Business & Economy

Monday, 15 July 2019 13:35

Partial commencement of the Competition Amendment Act 2018

Written by 

by Daryl Dingley & Desmond Rudman, Partners at Webber Wentzel

​Competition law compliance is more important than ever before​

Certain sections of the Competition Amendment Act 2018 (the Amendment Act) came into effect today, 12 July 2019 by the publication of Proclamation No. 46 of 2019 in Government Gazette No. 42578.

These amendments will have a substantial effect on mergers, market inquiries and the ability of government to intervene in competition matters. Significantly, the amendments also provide for the imposition of administrative penalties for all contraventions, including first time contraventions, of the Competition Act 89 of 1998 (the Act). Businesses across South Africa will need to exercise vigilance in a climate of increased risk, where the levels of exposure are constantly rising.

Some of the most contentious provisions of the Amendment Act have not come into effect - these relate to price discrimination and the abuse of buyer power by dominant firms against small and medium businesses or firms controlled or owned by HDPs and the obligation to notify foreign acquisitions for separate assessment of whether they may adversely affect the country's national security interest.

Although the imposition of penalties for first time contraventions of the Amendment Act has come into effect as referred to above (i.e. the "yellow card" has been removed), the Minister of Trade and Industry (the Minister) is yet to publish regulations on the application of restrictive horizontal and vertical practices. This seems to be an omission as it was anticipated that these regulations would clarify the type of conduct between competitors on the one hand, and between customers and suppliers on the other hand, that would be regarded as prohibited.

A summary of the key amendments now in effect is set out below:

The definitions of "medium-sized business" and "small business"

From the outset, one of the key objectives of the Amendment Act has been to provide an equal opportunity for small and medium-sized businesses to participate fairly in the economy. Many of the new provisions are premised on achieving this objective.

Importantly, the Minister has introduced new definitions of small and medium-sized businesses. These definitions will be key to determine whether suppliers or customers fall within these categories - if so, many of the new amendments will be directed to towards empowering these businesses.

  • "Medium-sized business" - means a separate and distinct business entity, predominantly carried out in any sector or subsector of the economy mentioned in column 1 of the Schedule to the Gazette (available here - which lists sectors such as agriculture, mining, construction, retail etc.), and satisfying the applicable criteria for a medium-sized business mentioned in columns 3 and 4 of the Schedule (which sets out certain thresholds based on the total full-time equivalent paid employees and total turnover)
  • "Small business" - means a separate and distinct business entity, predominantly carried out in any sector or subsector of the economy mentioned in column 1 of the Schedule to the Gazette and satisfying the applicable criteria for a small or micro business mentioned in columns 3 and 4 of the Schedule

Abuse of dominance

Excessive pricing

  • The inclusion of a list of relevant factors to take into account when determining whether a price is excessive such as the respondents price-cost margin and internal rate of return, the length time prices have been charged and the structural characteristics of the relevant market.
  • Provision for the Minister to publish regulations on how to determine excessive prices (However, these regulations have yet to be published).

Exemptions

  • Additional grounds for the Competition Commission (Commission) to grant an exemption, including competitiveness and efficiency gains that promote employment or industrial expansion.
  • A new provision which empowers the Minister to issue regulations exempting an agreement or practice or category of agreements or practices from the application of the Act.

Mergers

  • A provision which seeks to highlight that even when the Commission and Competition Tribunal (Tribunal) conclude that a merger will not substantially prevent or lessen competition, they must still consider the public interest issues relating to the merger.
  • The introduction of additional factors for the competition authorities to consider when assessing a merger such as:
    • the extent to which a party to a merger is related to another firm in a related market through ownership, or common shareholders or directors; and
    • any mergers engaged in by a party to a merger for such period as may be stipulated by the Commission.

These provisions are aimed at targeting the concerns around the exchange of competitively sensitive information, creeping concentrations and the erection and maintenance of strategic barriers to entry. 

The introduction of additional public interest considerations namely, the effect of the merger on -

    • the ability of small businesses to effectively enter into, participate in and expand within the market; and
    • 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.
  • An amendment which empowers the Commission or Tribunal to make any appropriate decision regarding any condition relating to a merger.
  • A provision allowing the Minister to appeal against Commission or Tribunal decisions to the Competition Appeal Court.

Advisory opinions

After having suspended its advisory opinion service (which until now was discretionary), the Commission is now statutorily obliged to issue non-binding advisory opinions.

Impact Studies

In terms of this amendment, the Commission may study the impact of earlier decisions by the Commission, Tribunal or Competition Appeal Court. These impact study reports will then be published in the Government Gazette and tabled by the Minister in the National Assembly.

Market Inquiries

  • These amendments are aimed at enhancing the market inquiry process and ensuring that its outcomes include measures to address concentration and the transformation of ownership.
  • Market inquiries are required to be completed in 18 months.
  • It is particularly important to note that the Commission’s potential findings and actions following a market inquiry will now be binding, unless challenged in the Tribunal.
  • The expanded market inquiry section also places a duty on the Commission to remedy structural features identified as having an adverse effect on competition in a market, including the use of divestiture orders.
  • The Amendment Act provides that a divestiture may only be competently imposed by the Tribunal on the recommendation of the Commission, given the far-reaching nature of this remedy.

Administrative penalties

  • The amendments provide for the imposition of administrative penalties for all contraventions of the Act, even offences in respect of non-specific contraventions - for example, in terms of the amendments, an administrative penalty may be imposed for all prohibited practice offences. Previously, only cartel conduct, resale price maintenance and certain abuse of dominance conduct could result in an administrative penalty for a first time offence.
  • Significantly, a new provision increases the maximum administrative penalty to 25% of a firm’s annual turnover, if a firm's anti-competitive conduct is substantially a repeat by the same firm of conduct previously found to be a prohibited practice.
  • In addition, the administrative penalty may be increased by the turnover of any firm that controls the firm that is found to have engaged in a prohibited practice and to make the controlling firm jointly and severally liable for the penalty

Following this historic development, new and complex competition law issues are likely to emerge. Businesses of all sizes and across all industries must be cognisant of the significant practical implications of the Amendment Act and need to start thinking about revising compliance policies, providing additional competition law training to their employees, amending trading contracts and practices, as well as reviewing merger and acquisition strategies and timelines.

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