Market Inquiry here, Market Inquiry there, Market Inquiry everywhere! – 3 Market Inquiries in as Many Months

By Joshua Eveleigh and Nicholas Petzwinkler

The South African Competition Commission (“SACC”) has not spared any time in demonstrating its bench strength by publishing three draft Terms of Reference for as many separate market inquiries within the first four months of 2023.

This article provides a brief overview in respect of the: Fresh Produce market inquiry (“FPMI”); Media and Digital Platforms market inquiry (“MDPMI”); and South African Steel Industry market inquiry (“SASMI”) and what this all means for firms across these varying sectors.

What is a Market Inquiry and what is its Purpose?

In brief, a market inquiry is an investigative tool used by the SACC to identify whether there are any aspects of a particular market that impedes, distorts or restricts competition by asking industry stakeholders for information regarding their business, its operations within a specific market as well as the market in general.

FPMI

On 14 February 2023, the SACC published the final Terms of Reference for the FPMI which seeks to identify and understand the state of competition within the industry, market features affecting pricing outcomes and the challenges faced by, in particular, small and emerging farmers.

The FPMI will focus on the following themes:

  1. Efficiency of the value chain, with an emphasis on the dynamics around fresh produce market facilities;
  2. Market dynamics of key inputs and its impact on producers; and
  3. Barriers to entry, expansion and participation.

The Terms of Reference also provide that the FPMI will focus on, in particular: apples, bananas, oranges / citrus, stone fruit, pears, avocados, grapes and nuts, potatoes, onions, tomatoes, sweetcorn, carrots and cabbage and will also extend to processed fruit and vegetables.

Most notably, the FPMI concerns the entire value chain, including inputs (such as fertiliser, agrochemicals and farming equipment), production, wholesalers, intermediaries, national fresh produce markets, distribution, marketing and retailers.

Given that the SACC views the fresh produce sector as a priority sector, it is foreseeable that the SACC will place increased scrutiny in its investigations across the value chain. This is particularly in light of recent and controversial Essential Food Price Monitoring Report which concluded that there were reasons to suspect that firms across the value chain may have engaged in opportunistic price increases

All Things Digital: MDPMI

On 17 March 2023, the SACC announced and published the draft Terms of Reference for the MDPMI.

The MDPMI appears to largely come off the back of several inquiries and investigations led by competition authorities globally, on the impact of digital platforms on news media publishers that use these platforms to distribute content online as well as the SACC’s recent Online Intermediation Platforms Market Inquiry (“OIPMI”) where the Publishers Support Services made submissions that the widespread shift towards digital news consumption has resulted in a substantial decline in advertising revenue.

The MDPMI will focus on whether there are any market features in digital platforms that distribute news media content which impede, distort or restrict competition, or undermine the purposes of the Competition Act, 89 of 1998 (“Competition Act”), and which have material implications for the news media sector of South Africa, which includes news publishers and broadcasters. The scope of the market inquiry will extend to the following digital platforms:

  1. Search engines (e.g. Google Search and Microsoft Bing);
  2. Social media sites (e.g. Meta);
  3. News aggregator sites and/or apps (e.g. Google News and Apple News);
  4. Video sharing platforms (e.g. YouTube and Tiktok);
  5. Generative AI services whether integrated into the above platforms or not (e.g. ChatGPT alone or integrated with Bing); and
  6. Other platforms identified in the course of the inquiry.

Evidently, the MDPMI will be far reaching and will also extend to emerging technologies, such as open AI search engines.

The draft Terms of Reference can be accessed here.

South African Steel Industry market inquiry (“Steel Industry Inquiry”)

On 07 April 2023, the SACC published the draft Terms of Reference for the Steel Industry Inquiry, and will focus particularly on inputs and raw materials (such as iron ore and coking oil) and the upstream primary steel production. The SACC notes specifically that:

Iron ore

  1. Based on 2018 estimates, the three largest market participants in the mining of iron ore account for more than 95% of total ore mined in the country with the largest participant having a market share in excess of 55% while the third-largest iron ore miner held a market share of approximately 15% which, alongside large levels of production, may result in a large degree of market power. The SACC also states that there is a need to assess the pricing mechanisms adopted by iron ore producers in South Africa to ensure the competitiveness of steel producers.
  2. It has received information that there were previously contractual arrangements in respect to allocations of capacity on the Sishen-Saldanha railway line which may result in competitive concerns. The SACC has also received complaints of differential pricing whereby larger rail customers are provided favourable rates in comparison to emerging miners.

Coking oil

  1. The SACC highlights that South African steel manufacturers rely heavily on imported coking oil which could negatively impact the sustainability of the local steel manufacturing market due to import taxes and which may allow local producers to set their prices at import parity levels.
  2. The SACC considers it important to determine whether, inter alia, there are any policy interventions to encourage the local production of coking oil and the entering of new market participants.

Upstream Primary Steel Production

  1. In its Terms of Reference, the SACC notes that there is a considerable degree of market concentration with there only being three blast furnace plants in South Africa (of which are all owned by one company). Additionally, there are six electric arc furnaces which are owned by six different companies.
  2. The SACC also notes that he pricing behaviour of upstream suppliers, in relation to the supply of long and flat steel, may have a direct impact on the ability of downstream metal fabricators to be competitive in their respective markets. Additionally, the SACC also identified that there may be high barriers to entry in the upstream level of steel production which has the ability to increase the capital requirements for entry and sustainability in various markets in the upstream level.

The Terms of Reference are open for public comment until 05 May 2023 and can be accessed here.

What do market inquiries mean for industry stakeholders?

As is evident from the scopes of the above market inquiries, market inquiries provide the SACC with broad and seemingly unfettered powers to investigate competitive dynamics within a particular sector.

More importantly, the Competition Act affords the SACC with the powers to publish binding recommendations to specifically redress any anticompetitive effects that it identifies within a market during the course of a market inquiry. In this respect, companies which may be approached by the SACC during the course of its investigations are encouraged to seek specialised competition law advice to ensure that the proper information and legal safeguards are provided to mitigate against the imposition of onerous industry recommendations.

SOUTH AFRICA: RECORD-BREAKING FINE IMPOSED ON ARCELORMITTAL SOUTH AFRICA LIMITED

By AAT Senior Contributor, Michael-James Currie.

The Competition Commission and South African steel producer, ArcelorMittal South Africa Limited (ArcelorMittal), have agreed to settle six complaints against ArcelorMittal for R1.5 billion (approximately US$ 112 million), in what is the largest (agreed) administrative penalty imposed in South Africa.

The penalty (by consent order) represents just under 5% of ArcelorMittal total turnover (including chemicals) for 2015.

The allegations which were brought against ArcelorMittal included allegations of price fixing and market allocation in what was termed by the Competition Commission the “steel cartel”.

In terms of the settlement agreement, ArcelorMittal admitted to contravening section 4(1)(b) of the Competition Act and will pay not less than R300 million per annum for five years from 2017. Furthermore, ArcelorMittal has undertaken to invest approximately R4.6 million into the South African economy for the next 5 years (provided the prevailing economic conditions render such investment feasible). Interest will be charged on the outstanding amount, interest starting to run 17 months after the finalisation of the settlement agreement.

In addition to the cartel conduct, the Commission had also instituted a complaint alleging the dominant steel manufacturer had engaged in excessive pricing. Although ArcelorMittal did not admit to wrongdoing in relation to the abuse of dominance allegation, the parties nevertheless agree that ArcelorMittal would not generate earnings before interest and tax of over 10% for the next 5 years (subject to certain exceptions).

The Competition Commission’s press release states the following:

ArcelorMittal admits that it engaged in collusion with CISCO, Scaw and Cape Gate by fixing prices and discounts, allocating customers and sharing commercially sensitive information in the market for the manufacture of long steel products, in contravention of the Competition Act. ArcelorMittal also admits that it fixed the purchased price of scrap metal with Columbus Steel, Cape Gate and Scaw. In respect of the flat steel complaint and the Barnes Fencing complaints, ArcelorMittal admits the conduct as alleged by the Commission but does not admit that this conduct constituted a contravention of the Competition Act. In relation to the pricing complaint, ArcelorMittal does not admit that it acted in contravention of the Competition Act.

The investigation and settlement agreement follows a leniency application brought by another respondent, Scaw Metals.  There is little doubt that the Competition Commission’s corporate leniency policy has permitted the Commission to uncover and successfully prosecute a number of cartels.   As previously reported on AAT, the risk remains that the recent introduction of criminal liability (on directors or persons having management authority)  for engaging in cartel conduct, may dampen the use of the whistle-blower regime (absent any formal immunity from criminal prosecutions).

The settlement agreement does, however, bring finality to all six cases against ArcelorMittal.

In light of the very recent civil damages awarded in favour of Nationwide Airlines against South African Airways for abuse of dominance which led to loss of profits, it will be interesting to see whether any civil party elects to prosecute ArcelorMittal for the excessive pricing complaint. In terms of the South African Competition Act and a recent judgment by the Supreme Court of Appeal, it appears as if the door is closed on a civil litigant brining a civil damages claim against a respondent, based on a breach of the competition Act, if there has been no adverse finding made against such a respondent by the Competition Tribunal (or Competition Appeal Court) as per section 65 of the Competition Act.

The admission to having engaged in cartel conduct, may, however, expose ArcelorMittal to civil liability over and above the settlement agreement.