Competition Amendment Bill, 2008 PRESENTATION TO PORTFOLIO COMMITTEE ON TRADE & INDUSTRY DATE: 10 JUNE 2008 Zodwa Ntuli – DDG: Consumer and Corporate Regulation Division (CCRD) Fungai Sibanda – CD: Policy & Legislation (CCRD) Nomfundo Maseti – D: Competition & Consumer Policy & Law (CCRD) Segoane Monnye – DD: Competition & Consumer Policy and Law (CCRD)

2 Purpose The Bill is not intended to overhaul the current Competition regime but is focused on key areas aimed at –  Strengthening the existing provisions of the Competition Act;  Providing the competition authorities with extra powers to deal robustly with uncompetitive practices; and  Enabling the Competition Commission to play a more proactive role in investigating markets & take measures to ensure market transparency.

3 Introduction Need for a focused review of the existing Competition Law regime  To respond to the industrial policy objectives such as promotion of competitiveness;  Observations on the challenges of the competition authorities in dealing with uncompetitive outcomes resulting in artificially high prices to the detriment of consumers; e.g. competition problems resulting from complex monopolies or multi- firm conduct such as the bread, milling and banking sectors;  To strengthen efforts on cartel enforcement by introducing personal liability on directors who cause their firms to engage in cartel activities. This will complement fines imposed on firms and enforce responsible behavior on the part of directors or officers of firms.

4 Scope of the Bill The Bill focuses on five broad areas: Market Inquiry – It is exploratory in nature and intended to inquire on the competition deficiencies. It serves as a tool to enable the Commission to play a more proactive role in investigating markets. Complex Monopolies – It is intended to deal effectively with uncompetitive outcomes resulting from a multi-firm conduct that restricts or distorts competition to the detriment of consumers. Personal Liability – It is intended to provide an effective deterrent on cartel activities by introducing criminal sanctions against individuals who cause firms to engage in illicit cartel activities. Incorporation of Leniency Policy – It is a tool used to detect cartel activity by encouraging those involved in cartel activities to come forward and disclose information to the Competition Commission in return for immunity. Concurrent jurisdiction – It is intended to deal with inconsistencies arising from the Competition Act and the Electronic Communications Act in dealing with competition matters in regulated industries, in particular, in the telecommunications sector.

5 Market Inquiry Market inquiry provisions Problem Sec 21(2)(b) of the Act already gives the Commission powers to conduct market inquiry and report findings to the Minister; However it doesn’t provide for action to be taken to address findings of the inquiry. Recommendation Make the initiation process of such inquiry explicit e.g. Inquiry to be initiated by the Commission on its own or on request of the Minister; It’s an open and exploratory process where no complaint against a conduct of a particular firm is required. Seeks to inquire how markets work & why consumers’ needs are not being met. Outcome of the Market Inquiry Allow for appropriate remedies to be taken by the Commission. Refer matters for enforcement action or further investigation by the Commission. Provide report to the Minister on issues relating to policy review, changes in laws and regulations, or make recommendations to other regulatory authorities.

6 Complex Monopolies Complex Monopoly provisions Problem Firms conduct their business affairs in a coordinated way which restrict, prevent or distort competition to the detriment of consumers; Existing provisions target specific conduct & unable to address this; i.e. uncompetitive outcomes but no immediate infringement of the Act. Such conduct is termed ‘complex monopoly’ i.e. multi-firm conduct that restrict competition & harm consumers. Examples: fertiliser industry, banking, bread and milling industry (complex monopoly) and Telecoms industry (inherited monopoly). Chapter 2 of the Act prohibits anti-competitive conduct if two or more firms engage in the conduct as a concerted practice or pursuant to an agreement between them; The requirement of a specific contact or agreement inhibits the Commission’s ability to investigate, take action or seek a remedy for a multi- firm conduct or complex monopoly;

7 Complex Monopolies Cont: Recommendation The Bill introduces a new provision which prohibits participation in a complex monopoly if it has the effect of substantially preventing or lessening competition; Commission may refer matters to the Tribunal for appropriate remedies even though no penalty to be imposed on first instance prohibition. The Commission may also obtain undertakings from the parties to cease the uncompetitive practices.

8 Personal Liability Personal Liability Provisions Problem The Act does not provide for remedies against directors or officers of firms that cause firms to engage in cartel activities; In many competition jurisdictions, cartel activity is subject to criminal sanctions including the possible imprisonment of individuals found guilty of cartel conduct. Recommendation Introduce financial sanctions against individuals but cap the fine, that is, liable for a fine not exceeding R or 10 years imprisonment or both (incorporated section 74 of the Act). As a further disincentive – disbarring of directors convicted of cartel conduct will be dealt with in the Companies Bill.

9 Excusal or leniency clauses Problem The Act does not expressly provide for leniency or excusal of respondents from a complaint if they disclose information on their involvement in cartel activities; Currently the Commission excuses respondents through its Leniency Policy; However there exists legal uncertainty regarding the Commission’s Leniency Policy. Solution Provide express authority for the Commission to excuse, from a complaint, a respondent if it considers it just and reasonable to do so. This will not preclude any person that suffered damages from pursuing civil claims against that particular respondent.

10 Concurrent jurisdiction Concurrent jurisdiction provisions Problem Sec 3 of the Act provide for concurrent jurisdiction in respect of competition matters in regulated industries; Such concurrency has to be managed through agreement between the Commission and the regulatory authority for the relevant industry; There exist inconsistencies in the Electronic Communications Act (EC Act) and the Competition Act in the exercise of authority on competition matters in the telecommunications sector; Section 67(9) of the EC Act removes concurrency by stating that the Act is subject to EC Act; This raises legal uncertainty on the jurisdiction of the Competition Authorities in dealing with anti-competitive behavior in the telecoms sector; This effectively changed the general policy stance on concurrent exercise of authority over competition matters in regulated industries; In addition, the Act is silent as to which legislation should prevail in instances of conflict or inconsistencies.

11 Concurrent jurisdiction Recommendations As a general policy, the Bill proposes that the Competition Act should be the central governing statement of competition policy in SA but recognize other industry specific legislation through concurrent jurisdiction; Therefore the Act should prevail only to the extent of the conflict or inconsistency if such conflict is not resolved by the agreements provided for in the Act; The Bill also proposes consequential amendment to sec 67(9) of the EC Act to reinstate the concurrency and provide certainty e.g. by merely replacing the word “subject to” with “ despite”.

12 Consultation Process The dti commenced with the consultation of key stakeholders in April 2007 on the policy framework. The following stakeholders were consulted on both policy and Amendment Bill:  Competition Commission & Competition Tribunal  Business Unity of SA (BUSA)  Economic Cluster / FOSAD  National Treasury  Presidency  Dept of Communication  SA Property Owners Association (SAPOA)  Labor Constituency of Nedlac (FAWU, Cosatu, Numsa)  Dept of Transport  Dept of Minerals and Energy  National Energy Regulator of SA (NERSA)  ICASA  Competition Law Committee of the Law Society of Northern Province  Dept of Justice and Constitutional Development

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