The Minister of Economic Development briefed the Committee on the Competition Amendment Bill. The Bill sought to clarify certain key aspects of the Competition Act of 1998 such as market enquiry, abuse of dominance, national security and public interest issues.
There were two aspects to the meeting - the Minister addressed questions asked by Members in the 17 July briefing on and then provided a high level overview of the main aspects of the Bill.
In addressing the questions posed by Members in the earlier meeting the Minister said that Section 18A was included to address gaps in the Act about foreign investment insofar as it impacted on national security. The amendments would advance the national interest of the country (such as being pro-employment and protection of national heritage) but the Bill had to be strengthened to ensure provisions also protect the national security of the country and our people.
On Members' concerns about market enquiries, he said market enquiries sought to address and dismantle market concentration and the abuse of market dominance by some businesses that prevented others from entering the market. On the question about penalties for criminal activities related to competition issues, he noted that provisions would impact individuals as well as companies. They would provide for two remedies - companies would be fined, but there would also action against individuals in the companies who were responsible for the anti-competitive breaches. On BEE compliance, the Bill would provide tools to address concerns about BEE compliance and other information requirements about foreign investors
The main discussion on the Bill focused on the following issues:
Concern was raised about the potential for political manipulation. Minister Patel indicated that there were sufficient checks and balances in the Bill to allay these fears. He said that the amendments in the Bill were in the best interest of country and its people. For example, the construct of Section 18A ensured that political manipulation was addressed with the withdrawal of the yellow card system (that enabled first time offenders to escape fines). This was changed to bring competition law in line with other laws such as income tax where offenders were penalised whenever transgressions were committed.
Summarising the main aspects of the Bill, Minister Patel said that the amendments were aimed at opening up the economy to more players. New provisions would provide greater clarity between the intent of the Bill as outlined in the Preamble and the actual operational aspects in the Bill. The section on Market Enquiry sought to provide clarity on the structure of markets and the new provisions would give the Competition Commissioner powers to enquire and make decisions based on the enquiry. Some of the institutional changes were to improve the efficiency of the Competition Tribunal and to align provisions in the Competition Act with the Constitution.
Minister Patel said that the NEDLAC engagement process on the amendments was significant and that it greatly influenced the input into the Amendment Bill. Both organised labour and business indicated that they would promote the Bill.
The Committee would hold public hearings on 28 and 29 August 2018.
The Chairperson welcomed Minister Ebrahim Patel and his team. The Committee had received 30 written public submissions from the public. Three of the submissions would be presented orally to the Committee during the following week.
Minister's Reply to Questions from previous engagement
Minister Ebrahim Patel said that the bulk of his briefing would address the concerns and queries raised by some to the Committee Members at the meeting of 17 July. In addition, he would give a short high level summary on the main aspects of the Bill to familiarise Members on the Bill.
He responded to Mr Pikinini's question about how Section 18A of the Bill on national security would advance national interest for the people of South Africa.
Minister Patel responded that Section 18A was included to address a gap in the Act on foreign investment. Usually, there were two issues that had to be considered when assessing the Bill’s impact on the market - the one was market competition, i.e. how vigorously competitors were able to compete in the market place and whether mergers would reduce this. The second was national interest - in this case the issue was much broader than just normal competitive aspects. The impact on jobs, smaller companies, BEE and the country’s ability to compete internationally would have to be assessed as well.
National security was a different concept and currently there was nothing in the Competition Act to protect the country and its citizens. Other countries - notably the USA, Canada and Australia - had laws that protect national security and these were much more intrusive that what was proposed for SA in the Amendment Bill. The USA had a committee in place that reviewed foreign investment and the investment had to meet certain criteria in the interest of national security before it could be approved. Australia and Canada had similar provisions in the law - such as in Canada there was a strong emphasis on protecting its national heritage and in Australia there was a strong focus on foreign land ownership.
The Amendment Bill would advance national interest (such as pro-employment and protection of national heritage) but the Bill had to be strengthened to ensure there were additional provisions that protected the national security of the country and our people. These had been included in the Bill under Section 18A and provided that President had to consider certain factors as national security items in terms of the Bill. These were outlined in section 18A(4). These had to be gazetted and would inform authorities about which factors to consider in terms of national security when assessing mergers and other competition law issues.
Minister Patel addressed the questions raised by Ms Mfulo on foreign ownership of spaza shops and whether the provisions had “teeth” to ensure compliance. He explained that the Bill was not meant to look at “small” issues such as spaza shops as it applied only to large mergers and competition issues. The Bill generally targeted transactions of around R600m and/or where companies were bought for more than R100m. Although only large mergers and transactions were covered, it did not mean smaller issues should be overlooked. There were enough provisions in the Bill to provide the necessary oversight and checks to ensure compliance.
Minister Patel responded to Mr Atkinson's question about how the Amendment Bill would impact on foreign investment in the economy. He said it was all about how the Bill enabled or facilitated investment in the local economy and the jobs and economic growth that accompanied it. The amendments in the Bill addressed the structural challenges inherent in the economy that constrained competition. He cited these examples:
- The SA economy was very concentrated which meant that it was very difficult for new entrants to make inroads into the markets under the control of incumbents. New players have indicated to the Department that it would take many years before new businesses would become profitable due to this. Section 43 in the Bill on Market Enquiry sought to address this and dismantle market concentration.
Abuse of dominance in the market by incumbents (that prevented new market entrants) would also be addressed.
- The section on national security would provide a 60 day period for the President to gazette the factors that had to be taken into consideration for foreign investment insofar as its impacts on national security.
Minister Patel replied to Ms Mfulo's question about penalties for criminal activities related to competition issues. He noted that provisions would impact individuals as well as companies. They would provide for two remedies - companies would be fined, but there would also action against individuals in the companies who were responsible for the anti-competitive breaches.
On the question about provisions in the Bill to allow for new entrants in the mining sector, Minister Patel said the Bill was a general business or sector bill - that is, it applied to all sectors of business. The Bill addressed market competition in all business sectors.
Minister Patel confirmed that the Bill would provide tools to address concerns about BEE compliance and other information requirements about foreign investors.
On Ms Mfulo's question about whether the new amendments could prohibit mergers or stipulate conditions for mergers in terms of national security, he said this was possible and would be based on the conditions gazetted by the President.
Lastly Minister Patel replied to Mr Tleane's question about clarity of language in the Bill, saying that the language in the Bill had to be clear to reflect the intricacies of economics and law at play in competition law - additional definitions had therefore been added to the Bill to improve clarity.
High-level summary by Minister Patel on Competition Amendment Bill
Minister Patel said the amendments aimed to open up the economy to more players. New provisions would provide greater clarity between the intent of the Bill in the Preamble and the actual operational aspects in the Bill in sections 4, 5, 8 and 9 and that public interest issues would be strengthened.
There were four key issues the Bill sought to address: the reaction to prohibited practices, greater clarity on mergers, market enquiries to curtail and prevent economic abuse and lastly some institutional changes to refine the powers of institutions.
The Bill also strengthened provisions for price discrimination and included guidelines to the market on exemptions and penalties.
For mergers, there were three aspects the Amendment Bill strengthened - how the Competition Tribunal had to deal with mergers, the appeals process and the new factors mentioned earlier in section 18A on national security.
Market Enquiry sought to provide clarity on the structure of markets and the new provisions would give the Competition Commissioner powers to enquire and make decisions based on the enquiry.
Some of the institutional changes were to improve the efficiency of the Competition Tribunal and to align provisions in the Competition Act with the Constitution.
Dr M Cardo (DA) said he had two concerns about Section 18A - he asked what the Advisory Panel’s view was on including national security in the Bill and secondly what was the rationale for giving the President the power to influence the vetting system on foreign investments in Section 18A. He was concerned that there may be a potential for political manipulation and he asked why the amendments did include independent organisations like those used in the USA, Canada and Australia. He felt that the Bill afforded too much power to the Minister and the rest of the Executive.
Other concerns raised by Dr Cardo were:
- why the yellow card was removed for penalties on competition law infringements during Market Enquiries.
- the discrimination against dominant firms in Section 9
- the definition of “excessive price” was problematic.
Minister Patel responded, giving some background on Section 18A. The Advisory Panel did not include 18A in its original work on the Bill. Initially there was a view to introduce an Executive Veto to ensure public interest issues (such as employment, BEE) were not impacted. The other view was to let the current system and processes (Competition Commission, Tribunal etc) handle the matter. He made a judgment call to go for the latter, that it, let the competition authorities handle and manage this.
On the foreign investment vetting system for national security, Minister Patel said that the USA Committee was established by their Department of Trade and Industry and included other government departments like Homeland Security and various trade representatives, so the Committee was controlled by government, and was not independent. The SA model would follow similar lines in that the Committee would consist of Cabinet Members and other senior state officials. Governments did not delegate national security to outside agents.
He said the concern about political manipulation was addressed in the Bill and that Government had to develop laws that were in the best interest of country and its people. The construct of Section 18A was such, that it ensured political manipulation was addressed. For example:
- the President appointed the Committee but could not influence or partake in the Committee
- the law would provide clear guidance to the President on the path to follow regarding Section 18A, e.g. which sectors, products were impacted and what the criteria would be.
- there would be clear timeframes for the process.
- a balanced approach was necessary to balance National Security, the Constitution and public issues - i.e report had to be published.
Minister Patel said that Parliament had a crucial role to play in its oversight on this and that once the Commission had made a decision in terms of Section 18A it would be published and tabled in Parliament for review and comment.
He said the Minister of Economic Development had no power to control cross border transactions. This was a Cabinet matter and that ultimately it was a Presidential decision after input by Cabinet.
On the concern raised on Market Enquiries, he replied that the decisions on market concentrations would be evidence led and not dictated to by the Executive. The latter could request a market enquiry but could not dictate the process. He added that exemptions could be designated but only subject to criteria as outlined under law - as an example he mentioned the designation granted to the petroleum industry Members during the Soccer World Cup in 2010 which allowed them to collaborate amongst one another to ensure security of fuel supplies around the country.
He said the Minister of Economic Development had the right to appeal decisions made in the Competition Tribunal but only if the Minister participated in the Tribunal. The appeal had to be limited to public interest issues.
Minister Patel said that it was decided to withdraw the yellow card system e.g. no penalties for first offence. This would align competition law with other legislation, e.g. income tax offenders where penalties were due when offences were committed. The penalties would be in line with guidelines in the Bill.
Minister Patel said that the engagement process at NEDLAC on the amendments was significant and greatly influenced the input into the Bill.
Mr Tleane thanked the Minister for the time he had taken to clarify and explain issues on the Bill to Members. He said he was appreciative of the manner in which the Bill allowed other stakeholders like Parliament to influence the Bill and not just the Executive. He said this was a good approach and he supported this as it meant that other voices could be heard not just those directly involved the matter.
Ms Mfulo wanted clarity on block exemptions and wanted to know how this would work.
Minister Patel thanked Mr Tleane for his support. Block exemptions would be subject to clear guidelines and regulations. There would be a specific period for the designations that would allow exemptions (depending on the nature of the request)
Final comments by Minister
Minister Ebrahim Patel provided a brief summary of the NEDLAC process. since the Bill was published in December 2017, there had been significant input by the public - this included the engagements at NEDLAC where organised business and labour had engaged the Department on the amendments. This had been very successful and the two parties had signed off on the Bill, indicating that the engagements had been meaningful and substantial and that it allowed an appropriate and effective balance between the views of the two parties. Both indicated that they would promote the Bill.
The Chairperson thanked Minister Patel and his team for engaging the Committee on the Bill and said that she would invite them back as the Committee conduced its business on the Bill. The Committee planned to hear oral submissions on the Bill on 28 and 29 August 2018.
The meeting was adjourned.
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