Business Unity South Africa (Busa) economic and trade policy director Olivier Serrao has called for the preservation of the “yellow card” regime in the Competition Amendment Bill.
The current version of the Bill does away with the “yellow card” regime, which is currently in place through the amended Section 59 and provides for an administrative penalty for a first-time offence in relation to all of 8(1), he explained.
The yellow card regime, Serrao noted in a presentation to the Parliamentary Committee on Economic Development, provides for an area of less prescriptive regulation in cases where conduct is not automatically identified as anticompetitive.
Busa, therefore, views it as necessary to maintain provision in the legislation for such borderline conduct to be scrutinised and strengthened, but notes that the treatment thereof needs to be differentiated from clearly anticompetitive behaviour.
In Busa’s view, Serrao told the committee, a viable middle ground would be to do away with the yellow card protection once the Competition Tribunal or Competition Appeal Court has issued a final judgement that particular conduct is prohibited.
This proposal, he explained, would bind other firms in relation to the same or similar conduct, going forward.
Government, however, is concerned that retaining the yellow card may open the door to vexatious or frivolous litigation.
In response to this, Serrao pointed out that this concern could be mitigated in the legislation and discouraged through enabling the Competition Tribunal to award costs against parties found guilty of vexatious or frivolous litigation.
This, he elaborated, has the benefit of retaining the advantages of the yellow card regime while addressing government’s concerns.
Serrao further noted that Section 9 of the Act, as it currently stands, prohibits price discrimination by a dominant firm if the price discrimination implicates equivalent transactions and is likely to result in a substantial lessening or prevention of competition.
This discrimination may be justified on certain grounds, he said, pointing to allowances for differences in cost of supply, meeting price competition and changing market conditions.
Busa supports the Minister’s objective behind the proposed amendments to this section to address the potential effects of anticompetitive price discrimination on small and medium-sizedbusinesses and firms that are controlled by historically disadvantaged persons.
However, Serrao highlighted Busa’s concern around the move away from the existing test of establishing a substantial lessening of competition (SLC).
For this reason, he explained that Busa would be supportive of provisions that specifically protect small businesses and firms owned by historically disadvantaged persons, while retaining the overall SLC test.
In addition, Busa had a number of concerns regarding the market enquiry provisions in the draft Bill.
The proposals in the Bill envisage a limited role for the tribunal in exercising oversight, Serrao explained, pointing out that the tribunal constitutes an important safeguard and has the capacity to regulate complex findings arising from market inquiries.
The tribunal should have a role in developing recommendations, he said.
On Busa’s behalf, Serrao proposed that no binding remedy may be imposed if a finding by the commission, which has been confirmed by the tribunal, based on SLC, is absent.
This should be subject to appeal, he said.
He further suggested that the trigger for a market inquiry should be on the basis of credible information and should take place in two stages.
Firstly, an initial fact-finding exercise should take place through requests for information, which will then be followed by a “full-blown” market inquiry on the basis of anticompetitive features made visible in the fact-finding exercise.
While Busa did not argue against the concept when it was raised in the context of the National Economic Development and Labour Council engagements, Serrao pointed out that there are justifiable concerns around how this provision will be implemented in practice.
“It will be incumbent on the executive to use these new-found powers in a manner that strikes an effective balance between securing South Africa’s national interest and encouraging investment,” he stated.
Interventions in this regard, he added, should not be seen as being exercised arbitrarily or result in undue delays in merger proceedings.
In Busa’s view, Serrao explained, it is essential that these powers are used responsibly and that government provides maximum guidance to the market on government’s approach to national security in terms of policy and executive transparency, as well as communication interventions through information transparency.
Busa, meanwhile, largely endorses the objectives of the Competition Amendment Bill, while supporting the promotion of entry into market of small and medium-sized businesses and firms owned by historically disadvantaged persons.
However, Serrao pointed out that a balance is required between addressing anticompetitive practices and behaviour, dealing with markets that are exclusionary and enabling investment and growth in the economy.
Another key concern for Busa is the initial diagnosis of the problem, while another concern is on how to define market share.
Market share could refer to a firm’s participation in certain product lines in a market, or its share in the market, Serrao explained, but said the debate is “simply not academic if it informs the use of some of the powers created in the envisaged legislation”.