Competition Commission

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Trade and Industry

27 March 2007
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Meeting Summary

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Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
28 March 2007
COMPETITION COMMISSION

Chairperson:
Mr B Martins (ANC)

Documents handed out:
Competition Commission presentation

 

Audio Recording of the Meeting

SUMMARY
The Committee was presented with an overview of the activities of the Competition Commission such as the prosecution of anti-competitive behaviour, merger control and advocacy. The latter part of the presentation entailed a synopsis of cases being investigated or recently completed which included the bread, milk, pharmaceuticals, motor vehicles and banking industries. The Mittal Steel investigation was also mentioned as it had recently appeared in the media. 

MINUTES
Mr Shan Ramburuth (Commissioner), Mr Thulani Kunene (Acting Deputy Commissioner) and Mr Tembinkosi Bonakele (Head of Compliance) presented an overview of the Competition Commission. The aim of the Commission was to ensure fairness and access to the economy whilst at the same time ensuring lower prices, improved quality, innovation and a greater choice to the end consumer. The core activities of prosecution of anti-competitive behaviour, merger control and advocacy were explained in detail. Prosecution of anti-competitive behaviour and merger control were two totally distinct activities. The former being backward looking and undertaken after the fact whereas the latter was forward looking and undertaken prior to the completion of the merger.

The Commission was guided by the Competitions Act which prescribed restrictive practices and 'per se' prohibitions. Price fixing, division of markets, collusive tendering, minimum resale price maintenance were amongst the 'per se' prohibitions prescribed by the Act.

Mr Ramburuth explained the concept of a dominant firm within a given industry and the various ways in which it would abuse its dominance within that industry. Excessive pricing, tying and refusal to give access to an essential facility were amongst the abuses outlined. It was noted that even though the Act prescribed restrictive practices and prohibitions, in certain exceptional cases, exemptions did apply.

The latter part of the presentation entailed a synopsis of cases being investigated or of those that have been completed. Bread, milk, pharmaceuticals, motor vehicles and banking were industries that were discussed. Mention was also made of the Mittal Steel investigation that had attracted a great deal of media attention.

In conclusion, the Committee was also given an account of the Commission’s work on compliance, education, advocacy, communication and stakeholder interaction.

Discussion
Dr P Rabie (DA) referred to the recent Mittal Steel debacle which had in fact been investigated by the Commission and asked what the Department of Trade and Industry was doing to prevent such anti-competitive behaviour from recurring. He noted that Mittal Steel had sold its product 65% cheaper overseas than it did in South Africa. 
      
Mr Ramburuth stated that the Commission was bound by what the Act allowed it to do. It was the law and the evidence that went along with it, that made a case. If there was no evidence, there was no case. Being aware of anti-competitive behaviour was one thing, the collection of data and the building of a case was another.
 
Ms F Mahomed (ANC) suggested that the investigation into steel should go beyond Mittal. Conglomerates should be the focus of investigations. She made the point that smaller companies in the petroleum industry had complained that larger companies such as Engen and Sasol had refused to provide them with storage facilities. Ms Mahomed stated that Engen and Sasol did not feel obliged to provide storage facilities to these smaller companies. She asked if the Commission had made mistakes in the past by allowing certain mergers to have taken place. She expressed concern over the growing number of credit bureaus and asked what advocacy work the Commission was engaged in.

Mr Ramburuth agreed to look into the complaint. He said that he was not aware of any mistakes that had been made by the Commission as far as mergers were concerned. He did concede that a merger once went ahead by default because the Commission had not met its timeframes. He pointed out that credit did not fall within the domain of the Commission. 
 
Ms M Ntuli (ANC) asked how far the Commission could stretch its capacity to check on anti-competitive practices by dominant firms. Was not the forming of associations by certain professional groups not a cartel in disguise? She also asked whether the Commission was in fact checking on exclusionary practices taking place in far out rural areas. Also, how could an increase in competitiveness in an industry lead to more jobs?

Mr Ramburuth replied that the Commission had a modest budget of R90 million per annum and had therefore to prioritise and be strategic. He stated that more resources were needed. Many professional associations had a tendency to act as a cartel in practice. He did emphasise that many professional associations had valid reasons for their formation such as setting standards within an industry. Greater competition led to more firms which in turn led to greater employment and growth.

Mr L Laubschagne (DA) asked if the Commission checked on imports of textiles from China. Had the Commission initiated some of its investigations or did a complaint need to be lodged? He asked what the Commission felt its staff complement should be in order for it to be effective. He requested the time frames for investigative processes and specifically when the court process kicked in. He also asked who covered the legal costs.

Mr Ramburuth replied that subsidies on textile imports would be factored into its investigations. It was not regarded as a policy issue by the Commission but rather one of trade. The Commission was by and large complaint driven but it could initiate a case if so needed. The Commission’s work was of a very technical nature and that there was a scarcity of skills. It was difficult to compete with the salaries offered by the private sector. He explained that the Commission’s process entailed three stages. First, there was the commission; the second stage was the tribunal and thirdly, the internal appeal court. However the matter could go further by appealing to the judicial appeal court or the Constitutional Court.

Ms D Ramodibe (ANC) asked what the criteria were for the Commission’s leniency policy on cartels. She asked who participated in the public hearings on the banking enquiry. She pointed out that many consumers were not aware that hire purchase agreements were actually loans.

Mr Kunene explained that the leniency applicant must be a member of the cartel. The information supplied must be what the Commission needed. Preference was also given to the applicant who approached the Commission first. The applicant must also not be the instigator of the cartel. The banks, its regulators, the trade unions and consumers had participated in the public hearings.

Mr J Maake (ANC) referred to the Competitions Act’s threshold of R5 million in order to be considered a dominant firm. What about those companies below the threshold in rural areas that were abusing their dominance? He asked was it not obvious that the four major banks in SA were operating as a cartel? He also asked if the requirement of compulsory insurance on purchasing a new vehicle, could be considered tying.
 
Mr Ramburuth replied that the R5 million threshold was a de minimis threshold set by the Competition Act. The Commission was aware of smaller firms abusing its dominance in rural areas. The idea was to be strategic and catch the big guys. The Commission can only make a case based on law and hard evidence. Conceivably, it might be obvious that that is a cartel but without the evidence to prove it and meet the legal standard, the Commission would get nowhere. They were dealing with very evidence-intensive legal processes. There could be no chancing in what the Commission did. The firms they were taking on were well-resourced enough to hire an army of lawyers to take the public regulator on. The Commission’s entire budget was just under R90 million per annum. Compare this to the Sasol-Engen merger which cost those companies R150 million just for the one case. The Committee had to recognize the Commission’s constraint of limited resources. For the Commission, their best bet was to be strategic and do the cases with the greatest impact.


He explained that when a new vehicle is purchased it was often financed by a bank. It thus meant that the bank was the owner of the vehicle until the last payment was made. The bank therefore had a good case to insist that insurance be taken out when a new vehicle was purchased.
 
Mr S Maja (ANC) asked how the Commission could assist informal street vendors who often buy from monopolistic suppliers.

Mr Bonakele replied that the Commission did not exclude small businesses from its efforts. He said that space was made for SMMEs.

Mr Ramburuth explained that even though informal traders may not be complainants, a watch was kept on the large firms supplying them. He did concede that the Commission had not as yet had direct interaction with informal traders.

Mr Maake asked if the Competitions Act applied to dominant firms below the R5 million threshold.

Mr Kunene explained that the abuse of dominance provisions in the Competitions Act could only be applied to those firms above the R5 million threshold. The rest of the provisions of the Act could however still apply to those smaller firms below the R5 million threshold.

Ms Ramodibe asked to where did the funds go when penalties were paid. She also asked whether the Commission was gender representative.

Mr Ramburuth replied that penalties were paid directly into the fiscus. The Commission was in fact gender representative. The fact that the present delegation comprised of men was a coincidence as they had had the necessary expertise needed to conduct the presentation.

Ms Ntuli referred to the exorbitant prices being charged for property and land. She felt that there was exclusionary conduct by estate agents to the detriment of the masses.

Mr Ramburuth pointed out that the Commission had observed an increase in merger activity in the real estate industry and was keeping a watchful eye on it. He noted that ultimately the problem was a land issue.

The Chair stated that many of the issues that had been raised would be ongoing. The Committee agreed to keep in contact with the Commission to monitor progress on existing issues as well as to discuss new ones as they arise.

The meeting was adjourned.

 

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