Competition Amendment Bill 2008: Strengthening Market Competitiveness

1. RESPONSES TO STAKEHOLDER ORAL & WRITTEN SUBMISSIONS DATE: 5 August 2008 Zodwa Ntuli – DDG: Consumer and Corporate Regulation Division (CCRD) Fungai Sibanda – CD: Policy & Legislation (CCRD) Nomfundo Maseti – D: Competition & Consumer Policy & Law (CCRD) Segoane Monnye – DD: Competition & Consumer Policy and Law (CCRD) Competition Amendment Bill, 2008

2. Purpose • The purpose of this presentation is to provide the dti’s initial response to issues raised by stakeholders during public hearings

3. Introduction Need for a focused review of the existing competition law regime • To strengthen the Act in order to deal effectively with cartels by introducing personal liability • To deal effectively with uncompetitive outcomes manifest through artificially high prices to the detriment of consumers especially in highly concentrated markets • To respond to Industrial Policy objectives such as competitiveness, and to amend the Act to give effect to the Industrial Policy Action Plan

4. Introduction • High barriers to entry and artificially prices in certain key sectors identified as binding constraints to growth in AsgiSA document • Competition Policy Review is part of Presidency’s Programme of Action, therefore a priority for government • Enabling the Competition Commission to play a more proactive role in investigating markets & taking measures to ensure market transparency

5. Scope of the Bill The Bill focuses on five broad areas: Concurrent jurisdiction – Seeks to clarify roles between competition authorities and sector regulators when dealing with competition matters in regulated industries. Complex Monopolies – It is intended to deal effectively with uncompetitive outcomes resulting from multi-firm conduct that restricts or distorts competition to the detriment of consumers. Market Inquiry – It is exploratory in nature and intended to inquire on competition deficiencies. It serves as a tool to enable the Commission to play a more proactive role in investigating markets. Personal Liability – It is intended to provide an effective deterrent on cartel activities by introducing criminal sanctions against individuals who cause firms to engage in illicit cartel activities. Incorporation of Leniency Policy – It is a tool used to detect cartel activity by encouraging those involved in cartel activities to come forward and disclose information to the Competition Commission in return for leniency.

6. Concurrent jurisdiction • Comments: • Clarification of roles supported by regulators i.e. ex ante and ex post regulation • Concern in payments system that Commission may take away powers of regulator • Concern that default provision trumps other legislation • Status and publication of MOU’s • dti Response • The policy rationale was to provide clarity and certainty on overlapping jurisdiction on competition matters • Clarification of roles in legislation is important to avoid forum shopping and protracted legal challenges • Role of MOAs should purely be to provide a framework for cooperation • Default position to be deleted because it does not achieve the intended purpose

7. Complex monopolies • Comments: • Threshold would apply to overwhelmingly majority of markets in SA • Target structure of the market as opposed to behaviour of firms • Provides for “no fault offence” - involuntary conduct • Undefined terminology e.g. exploitative pricing • Complex monopolies repealed in established international jurisdictions • Remedies unclear • Delete the provision and deal with the problem under market inquiry

8. Complex monopolies • dti Response • The rationale is to deal proactively with uncompetitive outcomes arising from multi-firm conduct especially in highly concentrated markets • Text will be revised to deal with coordinated conduct by firms as opposed to structure • Terminology revised to maintain consistency • The provision is meant to deal with challenges in the SA economy • Provided remedies in form of declaratory order with conditions to correct ameliorate • Market inquiry is a tool to uncover why markets are not working to serve consumer’s needs, but would not deal with identified complex monopoly conduct

9. Market enquiries • Comments: • No legal test / trigger for market enquiry • No powers to subpoena documents or require production of evidence under oath • Scope of the enquiry and time frame not clarified • Transparency: publication of the report & opportunity for the affected parties to comment on the report

10. Market enquiries • dti Response • The policy rationale was to amplify the existing provisions on market inquiry to enable the Commission to undertake market inquiry in a structured, effective and transparent manner • the dti’s position was not to include subpoena powers as such would require a legal test for initiation of a market inquiry • A legal test would be subject to legal challenge which would complicate the process • However, the dti is considering incorporating subpoena powers with the legal test consistent with the purpose of section 21(2)(b) of the Act • The Bill already allows for evidence to be given under oath • Scope and time frame will be incorporated in the terms of reference • Publication of the report will be incorporated in the Bill

11. Leniency Policy • Comments: • The Bill makes no reference to Leniency Policy of the Commission • Scope for excusal on “just and reasonable grounds” is broad • Leniency Policy applicable to firms but NOT directors for criminal prosecution • Bill does not extend leniency for civil liability • Application of Leniency Policy by Authorities problematic in that it does not take into account severity of damage suffered by complainants • No consultation with complainants before leniency is granted

12. Leniency Policy • dti response: • The rationale was to give legal backing to the leniency policy of the Commission despite the fact that the commission already has prosecutorial discretion • The terminology is revised to be consistent with the leniency policy • The grounds were broad to cover other tools the Commission may employ • The Bill will be revised to extend leniency to individuals • The intention is not to indemnify any person from civil liability as that would affect third party rights to redress • Leniency granted does not preclude the complainant or any person from pursuing civil claim for damages • The Commission may consider consulting with complainants in terms of the leniency policy

13. Personal Liability • Comments: • General • Lead to unintended consequences and weaken rather than strengthen competition authorities • Too early to determine whether administrative fines are an effective deterrent • Creation of separate streams of jurisprudence • Significant departure from the current regime decriminalising competition law • Constitutional challenges • Admissibility of Competition Tribunal’s finding in criminal courts due to different standards of proof • Violation of a right to a fair trial: Presumption of innocence until proven guilty • Introduction of negligence for criminal sanctions

14. Personal Liability • Impact on consent order • Serves as a disincentive for firms to enter into consent order • Directors will be loathe to conclude consent orders • Consent orders should not indemnify or be used as a plea bargain by directors to absolve them from further prosecution • Impact on Leniency Policy • Uncertainty on Leniency Policy as Commission lacks authority to offer leniency for criminal prosecutions • Undermine Commission’s ability to investigate and prosecute cartels • Directors will be loathe to volunteer information for fear of prosecution

15. Personal Liability • dti response • General comments • The rationale was to sharpen the efforts on cartel enforcement by providing severe penalties • The intention is to introduce an element of punishment to serve as an effective deterrent and threat to personal freedom • Sanctioning individuals inevitably allows for two separate processes since individuals can be dealt with through criminal courts • The Bill does not criminalise the regime or anti-competitive practices but introduces a scheme holding individuals criminally liable

16. Personal Liability • Constitutional challenges • The intention was not to re-open the findings of the Tribunal when proceeding against an individual • This meant that one element of the offence is decided on a lower standard i.e. balance of probabilities • The Bill is revised to allow two separate processes to address the problem • The dti through Nedlac has sought legal opinion and will revise the provision based on the opinion

17. Personal Liability • Impact on consent order • The intention is to effectively deter and discourage people from engaging in cartel activities • A firm makes a decision to settle through a consent for various factors such as the strength of evidence against it, speedy resolution of the matter, litigation costs and reputational risk • Consent orders require no admission of guilt • The argument on negative impact on consent orders is unfounded • Consent orders allows for speedy resolution of matters but does not absolve individuals from further prosecution

18. Personal Liability • Impact on Leniency Policy • An authority with competent jurisdiction will grant leniency from criminal prosecution • The leniency policy is an ancillary enforcement tool for cartels • Leniency policy and criminal sanctions are complementary and work well together. Leniency policy is a tool for detection whereas criminal sanctions serve as an essential deterrent • Criminal sanctions enhance the effectiveness of leniency as it increases the cost of being caught • The argument that criminal sanctions impact negatively on the efficiency of leniency is artificial as there is no evidence showing such outcome • The perceived negative impact can be remedied by extending leniency to individuals in terms of the Bills • Information indicates that most cases, if not all, are not a voluntary initiative by a firm or directors but are a direct result of an action by the Commission

19. Conclusion • There is no fundamental objection to the principles. Concerns raised by stakeholders are rather technical in nature and can be addressed through revision of specific areas of the Bill. • The Bill was extensively discussed and debated at Nedlac. The Nedlac Report will be presented before this Committee on 8 August 2008. • the dti engaged extensively with key stakeholders especially the competition authorities from a policy review process and during the drafting of these amendments. • The proposals are aimed at advancing government’s initiatives on promotion of economic growth and competitiveness. • It also responds to anti-competitive practices that undermine social well being of the citizens e.g. prevalence of cartel activity in various sectors of the economy. • Therefore the assertion that this Bill is not urgent undermines the significance of the above efforts.

20. THANK YOU