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Upcoming competition law amendments to focus on economic concentration

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Upcoming competition law amendments to focus on economic concentration

Photo by Duane Daws
Competition Appeal Court Judge President Dennis Davis

9th November 2017

By: Terence Creamer
Creamer Media Editor

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The chairperson of the Ministerial advisory panel set up to propose ways of strengthening the Competition Act to deal with “persistently high levels of economic concentration” in the South African economy says the draft legislation should be released for public comment during November.

Addressing members of the competition law committee of the Law Society of the Northern Provinces in Johannesburg on Thursday, Advocate Michelle Le Roux reported that the panel had provided its input to Economic Development Minister Ebrahim Patel, who would publish draft amendments for public comment once he had finalised consultations with other stakeholders.

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Patel announced the proposed amendments in his Budget Vote speech in May, indicating that the changes could compel the competition authorities to consider the ownership profile, as well as structural impediments to market entry, when assessing mergers or complaints of anti-competitive conduct.

Le Roux said the panel’s advice to the Minister sought to eschew “blunt interventions” in favour of “new and enhanced processes that should deliver evidence- and impact-based remedies, if implemented properly”. The panel’s recommendations also sought to navigate the paradox contained in the legislation of believing in markets “even if they fail us every single day”.

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The starting point, however, was an acknowledgment of the current imperfections of the South African economy, where concentration persisted and where the ownership remains racially skewed. Research conducted by the Competition Commission into mergers since 1999 showed that more than 70% of sectors, with defined product markets, had dominant firms within them.

The panel had deliberated on where competition authorities encountered issues of concentration and ownership in the Act and had proposed ways to create or enhance the process of scrutiny during merger adjudications, abuse of dominance cases and proactive market inquiries.

Particular attention had been paid to enhancing market inquiries so that these could become focused and targeted, and to create mechanisms to deal with those structural problems in a market that could not be dealt with by the Competition Commission, which focused on the conduct of market participants.

“The types of structural question we are worrying about are, obviously, concentration, barriers to entry, the effects of regulation in a market and whether there is any current or historic advantage that firms enjoy. While some of the market outcomes that could warrant an inquiry could include problems relating to price, choice, quality, innovation, entry and exit.”

There were also changes proposed to empower the commission to “do more and better” in dealing with the issues of ownership and concentration.

Speaking during the same event, Competition Appeal Court Judge President Dennis Davis noted that South Africa’s Competition Act was already “extraordinarily ambitious” and went way beyond the scope of traditional competition law in the US and probably even in the European Union.

“The point I am making is that the Act poses enormously difficult challenges for both the Competition Tribunal and the Competition Appeal Court in trying to get it right – in trying to carve out an economic framework which makes sense of competition law,” Davis said, adding that it was necessary for competition-law practitioners to improve their understanding not only of the legislation, but also the economic concepts underpinning the arguments.

Le Roux said the architecture proposed by the panel advising the Minister sought to balance “justified intervention, while pushing back against over reach”.

“In our advice to the Minister, we have understood concentration to be a competition problem  . . . and we have understood public interest to include increasing the spread of ownership. We have, therefore, tried to be faithful to the architecture of the Act that we all know from the merger regime, where these concerns are equal, but are treated distinctly,” she explained.

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