Act should develop in line with South Africa’s growth

5th February 2010 By: Megan van Wyngaardt - Creamer Media Contributing Editor Online

Because South Africa is a developing country, experts believe that it should have a Competition Act that can develop as the country grows. The Act needs to tackle the aims of seeking to encourage competition that is appropriate to the characteristics of the South African economy, says law firm Webber Wentzel partner: competition law practice group Daryl Dingley.

The reason for a different policy in South Africa compared with other countries, such as the European Union (EU), lies in having a competition policy that is suited to the country’s political, socioeconomic and industrial requirements.

The EU’s competition policy is aimed at single-market integration, which seeks to stimulate the economy by boosting intra-European trade, as well as international trade. In South Africa, there is greater focus on the competitive process and the social balance that is inherent in this aspect and underpinned by the different characteristics of the South African economy.

South Africa has many public interest concerns that need attention, such as small to medium-sized enterprises, exports, and the spread of ownership and employment issues.

“Looking at South Africa’s history, one also finds that industries were very regulated and concentrated with different boards for different industries, such as the Maize Board and the Milk Board. This negatively effected the behaviour of firms, as it restricted com- petition and ultimately eliminated the drive to be first across the finishing line,” Dingley says.

In essence, the problem that arose with the concentration and regulation of such industries was the effect that the conduct of the participants in the sector had and, in due course, might have had on the performance of the sector as a whole – a problem that can be resolved by the introduction of a competition law.

“However, when looking at the purpose of competition law around the world, there are a couple of similarities between developing countries and developed countries in the sense that it is aimed at consumer choice, product price and general consumer welfare,” he says.

Further, Dingley explains that, in the South African Competition Act No 89 of 1998, there is an evident political undercurrent. An example of this is the Minister of Finance being able to intervene in banking mergers, or the Minister of Trade and Industry being able to intervene in merger transactions that effect employment, a particular industrial sector or region, international competitiveness, small businesses, or firms owned by previously disadvantaged persons, which illustrates the public interest aspect.

The eventual outcome is that South Africa has a competition policy that appeals to its social, political and economic aims, intertwined with its industrial policy.

“However, the recent amendment of the Act has also brought about a few concerns in industry, particularly with the suggested provisions for industry,” states Webber Wentzel competition law practice group head Martin Versfeld.

He explains that there are a few uncertain- ties as to the effect that these provisions might have.

The first concern is the complex monopolies provision, which is causing apprehension in industry. Versfeld says that practitioners have responded negatively to the provision. “The only jurisdiction that ever applied the complex monopolies provision to its Act was the UK, but this was later abandoned, as other ‘remedies’ were introduced and were already available under the abusive dominance provisions. Our position is much the same: adequate remedies lie in the abusive dominance provisions. The question that arises is: What are the competition authorities going to do, having established a complex monopoly? There are certainly suggestions that the authorities could intervene and force the disposal of part of the business and, if that were to happen, the authority would have to deal with the deprivation of property rights. If it ever got to that point, it would be challenged as being unconstitutional.”

The second concern lies within the market inquiries provision. However, Versfeld believes that this is a provision that has not really raised much alarm. “The competition authorities recognise, arising from banking enquiries, that, should cooperation from the banks be absent, they would face severe difficulty. The provision facilitates enquiries, presents a good public face and enables competition authorities to closely consider arising issues surrounding this subject,” he concludes.

Versfeld also highlights provisions of the Competition Act, which should have been amended and are cause for concern.

The first concern and a key area that should have been focused on is the exemptions provision. The predicament arises as a consequence of the closed exemptions list.

To this end, Versfeld suggests that the exemptions’ provision be amended to allow for a general discretion by the Competition Commission to exempt conduct that falls outside the existing list, but is to the benefit of consumers.

The final trepidation that he highlights is the single economic entity provision. Practitioners have recognised that the provision appears to be limited to circumstances where there is conduct, which is a direct con- travention of the Act, between competitors. The single economic entity applies in the sense that the companies involved fall under an umbrella company, but are not seen as competitors in the market.

“It is not clear if this is always the case and where it should apply in the case of a vertical relationship, such as a relationship between the customer and the supplier. It is also not clear whether it should apply in the context of mergers,” he concludes.