Category: politics

Government-mandated sharing of trade secrets: anticompetitive interference

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south_africa

Ms. Zulu proposes foreign competitors share trade secrets with SA counterparts

Perhaps it is time for increased advocacy initiatives within the South African government, or at a minimum a basic educational program in competition law for all its sitting ministers.
In what can only be described as startling (and likely positively anticompetitive), Lindiwe Zulu, the S.A. Minister of Small Business, has demanded foreign business owners to reveal their trade secrets to their smaller rivals.
The South African Competition Commission, and perhaps one of the Minister’s own fellow Cabinet members, minister Ebrahim Patel, who is de facto in charge of the competition authorities, can see fit to remind Ms. Zulu that fundamental antitrust law principles (and in particular section 4 of the South African Competition Act), preclude firms in a horizontal relationship from sharing trade secrets that are competitively sensitive – i.e., precisely those types of information Ms. Zulu now proposes to be shared mandatorily amongst competitors.
While SACC has utilized this provision with much success against big business in South Africa, it would be remiss not enforce the provisions of the Act without fear or favor should the traders act out on the instruction of the Minister.  It is also time that the Cabinet seeks to enforce business practices which comply with South African legislation.
BDLive‘s Khulekani Magubane reports in today’s edition (“Reveal trade secrets, minister tells foreigners“) that “foreign business owners in SA’s townships cannot expect to co-exist peacefully with local business owners unless they share their trade secrets, says Small Business Development Minister Lindiwe Zulu.”

Lindiwe Zulu. Picture: PUXLEY MAKGATHO

Lindiwe Zulu. Picture: PUXLEY MAKGATHO

“In an interview on Monday she said foreign business owners had an advantage over South African business owners in townships. This was because local business owners had been marginalised and been offered poor education and a lack of opportunities under apartheid.

“Foreigners need to understand that they are here as a courtesy and our priority is to the people of this country first and foremost. A platform is needed for business owners to communicate and share ideas. They cannot barricade themselves in and not share their practices with local business owners,” Ms Zulu said.”

Research fellow at the SA Institute for International Affairs Peter Draper said Ms Zulu’s remarks, underscored government’s mistrust of foreign investors which was also reflected in business regulations. “If you connect this to the broader picture, essentially this is part of a thrust to single out foreign business, which is contrary to the political message President Jacob Zuma went to portray in Davos. We are at a tipping point and we are going beyond it. You can only push foreign business so far before they disengage,” he said.Mr Draper agreed with Ms Zulu’s remarks on the effect of apartheid on local business owners in townships but said foreign business owners had to confront their own challenges with little state support.

“Apartheid did disadvantage black people and over generations it inhibited social capital. Many foreigners have trading entrenched in their blood. Wherever they go they bring social capital, networks and extended family. Is that unfair? I don’t think so. That’s life,” he said.

Ms Zulu’s comments show the about-turn in the African National Congress’ (ANC’s) ideology of Pan Africanism and in line with remarks by party leaders.

After a week of looting in Soweto last week, ANC secretary-general Gwede Mantashe told residents in Doornkop that immigration laws needed to be strengthened to protect the country from terror.

The creeping public-interest factor in antitrust: Still creeping or racing yet?

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Race to bottom: dilution of competition-law factors in South Africa?

As we have reported numerous times, both on the global policy front as well as in individual case reports, the South African competition regulators and their superiors in the economic development ministry have had their sights on placing a stronger emphasis on the “public interest” element inherent in the SA competition legislation — thereby diluting pure competition-law/antitrust analysis, as some might argue.

Recently, Minister Patel commended his “independent” team at the Competition Commission for not only doing a good job overall, but also in particular on the public-interest front, encouraging the systematic consideration of public interest by the Commission and the Tribunal.

His prepared remarks from the 8th Annual Competition, Law, Economics and Policy Conference in Johannesburg are now uploaded here.  In them, he emphasizes that competition policy is “rightly”…:

“… a subset of broader competitive policies, which in turn are part of our industrial policy framework. … Our law provides an opportunity, and indeed an obligation, to align corporate strategy (by which I refer to mergers or takeovers) with public interest considerations. … The increasing use of the public-interest requirements in evaluating mergers has been critical in ensuring that competition policy has a growing developmental impact, saving thousands of jobs and providing millions of rands to support small and emerging enterprises.”

On the independence of the enforcers, Mr. Patel had this to say:

This kind of alignment must in future, as in the past, respect the independence of the regulator. But all our agencies, however independent, work within the framework of national policies.

These remarks are fairly strong, indeed!  We leave it to our AAT readership to infer the consequences of these observations on future merger enforcement and on the true degree of independence of the Commission — you can read between the lines.

In a companion paper, entitled “What is competition good for – weighing the wider benefits of competition and the costs of pursuing non-competition objectives”, AAT’s own John Oxenham (Nortons) and Patrick Smith (RBB Economics) argue as follows:

Over the past five years, the South African competition authorities have increasingly struggled to balance a competition test with defined public interest criteria (Metropolitan, Kansai, Walmart). Other agencies (ICASA, NERSA), and government ministries more generally, have also wrestled with how competition policy might fit into wider government policies and even broader concepts of the “public interest”, including notions of equality, fairness and access. In this paper we discuss some of key events in this ongoing debate, and we anticipate some of the battles that are likely to come. Furthermore, we set out a rigorous framework and provide a review of the available research and literature to discuss the effects of competition (both positive and negative) in multiple dimensions, in order to assess how far a “pure competition” test might go in achieving a broad range of efficiency, growth, and employment objectives. Such a comprehensive and evidence based approach is essential in understanding the costs and benefits of the existing pursuit of multiple (and often apparently conflicting) objectives, and will allow decision makers to more logically assess the trade-offs that they will continue to be confronted with.

Patel commends his competition team

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south_africa

Minister finds praise for competition agencies, having increased fines “1000%”

The official South African news agency reports that Economic Development Minister Ebrahim Patel has lauded the country’s competition authorities as “remarkably effective over the past 15 years.”

“The competition authorities have done solid investigations as they have stepped up actions against cartels and promoted public interest consideration when conducting investigations,” he is quoted as saying at the 8th Annual Competition, Law, Economics and Policy Conference in Johannesburg. “The remedies and fines imposed by the competition authorities climbed ten fold compared to the previous five years, call it 1000 percent, reaching over R6 billion.”

Minister Patel said the competition authority had come into their own with solid pipelines of anti-cartel investigation, the systematic consideration of public interest and issues in merger acquisition.

Setting aside the unorthodox phraseology (“merger acquisition”) in the quoted paragraph, the Minister’s remarks indeed echo what we at AAT have observed for well over a year now, namely the renewed and increased focus of the competition agencies on so-called “public-interest” factors, in lieu of (or in addition to) traditional, classic antitrust considerations, such as market power, concentration/HHIs, and prediction of unilateral/coordinated effects of proposed mergers.

Bonakele advocates regulation in lieu of antitrust enforcement

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South African Competition Commissioner quoted as preferring legislative action rather than Commission action

In a BD Live article from today (“Competition policy ‘not best way to plug industrial loopholes’”), Linda Ensor reports on a presentation Tembinkosi Bonakele made to Parliament’s trade and industry portfolio committee.  In it, the head of the Competition Commission (“Commission”) remarked, according to the article, that “the application of competition law by the competition authorities was a slow process that should not be used to address loopholes in the implementation of industrial policy.”  Mr. Bonakele is quoted as noting that the “litigious nature of using competition policy as a mechanism to reduce prices was a ‘delayed remedy to the market’.”

The Acting Commissioner

At issue, in part, are the price levels of South Africa’s natural-resource sector, including a reference by Mr. Bonakele to “a loophole” in industrial policy and regulation, i.e., the Commission’s long-running investigation of alleged excessive pricing by Sasol Chemical Industries, which lasted about seven years prior to a ruling by the Competition Tribunal, in which Sasol was found guilty of excessive pricing of propylene and polypropylene products, fining it R534m.

Mr. Bonakele’s key suggestion was that there are alternative means for the government to intervene, e.g., through regulation.

 

Massmart reinstate retrenched employees

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Employee action taken after competition ruling

Following the March 2012 merger between Wal-Mart and Massmart, the Competition Appeal Court (“CAC”) ordered, as one of the merger conditions, that Massmart re-employ 503 former staff members who were retrenched in 2009 and 2010 as a result of the then proposed merger.

However, it would now appear as though Massmart has failed to comply with the condition. Reportedly, former employees of Massmart have lodged a complaint with Competition Commission (“the Commission”) relating to concerns over Massmart’s non-compliance of this condition.

Following the complaint, the Commission conducted a series of meetings with the South African Commercial Catering and Allied Workers Union (“SACCAWU”) and Massmart. The Commission concluded that Massmart had not complied with the condition imposed by the CAC and found that approximately 217 of the former employees had not been reinstated.

Following negotiations between the Commission, SACCAWU and Massmart, it was found that although Massmart had allegedly sent initial reinstatement offer letters out to former employees, many former employees, allegedly, did not receive the letter.

It was agreed that Massmart would re-employ 61 former employees, who had not received the letter, with 6 months back pay. In addition, Massmart would also re-employ at least 94 former employees, who had received the letter and had not responded to the letter, with 3 months back pay, if such employees accepted the offer by 30 September 2014.

Massmart is required to provide feedback relating to the progress of the implementation of the plan to the Commission over the coming months.

Competition Tribunal members re-appointed by President

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President Zuma re-appoints three Tribunal members

The President of the Republic of South Africa has made his decision to re-appoint Competition Tribunal Chairperson Norman Manoim for a second term now that his term has come to an end. Along with Mr Manoim, the President has also re-appointed full-time panel members Yasmin Carrim and Andreas Wessels for a further five years at the Tribunal.

For the past decade, the Tribunal has comprised three full-time panel members and up to eight part-time panel members can be appointed. For the first time, a fourth full-time panel member has been appointed, namely Ms Mondo Mazwai.

Two panel members who were not re-appointed are part-time panel members Professor Merle Holden and Dr Takalani Madima. The President has not announced whether two additional part-time panel members will be appointed to the Tribunal panel.

 

Minister’s grip over antitrust authorities further strengthened

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South Africa takes on more price regulation in planned amendment to Competition Act

BDLive’s Carol Paton reports that Economic Development Minister Ebrahim Patel – with whose involvement in competition policy AAT readers are well aware from reading our site – has further strengthened his grip on the country’s competition authorities.  He is said to be drafting amendments to the Competition Act in relation to dominant firms’ “excessive pricing” practices.  The amendments are to be introduced to Parliament in 2015.
The article quotes Mr. Patel’s Sunday interview, in which he said:

“The past five years indicated that we are serious about dealing with cartels. But the challenge that we have had is that the economy still has many formal monopolies or upstream producers who are able to impose high prices on downstream manufacturers. We have got to move with greater urgency to tackle the structural challenges.  Giving a dominant player the right to set its own price results is an unfairness. In the Sasol example, part of the remedy is for the firm to work with the competition authorities to develop a soft version of price regulation.”

Price regulation is an absolute taboo in U.S. antitrust law, and even under more interventionist and public-policy influenced EU standards, explicit price regulation is not practiced in the bloc’s 28 member states.
Sasol, the giant South African oil company, is said to be aware of the government’s plans, saying: “setting prices, in particular of traded goods, invariably leads to unsatisfactory outcomes.  South Africa’s joining the World Trade Organisation in 1995 took us forward to opening the economy to compete internationally, with prices being brought in line with international prices. Regulating prices to below gate price, is unlikely to lead to building long-term competitive industries.”

Patel not mincing words, diluting competition-law factors in mergers

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Economic Development Minister of South Africa, Ebrahim Patel, recently stated that the Competition Commission (“Commission”), South Africa’s key competition authority, will be asked to focus on jobs, industrialisation and small business development in lieu of ‘pure’ antitrust-law issues.

Patel stated that government would require the Industrial Development Corporation to focus on supporting black industrialists, and on the competition authorities to promote economic transformation “not as a by-product of but an explicit objective of competition policy.” According to Patel, competition bodies are in a position to contribute directly to the state’s objective of creating a more equal economy, where workers shared in the benefits of growth. His department is allegedly already in talks with the construction industry on a restitution package to redress collusion and price fixing. The end result, he stated, would be that larger companies will provide funds to support small producers and local suppliers.

Patel’s controversial views have already influenced Commission merger decisions and can clearly be seen in the recent Afgri/AgriGoupe case, where the authority entered into an agreement with the foreign buyer of the local grain and poultry company Afgri, requiring the new owners to contribute R90 million ($9m) to a fund to support small-hold farmers with training and loans.

Based on Mr. Patel’s latest pronouncements, South Africa is on a path to politicizing antitrust law and making pure competition considerations a secondary objective to public-interest considerations.

Competition agencies to split up, abandon dual roles

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Dual role of Commission prompts constitutionality questions

As Portia Nkani reports in the Botswana Gazette, the country’s two competition-law authorities are slated to be separated in the near future.  Botswana – a COMESA member state – has both a Competition Commission and Competition Authority.  Concerns over the dual roles of the Competition Commission (it is, since January 2011, both the strategy-setting administrative entity supervising the Authority and a quasi-judicial agency) have reportedly led to the structural change in organization.

The Chairman of the Competition Commission, Dr Zein Kebonang purportedly has voiced support for the decision to separate the two functions and agencies, saying “that regular contact between Commission and CA officials could give raise to reasonable appreciation of bias. ‘The independence and impartiality of Commissioners cannot be guaranteed when it doubles up as a board and as a tribunal. Besides relational bias, the likelihood of informational bias is also far too great. Sitting as a Board, the Commission acquires prior knowledge of disputes that are to be adjudicated before it as a tribunal. Undoubtedly, prior knowledge of a dispute may operate in the minds of the Commissioners and thus deprive the parties that appear before them a proper hearing,'” he has written in a position paper.

Procedural fairness demands that investigative and adjudicative functions must be kept separate. This is desirable because competition law and policy must be implemented in an objective, impartial and transparent manner. Unless the Competition Commission and the Competition Authority are afforded independence from each other, they are unlikely to objectively decide matters presented before them and the risk of bias will forever be present,’” he said, adding that public confidence and trust can only be enhanced if the adjudicative and administrative function were separated.

The initial call for the split of the authorities was made by lawyers for panel-beating companies under investigation last year (see article here):

Sadique Kebonang, counsel for one of the parties, had argued that the relationship between the agencies was “too intimate”: “The main test here is what the ordinary man out there perceives the two entities to be.”

“New” antitrust enforcer takes on additional task of consumer protection

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The Gambian Competition Commission has changed its name and enlarged its mandate

With the passage of Consumer Protection Act 2014, the Gambia Competition Commission has changed its name to The Gambia Competition and Consumer Protection Commission (GCCPC).  The rationale for inclusion of the broader task of consumer protection (in addition to antitrust enforcement of the Competition Act of 2007) was, perhaps somewhat analogous to other sister agencies worldwide (e.g., the U.S. Federal Trade Commission, which likewise has a similar dual mandate), described as follows by the the minister for
Trade and Industry, Abdou Kolley:

“Trade goes with competition, and where there is trade there is a need for consumer protection.”

In addition to the GCCPC, the Act envisages the establishment of consumer-protection tribunals throughout The Gambia’s administrative regions to hear and adjudicate consumer-protection complaints.

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