Competition Amendment Bill, 2008 RESPONSES TO STAKEHOLDER ORAL & WRITTEN SUBMISSIONS DATE: 5 August 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)

Purpose The purpose of this presentation is to provide the dti’s initial response to issues raised by stakeholders during public hearings

Introduction Need for a focused review of the existing competition law regime To strengthen the Act in order to deal effectively with cartels by introducing personal liability To deal effectively with uncompetitive outcomes manifest through artificially high prices to the detriment of consumers especially in highly concentrated markets To respond to Industrial Policy objectives such as competitiveness, and to amend the Act to give effect to the Industrial Policy Action Plan

Introduction High barriers to entry and artificially prices in certain key sectors identified as binding constraints to growth in AsgiSA document Competition Policy Review is part of Presidency’s Programme of Action, therefore a priority for government Enabling the Competition Commission to play a more proactive role in investigating markets & taking measures to ensure market transparency

Scope of the Bill The Bill focuses on five broad areas: Concurrent jurisdiction – Seeks to clarify roles between competition authorities and sector regulators when dealing with competition matters in regulated industries. Complex Monopolies – It is intended to deal effectively with uncompetitive outcomes resulting from multi-firm conduct that restricts or distorts competition to the detriment of consumers. Market Inquiry – It is exploratory in nature and intended to inquire on competition deficiencies. It serves as a tool to enable the Commission to play a more proactive role in investigating markets. 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 leniency.

Concurrent jurisdiction Comments: Clarification of roles supported by regulators i.e. ex ante and ex post regulation Concern in payments system that Commission may take away powers of regulator Concern that default provision trumps other legislation Status and publication of MOU’s dti Response The policy rationale was to provide clarity and certainty on overlapping jurisdiction on competition matters Clarification of roles in legislation is important to avoid forum shopping and protracted legal challenges Role of MOAs should purely be to provide a framework for cooperation Default position to be deleted because it does not achieve the intended purpose Concurrent jurisdiction  

Threshold would apply to overwhelmingly majority of markets in SA Complex monopolies Comments: Threshold would apply to overwhelmingly majority of markets in SA Target structure of the market as opposed to behaviour of firms Provides for “no fault offence” - involuntary conduct Undefined terminology e.g. exploitative pricing Complex monopolies repealed in established international jurisdictions Remedies unclear Delete the provision and deal with the problem under market inquiry

Terminology revised to maintain consistency Complex monopolies dti Response The rationale is to deal proactively with uncompetitive outcomes arising from multi-firm conduct especially in highly concentrated markets Text will be revised to deal with coordinated conduct by firms as opposed to structure Terminology revised to maintain consistency The provision is meant to deal with challenges in the SA economy Provided remedies in form of declaratory order with conditions to correct ameliorate Market inquiry is a tool to uncover why markets are not working to serve consumer’s needs, but would not deal with identified complex monopoly conduct

No legal test / trigger for market enquiry Market enquiries Comments: No legal test / trigger for market enquiry No powers to subpoena documents or require production of evidence under oath Scope of the enquiry and time frame not clarified Transparency: publication of the report & opportunity for the affected parties to comment on the report

The Bill already allows for evidence to be given under oath Market enquiries dti Response The policy rationale was to amplify the existing provisions on market inquiry to enable the Commission to undertake market inquiry in a structured, effective and transparent manner the dti’s position was not to include subpoena powers as such would require a legal test for initiation of a market inquiry A legal test would be subject to legal challenge which would complicate the process However, the dti is considering incorporating subpoena powers with the legal test consistent with the purpose of section 21(2)(b) of the Act The Bill already allows for evidence to be given under oath Scope and time frame will be incorporated in the terms of reference Publication of the report will be incorporated in the Bill

Leniency Policy Comments: The Bill makes no reference to Leniency Policy of the Commission Scope for excusal on “just and reasonable grounds” is broad Leniency Policy applicable to firms but NOT directors for criminal prosecution Bill does not extend leniency for civil liability Application of Leniency Policy by Authorities problematic in that it does not take into account severity of damage suffered by complainants No consultation with complainants before leniency is granted

Leniency Policy dti response: The rationale was to give legal backing to the leniency policy of the Commission despite the fact that the commission already has prosecutorial discretion The terminology is revised to be consistent with the leniency policy The grounds were broad to cover other tools the Commission may employ The Bill will be revised to extend leniency to individuals The intention is not to indemnify any person from civil liability as that would affect third party rights to redress Leniency granted does not preclude the complainant or any person from pursuing civil claim for damages The Commission may consider consulting with complainants in terms of the leniency policy

Creation of separate streams of jurisprudence Personal Liability Comments: General Lead to unintended consequences and weaken rather than strengthen competition authorities Too early to determine whether administrative fines are an effective deterrent Creation of separate streams of jurisprudence Significant departure from the current regime decriminalising competition law Constitutional challenges Admissibility of Competition Tribunal’s finding in criminal courts due to different standards of proof Violation of a right to a fair trial: Presumption of innocence until proven guilty Introduction of negligence for criminal sanctions

Impact on consent order Personal Liability Impact on consent order Serves as a disincentive for firms to enter into consent order Directors will be loathe to conclude consent orders Consent orders should not indemnify or be used as a plea bargain by directors to absolve them from further prosecution Impact on Leniency Policy Uncertainty on Leniency Policy as Commission lacks authority to offer leniency for criminal prosecutions Undermine Commission’s ability to investigate and prosecute cartels Directors will be loathe to volunteer information for fear of prosecution

dti response General comments Personal Liability dti response General comments The rationale was to sharpen the efforts on cartel enforcement by providing severe penalties The intention is to introduce an element of punishment to serve as an effective deterrent and threat to personal freedom Sanctioning individuals inevitably allows for two separate processes since individuals can be dealt with through criminal courts The Bill does not criminalise the regime or anti-competitive practices but introduces a scheme holding individuals criminally liable

Constitutional challenges Personal Liability Constitutional challenges The intention was not to re-open the findings of the Tribunal when proceeding against an individual This meant that one element of the offence is decided on a lower standard i.e. balance of probabilities The Bill is revised to allow two separate processes to address the problem The dti through Nedlac has sought legal opinion and will revise the provision based on the opinion

Impact on consent order Personal Liability Impact on consent order The intention is to effectively deter and discourage people from engaging in cartel activities A firm makes a decision to settle through a consent for various factors such as the strength of evidence against it, speedy resolution of the matter, litigation costs and reputational risk Consent orders require no admission of guilt The argument on negative impact on consent orders is unfounded Consent orders allows for speedy resolution of matters but does not absolve individuals from further prosecution

Impact on Leniency Policy Personal Liability Impact on Leniency Policy An authority with competent jurisdiction will grant leniency from criminal prosecution The leniency policy is an ancillary enforcement tool for cartels Leniency policy and criminal sanctions are complementary and work well together. Leniency policy is a tool for detection whereas criminal sanctions serve as an essential deterrent Criminal sanctions enhance the effectiveness of leniency as it increases the cost of being caught The argument that criminal sanctions impact negatively on the efficiency of leniency is artificial as there is no evidence showing such outcome The perceived negative impact can be remedied by extending leniency to individuals in terms of the Bills Information indicates that most cases, if not all, are not a voluntary initiative by a firm or directors but are a direct result of an action by the Commission

Conclusion There is no fundamental objection to the principles. Concerns raised by stakeholders are rather technical in nature and can be addressed through revision of specific areas of the Bill. The Bill was extensively discussed and debated at Nedlac. The Nedlac Report will be presented before this Committee on 8 August 2008. the dti engaged extensively with key stakeholders especially the competition authorities from a policy review process and during the drafting of these amendments. The proposals are aimed at advancing government’s initiatives on promotion of economic growth and competitiveness. It also responds to anti-competitive practices that undermine social well being of the citizens e.g. prevalence of cartel activity in various sectors of the economy. Therefore the assertion that this Bill is not urgent undermines the significance of the above efforts.

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