On 12 July 2018, the Minister of Economic Development, Mr. Ebrahim Patel, introduced to Parliament a radical bill aimed at amending the Competition Act, 89 of 1998 (Competition Act). A whirlwind process of consultation and public hearings followed and the Competition Amendment Bill, B23B-2018 (the Competition Amendment Bill) was passed by the National Assembly in October 2018 and by the National Council of Provinces in early December 2018 - just shy of a year from the publication of the first draft of the Bill.
The Competition Amendment Bill will become law, and drastically amend the provision of the Competition Act, once signed by the President - which is anticipated to happen soon. In the meantime, the Minister has already published three different requests for public comments on regulations and similar documents that are relevant to the enforcement of the new provisions introduced by the Competition Amendment Bill. The deadline for public comments is 31 January 2019.
The amendments contained in Competition Amendment Bill are aimed at creating and engaging the substantive provision of the Competition Act by addressing two key structural challenges in the South African economy - the high levels of economic concentration in the economy and its racially skewed ownership profile. Further, the amendments also seek to enhance the policy and institutional framework, and procedural mechanisms for the administration of the Competition Act.
The Competition Amendment Bill achieves these goals by introducing various amendments to the Competition Act.
Among its most notable amendments is the emphasis on the special attention that must be given to the impact of anti-competitive conduct on small businesses and firms owned by historically disadvantages persons. There is also a focus on addressing concentration in markets by assessing collusive conduct in these markets. The Competition Amendment Bill includes an addition that an agreement between competitors to allocate market share will be viewed as expressly prohibited horizontal conduct.
The Bill expands the list of conduct deemed to be exclusionary abuses of dominance. For example, the prohibition on refusing to supply scarce goods to a competitor now includes a prohibition on refusing to supply scarce goods and services to a competitor and customer.
A specific provision prohibiting margin squeeze is also included. his provision is aimed at protecting suppliers to dominant firms, especially medium sized businesses or firms owned and controlled by historically disadvantaged persons from being required, through an abuse of dominance, to sell their goods or services at prices that impede their ability to compete and participate effectively in the market.
An additional prohibition is introduced to protect small and medium sized businesses or firms owned or controlled by historically disadvantaged person. The Bill introduces a provision that prohibits a dominant firm from requiring its suppliers (that are not dominant and fall within the protected category) to sell products to the dominant firm at prices that impede the supplier's ability to compete and participate effective in the market. This is referred to as buyer power.
The Competition Amendment Bill also amends the provisions pertaining to excessive pricing by dominant firms by lowering the burden of proof placed on the Competition Commission, but requiring it to only prove a prima facie case of excessive pricing, and shifting the evidentiary burden to the dominant firm to show that the price charged was reasonable. The Competition Amendment Bill further provides that in determining whether a price is excessive, that price must be compared to a competitive price by taking into account a number of factors which are set out in the Bill, such as the price-cost margin, the rate of return and a comparator firms’ prices and level of profits for those goods and services (tests that are not recognised economic tests).
Dominant firms can now be found to have engaged in price discrimination where they charge different prices to customers, and where a customer is a small and medium sized business or a firm controlled by historically disadvantaged person and the price differential results in such a firm not being able to participate effectively in the market. As such, there is a lower burden of proof for price discrimination in instances where small and medium sized businesses or firms controlled by historically disadvantaged persons are involved, and a substantial lessening or prevention of competition need not be shown.
Firms will also have additional grounds to apply for exemptions from the application of the Competition Act on the basis that anti-competitive conduct would promote participation in and expansion within a market by small or medium sized enterprises or firms owned by historically disadvantaged persons. A welcome amendment to the exemption process is that the Commission will be required to make a decision regarding an exemption within one year, where it previously had an indefinite period to consider an exemption application.
Further, public interest factors will now be a core assessment area in merger control - where public interest was previously only a secondary area of assessment. The list of public interest factors that the Commission will be required to consider will be expanded to include concentration in markets and the promotion of a greater spread of ownership.
Disclosures aimed at discovering "merger creep" have been added to the list of factors the competition authorities are required to consider when assessing a merger. This is aimed at ensuring that the competition authorities can monitor and address concentration within markets - even where those mergers may not require notification to the competition authorities (for example, where the merger notification thresholds are not met).
Amendments are also included that will enhance the market inquiry process and ensure that its outcomes include measures to address concentration, the promotion of small and medium businesses and the transformation of ownership. These mechanisms are similar to those in other jurisdictions which have had some success at addressing structural issues in markets. As with merger control, the Commission’s potential findings and actions following a market inquiry are binding, unless challenged in the Competition Tribunal.
The Competition Amendment Bill further results in a stricter penalty regime and these amendments include provisions to allow a parent or holding company's turnover to be taken into account when calculating the penalty to be imposed on a subsidiary firm. Secondly, the provisions allow the imposition of a penalty of up to 25% of turnover for repeat offenders; and provide for the imposition of penalties for all types of conduct prohibited in terms of the Competition Act - where penalties were not previously imposed for first offenders engaging in certain forms of prohibited conduct.
Documents for public comment
The Department of Economic Development is keen to ensure that the new provisions introduced by the Competition Amendment Bill can be introduced as soon as possible. On 21 December 2018 it released three documents for public comment:
A request for public comment on the first draft set of definitions of small and medium business
The Competition Amendment Bill, inter alia, aims to protect small and medium sized businesses. It is important to be able to determine which businesses will be able to benefit from these protections and this must be done within clear definitions and thresholds.
The Minister is calling for comments on the classification of small and medium sized businesses for purposes of the new provisions of the Competition Amendment Bill. The Minister is specifically asking for input into whether the new turnover thresholds for determining whether a business is classified as a small or medium sized business under the National Small Business Act are sufficient for purposes of competition law enforcement; and suitable in the context of the fourth industrial revolution.
A request for public comment on the first draft set of buyer power regulations
The Competition Amendment Bill introduces the concept of buyer power, where dominant firms are prohibited from engaging in conduct that would impede its non-dominant suppliers (that are small and medium sized businesses or firms controlled by historically disadvantaged individuals) from participating effectively in the market - i.e. by excessively exercising the market power it holds as a result of its dominant market position.
The Minister is calling for public comment on a first set of regulations and whether the proposed regulations are sufficient. The first draft regulations propose an approach to identifying suppliers that benefit from the protections granted under this new provision; ascertain whether a price or trading condition is unfair - in itself and relative to other suppliers; and designated specific industries that will benefit from this new provision.
A request for public comment on the first draft set of price discrimination regulations
Small and medium sized businesses and firms controlled by historically disadvantaged persons will enjoy additional protections against price discrimination by dominant suppliers. This provision is aimed at ensuring that these businesses are able to effectively compete in the markets they operate in without being subjected to higher input costs when compared to their competitors. The proposed regulations set out the guidelines for how and the parameters within which these protections are proposed to be granted.
The Minister set a timeline for finalising these three documents to assist in the enforcement of the revolutionary amendments to South African competition law. Public comments are due by 31 January 2019 and interested parties have to register their interest to participate in discussion forums by 15 January 2019. Once these processes are complete and the Competition Amendment Bill has become law, second drafts will be published for public comment. After further consultation, the final definitions and regulations will be published.