Competition Amendment Bill: Minister’s response to amendments

Meeting report

The Chairperson welcomed everyone and acknowledged the presence of the Minister of Economic Development. The Minister would respond to the amendments effected by the Committee to the Competition Bill. 

Response by the Minister on amendments to the Competition Amendment Bill proposed in the A-List

Mr Ebrahim Patel, Minister of Economic Development, took the Committee through the Department’s responses to the Committee amendments in relation to the Competition Amendment Bill:

Clause 5 (Section 8 - Abuse of dominance prohibited)

Point 1 clarifies that the excessive price provisions apply to both end consumers and industrial customers. The Ministry is in agreement with the proposed change.

Points 2, 3, 4 and 5 reflect the deletion of the buyer power provision in 8(1)(d)(vii). As the amended provisions on buyer power have now been included in a standalone subsection 8(4), the Ministry is in agreement with the proposed changes.

Point 6 reflects the inclusion of a materiality threshold of “reasonableness” in determining excessive price. As it is likely that the authorities and courts would, in applying the provisions of the Bill, read into the determination of excessive price a “reasonableness test”, the Ministry is in agreement with the proposed change.

Point 7 replaces the use of guidelines issued by the Commission with regulations made by the Minister. The Ministry is in agreement with the proposed change.

Point 8 introduces the new subsection 8(4) dealing with buyer power, reflecting the discussion in the Portfolio Committee and the engagement with the Executive. The Ministry is in agreement with the proposed inclusion.

The Ministry has been advised that the new wording proposed by the Committee will enable regulations to be made setting out the factors and benchmarks to determine those firms owned or controlled by historically disadvantaged persons (HDPs) covered by subsection 8(4)(d)(ii). For the information of the Committee, it is the intention of the Minister to effect such regulations setting out the size of firms owned by HDPs (whether based on market share, turnover or employment) to which the section applies, to ensure that firms that are both owned and controlled by HDPs and at the same time are dominant firms, do not unfairly access the rights contained in this section. The Committee may wish to consider whether, for the avoidance of doubt, it is necessary to explicitly provide for this matter to be addressed through regulation.

Clause 6 (Section 9 - Price discrimination by dominant firm prohibited)

Points 1 and 2 clarify that the provisions for price discrimination deal with the dominant firm as seller. As buyer power has now been included in a standalone subsection 8(4), the Ministry is in agreement with the proposed changes.

Point 3 re-introduces the ‘substantiality’ threshold for price discrimination against large and dominant firms, and introduces a new test for price discrimination against SMEs and HDPs. The Ministry is in agreement with the proposed changes.

Point 4 introduces an anti-avoidance clause for dominant firms who avoid dealing with SMEs and HDPs in order to circumvent the operations of this section. The Ministry is in agreement with the proposed changes.

Point 4 also amends subsection 9(2), to enable appropriate referencing of the amendments in sections 9(3) to targeted sections. The Ministry is in agreement with the proposed changes.

Point 5 proposes a consequential renumbering of provisions. The Ministry is in agreement with the proposed changes.

Point 6 deletes the current subsection 9(3) and 9(4) in the Bill. With respect to:

• s9 (3), the provision has been reformulated in a new s9(3); and
• s9 (4) which deals with buyer power, has now been included in a standalone subsection 8(4).

The Ministry is thus in agreement with the proposed changes.

Point 6 also introduces a new section 9(3) and 9(3A) which deals with the onus on dominant firms when there is a prima facie case of either price discrimination against SMEs and HDPs or refusal to sell to SMEs and HDPs to avoid operation of the section. The Ministry is in agreement with the proposed changes. Point 6 finally provides for regulation by the Minister, setting out the factors and benchmarks to determine whether a dominant firm’s action is prohibited price discrimination against SMEs and HDPs; and to give effect to this section. The Ministry is in agreement with the proposed changes. The Ministry has been advised that the new wording proposed by the Committee will enable regulations to be made setting out the factors and benchmarks to determine those firms owned or controlled by historically disadvantaged persons covered by subsection 9(4)(b). For the information of the Committee, it is noted that it is the intention of the Minister to effect such regulations setting out the size of firms owned by HDPs (whether based on market share, turnover or employment) to which the section applies, to ensure that firms that are both owned and controlled by HDPs and at the same time are dominant firms, do not unfairly access the rights contained in this section. The Committee may wish to consider whether, for the avoidance of doubt, it is necessary to explicitly provide for this matter to be addressed through regulation.

Clause 7 (Section 10 - Exemption)

Point 1 clarifies that an exemption may be granted if the agreement or practice promotes either the effective entry, participation in or expansion in a market by SMEs and HDPs. The Ministry is in agreement with the proposed changes.

Point 2 clarifies that the Minister may make regulation regarding the exemption of a category of agreements or practices, rather than a single agreement or practice. The Ministry is in agreement with the proposed changes.

Clause 9 (Section 12A - Consideration of Mergers

Point 1 reflects an error in the Bill introduced to Parliament, in that it refers to Act 39 of 2009, instead of the correct reference to Act 39 of 2000. The Ministry is in agreement with the proposed change.

Point 2 clarifies that when considering a merger the Commission and Tribunal must also consider the impact of the merger on either the effective entry, participation in or expansion in a market by SMEs and HDPs. The Ministry is in agreement with the proposed changes.

Clause 10 (Section 15 - Revocation of merger approval and enforcement of merger conditions)

The amendment clarifies the grounds on which the Commission may make any appropriate decision in terms of merger conditions relating to employment and the ability of SMEs and HDPs to effectively enter into, participate in or expand within a market. The Ministry is in agreement with the proposed changes.

Clause 11 (Section 16 - Competition Tribunal merger proceedings)

The amendment clarifies the grounds on which the Tribunal may make any appropriate decision in terms of merger conditions relating to employment and the ability of SMEs and HDPs to effectively enter into, participate in or expand within a market. The Ministry is in agreement with the proposed changes.

New Clause 13 (Section 18 - Intervention in merger proceedings)

Point 1 clarifies that the Minister may participate in all mergers in order to make representation on public interest matters. The Ministry is in agreement with the proposed changes.

Old Clause 13 (New Section 18A - Intervention in merger proceedings involving foreign acquiring firm)

Point 1 substitutes the word “important” for “critical” in subsection 18A (4) (d). The Ministry is in agreement with the proposed changes.

Points 2 and 3 provide for notification of mergers to the Section 18A Committee at the same time as notification to the Commission. The Ministry is in agreement with the proposed change.

Point 4 reflects a grammatical error in the Bill. The Ministry is in agreement with the proposed change.

Point 5 now sets out a statutory period of 30 days in which the Minister must publish the decision in the Gazette and inform parliament. The Ministry is in agreement with the proposal.

Point 6 clarifies that the Commission and Tribunal may not consider a merger which should be notified to the Committee under this section, until the Committee has been notified. The Ministry is in agreement with the proposed changes.

Point 7 introduces a new subsection 18A(13) providing for grounds for the Committee to revoke any approval or conditional approval of a merger; including failure to notify the committee, if the approval was based of incorrect information, if the approval was obtained by deceit, or if a firm has breached any obligation attached to an approval. It further clarifies that if the Committee revokes its approval, the Commission’s and Tribunal’s approval is deemed to be revoked. The Ministry is in agreement with the proposed changes. Point 7 also introduces a new subsection 18A (14) clarifying that the Tribunal may impose a penalty for any implementation of a merger without appropriate approval or for failure to notify, consistent with provisions for other mergers in the Act. The Ministry is in agreement with the proposed changes. Point 7 further renumbers the old subsection (12) as the new subsection (15), which is consequential change. The Ministry is in agreement with the proposed change.

Clause 34 (Section 62 – Appellate jurisdiction)

Point 1 introduces a provision which clarifies that the Tribunal and Competition Appeal Court do not have jurisdiction over matters in section 18A dealing with national security, except in respect of penalties which the Tribunal may levy for failure to notify. The Ministry is in agreement with the proposed change.

New Clause 39 (Section 78 – Regulations)

Point 1 amends the section on regulation, providing that when making regulations, referred to in sections 4, 5, 8 and 9, the Minister must consult with the Commission and publish a notice in the Gazette allowing for public comment. The Ministry is in agreement with the proposed changes. As indicated earlier, the Ministry was in the process of constituting a Ministerial Advisory Panel which will provide guidance on regulations which must be published by the Minister. There is merit in the setting up of a Standing Advisory Committee, and this is also being considered. No changes would be required to the Bill to give effect to this.

New Clause 45 (Amendment of Arrangements of Sections of Act 89 of 1998)

Point 1 amends the arrangement of sections in the Act to take account of the provisions in the Bill. The Ministry does not have any specific comment on this and will leave to the State Law Advisor and Parliamentary Legal Advisor to determine the appropriate approach.

Discussion 

The Chairperson appreciated that, as public servants, the Department and the Committee appeared to be on the same level of understanding. She invited comments from Members. 

Dr M Cardo (DA) noted the changes from Guidelines to Regulations. He wanted to know about the background thinking that took place. There was a danger that it concentrated too much power to the Minister. There was need to explore the pitfalls that could possibly arise from this. He was curious to know how the Standing Advisory Committee would work. Was there any precedence for such a committee elsewhere? Had there been any further thinking on the subject of buying power?

The Chairperson noted that most of the issues raised by Dr Cardo were traversed at length during previous deliberations.

Mr S Tleane (ANC) appreciated the Minister’s responses and attitude towards the Committee’s proposals. The Committee’s views had been taken into full consideration by the Minister. 

Minister Patel, in response, said when the Bill was originally drafted, the Ministry looked at international practises for both Guidelines as well as Regulations in different jurisdictions across the world. There are some advantages to Guidelines, chief being their flexibility. Their disadvantage was mainly on questions about their legal status as they were not binding to the Commission itself nor to any other subsequent processes thereof, such as the Tribunal and the Competition Appeal Court. The advantage with Regulations was that there was precedence for them in South African law. Many Acts of Parliament have provisions for Regulations to be issued by Ministers. There is rich jurisprudence and clarity within the market on the circumstances under which the Minister could issue Regulations and how they are bounded. Notably, the Minister has no direct role in sections 4, 5, and 9. Further, the Committee made reflections and determined that it would be more appropriate to have Regulations rather than Guidelines so as to avert conflicts of interests. For purposes of both legal certainty and the avoidance of any potential conflicts of interest, the Committee then decided to adopt Regulations. On whether having Regulations could put too much power in the hands of the Minister and the executive, section 78 of the current Competition Act gave the Minister wide powers to issue Regulations and give effect to the purpose of the Act. The amendment would not provide the Minister with greater powers than are currently set-out in section 78 of the Act. All it would do was to require the Minister to issue Regulations. Section 78 has been tightened by stipulating that the Minister must consult the Competition Commission and go further to publish a Gazette and invite public comments before he/she may finalise the Regulations. This could well be argued as a constriction rather than an expansion of executive powers.

On the Standing Advisory Committee, the Executive believed acquiring the services of appropriately competent people to deal with technically complex issues was good governance. The said committee would also build institutional memory and provide expertise to whoever would be Minister at any point in time. Taken as a whole, the idea was to ensure appropriate exercise of executive power. On whether the executive did consider putting a characterisation test in the Bill, the conclusion after extensive consultation was that introducing a characterisation test was inappropriate, had numerous risks attached, and could result in litigation processes. The Executive rather opted for issuance of a degree of certainty in the market, together with a greater level of precision in the language, and most importantly the expansion of the grounds for exemption. On buying power, the law at the moment provided for prohibited or abusive dominance practises, in cases where a supplier has a substantial amount of power. These were classical monopoly provisions. However, the amendment sought to explicitly provide for buyer power. That was the rationale. The Committee had come up with a balanced approach and significantly strengthened the legislation further, and addressed concerns expressed by stakeholders during public hearings.

The Chairperson said the proposed amendments address concerns about the high barriers to entry and concentration in South African markets, which are believed to impede the ability of small and medium businesses and those owned by HDPs to compete effectively or to operate sustainably in the market. She welcomed follow-up questions from Members. She noted that some of the questions raised by Dr Cardo had been discussed during a previous Committee meeting. Dr Cardo was not in attendance that day.

Dr Cardo noted that the meeting the Chairperson referred to was called at the eleventh hour in a recess period which meant a number of Members could not attend. The Committee process was clearly rushed. The Bill was being railroaded through the Committee without proper interrogation. Only two days were set aside- during the parliamentary recess, moreover- to work clause-by-clause through a technically complex piece of legislation that could have far-reaching consequences. Unfortunately, several Members could not be present on that occasion. He asked why it should be that the Minister must intervene on mergers at all levels. Would this not undermine clear, transparent and predictable rules? Would it not allow for backroom dealings by individuals?

The Chairperson said she could not allow Dr Cardo to distort facts. The entire process map was outlined initially and it was agreed upon that the Committee might have to meet during the recess period to deliberate on the Bill. Dr Cardo was also in attendance when this was discussed, and should correct himself. He could not be allowed to use his non-attendance as an excuse for reopening closed discussions. The Committee could not rehash deliberations from previous meetings at this stage. She appealed to Members to only focus on issues raised by the Minister.

Dr Cardo said he had no intention to correct himself as he and Chairperson had a different recollection of events. He reiterated the Committee gave inadequate consideration to the Bill. The entire process was a sham. This was an egregious display of Stalinist chairing by the Chairperson. He walked out of the meeting together with Mr Atkinson (DA).  

Mr Tleane said legislative processes were crucial and the filibustering by some Members was regrettable. An impression that some Members were being throttled should not be created as it was untrue.

The Chairperson said, as per the Rules of Parliament, the Committee could no longer adopt the amendments to Bill as intended as there was no quorum. The DA’s walkout had affected the Committee’s quorum. The Committee would have to adjourn and reconvene the following day. The Minister’s responses would be considered in the next meeting as well.

The meeting was adjourned.