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Competition law amendments may impact independence of competition authorities

Concerns about possible unfettered ministerial influence in competition matters.

Proposed changes to the Competition Act place the future independence of the competition authorities at risk, and some of the proposed provisions may even be susceptible to Constitutional challenges.

Lawyers and economists, including the former Competition Tribunal head David Lewis, expressed serious concerns about the legal and commercial implications of the expanded powers given to the Competition Commission and the Minister of Economic Development in the Competition Amendment Bill.

The bill was published in December and the time for public comments in the first round ended yesterday (January 31), despite requests for an extension in the light of sweeping changes.

Major concerns relate to expanded merger control provisions, public interest provisions to address ownership and control, additional powers in market inquiries and new ways to establish pricing abuses.  

Competition law expert Jerome Wilson SC said the “public interest ambitions” of Minister of Economic Development, Ebrahim Patel, and the commission have increased dramatically over the past few years.

The pressure to get a merger approved by the commission requires a significant amount of compromise to reach an agreement, he said at a seminar hosted by law firm Webber Wentzel in Johannesburg.

Many of the conditions imposed on the merging parties may have nothing at all to do with the competitive and true public interest consequences of the merger.

“It is rather a desire to improve the lot of other players in the market and to use the excuse of a merger to try and cut deals which would otherwise not have been available in the market.”

Wilson added that although there is a lot of sympathy to questions of concentration and transformation, the lack of certainty in respect of guidelines to be applied in merger proceedings make it really a problematic process.

“Indeed one might see – in less responsible hands – a degree of self-interest that manifests itself in conditions which are attached to merger control.”

He says there is a need for guidelines in law, which are certain and apparent in their meaning and application, so that all parties know where they stand.

Wilson said one understands that from a historic point of view – given the current structure of the South African economy – that there are concerns about competitiveness in the markets.

“Once transformation and deconcentration becomes values in themselves – which are unhooked from true competition law considerations as we historically understand them – the danger lies in unfettered discretion in the application of these principles. That is unattractive legally and commercially,” Wilson said.

James Hodge, managing partner at Genesis Analytics, said the “effective outlawing of price discrimination that is not cost justified” is driven by a very narrow agenda on public interest to protect small businesses.

He warned that businesses will adopt provisions in terms of price discrimination which may result in less competition, with the risk of harming the economy.

Changes to the role and powers of the minister in terms of the institution of market inquiries also raised concerns.

Competition lawyer Phumlani Ngcongo said the minister’s participation in market inquiries may be open for constitutional scrutiny. In terms of the bill the minister will have the power to require instead of merely requesting the institution of a market inquiry by the commission.

He is also given access to confidential information of all the parties involved in the specific sector which is under investigation.

A new test for a market inquiry is established which looks at features in the market that have an “adverse effect” on competition.

Hodge says the commission will now have the power to order remedies to address those features which prevents a well-functioning market. Under the current act its recommendations are not binding.

“Some remedies are incredibly costly to implement with very little benefit or some have massive unintended consequences. A lot more constraint needs to be placed on the commission.”

He said it is important to address the imbalance in power and equality in South Africa. Public interest considerations do assist with keeping social conflict at bay.

“However, the risk is when it becomes a matter of bargaining between ministers and big business. Then we are taking a step backwards in terms of general public interest in the democratisation of the economy.”

There are already signs of this happening, he said.

Michelle le Roux, chairperson of the Ministerial Advisory Panel regarding amendments to the act, said the bill still has a few rounds of public participation ahead. She expects this process to bring about “extensive revisions” to the current bill.

The criminalisation of competition offences has not been addressed in the bill.

Negotiations between the commission and the National Prosecuting Authority (NPA) on how it will be implemented is still ongoing, Le Roux said.

The NPA is, in terms of the Constitution, the only prosecuting authority. The role of the commission in determining one leg of the offence, without the NPA’s involvement, needs clarity.

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