Competition Amendment Bill: Public Hearings

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Trade and Industry

28 July 2008
Chairperson: Mr B Martins (ANC)
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Meeting Summary

The Committee held public hearings on the Competition Amendment Bill. All those making submissions supported the concept of strong competition, but recurrent concerns were the proposed Section 10A on complex monopolies, which several parties recommended be deleted, concurrent jurisdiction aspects, the need to define more clearly in what circumstances and how market inquiries should be conducted, and the proposed criminal sanctions.

Apfellstaedt and Associates, medical practitioners, called for an additional amendment to address complex monopolies in the healthcare services, medical practices and specialties, noting that there were anti-competitive practices in force at the moment, particularly in the field of radiology.

Webber Wentzel, on behalf of MasterCard, took issue with the provisions around complex monopolies and the proposed Section 10A, pointing out that the Bill as drafted would attack legitimate four-party payment schemes similar to those operated by MasterCard and Visa. It suggested that the concept of the complex monopoly was unworkable, inconsistent with he findings of the Jali Inquiry, would discourage investment in the financial sector, and threaten the existence of four party payment schemes. It would tend to distort competition and amounted to legislative overreach and adoption of a concept that had been rejected internationally.

The Banking Association agreed with submissions made by Webber Wentzel. It welcomed attempts to strengthen competition, but took issue with the way in which the Bill sought to do so. There had been insufficient consultation. The Competition Commission’s work was already effective and the necessity for the amendments was questioned. It suggested that the proposed Section 10A be deleted as it was unnecessary and that market inquiries were more appropriate. However, it suggested that a clearer basis be established for initiation of a market inquiry, that it should be limited to published terms of reference, that the report should be published, and that the public should have the opportunity to make further submissions. It believed that there was not a need to have criminal sanctions and that they would be difficult to enforce, and would have a negative impact on consent orders.

The Payments Association of South Africa also took issue with the provisions on complex monopolies, pointing out that the establishment of payment clearing houses, which was a concept agreed to by the Reserve Bank, already would fall foul of these provisions, and depended for their very nature on interoperability. At the very least there should be provision that the cooperative aspects were not affected by the Bill. It also raised the issue of concurrent jurisdiction, noting that although the Bill made provision for Memoranda of Agreements between regulatory bodies and the Commission, these provisions were unclear.

Mr Mukaddam, the primary complainant in the bread price-fixing case, described his experiences in the matter and claimed that he had been subjected to victimisation and had effectively been forced out of business and left without an effective remedy, as he could not afford to take the damages claim to Court. He proposed that the Act must be amended more fully to address the current problem that a damages claim must be pursued in another forum, that there was a need for victim support and recognition, and a need to criminalise corporate collusion. He called for recognition that small entrepreneurs were financially not able to pursue their legal remedies to conclusion. Members noted that the Committee was not in a position to deal with the case itself, but that the points raised warranted serious consideration at another time.

The National Energy Regulator addressed concurrency of jurisdiction between the sector regulators and the Competition Commission and Tribunal, stressing the importance of cooperation between regulatory authorities. It noted lack of certainty as to the roles of regulators which resulted often in forum shopping. The wording of the Electronic Communications Act was cited as particularly problematic. It recommended that a policy debate be held, that there should be appropriate amendments to the Competition and other Acts, and new wording was proposed for the clause 3.  It further proposed that the Memoranda should be promulgated by the Minister as regulations and published in the Government Gazette, and that the Competition Tribunal be party to the Memoranda. It advocated a constructive and joint approach, including conflict resolution mechanisms.

Telkom made a brief presentation in which it agreed with these provisions, and agreed that the Memoranda of Agreement would not necessarily address the issues. The proposed amendment to section 67(8) of the Electronic Communications Act would not clarify the roles sufficiently, nor stop the forum shopping. It agreed that there should be provisions clarified in both the Competition and Electronic Communication Acts.

Business Unity South Africa noted that some of the clauses of the Bill were still being discussed at NEDLAC. It believed that the amendments should be predictable, fair and proportionate, with the necessary empowerment for enforcing the provisions. In respect of market inquiries it was concerned that there was no requirement for “reasonable grounds to suspect” anticompetitive behaviour, and that no time frames were specified. It too recommended deletion of the proposed section 10A, as these matters would be better addressed by market inquiries. It was further concerned with the introduction of criminal liability, pointing out that it ran the risk of constitutional challenge as drafted, due to the burden of proof provisions, and might hinder the work of the Commission.

The Competition Commission and Competition Tribunal made a joint submission. They welcomed the attempts to strengthen the work of the Commission but were concerned about the method. Increased punishments could weaken their ability to deal with cartel behaviour as, quite apart from the constitutional concerns raised by other submissions, the proposals would militate against consent orders that were effectively used at present to break cartels. Criminal prosecutions would also act as a disincentive to claiming protection under the Corporate Leniency Policy. There had been insufficient debate on the personal liability provisions. Alternative solutions were proposed. In respect of market inquiries, they noted that insufficient powers were given and the concept of complex monopolies was badly defined, could apply to most markets, would deter investments, and created a no fault offence that was unlikely to pass constitutional challenge. They proposed that the Commission be given proper investigative powers, by formulating a legal test and by allowing that there be a range of consequences for uncompetitive outcomes. They submitted that there was no urgency to pass the amendments and recommended that they be referred back to NEDLAC for further debate.

Members asked those making submissions to try to identify the problems that the Bill sought to address, questioned the practice in other jurisdictions and whether this was relevant to the South African situation, asked for clarity on the submissions that the Bill would have detrimental effects, asked about the criminalisation provisions in other jurisdictions, and asked for further clarity on some of the points raised.

Meeting report

 

Public Hearings on Competition Amendment Bill
Apffelstaedt and Associates submission
Ms Annemie Apffelstaedt, Manager of the multi disciplinary medical practice of Apfellstaedt and Associates, noted that the current version of the Competition Act did not address complex monopolies, and suggested that an additional amendment was required to include competition law in healthcare services, medical practice and specialities. In order to do so it was suggested that the proposed new section 10A be changed to incorporate healthcare in the definition, and therefore that the Act and the provisions of Section 10 would then apply.

Ms Apfellstaedt indicated that competition existed in the healthcare field, and complex monopolies were preventing fair play and competition. They did not allow for public complaints to be followed up. She noted that the Radiological Society of South Africa supplied services in the field of imaging. Radiology practice firms were members of this Society and acted as a concerted practice, and their complex monopoly was characterised by the points mentioned in the proposed Section 10A. This obstructed the competition in the field of imaging. Other specialists who were in every way qualified, accredited and licensed to deliver imaging services could often offer a better service to patients. This was however seen as unwarranted competition by the Radiological Society.  There had been a shift in the imaging market and “other specialists” were new entrants who would provide for innovation and greater flexibility. They could often offer better services through more sophisticated digital technology, which could be more cost effective to the consumer.

Ms Apfellstaedt noted that the absence of the competition legislation led to increased costs of healthcare services, higher prices to patients and funders and lessened efficiency. She therefore proposed that healthcare services, medical practices and specialties should be included in the definitions and jurisdiction of the Amendment Bill, in order to address the problem.

Members had no questions on this submission. 

Webber Wentzel Submission on behalf of MasterCard International
Mr Peter Leon, Attorney, Webber Wentzel, noted that he was making the submission on behalf of the client MasterCard. The focus of the submission would centre on complex monopolies, but he would need to outline how MasterCard operated, and how they would be affected by the amendments. He indicated that companies such as American Express and Diners used a three-party payment scheme, , where the acquirer and issuer were the same, so that the operator had a direct relationships with merchant and cardholder. MasterCard and Visa, on the other hand, used a four-party payment network, where the acquirer was the merchant bank and the issuer had the relationship with the cardholder. The essence of these schemes was the level of interoperability in the system, which allowed for the card to be used anywhere in the world where there was an authorised merchant. MasterCard, whilst not being a party to the payment scheme, enabled the system to happen.  This was recognised by the South African Reserve Bank in their 2010 policy document. In addition, merchants who accepted MasterCard cards must accept all cards, benefiting from a payment guarantee.

It was feared that the current provisions of the Bill dealing with complex monopolies could outlaw four-party payments, which would affect MasterCard's ability to operate in South Africa. Mr Leon suggested that the proposed Section 10A was too vague, as it said that a complex monopoly would exist in any market where a number of firms conducted their business affairs, irrespective of whether they did so voluntarily. Most markets would be affected by this definition. The proposed Section 10A(2) set out different criteria which were inadequately defined. The Bill spoke of lack of innovation but provided no guidance on what that meant. "Exploitative pricing" was introduced, distinct from the "excessive price" currently applied, and this too was unclear. The wording further referred to “exclusionary acts, but it was difficult to see how the market would be characterised by this. It spoke of high entry barriers without adequately defining what those meant, and this also did not recognise that banks deliberately had high barriers to ensure that they were adequately capitalised. The terms of "uniform pricing, similar trading conditions, or other indicators of parallel conscious conduct" were not defined, but also appeared to attack the MasterCard schemes. The lack of definition could lead to regulatory uncertainty and could penalise innocent and pro-competitive conduct, and prevent investment and innovation. It could also undermine the Competition Commission's resources, as the uncertainties would result in unnecessary challenges.

Mr Leon indicated that the concept of  "complex monopoly" did not exist in other competition regimes. The Jali Enquiry had recently concluded that the banking institution was “ripe for innovation" It was feared that these provisions would undermine such innovation. He noted that in Australia the Reserve Bank of Australia had implemented regulations to curtail perceived inefficiency, but had found that in fact they had had the opposite effect. Uncertainty had the potential to  reduce incentives to the markets and inhibit investment.

The Jali Enquiry had investigated the MasterCard scheme extensively, and had endorsed the standard trading terms of the scheme, did not suggest that "complex monopolies" should be introduced, but that debit cards should be promoted as a means of replacing cash and cheques. In the United Kingdom, the notion of complex monopolies had existed, albeit subject to restrictions, but this was repealed in 2002. A White Paper had been issued there that had concluded that the notion of the collective share supply test then applied was of little value. The removal of the regime in the UK was done to make business more certain and align the law to that of other trading partners. In the United States, the Federal Trade Commission had conducted an extensive investigation into a shared monopoly, with the conclusion being reached that such monopolies did not violate the legislation and that prohibiting them failed to serve consumer interests. These experiences should give some indicators to the drafters of the current legislation.

Mr Leon suggested that Clause 6 of the Bill dealt with market inquiries. It was suggested that the provisions in this Chapter could probably be expanded to deal with monopolies. The attempt to deal with this through the proposed Section 43A and the following clauses was not successful as there were not sufficient definitions. Clause 43B should be amended to include a proviso that a market inquiry may only be conducted if the Commission had reasonable reason to suspect that a feature or combination of features was preventing competition. The Commission should also have to provide comprehensive reasons, advance notice of the inquiry and the opportunity to stakeholders to make submissions.

Discussion
The Chairperson noted that certain of these proposals were not contained in the written submission and should be forwarded in writing to the Committee.

Prof B Turok (ANC) asked whether Webber Wentzel believed that there was a problem that needed to be addressed.

Mr Leon responded that the legislation had been proposed by the Department of Trade and Industry, and this was clearly in response to problems in South Africa on price fixing cartels and the like, subject to investigation by the Commission and adjudication. He thought that the investigation should be into the problems and lack of competition and he did not think that it was appropriate to introduce complex monopoly legislation to address the collusion, but rather to introduce legislation that addressed that directly. He felt that the introduction of legislation that had been discredited elsewhere was not the way to go.

Dr P Rabie (DA) said that the notion of a complex monopoly was not followed in UK and Australia. He asked why this was so. Monopolies posed grave dangers to consumers and he could not understand why they were not attacked.

Mr Leon responded that even in the United Kingdom (UK) the test for complex monopolies was much stricter than the test imposed here, yet it was rejected by investigations of the UK Commission. He cautioned that there was a need to be careful when adopting something that had been rejected elsewhere.

Ms F Mahomed (ANC) expressed the view that there was indeed a problem, and the banking sector was a complex monopoly. Whilst she appreciated the comments, the international arena was rather different to South African markets. This Bill had been drafted in relation to the South African economy.

Mr Leon noted that this issue had been raised in the Reserve Bank and National Treasury Joint Enquiry in 2004. The conduct by the banks had been the subject of the Jali Inquiry, and there was no finding that the banks were a complex monopoly.

Ms Mahomed asked for more detail on the regulatory uncertainty leading to lack of investment.

Ms M Ntuli (ANC) asked for further elaboration on the detrimental effect on consumers, particularly focusing on the South African economy.

Mr Leon responded that if the legislation was passed in the present form, the four party scheme, based on inter-operability, would be seriously affected, and MasterCard would have to change the way in which it operated. It would potentially have to go out of business, which in turn would affect consumers.

Ms Ntuli asked for further elaboration on the statement that it could lead to an administrative burden on the Commission.

Mr Leon elaborated that if the legislation did introduce the vague concept of the "complex monopoly" it was likely that much of the Commission's time would be taken up in trying to make the system work, and in dealing with the challenges similar to those that had been raised elsewhere. This, to his mind, was not the most sensible option.

Ms Ntuli also noted the comparison between South African and other economies. She asked whether the current draft and circumstances had been compared to the UK and Australian position; and whether in fact the developing and developed countries could be properly compared.

Mr Leon took the point, but said that what happened in the developed economies should still be investigated in preparation for developing economies. He pointed out that in fact the South African banking sector was well developed, and it did in some way replicate what was happening in Australia. If the complex monopoly had not worked in the UK and USA, he believed that the legislature should be wary of introducing it into South Africa, and that perhaps remedies should be sought elsewhere.

Banking Association of South Africa (BASA) Submission
Mr Cas Coovadia, Senior General Manager, Banking Association of South Africa, noted that the points made by Mr Leon were relevant also to BASA. BASA welcomed the efforts to strengthen the banking regime. The role of the Competition Commission was welcomed. The concerns of BASA lay not with the strengthening of competition, but rather with the procedure. BASA believed that the amendments were rushed through without sufficient consultation.

The Competition Commission was beginning to become very effective in detecting, investigating and prosecuting anti competitive activities and exploring new instruments such as market enquiries. He believed therefore that it was unnecessary to introduce additional sanctions at this stage.

BASA tabled a comparison of the proposed amendments, indicating that it agreed with most, but disagreed on the areas of complex monopolies and cartel enforcements. There was seldom any hard evidence of complex monopolies in the economy. It believed that market inquiries were the most appropriate tool for investigating sectors where the outcome was anti competitive, even if the actions themselves could not be shown to constitute contraventions. The current provisions were wide enough to capture almost all sectors of the economy, and there was only recently a more targeted approach. BASA believed that there was not sufficient basis for the proposed amendments and that in addition they were badly phrased.  BASA therefore recommended the deletion of the proposed Section 10A

In relation to market inquiries, BASA supported the principles, but believed that there should be a clearer basis for initiation of a market inquiry, that it should be limited to published terms of reference, that the report should be published, and that the public should have the opportunity to make further submissions.

BASA believed that the need for criminal sanctions was questionable and would be difficult to enforce. If these provisions were to be retained, then the burden of proof should be the higher one applicable to the criminal cases. It feared that individual prosecutions would have a negative impact on consent orders. The Competition Commission had been successful in the past and BASA was not convinced that there was any need to impose criminal sanctions. Although it supported the strengthening of the regime, the instruments to do so should be more carefully targeted.

Discussion
Prof B Turok (ANC) noted that some years ago this Committee had a hearing about collusion amongst the banks following an allegation by a senior official about collusion on interest rates. No hard evidence could be produced, but it was clear that the banks had discussed what interest rate hikes should be applied. The Finance Portfolio Committee had sent a delegation to a number of countries to identify collusion in the banking sector and it was found that discussions did take place internationally around interest rates, but nothing was recorded on paper. Whilst he heard the comments around the definitions and other aspects, this Committee was tasked with identifying and addressing the actual problems that existed, and he would like to hear from the submissions what the problems were and how they should be addressed.

Ms P de Lille (ID) asked how the imposition of criminal sanctions would be deterrents, pointing out that surely the Codes of Conduct should apply.

Mr Nicky Lala-Mohan, General Manager: Market Conduct, BASA, said that the introduction of criminal sanctions was a blunt instrument being used in circumstances where there were already existing processes. The Registrar of Banks had approached the banks some time ago and all non-executive directors had to be taken through the Code.

He added that some years ago a discussion was held on the rates with the Reserve Bank, and BASA had prepared a document noting that the agreement with the previous governor of the Reserve Bank, but had received no response to that. This paper was on their website. The question of what problems needed to be addressed had been raised before. There were a number of recommendations from the Jali Commission and the banks and BASA were addressing the identified issues. There were certainly problems, including public perceptions, but BASA believed that there were instruments and processes in place to address those problems. It would be willing to interact further with the Committee.

Ms Mahomed noted that many studies on the banking sector had posed comparisons with South African and international practices. She challenged the banking sector to look at service delivery in the international arena. She also asked that the proposed wording in relation to market enquiries should be made available at a later stage.

Payments Association of South Africa (PASA) Submission
Mr Walter Volker, Managing Director, Payments Association of South Africa, said that PASA perceived there to be a practical problem in the payment system. PASA was responsible for organising, managing and regulating its bank members, and authorised brokers such as MasterCard, who were part of the payments system. It was responsible under the National Payment Systems (NPS) Act to establish payment clearing houses (PCH), when two or more participating banks would establish a house for a payment scheme.

Mr Volker pointed out that the very establishment of a PCH meant that the banks already had more than 45% share of the market, and thus would be hit by the provisions of the proposed Section 10A, as it would be regarded as a complex monopoly. However, this was the only possible market in which to participate, as there were no other markets for new products. The PCHs were established in line with Reserve Bank policy and interoperability was required. The Competition Amendment Bill was now calling for precisely the opposite.

PASA felt that it was of utmost importance to exclude the cooperative environment from the purview of the Bill, or at least to provide that the co-operative aspects were not affected by the Bill. The quality and cost of the service being provided was in fact the competitive issue. The criteria in terms of which banks may participate in a hearing must be fair and transparent.

PASA also wished to raise the issue of concurrent jurisdiction. The NPS Act governed the payment system and the PASA body was responsible for regulation, overseeing the functions as regulator. The Bill made provision for agreements between regulatory bodies and the Commission, but it was not clear whether an Memorandum of Agreement would be concluded with PASA or the Reserve Bank. SARB was clearly in control of the payment systems and this conflicted with the Bill.

Discussion
Ms Ntuli asked for clarity on the written submission, which suggested that the term "complex monopoly" was indeterminate. She asked whether the PASA was recommending that this term be replaced.

Mr Volker responded that the removal of the term was supported.

Imraahn Ismail Mukaddam Submission
Mr Mukaddam noted that he was until recently an independent bread distributor, and was the primary complainant in the bread price-fixing case. He had found, in the process of lodging his complaint, that the process and application of the Competition Act were flawed.

Mr Mukaddam said that although he had received a positive initial response from the Competition Commission, the momentum had then slowed and he had become the target of victimisation by the suppliers. Appeals to the Competition Commission were met with scepticism and he was informed that suspension of the supply to him and the worsening of the terms of business was a business matter in which it could not intervene. He had supplied evidence of false affidavits and victimisation to the Competition Commission. However, he was unhappy that Premier Foods had been granted conditional corporate leniency without reversing gains made through participation in a prohibited practice. He also commented upon the matter involving Tiger Consumer Brands, noting that the company itself was not investigated, but that the outcome was settled with the legal representatives, who had exhibited bias.

Mr Mukaddam noted that victims of collusion and prohibited practices were clearly not given priority. Although he submitted a realistic claim for damages, this claim was not entertained as part of the consent order agreement between the Competition Commission and Tiger Brands. He noted that being the whistleblower had exposed him to enormous personal and financial stress. He had been forced to close his business. His creditworthiness and good reputation had been damaged. He was in dire financial difficulties. He submitted that the requirement of the Act that a damages claim be pursued in another venue placed the complainants at a disadvantage, because of the costs and the risks of counter claims, as well as the delays which increased the costs. He believed that there was a need to amend the Act. He suggested that there was a need for victim support and recognition, the interim relief order mechanism was not accessible, there was lack of consultation with complainants, and that there was a need to criminalise the conduct, as he believed that the present Act did not provide sufficient deterrents to corporate collusion. This would make a real difference to the way in which trade was conducted. It was necessary to recognise that the playing fields were not level, and only through fair competition could small businesses take up their rightful place as equal partners in economic activity.

Discussion
The Chairperson noted that the first part of the presentation dealt with the case already heard by the Competition Commission, whereas the second part had a direct bearing on what the Committee was doing. The Committee could not interrogate the facts or events in the case before the Commission, but would have to confine itself to the submissions based upon Mr Mukaddam's experiences.

Ms Ntuli commented that this presentation was highlighting the first and second economy in South Africa, and asking for further protection to those in the second economy.

Mr Mukaddam responded that his perception was that access to justice was being denied to smaller entrepreneurs, because of the financial challenges. He would like to see distribution of fines into a victims’ fund, or into a fund that would enable smaller businesses to access funds for legal challenges. Most small entrepreneurs suffered from lack of resources. The fines levied against the huge corporates were large, but there was no redistribution that would level the playing fields. Until this happened, there would be perpetuation of monopolies. Access to the Competition Act was presently a double-edged sword and there needed to be protection from the current effects.

Ms Mahomed asked for clarification on the statements about false and defamatory allegations, and asked if these could be verified.

Ms Mahomed asked if more precise recommendations could be made on the Bill.

Mr Mukaddam said that one of the aspects was that the Act was not specific enough on false evidence being led by respondents. The provisions on injunctions and sanctions needed to be tightened. Greater sanctions should be provided both as a deterrent, and to increase the status of the Commission, so that evidence given before the Tribunal should be the same as that given before the Court.

Prof Turok noted that the Committee was moved by the experiences of Mr Mukaddam, and he would like to hear from the Competition Commission on the points raised. He agreed that although this Committee was not an appeals tribunal, the principle of victim restitution was important for parliament, and that some serious points had been raised.

The Chairperson said that normally it would not be proper to ask the Competition Commission to reply at this stage. They were not prepared for this encounter. However, it could be appropriate to give them notice to give details at a later stage, and that Mr Mukaddam could also be given the opportunity to lead any evidence. The third party mentioned by Mr Mukaddam was not present today, and would have the right of reply.

Ms de Lille said that there was legislation dealing with protection of whistleblowers. She asked if this should perhaps be incorporated in the legislation dealing with competition. 

The Chairperson noted that the Committee would be dealing with the issues raised by Mr Mukaddam in more detail and would be in contact with him again.

National Energy Regulator of South Africa (NERSA) Submission
Ms Ethel Teljeur, Regulator Member for Piped Gas, NERSA, noted that the National Regulator Act set up NERSA as a single, multi-sector regulator, with responsibility for licensing and in some instances setting and regulating tariffs, as well as dealing with complaints and dispute resolution. . She wished to address concurrency of jurisdiction between the sector regulators and the authority, and the importance of cooperation between regulatory authorities.

The proposed Section 3(3) referred to agreement to the Competition Commission and authorities. She summarised the principles of sector regulation and economy wide competition regulation and she detailed what the sector regulation would typically address, noting that it would deal with preparatory matters, setting of standards and the like, whereas competition regulation would regulate competition in markets and reduce market power, and would act after the event. It was recommended that sector regulation should, wherever possible, be pro-competition.

The Competition Authorities originally did not have jurisdiction over sector matters but later concurrency of jurisdiction was introduced. However, this gave rise to regulated entities engaging in forum shopping. Topical examples could be found in the lack of clarity around the Competition authorities in the Electronic Communications Act (ECA), which made competition legislation subject to that Act. She recommended that a policy debate be held in the appropriate forum to resolve the conflicts. She further said that the ECA and not the Competition Act should be amended.

Ms Teljeur gave examples of the price regulation in the NERSA legislation and the Competition Act. She believed that the sector authorities were ideally placed to deal with pricing. The economic regulation aspects were aimed at making producers more efficient, while enabling them to produce a reasonable profit. The recent decisions in relation to Eskom were transparent, and were based largely on the statistics and sector analysis. Allowing a competition challenge to this would undermine the process. Similarly competition challenges to the Petroleum Pipelines Act could weaken the enforcement of energy legislation. She suggested that pricing matters should not fall under the Competition legislation.

NERSA was concerned that clause 3(3)(c) of the Bill gave the Competition Act prevalence over sector legislation. There was no level playing field between regulators in the Memorandum of Agreements negotiation process. The bigger picture needed to be considered. There was no basis to say that the Competition Act should take precedence. Sector regulators took far reaching decisions. NERSA saw concurrency as an opportunity for cooperation, to achieve the best possible regulatory decisions.

NERSA therefore proposed that the Memoranda should be promulgated by the Minister as regulations and published in the Government Gazette. The fact that the Competition Tribunal was not a party to the Memoranda of Agreement could be problematic as complainants could refer cases directly to the Competition Tribunal, and could also ask for interim relief, giving complainants a second opportunity. She suggested therefore that the Tribunal be party to the Memoranda. These should then be linked to procedural matters and roles should be clarified, as the more the roles were harmonised, the less incentive there would be to engage in forum shopping.

NERSA believed that where anti-competitive practices were not dealt with in the sector legislation, then the competition law should apply. However, where the sector legislation did adequately address anti-competitive practices, there was no need to change this. The regulators and the Competition Commission had a common goal. Merger analysis was a sector in which this could be done. NERSA did not believe that responsibility should be ceded, and therefore advocated a constructive and joint approach. To support this, it further advocated a joint conflict and dispute resolution mechanism. There were already some international precedents, including double jeopardy, enabling use of particular agencies, and the like, which could be used as a basis. 

NERSA finally submitted proposed new wording for Clause 3(3), including the addition of new paragraphs (c) and (d) (see attached documents for full wording).

Members raised no questions on this submission.

Business Unity South Africa (BUSA) Submission
Mr Abdul Patel, Business Parliamentary Liaison Officer, BUSA, introduced the team. He noted that BUSA was extensively involved in preparing for introduction of the legislation through New Economic Development and Labour Council (NEDLAC) and the task group, led by Professor Raymond Parsons, Economic Consultant to BUSA.

Professor Raymond Parsons indicated that it had been anticipated from the outset of the competition legislation that changes would be needed within ten years or so. BUSA had submitted two written documents. It would not be possible to address all issues at this stage as some were still subject to resolution in the NEDLAC process. BUSA supported that a market driven economy must have competitive rules, enforced by certain structures. Organised business must constantly review how the rules were working and propose changes where necessary, including how implementation should take place, within the broad context of the national economic interest, and where the consumer should be placed in relation to economic forces. The recent work of the Competition Commission in addressing price fixing and cartels was supported.

BUSA recognised that this was a complex area, blending economics and law, and the answers must be carefully researched and debated. Under the Accelerated Shared Growth Initiative programmes, a number of constraints were identified, including the need to improve levels of competition.

BUSA was concerned that there were some practical problems with the current Bill. It believed that the amendments should be predictable, fair and proportionate, with the necessary empowerment to the structures that must enforce the provisions.

Mr Nkonzo Hlatshwayo, Partner, Webber Wentzel, on behalf of BUSA, said that BUSA supported the clarification of market inquiries but noted that they did not go far enough and that there was no obligation on the competition authorities to have "reasonable grounds" to suspect anticompetitive behaviour. The provisions did not specify a time frame for conclusion and there could be an open ended process that could hinder companies in making decisions on business operations.

BUSA was also concerned about the introduction of the complex monopoly. It recognised the importance of dealing with uncompetitive conduct but was concerned with the manner in which this was being done. The threshold was problematic. The provisions were premised on coordination, and some companies may find themselves in a complex monopoly situation involuntarily. The factors characterising complex monopolies were not clearly defined, nor was the range of market features. BUSA believed that the issues that were to be addressed could be dealt with through market inquiries, and recommended deletion of the complex monopoly provisions.

Mr Hlatshwayo also addressed the question of criminal liability for directors and managers. The scope of the conduct was broader than equivalent provisions in other major jurisdictions. The Bill as drafted ran the risk of Constitutional challenge. There was no provision that a director could test the veracity of the findings before the Court where he appeared, and he could be charged even if he did not have knowledge or could reasonably be deemed to have knowledge of the behaviour. There was a problem with the burden of proof. There could be difficulties in terms of fiduciary duties, and directors were unlikely to volunteer information that could assist the Commission in these circumstances, whereas past experience had shown that they were more likely to cooperate under the current provisions. He noted that further details were contained in the written submission and referred the Committee to that document.

Discussion
Ms Mahomed asked for BUSA’s suggestions in relation to requiring reasonable grounds to suspect anti competitive behaviour.

Mr Hlatshwayo replied that in other jurisdictions combinations of features must be shown before market inquiries would be instituted. There was no similar provision in this legislation. BUSA felt that there should be at least a reasonable suspicion before market enquiries commence.

Ms Ntuli noted the submission that the legislation should be predictable. It was suggested that a "workable competition regime" be used, and she asked for further clarification on this.

Prof Parsons said that there was a textbook definition of a market, but also reports of the Competition Commission as to what was happening in the markets. The concept of "workable" could be distilled into the conceptual framework. In essence this amounted to having firm competition and laws that discouraged anti competitive behaviour. It was necessary to look at global experience, and to note that there were specific circumstances that affected the mix of competition policy.

Dr Rabie asked for clarification whether the proposed criminalisation was in line with international practice.

Mr Hlatshwayo said that there were a number of jurisdictions that had introduced criminal liability. However, BUSA was concerned about the structure. Evidence placed before the Competition Tribunal could be used in criminal proceedings, although it had not been tested according to the “beyond a reasonable doubt” standard.  The corporate leniency policy was likely to be compromised by the introduction of personal liability.

Mr J Maake (ANC) asked for an example of a situation of involuntary involvement.

Mr Hlatshwayo said that he was not really in a position to provide examples.

Mr Maake asked why a firm would try to avoid a market enquiry.

Mr Hlatshwayo said that firms would probably not try to avoid them, but they would involve substantial management time and costs. The lack of a legal test meant that any firm could be subjected to such an enquiry.

Ms Ntuli turned to the proposals made by BUSA in relation to market enquiries, and asked for further clarification on all the points made in the subparagraphs. She noted that there were several issues still requiring clarification.

Mr Hlatshwayo said that the current Competition Act made provision for time frames, which were contained in the principal legislation, not in the Regulations. He did not think that there would be a problem in inserting something similar in relation to market inquiries. The mechanics of implementation could be dealt with in the regulations. He felt that the legal tests should be established before enquiries were to be instituted. Some written proposals could be made.

Prof Turok said that the main problem remained that companies in the private sector worked in private, and the Competition authorities worked in the public domain. As long as this conflict pertained, then there would be problems in effective regulation and investigation.

Prof Parsons reiterated that NEDLAC would not be presenting on the Bill because the legislation was still being addressed clause by clause. BUSA would be making some further proposals where necessary.

Telkom Submission
Mr Andrew Barendse, Group Executive, Telkom, said that Telkom’s oral presentation would confine itself to the notion of concurrent jurisdiction. He concurred with the submission of NERSA that the amendments should clarify who should deal with regulation, and related this also to the telecommunications sector.

Mr Thanduxolo Lubanga, Senior Legal Advisor, Telkom, said that Telkom welcomed government's intention to strengthen the Act. A sector specific regulator generally dealt with regulation before an event, and the competition regulator with matters after regulation. The concurrent jurisdiction would not be adequately addressed unless the powers conferred by the Electronic Communications Act were reviewed or clearly redefined. He submitted that Memoranda of Agreement between the regulators would not necessarily solve the problems.

Telkom had noted the proposed amendment to section 67(9) of the ECA, and noted that the preceding sub-sections had conferred regulation of the industry in all respects to the Independent Communications Authority of South Africa (ICASA). This amendment still did not clear the roles and responsibilities, and consequently would not stop the problem of "forum shopping". Telkom therefore suggested that the application of the competition law must be clarified in both the Competition Act and the ECA.

Discussion
Prof Turok was disappointed in this presentation, as he would have liked to have the opportunity to discuss the monopoly of Telkom, including that over the internet, and would have liked to have Telkom’s perspective on the whole question of monopolies in South Africa.

Mr Barendse responded that a full discussion on monopolies would warrant a different forum and purpose. The definition of competition alone was not agreed; and that was what the purpose of this meeting was understood to be.

Ms Ntuli asked for clarity on how the roles should be spelt out.

Mr Lubanga suggested that instead of reliance on the Memoranda of Agreements, there should be provision made in the statutes, and that regulation post the event should be given to one authority.

Ms Rossana Gell, Senior Specialist Regulatory Affairs, added that one possible way to regulate the matter would be to revisit the ECA, particularly section 67(9), which could perhaps clarify that the Competition Commission should deal only with matters which ICASA would not address. She pointed out that many of the matters were very technical and were best left to the regulator for the sector, including pricing.

Ms Mahomed said that there must be an equitable playing field and she was concerned that Telkom was apparently calling for sector specific regulation.

Ms Gell said that Telkom was not necessarily calling for sector specific regulation alone. However, it was clear that the Competition Commission would have to be well advised on sector specific aspects for electronic regulation. ICASA would be better placed to deal with market reviews, and which markets should be set aside for ex-ante regulation. Telkom was calling for better cooperation and use of expertise where it could be found.

Mr Lubanga added that Telkom supported the Competition Act. The main issue of concern was the forum shopping resulting from conflict between the roles.

Competition Commission Submission
Mr Shan Ramburuth, Commissioner, Competition Commission, noted that the Competition Commission and Competition Tribunal were making a joint submission, because there had been joint interaction over the year. The Competition Commission did not draft this legislation, and the comments were consistent with their position as conveyed over the period of drafting to the Department of Trade and Industry. There were written submissions dealing with a range of issues, but this submission would focus on personal liability and complex monopoly, and would detail only the proposed solutions.

He summarised the successes of the Commission over the last few years, including prohibition of anti competitive mergers, uncovering of cartels, and abuse of dominance. The impact had been far reaching, because companies were becoming increasingly aware of corporate governance matters, consumer activism, widespread awareness and "moral intelligence".

The Competition Commission and Tribunal supported the policy objectives. However, whilst on the one hand it supported the principle of strengthening the powers, it believed that the method in which the increased punishments were meted out might in fact weaken the ability of the agencies to deal with cartel behaviour. Policy should address effective deterrents against cartel behaviour, and enable the markets to work better. Punishment should not be seen as an end in itself. The proposed Section 73A provided that directors could be found guilty of a criminal offence if there was a factual contravention of the Competition Act, established by a civil standard of proof. The finding of the contravention would be used then in separate criminal proceedings against an individual, which would be prosecuted by the National Prosecuting Authority. Apart from the constitutional points raised in earlier submissions, the Competition Commission was concerned about the consent orders. Currently, when there was an investigation, a transgressing party could propose settlement by confessing that there had been a transgression, paying a fine, and undertaking that this would not recur. These consent orders saved a great deal of time and money. Most of the cartels broken in the past had been dealt with through consent orders, and the secretive nature of cartels meant that the companies preferred this to taking an adversarial role. If, on the other hand, the behaviour was criminalised, directors would be far less likely to adopt consent agreements because of the threat of prosecution, meaning that the authorities would have to engage in more exhaustive investigations with less cooperation.

Mr Ramburuth noted that the Competition Commission’s Corporate Leniency Policy had been a highly successful tool and it had been recently amended to create greater efficiency. If the National Prosecuting Authority were given the discretion whether to institute criminal prosecutions, then this would act as a disincentive to informants. There had not been sufficient debate on the personal liability provisions.

The Competition Commission proposed some alternative solutions, which could be put into place quite easily, as many provisions already existed in some form in the Act. The Act currently allowed for an administrative penalty to be calculated on one year's turnover; there was the suggestion that this could now be increased to include all years of the transgression. Other penalties could be made to apply to first offences. Fines could be increased for existing criminal offences, such as making misleading statements, and this would be a good incentive for people to tell the truth It was possible to add additional offences, such as obstruction of justice, not adhering to tender directives, and the like. In addition the Companies Act directives could be more stringently enforced. Mr Mukaddam had suggested that a victimisation clause could also be included.

In relation to the points raised by Mr Mukaddam, Mr Ramburuth noted that the competition authorities were sympathetic to his plight. Competition policy, however, was intended to protect competition, and not individual competitors. The agencies acted in the public interest, not on behalf of individuals. There was room for debate whether the competition policy was an instrument of the legal justice system or the market place; currently it was the latter. There was currently a “trade off” in that the authorities could expose anti competitive behaviour more easily through a lower standard of proof, leaving it to other authorities to prosecute, as opposed to adopting the situation where there would be fewer prosecutions, but with greater powers to sanction individuals.

Mr David Lewis, Chairperson, Competition Tribunal, dealt briefly with conflicts and market inquiries. The policy objective was to deal with markets in which there were anti competitive outcomes, but where the Commission was unable to identify a specific provision of the Act that had been contravened. The Tribunal had proposed a solution of "market inquiry". The Bill responded to this by introducing that concept, but had unfortunately given insufficient power. It also introduced the offence of complex monopolies. The Tribunal disagreed with both approaches. The market inquiry did not give the Commission the power to utilise any further powers than it had at present. The Commission should have the right to subpoena documents and compel evidence under oath. In order to do that it would have to frame a legal test of reasonable suspicion of anti competitive activity. It could do this by reference to the anti competitive outcome, but the Bill did not provide for this. Instead, it introduced a draconian and uncertain offence of the "complex monopoly". He aligned himself with previous criticisms on this. The complex monopolies as defined could apply to most markets, and the no-fault offence was unlikely to pass constitutional challenge. The remedies were problematic, and were unclear. This would result in deterrents on investment and an effect on horizontal agreements.

The Tribunal and Commission therefore proposed strengthening the market inquiry by giving the Commission proper investigative powers, by formulating a legal test and by allowing that there be a range of consequences for uncompetitive outcomes. Enactment of this Bill in such an uncertain way would merely amount to providing legal challenges for years. Much of the Commission’s work over the last few years had centred around interpretation of provisions, and he therefore called for the Bill to be referred back to NEDLAC for reconsideration. It was a highly technical piece of legislation deserving of better consideration. He submitted that there was no urgency because the competition authorities were currently functioning effectively. There were certainly areas that could be tightened up, but this Bill could in fact detrimentally affect its effectiveness, as unintended consequences could result in a weaker authority.

The morning session was adjourned.

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