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

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south_africa

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_africa

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.

 

Antitrust amnesty: new regime to go online soon

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kenya

Kenya to become latest competition jurisdiction with cartel leniency scheme

As Mugambi Mutegi of the Business Daily reports, Kenya is the latest antitrust jurisdiction to embrace a self-reporting leniency programme.
Mr Wang’ombe Kariuki, director of the CAK

Self-reporting of “hard-core” competition-law offences (such as price-fixing cartel conduct, market division, bid rigging, or group boycotts among horizontal competitors) has long been a staple of antitrust enforcement in the most developed jurisdictions, including the United States and the European Union.  In South Africa, cartel-whistleblowing leniency has just passed its 10th anniversary, and in the EU, the European Commission’s “Notice” on the non-imposition of fines in certain cartel cases (i.e., the EU’s leniency regime) recently celebrated its 18th birthday — nowadays, more than 75% of the EC’s cartel matters are uncovered thanks to one or many cartel members “snitching” on their counterparts, in exchange for full or partial amnesty from antitrust prosecution and attendant fines.

The Competition Authority of Kenya (CAK) has recently upped its rhetoric, threatening criminal sanctions against various business sectors’ potential cartel members and disputing jurisdiction of the multi-national, but still feeble, COMESA competition authority in merger cases.

In Africa, Kenya (AAT archive on CAK issues here) is now becoming a new member of the “Leniency Club”, rewarding whistleblowers with eased penalties for volunteering relevant tips and information on the workings of the cartel.  The CAK is acting to implement the provision of the Kenyan Finance Bill 2014, which allows it to terminate cartel investigations with lighter punishment for whistleblowers, all the way to a full pardon.

“The Authority (CAK) may operate a leniency programme where an undertaking that voluntarily discloses the existence of an agreement or practice that is prohibited by the Competition Act and co-operates…in the investigation of the agreement may not be subject to all or part of a fine…”

The agency’s web site — which otherwise (unusually) refers to the Business Daily article quoted here, instead of issuing its own press release — tersely provides as follows:

Cartel firms get amnesty in new CAK regulation

The competition regulator has drafted a law that will see whistleblower companies and their directors get off with lighter punishment for volunteering information that helps to break up cartels.

The Competition Authority of Kenya (CAK) says introduction of this law, which is already in the Finance Bill 2014, will attract informers that can help to bust unlawful business agreements between cartels and other secretive pacts that facilitate anti-competitive behaviour.

Whistleblowers whose evidence leads to the successful termination of such agreements and punishment (fines and jail sentences) of the participants will either get reduced fines or full pardon.

The CAK’s Director General, Francis Wang’ombe Kariuki, is quoted as saying that the authority’s is merely awaiting Parliament’s amendment of the law, and that “[t]he settlement policy we have drafted includes offering leniency to the directors of companies who come forward individually or as a group to report on cartels or unlawful business pacts“.

Competition Commission appoints new Spokesperson and Cartels Executive

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south_africa

Personnel changes at SACC

The Competition Commission (“the Commission”) has announced that it has appointed Mr Mava Scott (“Mr Scott”) as Spokesperson of the Commission from 1 August 2014 and Mr Makgale Mohlala (“Mr Mohala”) as Divisional Manager of the Cartels division, with effect from 18 August 2014

Mr Scott has more than 12 years’ experience in communications and media relations, and was formerly employed, since 2008, at the Department of Water Affairs as the Chief Director of Communication Services. Mr Scott holds a Baccaleureus Procurationis (BProc) degree from the University of the Western Cape, and is currently studying towards a Master of Laws (LLM) degree in Constitutional and Administrative Law at the University of Pretoria.

Mr Mohlala has been with the Commission for over 14 years, having joined as part of the Graduate Trainee programme in 2000 as part of Mergers and Acquisitions. More recently, Mr Mohala was the Principal Investigator of the Cartels division. In this position, Mr Mohlala led investigations into the cement cartel and the collusion in the construction industry, which included some of the 2010 FIFA World Cup Stadia. Mr Mohlala holds a BProc degree from Vista University, an LLM in Corporate Law from the University of Pretoria and is currently enrolled for a Master of Business Leadership (MBL) with the University of South Africa.

Massmart reinstate retrenched employees

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south_africa

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.

South Africa: Competition Tribunal permits competitor intervention in merger involving Media24 and Paarl Media

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Following an intervention application which was heard by the Competition Tribunal (“Tribunal”) last week, the Tribunal has granted Caxton and CTP Publishers and Printers (“Caxton”) intervention status in the merger involving Media24 (Pty) Ltd (“Media24”), Paarl Media Group (Pty) Ltd, Paarl Media Holdings (Pty) Ltd and Paarl Coldset (Pty) Ltd (collectively referred to the “merger parties”).

The Tribunal has ordered that the intervention will include the control structure of Naspers Limited (”Naspers”), the interests (both direct and indirect) of the Naspers’ shareholders in printing and publishing and the competition effects of such interests in relation to the proposed merger.  In addition, the scope of Caxton’s intervention also includes whether the proposed merger will enhance coordination in the media industry and the effect of the proposed merger on the public interest.  Caxton is also entitled to submit proposed conditions, if any, to the Tribunal.

In addition, the Tribunal, in terms of a directive, ordered the merger parties to disclose all interests of Naspers Beleggings Limited, Keeromstraat 30 Beleggings Limited, Wheatfields 221 (Pty) Ltd, Sholto Investments BVI, De Goedgedacht.

The matter is of significant importance in ensuring South African merger control remains sacrosanct.  Merger control in South Africa  is, as in other jurisdictions,  an important mechanism to assess the impact of transactions on competition, however, it can only be effective if adequate and accurate information is provided by the merging parties to the SACC.  The content of a merger filing is usually vetted by the merging parties’ respective competition lawyers.

Disclosure of all shareholders’ interests (both direct and indirect) is of particular importance in respect of the control structures involved in the proposed transaction, in order to ensure that the Commission is able to conduct a proper assessment of the proposed transaction, taking into account the competitive landscape and the dynamic concomitant impact of the proposed transaction, by properly taking into account the relevant shareholders.  It is important that the merging parties are transparent in all of their dealings with the competition authorities and that the Commission is apprised of all the information during the merger investigation in order to conduct a proper investigation to avoid having the Tribunal send the merger back for further investigation and analysis to the Commission, as was ordered by the Tribunal in the Aspen/ Pfizer matter and more recently, in this decision of the Tribunal.

In addition, the merging parties are obliged to sign the respective Statements of Information (also referred to as the Form CC4(1) and Form CC4(2)) in respect of every merger which is filed with the Commission.  The Form CC4(2) explicitly states that the person authorised to submit the information confirms the accuracy, truthfulness and completeness of the information submitted to the Commission and that such person understands that it is an offence in terms of the Competition Act to provide any manner of false information.

The Tribunal’s directive clearly casts doubt as to whether the content of the original merger filing met the above criteria .

The matter does, however, demonstrate the importance of valid intervention by competitors, despite the intervention regime becoming somewhat tainted due to interventions by government and unions on the basis of alleged “public interest”  concerns.

 

 

Tribunal overrides Commission’s lean toward merger veto

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south_africa

Tribunal decides against Commission’s recommendation of prohibition of resin merger

The Competition Commission (“Commission”) recommended to the Competition Tribunal (“Tribunal”) to prohibit the proposed acquisition of resin manufacturer Arkema Resins SA (Pty) Ltd (“Arkema”) by specialised coatings company Ferro Industrial Products (Pty) Ltd (“Ferro”).

The acquiring firm, Ferro, operates in the industrial chemicals sector and its activities comprise powder coatings, plastics, enamels and ceramics, glass colours, spectrum ceramics and resin.

Arkema, the target firm, is a wholly-owned subsidiary of Arkema Afrique SAS, which in turn is wholly-owned by Paris-listed company Arkema. Arkema is also involved in the manufacture of unsaturated polyester resin which is used in the manufacture of swimming pools, truck bodies, baths, etc.

The merging parties argued that the Commission’s recommendation to the Tribunal was fundamentally flawed as it failed to take into account certain key considerations, such as the constraint of imports on domestic suppliers, the fact that post-transaction, there were two alternative domestic suppliers to the merging parties and that the merging parties argued that Arkema was not in fact a competitive constraint to Ferro in certain key market segments.

Following a two-week long hearing, the Tribunal approved the merger subject to conditions which involve a pricing formula to customers in the mining segment, a toll-manufacturing agreement and a two-year moratorium on retrenchments.

Nortons Inc. acted for Ferro in this matter.

Competition Tribunal members re-appointed by President

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south_africa 

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.”