On 11 July 2019, the Minister of the Department of Trade and Industry (soon to be the Department of Trade, Industry and Competition), Minister Ebrahim Patel, delivered his budget vote speech to the National Assembly. In his speech, the Minister noted six key areas that his Department will focus on:.
- expanding markets for South African products and facilitating entry into those markets;
- supporting improved industrial performance, dynamism and competitiveness of local companies;
- improving the levels of investment in the economy and helping to achieve the target set by the President in SONA last year;
- promoting economic inclusion, opening up and changing South Africa’s market structure, both through industrial funding to new groups and through competition policy;
- promoting more equitable spatial and industrial development, and
- improving the capability of the State.
Importantly, in his speech, the Minister stated that the Competition Amendment Act (‘Amendment Act’) would come into effect from 12 July, to help achieve the goals set in these six key areas.
Some of the more notable amendments which have been gazetted and will take effect from 12 July, include:
- Merger control:
- When analyzing a merger, the Commission will usually consider numerous factors, including those listed in section 12A of the Competition Act. The Amendment Act introduces three additional grounds under section 12A for the Commission and Tribunal to consider: (1) the extent of ownership by a party to the merger in another firm or other firms in related markets; (2) the extent to which a party to the merger is related to another firm or other firms in related markets, including through common members or directors, and (3) any other mergers engaged in by a party to a merger for such period as may be stipulated by the Commission.
- The Amendment Act amends an existing public interest grounds and further introduces a new public interest ground for the Commission and Tribunal to consider. The amendment sees consideration being afforded to medium sized businesses, and a further analysis as to whether the merger has an effect on small and medium sized businesses to ‘participate’ within relevant markets. The newly introduced ground sees consideration being given to the “promotion of a greater spread of ownership, in particular to increase the levels of ownership by historically disadvantaged persons and workers in firms in the market”.
- Abuse of Dominance:
- Excessive Pricing: The test for excessive pricing has been reformulated under the Amendment Act, although it is largely reflective of existing case law. It has been explicitly stipulated that where it can be shown by the Commission that the price charged by the dominant firm is prima facie excessive, the onus shifts to the dominant firm to prove that the price is reasonable.
- Predatory Pricing: The scope of possible cost benchmarks have been amended to include average avoidable cost and average variable cost, in order to allow for a more accurate assessment of exclusionary behaviour.
- Margin Squeeze: This practice has been included in the list of specific exclusionary acts.
- Administrative Penalties:
- While the Act previously provided for “yellow card” offences (no penalty for a first-time contravention), the Amendment Act makes all contraventions subject to a penalty of 10% of a firm’s annual turnover.
- An administrative penalty of 25% of a firm’s annual turnover has been included for a second offence.
- Market Inquiries:
- The proceedings during market inquiries will focus on categories of market features: (1) market structure, (2) observed market outcomes, and (3) conduct that has an “adverse effect” on competition.
- Critically, the Commission will be able to take any remedial actions that it considers to be reasonable and practicable, with the exception of divestiture, which can only be imposed by the Tribunal. The Commission’s findings and actions will be binding, unless challenged in the Tribunal.
- Exemptions: Some of the existing grounds on which an exemption may be sought have been amended, and an additional ground has been included:
- The amended provisions now allow for exemption to be sought:
- To promote the ability of effective entry into, participation in or expansion within a market by small and medium businesses or firms controlled by historically disadvantaged persons, and
- For the economic development, growth, transformation or stability of any industry designated by the Minister.
- Under the newly included ground, an exemption may now also be sought:
- For competitiveness and efficiency gains that promote employment or industrial expansion.
A number of notable amendments will not take effect from 12 July, including:
- Merger control: In addition to the competition authorities’ merger review process, the Amendment Act includes a parallel notification and investigation process to be administered by a Committee, constituted by the President, comprising of cabinet members and other public officials, who will consider whether a merger involving a foreign acquiring firm has an adverse effect on ‘national security interests’ which are listed in the Amendment Act.
- Abuse of Dominance: A customer that enjoys significant buyer power over its suppliers is prevented from abusing its dominance by imposing unfair purchase prices or trading conditions on its suppliers (Monopsony Pricing / Abuse of Buyer Power).
- Price Discrimination:
- The Amendment Act introduces an additional ground under which price discrimination may be tested. That is, whether price discrimination has the effect of “impeding the ability of small and medium businesses or firms controlled by historically disadvantaged persons to participate effectively”.
- The Amendment Act also prohibits a dominant firm from refusing to supply small and medium businesses or firms controlled by historically disadvantaged persons in order to circumvent this new, additional ground.
- If there is an allegation that a dominant firm has price discriminated against small and medium businesses or firms controlled by historically disadvantaged persons, the burden of proof has been adjusted so that a dominant firm will need to show that price discrimination did not impede those particular firms from participating effectively.
The Minister has stated that these further amendments will likely come into effect from November this year, following the publishing of draft regulations and public consultations.
The Minister has further stated that, from the next financial year (which will likely be when all of the provisions of the Amendment Act have taken effect), the Competition Commission plans to initiate one new market inquiry per year, complete more than sixty cartel investigations in the next five years, and initiate ten investigations into abuse of market power by dominant firms.
The overall effect of the Amendment Act is that a greater range of commercial conduct will fall within the scope of competition law, the consequences of non-compliance have become more severe, the resources and powers of the competition authorities have been and will be bolstered, and the competition authorities’ activity will increase.
Our team is looking forward to advising and guiding clients through this new and challenging landscape.