Competition Amendment Bill [B23B-2018]: public hearings

NCOP Economic and Business Development

13 November 2018
Chairperson: Mr M Rayi (ANC, Eastern Cape)
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Meeting Summary

COSATU supported the Bill and asked that the Committee and the National Council of Provinces speedily process the Bill. COSATU believed that the instances of collusion by mainly white owned apartheid style companies had flourished due to previous economic practices. The Bill sought to end the rampant corruption by the old boys club and bring the competition rules in line with many other developed countries. COSATU was pleased that the Bill made provision for public interest issues such as employment to be taken into consideration. Economic concentration was a huge impediment in SA as black players were kept out of the market. Large sections of the economy needed to be de-concentrated to bring about transformation. Concentration kept out international investment as well. The market was dominated by a few. COSATU was pleased with the national security veto provision in the Bill as the government had a responsibility to protect SA. Currently there was nothing in law which covered this. Concern was raised that there were Members of Parliament had ownership in companies that dominated the economy. This meant that some MPs spoke on behalf of business.

Members asked how  wrong it was for MPs to have shares in big companies if they disclosed it to Parliament. What was COSATU’s concern about this? What was COSATU’s level of engagement in the Bill's passage through NEDLAC and was it given a fair opportunity to engage? COSATU was asked about some of the abuses of dominance in relation to workers it had seen. Did COSATU support the black economic empowerment portion of the Bill? COSATU was asked what its original proposal had been for the Executive right to intervene in the national interest. On market inquiries, did the Competition Commission had binding powers and why not only powers to recommend? Members asked how it felt about the Bill replacing guidelines with regulations; if COSATU had anything new to propose on the Bill. Members urged COSATU to look at the defence sector Broad-Based Black Economic Empowerment (B-BBEE) Codes just gazetted.

The Law Society of South Africa was a national, broad based, voluntary association of attorneys. LSSA supported the objects of the Bill and was supportive of the work of the Competition Commission and Tribunal which it felt needed to be strengthened. LSSA raised five concerns: administrative penalties, section 18A on national security, buyer power abuse, price discrimination, and regulations vs. guidelines. LSSA gave its views on each and suggested alternatives and amendments for  each.

Members noted that LSSA proposed that part of penalties paid by offenders should go into a development fund to benefit those who had been aggrieved. They asked why National Treasury had not allowed this to happen in the Pioneer Foods matter when it was the intention initially. Members said that the LSSA concern about “unfairness” to do with buyer power was vague. LSSA was asked what it meant by “impeding the market to participate”. Members asked if the courts would come up with legal precedents to deal with LSSA concerns. The DA agreed with LSSA that section 18A should be deleted as well as “unfairness” due to its vagueness and that guidelines were a far better option than regulations. The reasoning was that a regulation was not a guideline and so the one could not replace the other in the Bill. LSSA was asked who should be responsible for the appropriation of penalties, if not National Treasury. Members asked why SMMEs should pay higher prices for a product than the big players. Members asked if LSSA agreed that SA had a monopolistic economy run by oligopolists and how skewed patterns of production and distribution could be dealt with. LSSA was asked if it was representing big business on the Bill.

Meeting report

Confederation of South African Trade Unions (COSATU) submission
Mr Tony Ehrenreich, COSATU Western Cape Secretary, said that COSATU supported the Bill and that it should be speedily processed. COSATU believed that the instances of collusion by mainly white owned apartheid style companies had flourished due to previous economic practices. Apartheid was considered the first state capture. The Bill sought to end the rampant corruption by the old boys club and bring the competition rules in line with many other developed countries. COSATU was pleased that the Bill made provision for public interest issues such as employment to be taken into consideration. Case law including the Walmart merger were now solidified into law. Economic concentration was a huge impediment in SA as black players were kept out of the market. There were high prices, high barriers to entry, lack of innovation and inequality. He was pleased that trade unions would have some say in market inquiries. Large sections of the economy needed to be de-concentrated  to bring about transformation. Concentration kept out international investment as well. The market was dominated by a few. The Committee was reminded that economic development was not driven by a sense of morality. There had been collusion on bread, poultry as well as on the construction of stadiums for the 2010 FIFA Wold Cup.

COSATU was pleased with the national security veto provision in the Bill as government had a responsibility to protect SA. Currently there was nothing in law which covered this. He noted that the attitude of business towards the Bill would become apparent to Members as the process unfolded. He was concerned that there were Members of Parliament that had ownership in companies that dominated the economy. Consequently some MPs spoke on behalf of business. He reiterated that the Committee and the National Council of Provinces (NCOP) should process the Bill speedily.

Discussion
Mr L Magwebu (DA, Eastern Cape), on COSATU’s assertion that there were MPs that had shares in big companies, asked how true the assertion was. Was it wrong for MPs to have shares in big companies even if they disclosed it to Parliament? What was COSATU’s concern about this?

Mr Ehrenreich replied that the issue was about vested interests that Members had. People needed to recuse themselves from public office if they had vested interests. The concern was that such individuals could influence a softer approach. The Speaker of the National Assembly had a R25m share in Gold Fields. The point being made was that one had to be careful. The reality was that there were vested interests. If somebody wished to be in business, then they should do so. If you wished to serve the people, then you should do it. It was difficult to do both as people’s value systems have been influenced. With all the corruption going on in SA one needed to draw a separation. He wished to make it clear that he was not casting aspersions on anyone in Parliament. The fact of the matter was that different parties represented different interests.

The Chairperson  asked what COSATU’s level of engagement was on the Bill's process. Was COSATU given a fair opportunity to engage? He asked what some of the abuses of dominance that COSATU had seen in relation to workers were. Could the Minister of Economic Development appeal to the Competition Tribunal? COSATU was asked if it supported the Black Economic Empowerment portion of the Bill. What was the reasoning behind the Executive having the right to intervene in national interest? What had COSATU’s original proposal been? On market inquiries, he asked if the Competition Commission had binding powers and why could it not have powers only to recommend? The original Bill provided for guidelines. The Portfolio Committee had amended this and replaced guidelines with regulations. What was COSATU’s view on this?

Mr Ehrenreich responded that COSATU supported the regulations as it was more of a directive. He felt that guidelines could be more ambiguous. COSATU was satisfied that it had had detailed engagement. The engagement on the Bill had set the tone for COSATU’s future engagement on bills. There had been between six or seven engagements with the Economic Development Department (EDD) including with the Minister of Economic Development Mr Ebrahim Patel. It had been the most comprehensive engagement that COSATU had undertaken. He had been disappointed with the attitude of business at the end of the engagement. Business was not willing to come to the party at the end. Business wished to keep practices in place that had always been to their benefit. He was glad that there was an option to appeal to the Minister on mergers as well as the provisions relating to workers. Transformation had to take place. There also had to be broader worker ownership. Market inquiry provisions were a step in the right direction and it supported this. COSATU also supported the national security provision. He noted that greater detail would be provided to the Committee on COSATU’s stance for various provisions on the Bill.

Mr E Makue (ANC, Gauteng) noted that COSATU was very clear on what it was saying on the provisions of the Bill and no further amendments were being proposed. He pointed out that on 12 November 2018 Minister of Trade and Industry Mr Rob Davies had gazetted the defence sector Broad Based Black Economic Empowerment (B-BBEE) Codes which was looking at security companies in SA. He urged COSATU to look at the Codes and engage on it.

Mr Ehrenreich stated that COSATU welcomed the Codes.

The Chairperson said that any further inputs by COSATU should be submitted in writing to the Committee. The EDD would respond to all submissions made on the Bill. Afterwards the Committee would deliberate on submissions and responses.

Law Society of South Africa (LSSA) submission
Mr Paul Coetser, LSSA Competition Law Committee Chairperson, stated that LSSA was a national, broad based, voluntary association of attorneys. LSSA supported the objects of the Bill and was supportive of the work of the Competition Commission and Tribunal which it felt needed to be strengthened. The submission focused on five issues:

Administrative penalties
The amount of the penalties paid by contraveners had been increased from 10% to 25%. Over the last ten years competition authorities were able to raise R6.632bn but there were no direct benefit to those who had suffered. The penalties were paid into the National Revenue Fund (NRF). LSSA felt that Bill could address the matter better by making a portion of fines payable towards a development/competitiveness fund. It proposed that competition authorities be given powers to include the establishment of such funds as part of a package of remedies for contraventions.

Section 18A (national security)
On the blocking of mergers based on national security grounds, LSSA said that legislation of this far reaching nature if not properly considered could have adverse consequences for foreign direct investment. Nobody expected national security matters to be inserted in a competition bill. LSSA did appreciate the importance of SA having laws to protect itself against threats to its sovereignty. LSSA suggested that the proposed section 18A of the Competition Act be removed from the Bill and be considered for self standing legislation after an in depth study. The Competition Amendment Bill did not define “national security interests”. The definition was very wide and allowed government to intervene on almost anything. If section 18A was not to be removed, LSSA alternatively proposed an amendment to section 18A(4). 

Buyer power abuse
LSSA recognised the need to address buyer power (or monopsomy) in the context of the South African economy but the proposed amendments raised serious concerns. The first was that the concept of “unfairness” was vague. What was regarded as unfair? It was very subjective. There were no other pieces of legislation that spoke to what was fair or unfair. LSSA therefore proposed that the “unfairness” standard be replaced with a more precise standard of "impeding the ability of such suppliers in the applicable market to participate”. Other concerns included the shifting of the evidentiary burden to the dominant firm and the greater chance of litigation due to a lack of clarity in the provisions. LSSA proposed that the clause on the shifting of the evidentiary burden be removed from the Bill.

Price discrimination
LSSA recognised the need to address price discrimination against Small, Medium and Micro Enterprises (SMMEs) in the South African economy. However the proposed amendments to sections 9(3) and 9(3A) raised concern. The removal of the cost differentiation defence in section 9(3)(a) would have unintended consequences. Once again there were implications of the shifting of the evidentiary burden. Due to the unbalanced provisions, the likelihood of greater litigation was likely. LSSA proposed removing section 9(3) and 9(3A) from the Bill.

Regulations vs. Guidelines
Several sections empower the Executive to pass regulations on the application of the substantive provisions in the Competition Act. The original Bill provided for guidelines to be adhered to. The Portfolio Committee on Economic Development had amended the Bill to remove the guidelines and provide for regulations. LSSA felt that regulations were inappropriate as they were for administrative and procedural matters. Regulations could not make new law. New law should be in the form of a bill. The proper choice was in the form of non-binding guidelines.

Discussion
Mr Magwebu stated that the Bill addressed the challenge of the economic exclusion of blacks. LSSA appeared to support the Competition Tribunal and Commission. On administrative penalties LSSA proposed that part of penalties paid by offenders should go into a development fund to benefit those who had been aggrieved. However in the Pioneer Foods matter National Treasury had not accepted the suggestion that half of the penalty should be used for the development of the sector. He asked the reason for Treasury’s refusal. LSSA suggested that section18A be removed and be dealt with in self standing legislation. Alternatively it had suggested amendments. Which of the two options was its first choice? On buyer power LSSA had stated that it was difficult to define what “unfairness” was. LSSA had made its own proposal which he felt was also vague. He asked what was meant by “impeding the market to participate”. LSSA was asked if the courts would come up with legal precedents to address all these issues. If the Bill went through would the courts deal with this? On price discrimination, one of the considerations was the shifting of the evidentiary burden in section 9(3)(b) and 9(3A) and he asked LSSA what would be the best solution.

Mr Coetser replied on the Pioneer Foods penalty that Treasury wished for the funds to go into the National Revenue Fund. There was nothing wrong with where the funds had ended up. Treasury could decide where it was best to place the funds. All that LSSA was saying was that a portion of the penalty could have gone for the direct benefit of the people who had been wronged. LSSA was not saying that the funds should be taken away from the state. On section 18A, the first prize would be for the matter to be located in separate legislation. There was however a need to draft a White Paper first. The UK and the USA were reviewing their own legislation on this. It was a complex area and the Bill was not where the matter belonged. The point he was trying to make was that Foreign Direct Investment (FDI) should not be scared away. Broader consultation was needed. If the provisions were not to be taken out of the Bill, there should be a reconsideration of the far reaching consequences that the Bill could have.

On the vagueness of LSSA’s alternative on “unfairness, he explained that the word “participate” was defined in the Bill. He agreed that it was not the best solution but it was better than “unfairness”. The test was whether SMMEs would be able to sustain themselves if they paid the prices. Section 9(4)(b) already had “participate” being used in it so why could it not be used in the buyer power provision. He added that for the past 19 years the term “excessive pricing” could not be properly understood and hence in section 8 of the Bill it was defined further. Why could “unfairness” not be replaced by “participate” that was already used in section 9?

Mr W Faber (DA, Northern Cape) agreed with Mr Coetser. He had asked Minister Patel, given the dire economic situation in SA, why things were being made difficult for foreign investors to invest in SA. Why could section 18A not be scrapped? He asked if the “unfairness” provision should not be scrapped given that it was vague. He agreed with LSSA about guidelines. If guidelines were to be given then the issue was around the use of “may” or “must”. He felt that “may” was a better option. LSSA was asked for its view. A regulation was definitely not a guideline so the one could not replace the other.

Mr Makue said that if LSSA had consulted with advocates, why had it not consulted with the social sector i.e. civil sector. On the penalties going to the National Revenue Fund (NRF), he asked who should be responsible for appropriations of penalties. Should it not rest with Treasury? Treasury was after all constitutionally responsible for the appropriation of revenue. On buyer power and unfair prices, he asked why should SMMEs pay more for a product than the Makros of the world. SMMEs were after all a major contributor to inclusive economic growth. Would it be unfair given the SMME role? LSSA was of the view that 'national security' was too widely defined. He noted that in international competitiveness SA was in a different space of the developing world. Africa and its agricultural sector needed to be taken seriously by the At the World Trade Organisation (WTO). However such appeals were ignored. Even at WTO forum meetings civil society participated. It was difficult to make inroads. Yes, everybody supported a free market but the unfortunate reality was that there was dominance. Monopolies could not be allowed to go on, SMMEs had to come in. Had LSSA considered the dynamics of WTO workings and, if it had, to what extent had it informed the LSSA proposals? LSSA had said that government stakeholders such as Tourism and International Relations portfolios had not been consulted. He noted that the Executive was fully briefed. The Economic Cluster had also looked at the matter. There was close collaboration between Minister Patel and Minister of Trade and Industry. Did LSSA feel that more rigorous consultation between them was needed? LSSA was asked if anything different had been included in its submission to the National Assembly.

Mr Coetser replied on the consultation within government on the Bill that the point was taken. On consultation, LSSA had worked with advocates and expert economists. It was correct that LSSA could have engaged with civil society organisations. Members of LSSA did represent civil society. On the WTO and international competitiveness of SA, he said that LSSA was not saying that section 18A should be scrapped. The importance of national security was understood. Should national security not be part of separate legislation? National security did not sit well in this Bill. The Competition Tribunal had to determine penalties.  LSSA had not looked into the workings of the WTO.

Mr B Nthebe (ANC, North West) stated that the Bill was attempting to deal with concentration in the economy as well as skewed patterns of production and distribution. Much was said on section 18A and the assertion was that it was difficult to determine levels of fairness. LSSA was asked if it agreed that SA had a monopolistic economy which was run by oligopolists. How could the skewed patterns of production and distribution be dealt with? On price discrimination, how could it be acceptable for instance at a major hardware store that a contractor got better prices than the normal customer. The contractor was the one who could afford to pay more yet he got a discount. He would have liked LSSA to have suggested how a portion of penalties could have found its way to the victims/consumer.

On whether LSSA believed the market to be monopolistic, Mr Coetser pointed out that the Competition Commission had done a great deal of research. LSSA had not looked at research and assumed that the market was monopolistic. LSSA supported the objectives of the Bill. Dominance in the market needed to be addressed. He noted that the Competition  Act was about a free market and that it should not be anti-competitive. 

The Chairperson noted LSSA supported the objects of the Bill and worked with the Competition Commission but at times they did cross swords. What was the crossing of swords about? Could it be that LSSA was representing big business on the Bill? Clause 39 of the Bill provided that the Minister may make regulations. Most of sections 4, 5, 8 and 9 and what LSSA had spoken on would be covered in regulations. He said that LSSA was free to comment on the regulations when they were drafted.

Mr Coetser explained that LSSA was a body representing attorneys. LSSA did not wave the flag for a particular constituency. All that was wanted was for the Bill to work and to ensure the welfare of consumers and citizens. LSSA was in agreement with the objectives of the Bill. The need to transform the economy was high on the agenda. This was not an attack on the Bill. It suggested that items could be removed and provision be relooked at in order for things to work better. In the long run it would prevent litigation in future.

The meeting was adjourned.

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