In December 2017 we explained the major changes proposed to the Competition Act in a draft bill. After a period of more than six months for comment, the Minister has tabled the Competition Amendment Bill (the Bill) in parliament for debate.
It is clear that some of the comments made on the December draft have been taken on board and some more controversial provisions have been amended. However the Minister has introduced some surprising new changes in this latest version which are sure to be open to extensive debate.
The most significant introductions in the Bill include:
- A new regime for the President to identify a list of "national security interests" and to establish a committee to assess whether an acquisition by a foreign firm will be adverse to national security.
- An increase to a maximum of 25 per cent of annual turnover as a penalty for a repeat offender.
- An administrative penalty that can be calculated to include the turnover of any firm or firms that control the offending entity if they knew or ought to know that it was engaging in prohibited conduct.
We have set out in the table below some of the key changes in the Bill from the December 2017 draft bill. In the coming weeks we will be addressing the detail of proposed amendments on selected topics. The Portfolio Committee on Economic Development will conduct Public Hearings in Parliament on the Bill on August 28 and 29, 2018. Comments are due by August 17, 2018.
Given the impact that these significant changes are going to have on business in South Africa it is important to have your say. Please get in touch with the competition team for guidance on comments to be submitted to the Parliamentary Portfolio Committee.
- A new regime applicable for foreign investment will establish a Committee comprising of Ministers and officials to involve themselves in mergers affecting the country’s security interests. The Bill does not provide for participation in the process by the merging parties, nor a right of appeal. The Committee will have 60 business days to decide whether the merger should be allowed. Only after this period, and once approval is received from the Committee, can the merger be notified to the competition authorities.
- Concentration of ownership through merger assessment has been retained subject to minor amendments. Public interest grounds have been expanded to include a consideration whether the merger will increase the spread of ownership by workers. This is designed to encourage broad-based ownership of firms by workers.
- The maximum proposed penalty will be increased to the 25 per cent of a firm’s annual turnover if the firm’s anti-competitive conduct is found to be a repeat contravention.
- In determining penalties two factors are introduced:
- The impact of the contravention on small and medium businesses and firms owned by historically disadvantaged persons.
- Whether the conduct is substantially the same as conduct that the Commission has issued guidelines on.
- Parent companies of the guilty firm may be jointly and severally liable for the penalty imposed.
|Horizontal and vertical restrictive practices
- Recognising the impact that the removal of the "yellow card" for some prohibited practices will have, the Bill requires the Competition Commission to publish guidelines on horizontal practices, between competitors, and vertical practices, along the supply chain. Producing guidelines on these issues is common practice throughout the world is welcomed for increasing certainty for business.
|Abuse of dominance
- The most controversial changes in the draft bill , for example, the inclusion of a prohibition against dominant firms imposing unreasonable conditions unrelated to the object of a contract and preventing suppliers to dominant firms from being required to sell their goods or services at excessively low prices, have been removed.
- There are major changes in relation to excessive pricing which has always been difficult for competition authorities to prove. The Bill changes the excessive pricing provisions by, among others:
- Removing the definition of excessive pricing from the Act and replacing it with a list of factors to be taken into consideration when determining whether a price is excessive. These factors include current or past state support of the dominant firm, pricing in other markets, the period of time that the prices have been charged and the dominant firm’s price-cost margin, internal rate of return and profit history.
- Amending the prohibition to "charging an excessive price to the detriment of customers" instead of "consumers". This will widen the scope of application of the provision.
- Placing a burden of proof on the dominant firm to show that its apparently excessive pricing is reasonable.
- The circumstances when a dominant firm’s cannot refuse to supply have been extended by prohibiting a dominant from refusing to supply scarce goods or services to a competitor or a customer when it is economically feasible to do so.
- A dominant firm will prohibited from selling goods or services at "predatory prices" which is defined to mean a price below the firm’s average avoidable or variable cost.
|Price discrimination by dominant firms
- When determining whether the dominant firm’s action constitutes prohibited price discrimination, the dominant firm must show that its action does not negatively impact small and medium businesses and firms controlled or owned by historically disadvantaged persons.
- There is a reverse onus on the dominant firm to show that price discrimination is not likely to have an effect of preventing or lessening competition proposed in the draft bill has been removed in the Bill.
- It will no longer be necessary to demonstrate that price discrimination substantially limits or prevents competition. The test of substantiality means that may be difficult for small or medium sized firms to show that their ability to compete because of price discrimination has a substantial impact on competition in a market. Any limitation or prevention of competition will be sufficient.
- The Minister must designate one or more full or part time deputy commissioners who are responsible for and must chair market inquiries.
- The definition of a market inquiry has been expanded from an inquiry into the general state of competition to also be an inquiry into levels of concentration and structure of a market.
- The market inquiry will also assess the outcomes in a market that impact on the ability of national industries to compete in international markets.
- A list of factors has been introduced to assess whether the Commission’s decisions in a market inquiry are reasonable and practicable which are designed to ensure proportionality of remedies and to avoid inadvertent negative impacts on competition in a market.
- In line with foreign best practice, the Minister will be able to publish regulations to exempt an agreement or practice or a category of agreements or practices from the application of the prohibited practices chapter in order to achieve the purposes of the Competition Act.
- Additional grounds for an exemption from prohibited practices are introduced by the Bill namely economic development, growth or transformation of a designated sector and competitiveness and efficiency gains that promote employment or industrial expansion.