that remained ought to be dealt with clearly in the legislation. They do not consider it appropriate to leave it to the competition authorities and sector-specific regulators to reach consensus and negotiate agreements to co-ordinate the exercise of jurisdiction over competition issues.

COSATU did not have any fundamental concerns about the Bill. While they did support the deletion of Section 3(d), they feared that the proposed amendment might create more regulatory confusion by relying on general understandings not made explicit in the Bill. They suggested a tighter formulation aimed at closing loopholes arising from the ambiguity in the current Act. They also made suggestions with regard to increased labour participation in competition proceedings.

BSA's submission looked at the economic implications of the amendments of the Bill rather than on the legal ramifications. It focussed on the implementation aspect of the Act in order to ensure business confidence. It was stressed that the sector regulators be knowledgeable of the provisions of the Act and the jurisdictional demarcations. BSA felt that notification fees were far too high and caused a barrier to investment. An addition to current exemptions was also discussed.

After the presentations, the committee embarked on a clause by clause discussion of the Bill, considering the recommendations they had received in public hearings. At meeting's end, the Chairperson listed the four issues still outstanding for the Committee to discuss:
Clause 6 (introduction of s 18 "Intervention in merger proceedings" dealing with the right of a trade union to appeal an intermediate merger);
Clause 8 (amendment of s 21 of Act 89 of 1998)
Clause 20 (amendment of s 82: "Relationship with other agencies");
Clause 2 (amendment of s3)

Meeting report

M-Net and Multichoice
Mr Kwesi Mtengwenia provided a brief background on M-Net and his colleague, Ms Clarisa Mack, presented their submission.

Ms Mack stated that the focus of the submission would be on respective jurisdictions of the competition authorities and the sector-specific regulators. This is dealt with in the deletion of s3 (1)(d) and the Bill proposes to alter s82 to compensate for the deletion of s3 (1)(d). Ms Mack indicated that these issues would affect Multichoice and M-net directly due to those aspects of the business that is regulated by the Independent Communications Authority of South Africa, ICASA.

Ms Mack was clear that M-Net supported the deletion of s3 (1)(d) and understood that it was intended to remove confusion about the jurisdiction of the Competition Act with respect to entities subject to sector-specific regulation in terms of other legislation. It was believed that the jurisdiction of the Competition Act ought to extend to all economic activity in the Republic.

She expressed reservations about whether the objective will be achieved due to resultant confusion about the respective jurisdictions of the competition authorities and sector-specific regulators. An important concern that was raised was the concurrent jurisdiction that the competition authorities and ICASA will potentially have in conjunction with the IBA Act, Broadcasting Act and the Telecommunications Act.

Ms Mack noted that South African policy and legislation regulating communications industries does not accord with the best international practice. She also expressed concerns about "negotiating jurisdiction". M-Net and Multichoice do not consider it appropriate to leave it to the competition authorities and sector-specific regulators to negotiate agreements to co-ordinate and harmonise the exercise of jurisdiction over competition issues. She noted also that these provisions do not compel the sector-specific regulators to negotiate agreements and that these proposals are only likely to work if consensus is reached between the competition authorities and the respective sector-specific regulators.

Ms Amanda Armstrong, an M-Net attorney, reiterated their support for the deletion of s3 (1)(d) and stated that they did not suggest it be delayed but rather, as a matter of urgency, steps be taken to minimise the scope of the concurrent jurisdiction of the competition authorities and the various sector-specific regulators. The cases of concurrent jurisdiction that remained ought to be dealt with clearly in the legislation and not left to the Competition authorities and sector-specific regulators to try and resolve on an ad hoc basis. It was suggested that the legislation be amended sufficiently to minimise concurrent jurisdiction. Further more it should be dealt with in a certain time framework. A similar exercise should be outlined for the other sector regulators. Regular reviews of the legislation should be conducted to amend the legislation alongside the competitive changes in market behaviour.

Discussion
The Chairperson noted that M-Net and Multichoice had expressed what they believed to be the ideal situation. Granted that it was, how long would the implementation of their suggestion take?

Mr Moosa (ANC) stated that there was a general acceptance of the deletion of s3 (1)(d), but at this point all affected legislation could not be revisited in a short space of time. He wondered whether they could take some time to formulate a clause that could capture what they were proposing.

Mr Bruce (DP) asked if their plea intended a specific locus standi with reference to s21 (1)(8).

Ms Mack replied that s82 was entirely discretionary and there was not a single agreement to deal with the discretionary element. She added that generic clauses had to be sector-specific and could be achieved during periodic reviews.

Ms Armstrong said there needed to be a two-way pollination in order for the ideal to be achieved. She referred to Australia's Competition Reform Act of 1995 and stated that a follow-up in terms of implementation was relatively quick in 1997. She added that Australia had a reputation for quick implementation of legislation. She noted that a co-operative relationship was necessary. With regard to s21 (1)(8), there could be a negative implication and therefore advised that it should be stated both ways to avoid confusion.

Congress of South African Trade Unions
Ms Fiona Tregenna stated that Cosatu does not have fundamental concerns with the Bill but has proposed an amendment with respect to the jurisdiction of the competition authorities as well as amendments which will serve to enhance the participation of trade unions in competition matters.

Cosatu supported the apparent intention of the Bill although there was concern that it may result in unintended loopholes. She stated that there were certain restrictive practices, which may be viewed, as uncompetitive and therefore undesirable. To illustrate this she referred to price fixing, market division, selling of goods or services below their marginal or average variable cost or price discrimination. Ms Tregenna stated that s3 (1)(e) which aimed to obviate this concern would not be sufficient.

Cosatu proposed the tightening up of the proposed amendments in order to clarify the intentions and unlikely consequences of the proposed amendment. Cosatu was interested in why an exception is being proposed for the banking sector. Ms Tregenna noted that there was less clarity on why financial stability should be privileged above other policy objectives, which could potentially justify exemption of other sectors from the jurisdiction of the competition authorities.

Ms Tregenna noted that an innovative aspect of the competition policy is the intention to include trade unions, but she was concerned that unions be enabled to participate more fully. Cosatu proposed certain amendments to alleviate this concern:
- the provision that merging parties must notify the unions should state what the notice must entail.
- the merging parties must state the implications of the merger on employment in particular and it was suggested that the union be served with form CC4 (2) that would detail the effect of the merger on employment.

Discussion
Mr Moosa believed that trade unions already received the CC4 form. He asked Ms Tregenna for clarification. She explained that they receive the CC4 (1) form but not the CC4 (2).which outlines the merger's effect on employment

The Chairperson confirmed with Cosatu that they would organise their technical suggestions in a tabulated form.

Business of South Africa (BSA)
The BSA delegation comprised Mr Andre Lamprecht, Mr Philip Black as well as Mr Ken Warren of SACOB (SACOB concurred with the views of BSA submission). BSA accepted the need for concurrent jurisdiction on the part of the sector regulators and the competition authorities. It was stressed that the sector regulators be fully knowledgeable of the provisions of the Act and the relevant jurisdictional demarcations.

BSA expressed satisfaction with the proposed amendments that granted discretionary powers to the Minister to change thresholds more frequently. BSA was also pleased about the introduction of the new "small merger" category.

With regard to the dominant firm, BSA was not clear how market shares are currently determined. It was suggested that the amended Act provide at least appropriate generic definitions.

BSA felt that notification fees were far too high and caused a barrier to investment. The resultant effect of this would be to undermine black empowerment initiatives. BSA was adamant that a user charge is not appropriate in this case. Since the benefit had an overall effect, the policy should be paid for by the general fiscus.

BSA believe that socio-political considerations such as criteria relating to size, employment and disadvantage status do not belong in the Act and should be pursued through other procedures.

BSA hoped to see a more cost-effective and efficient procedure, which would make provision for the exemption of sector-specific generic agreements. BSA asked that the exemption currently applying to restrictive horizontal and vertical practices be added to the current grounds for exemption where "… 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".

Discussion
The Chairperson stated that the points made by the BSA would not be discussed in their deliberations on this Bill because they applied to the executionary stage of legislation. He commented that there would perhaps be a separate Bill that would cater for the specific implementation of the Bill.

Mr Moosa wanted to know how the BSA suggested a change or exclusion of certain arrangements regarding other regulatory authorities by means of amendment or negotiation. He enquired further about the mechanisms that could make exemptions still available with regard to Agri SA.

Mr Bruce (DP) enquired as to the reasoning behind the dissolution of fees when in countries such as the UK and US and Canada, fees were still charged. He wondered whether exemptions should be driven by economic and political concerns.

Professor Phillip Black of BSA stated that the fees were between R5000 and R500 000.

The Chairperson stated that the notification fees were not a subject of discussion for this Bill.

Afternoon session:
This meeting was a clause by clause reading of the Second Amendment Bill, with representatives of the Department and Competition Commission: Ms Shalini Rajoo, Mr Sibisi Bahle, Mr Simelane Menzi, Mr Dave Lewis and Mr Norman Manoim.

Clause 1 Amendment of section 1 of Act 89 of 1998
"target firm"
The Department said it agrees with the suggestion of the Transvaal Law Society (TLS), that "a significant interest in" be removed from this definition as well as s 19 (a).

Clause 2 Amendment of section 3
As to the repeal of s 3(1)(d), Mr Lewis wanted to correct the impression that banks had not been consulted on this. On the contrary, he asserted, these amendments were the product of the Minister's detailed discussions with bank registrars. In view of this, Mr Lewis sees no requirement for further consultation.

The Chairperson asked about the effect of the deletion of s 3(1)(d) on intellectual property rights. Mr Manoim responded that intellectual property rights cannot be exempted, although they will, by their nature, always have a special relationship to competition laws.

Clause 3 Amendment of section 4
The Department said it had considered but rejected TLS's suggested amendment, saying that it would damage the effect of the clause and that the addition of the word "material" would not make any difference.

Clause 4 Amendment of section 6 "Restrictive application of Part"
The Department considered the TLS's suggestion that it read "within 6 months, but not before 2 months". The Department called this a trivial amendment in that the requirement of 2 months would be just another administrative hurdle. It also called the TLS's suggestion that the Bill explicitly state that it is not retroactive, an unfounded concern. It said it would include these points if the Committee found them prudent. Ms September (ANC) proposed they leave it as is, without the TLS's suggestions, and not return.

Clause 5 Substitution of section 10 "Exemptions"
Intellectual property rights will fall under s 10(4) and will be included in the exemption for common law intellectual property rights. The Chairperson asked if the Department could anticipate any "snags" here. The Department replied that the concern that a holder of intellectual property rights will not have locus standi is unfounded.

Clause 6 Substitution of Chapter 3 "Merger Control" (sections 11 to 18)
S 12 : The phrase "a significant interest" will be deleted in s 12(1)(a)(ii). As to the TLS's suggestion that s 12(2)(g) be deleted for being too vague, the Department commented that this would only "follow vagueness with vagueness", so (g) will be left in.

S 14 : As to the TLS's suggestion that s 14(a) include the words "upon good cause shown", the Department said it could not do this as this is a sensitive area and there are specific periods within which mergers can be negotiated. Mr Menzi explained that the initial time frame is sufficiently tight that good cause will have to be shown eventually, though not within the first 30 days.

S 15 is flagged in terms of COSATU's suggested amendment. The Department explained that in an appeal to a large merger, a third party, such as a union, can make a representation in the appeal but cannot be one of the parties to the appeal.

S 18 : The phrase "a transfer of all or part of the assets and liabilities" in s 18 (2)(a)(ii) will be replaced with "a transaction', in order to simplify the section and the phrase "section 50" should read "section 54".

The Department suggested replacing the word "is" with "advances" in s 18(2)(b), arguing that this would present a more positive way of looking at the mergers. The Chairperson refused to make this change, arguing that such a wording would require the Minister to "pre-judge" a proposed merger. This would put the Minister in an insufficiently neutral position, in that it would imply that the Minister already approves of the merger.

Clause 8 Amendment of section 21
The Department had no comment on TLS's proposal for clause 8. The clause has therefore been flagged.

Clause 20 Amendment of section 82 "Relationship with other agencies"
This was flagged by the Chairperson as the most "critical and complicated" of the proposed amendments, since it touches on the consequences of the repeal of s 3(1)(d). The Department suggested the word "may" at s 82(1)(a) be replaced with "must" to remove the discretionary aspect of the section. In addition, s 82(2) should read "Subsections (1)(a) and (1)(b)" in order to make the section reciprocal.

To conclude the meeting, the Chairperson listed the four issues still outstanding for the Committee to discuss:
Clause 6 (introduction of s 18 "Intervention in merger proceedings" dealing with the right of a trade union to appeal an intermediate merger);
Clause 8 (amendment of s 21 of Act 89 of 1998)
Clause 20 (amendment of s 82: "Relationship with other agencies");
Clause 2 (amendment of s3).

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