Chairperson, hon members and members of the portfolio committee, I am greatly honoured to table the second reading of the Competition Amendment Bill in the National Assembly today.
The Competition Amendment Bill is aimed at strengthening the provisions of the Competition Act to enable the competition authorities to deal more effectively with anticompetitive practices such as hardcore cartels. It is not the intention of these amendments to overhaul the current competition regulatory framework, but rather to build on the existing foundation and to fill in the gaps that have been identified through the practical experience of implementing the law and the policy.
It is our observation that whereas great strides have been achieved by the competition authorities in uncovering cartels in various sectors, including milling, bread, milk, pharmaceuticals and scrap metal, it is doubtful whether the sanctions provided by the Act serve as an adequate deterrent to such conduct. Furthermore, we see behaviour in concentrated markets that cannot easily be impeachable under the Act, but whose outcomes are detrimental to consumers.
Other challenges relate to the interface between competition authorities and sector regulators in exercising overlapping jurisdiction in terms of competition considerations in regulated industries. There is also a need to strengthen the hand of the Competition Commission robustly to undertake market inquiries such as the one recently concluded on banking.
Chairperson, in addressing the above, I will now turn to the main provisions of the Bill. The purpose of the complex monopoly provisions is to deal with multifirm behaviour or co-ordinated conduct that would evade the current horizontal and vertical restrictive practices, as well as abuse of dominance provisions of the Competition Act. Firms would usually resort to such behaviour without an agreement, thus making it difficult to prosecute in terms of the existing provisions of the Act. An example could be import parity pricing, which leads to high input costs, to downstream consumers of raw materials, but where there is no agreement among players to price at that level. Similarly, the Act currently proscribes certain behaviour by a dominant firm and defines what such a firm would be. It is common cause that where one firm may not be dominant individually, it may be in a position of joint dominance with one or more other firms and could be abusing such joint or collective dominance. Such behaviour, therefore, would currently fall within the cracks.
To address this challenge, the Bill introduces an insertion of a new clause, 10(a), which defines a complex monopoly and prohibits participation in such a monopoly if it has the effect of substantially preventing, or lessening, competition. It also empowers the Competition Commission to conduct an investigation without having to first formulate a complaint, and to refer the matter to the Competition Tribunal if the evidence warrants an allegation of prohibited practice. It is important to note that complex monopoly refers to the conduct of firms and not the structure of a market, although it is common cause that certain structures may facilitate anticompetitive behaviour.
It is our view that adding an element of personal liability to price-fixing offences increases the cost of being caught and this will deter officers of firms from engaging in cartel activity.
As a result, clause 12 of the Bill introduces a new offence section to the Competition Act, making it an offence for a director or officer of a company to cause, or knowingly acquiesce to the firm engaging in cartel behaviour.
In addition, proposals currently included within the scope of the Companies Bill would, if enacted, empower the Competition Commission or other industry-specific regulators to seek a court order disbarring a person from serving as a director of a firm if that person was responsible for the firm contravening the Competition Act or relevant industry-specific legislation. It is the Department of Trade and Industry's position that this power is best introduced globally within a reformed Companies Act rather than in a piecemeal fashion in other Bills.
With respect to concurrent jurisdiction, the policy intention is to clarify and provide certainty in terms of the management of concurrent jurisdiction in order to avoid forum shopping, policy inconsistencies, and protracted legal challenges in regulated sections.
The Bill does this by inserting a provision for clear distinction and assignment of roles between competition authorities and sector regulators in dealing with competition matters in regulated industries. The Bill vests in the competition authorities the competency to oversee and review competition considerations while sector regulators are charged with regulatory considerations.
The Bill further provides that a proper framework for co-operation and constructive relationships between the competition authorities and sector regulators need to be developed and enshrined in the memoranda of agreement. These measures will, if managed properly, go a long way to maintaining a proper balance between sector regulation on the one hand, and competition regulation on the other for the promotion of economic growth and competitiveness.
Consequential amendments to section 67(9) of the Electronic Communications Act are proposed to remove inconsistencies created and reinstate the policy stance on concurrent jurisdiction in the electronic communications sector.
A market inquiry is exploratory probing intended to inquire into competition deficiencies, the operation of markets, and why consumer needs are not being met. It is also intended to inquire into any matter concerning the purposes of the Act, including the achievement of social goals or public interest issues. It serves as a tool to enable the commission to play a more proactive role in investigating markets.
The policy rationale is to amplify the existing provision of the market inquiry to enable the Competition Commission to undertake an inquiry in a more structured, effective and transparent manner. In this regard, the Bill provides for the process and procedure for the initiation of market inquiries, including the mandate to initiate market inquiries, and the timeframe for the completion of market inquiries, as well as the dissemination of the results of a market inquiry.
The Corporate Leniency Policy is a tool used by the competition authorities to detect cartel activity by encouraging those involved in cartel activity to come forward and disclose information to the Competition Commission in return for leniency from prosecution. The policy rationale is to give legal backing to the leniency policy in order to avoid any possible restrictive interpretation that the Competition Commission does not have powers, or the discretion, to grant leniency. As a result of the personal liability provisions, the Bill also provides for the granting of leniency to individuals.
Let me stop there, Chair. Whatever I have not covered, I will come back to at the end.
Before I call on the next speaker - we can see the picture is frozen there - I think I must say that they are attending to this problem. I don't know whether the professor knows about "juju". It could be that when you come.
Chairperson, I can assure you that I've never broken a camera before. So, please don't blame me, I wasn't even here.
Chair, I'm rather grateful that the Minister ran out of time because, in fact, he was making my speech. Thank you for leaving something for me.
Let me confess, Chair, that I face a little bit of a philosophical dilemma with respect to this small but very powerful piece of legislation. The philosophical dilemma I face is that, as I grew up intellectually, one was faced with the question of competition or co-operation, individualism vis-- vis the collective; which do I favour? On the whole, I certainly favoured the notions of co-operation and of collective. But, here, we have a Bill which talks about competition, which we support, and I have to explain why. The answer is that in the specific case of South Africa competition does promote efficiency; it forces firms to adopt new technology to go up the value chain to, generally, join the modern world with all its new technology and so on. So, obviously the economic case is the good one.
But there is also a social case which arises from the high concentration that we find in the South African economy. The South African economy is, actually, highly monopolised as it arose under apartheid. Something needs to be done about the high concentration of power in the economy and competition seems to be one of the ways forward. However, competition mustn't be done in a way which harms the employees. We are currently in the committee engaged in a long discussion about - in the Companies Bill - how employees can be safeguarded, even as you go about regulating the corporate sector.
Let me start my speech by talking about Mr Ismail Mukaddam, a gentleman who came to our portfolio committee hearings. He was an independent bread distributor last year whose major supplier was Premier Foods. Premier Foods imposed a new trade regime on people like him, which not only reduced the distributor discount but also insisted that the distributor pay the full invoice price upfront. Mr Mukaddam was so badly affected that he laid a complaint with the Competition Commission, whereupon Premier Foods suspended his total supply. The poor man went out of business and he came to the committee as a small businessman to report this. We were also told that Premier Foods had previously admitted to being guilty of a prohibited practice and, indeed, they were fined R99 million, upon which they reacted not by assisting Mr Mukaddam but by raising the prices by 40 cents and, thereby, apparently recovering the fine that was imposed on them.
There are two things facing us: Firstly, the question of victims of this kind of monopoly practice. Surely something has to be done about it. We did discuss - after Mr Mukaddam's intervention - that appropriate action must be taken to compensate victims of such discrimination. Small businesspeople are affected by monopoly pricing and we hope that something will come out of it. We did discuss it. Surely something must be done to support victims of this kind of behaviour.
It is obvious, Chair, that there is a great deal of price collusion and cartelisation in the South African economy. South Africa was boasted about as being a First World country, and in many respects we are. But one of the characteristics of the First World economy is that there is a strong corporate sector with a great deal of concentration. The only snag is that these concentrations lead to high prices, which bring high profits but affect the consumer. And so, we are in a funny situation, in which we are saying: Let us have competition and the private sector; let's have competition between the members of the corporate sector, partly to erode their power, to destabilise the cartels and to try and control the high prices which are now manifested very strongly in the South African economy.
While we were discussing these matters in the Bill, interesting debate ensued with the Law Society, Business Unity South Africa, and others. We asked them about what constitutes misconduct to undesirable practice. We were told that collusion is a bad thing. It is unacceptable and this is where the Competition Commission must come in. Rational commercial behaviour was acceptable. Now, rational commercial behaviour might, actually, cover a whole range of activities and pricing activities which could affect the consumer. I think we need, at some stage, in the committee - or maybe even in the House - to discuss the philosophical aspects of the free market, where you have corporate sectors which go their own way and raise prices in a particular way. I'm not suggesting that we move to a command economy - let me say it right away, there is no suggestion of that - but as long as we have the market and big corporate entities which are able to cartelise or to control prices, something needs to be done in South Africa to ensure that we have an economy which benefits not only big business but consumers as well.
We've also been informed about the excellent work done by the Competition Commission and the Competition Tribunal. They have done a great deal in many ways, in informal discussions, in asking people to report misconduct. But, surely, something more needs to be done, as the Minister has indicated. We need to have criminal liability. Now, the interesting thing is that internationally - because of corporate misconduct in the US, for example, Enron and world corporate companies like that, the world is now far more sensitive about corporate misconduct, cartelisation and the consequences of that for ordinary people.
There is an international trend which we are now following with this legislation that criminal liability by directors is an important issue. One question which, however, in my mind - and I've had discussions with very senior council on this matter - is that can we draw a distinction between director responsibility, namely the board, and management. What I'm told by people in the business, in fact, in the modern corporate world, is that management is the strongest and most effective in controlling the way in which a company operates; and the directors of antagonist companies pay lip service to the way the company is run, but it is management that is real.
In this piece of legislation there is a clause 73(a), which deals with the question of directors' responsibility and also mentions management. But I wonder whether we aren't being a bit soft on management who after all, have clout in the company. I am alerting you that the directors take the rap in our legislation and not management. I also mention this because in the days of black economic empowerment promotions - and with many new directors being on boards for various political and reasons of affirmative action - you also have directors who are not clued-up about the way in which a company is works. Some of them are members of too many boards and, therefore, are part-time directors and management is able to get away with murder. It seems to me that in this Bill, and in the next one, the Companies Bill, we ought to look at management, its role vis--vis the board, and whether we are not focusing too much, in an unbalanced way, on board responsibility and not on management.
We know that in many big companies, for example Enron and others, management diddles the books; management uses shares to enrich themselves; there are preference shares and all sorts of options that enable them to become very rich - some of them have gone to jail, and that's fine - but we need to look at the responsibilities of management vis--vis the board and get the relationship right.
Finally, I come to the processes which the Bill has undergone. There was a bit of conflict between agencies, but we've now got a situation where if there is a problem in the market concerning any particular set of goods there will be a market enquiry which will be conducted by the commission. If some solution or clarity does not emerge, it will be referred to the tribunal, which will try to work out a consensus or some process and will impose a fine, if there is a need. A very important clause we've put in is that the fine should not be paid by the firm; it must be paid by the director. So, the notion of individual accountability, responsibility and criminality is built into the Bill. I think all this is a major step forward in the way we regulate company behaviour and, therefore, the ANC will support the Bill wholeheartedly. Thank you.
Chairperson, I'm presenting on behalf of Dr Pierre Rabie, who is unable to attend today.
This Bill seeks to amend the Competition Act of 1998 to provide greater certainty regarding the concurrent jurisdiction between the Competition Commission and other regulatory authorities.
It introduces provisions to address other practices that tend to prevent or distort competition in the market for any particular goods or services.
The DA supports this Bill as it does tighten up gaps in the current legislation. This piece of consumer legislation is highly technical, which should contribute to acceptable international practice by all sectors of the economy.
The media stated that the final version of the Bill is a vast improvement on earlier drafts. The final version of the Bill is a compromise and acknowledges the potential for constitutional clashes when shifting enforcement of competition policy from the civil to the criminal domain.
The introduction of the concept of personal liability for those individuals actually involved in collusion is introduced. However, possible criminal action against company directors is the most controversial aspect of the Bill.
The implementing authorities, namely the Competition Commission and the Competition Tribunal, made submissions that this could undermine their success in curbing cartels. Their main argument was that directors would be reluctant to co-operate as they have under the current corporate leniency policy.
Another ethical question remains unanswered: Did the large fines imposed on companies found to be involved in anti-competitive behaviour have the desired effect? It was mentioned during the public hearings that the benefits of collusion were perceived by some to outweigh the possible legal cost because proving culpability is often difficult.
The Bill also introduces the concept of complex monopolies. In essence, this arises where 75% of the market accrues to no more than five firms. The application of this particular concept or definition in the South African context is questionable and, therefore, open to challenge. For historical reasons some sectors of the South African economy display characteristics of market concentration as opposed to those of complex monopolies.
To conclude, this Bill in essence attempts to prevent any artificial barriers to trade and to strengthen present competition law. Thank you. [Applause.]
Chairperson, hon Minister and colleagues, in recent years there have been a number of cases of collusions and competitive behaviour by various industry sectors and producers.
Collusion and the price-fixing are always at the expense of the consumers, who are compelled to pay higher prices that they would have to pay in a problem-free market economy. At the present time, the Competition Commission imposes penalties on the offending firms, but the individual culprits themselves are not penalised. Such culprits will always try to find a way to enhance their undeserved profit by circumventing the legislation in place by finding loopholes. These loopholes need to be closed. We must, however, protect consumers.
The amending Bill before the House today will do exactly that by eliminating some of the loopholes that still exist.
The IFP is particularly glad that the Bill provides for the introduction of a scheme of personal responsibility with criminal liabilities for the directors of firms that engage in cartel practices prohibited in terms of the Competition Act.
This will serve as a deterrent to the individual who is contemplating his own competitive practice. The key test, as always, will be implemented. There is still an urgent need to develop the anti-trust and pro-competition legislation to break the grip of our private and public cartels and monopolies on our economy.
This amendment is a start. Today's deteriorating economic environment, with spiralling food and oil prices, and with high interest rates are contributing to the economic exposure of many South Africans. Uncompetitive behaviour only increases their vulnerability and results in higher costs being passed down to the poorest of the poor. It is for this reason that the IFP supports the Bill. I thank you.
Chairperson, with regard to competition, the MF has no objection to bringing the management of companies under this one Bill. It is important that in all forums and forms of governance clarity exists and does not leave room for loopholes and contradictions.
While it is perfectly fine having agreements made between the Competition Commission and the industry under question, it is also important to maintain legislation to oversee the effective and efficient running of things. Over and beyond that, a system of transparency requires us to constantly be answerable for our actions.
Further, this Bill is important in enhancing competition in economy. But how can we effectively instrument competition in any economy that is so uneven, imbalanced and haunted by poverty?
Furthermore, how do we ensure that this is an opportunity that may be utilised in fixing our imbalances, such as gender inequalities, and so forth? The MF supports the Competition Bill. I thank you, Chairperson.
Hon Chairperson and the House at large, if one would ask an ordinary person in the street about the effect of this legislation, definitely one would draw a blank. However, if the following question would be posed to the same person, that is: What do you think of a law that ensures fair competition which results in fair prices? Without any doubt, the positive answer would be accompanied by a smile as well.
One of the fundamental tenets of capitalism is undue and unfettered domination of the working class for unbridled accumulation of capital. Such malpractice driven by avarice, of course, further breeds unsavoury and anticompetitive activities that are harmful to both the economy and subsequently the ordinary person. Since unfair competitive practice goes beyond artificial price manipulations which at times results in market failures, the amendments proposed in the Bill will also address excessive entry barriers so as to ensure broadening of access to business opportunities, especially for small, medium and micro enterprises. The proposed amendments will also address lack of transparency in order to reinforce public confidence. What is also admirable, is the intention of the amendments to enable the Competition Commission, in particular, to be proactive in its initiatives when necessary.
Some of the submissions during public hearings exposed that certain sectors were seriously ensuring that the amendments are crafted in a manner that would serve their group interests, and unfortunately not public interests. Good examples are the demands for complete removal of the clause on complex monopolies and the subjugation of market inquiry to excessive consultation processes, to such an extent that an inquiry would have little or no value.
The recent successes by the competition authorities, combined with the passion they, together with the DTI, demonstrated in addressing anticompetitive behaviour, have been so obvious, and admirable as well. Therefore, the expected additional support for the authorities in ensuring requisite resourcing, especially by DTI and National Treasury, ought to be a logical consequence.
However, I hereby make a strong appeal. I am in fact adding to the numerous calls for enhanced team effort amongst various government institutions such as DTI, the competition authorities themselves, Justice and Police. It is only through a well co-ordinated effort amongst the institutions that overall law enforcement against anticompetitive behaviour can be effective.
Whilst there is strong evidence of enhancement of consumer protection in this refinement initiative, hon George and hon Rabie, it's a refinement of this initiative and it will always be refined as we uncover loopholes. A call must be made to every responsible citizen to make the legislation effective by co-operating with the state in its implementation. The advances by competitive authorities in pre-empting and undoing measures that were posing a threat to fair competition also revealed an inherent inability to disentangle complex monopolies.
Whilst, as is claimed by certain quarters, this concept has been ditched by countries such as the United Kingdom and United States of America, and as such begs to question the wisdom of solely relying on foreign experiences whilst local realities indicate otherwise. Have we not, as South Africa, trailed the blaze by formulating comprehensive medicine price control, which the World Health Organisation acknowledges as groundbreaking? What about our consumer credit price legislation for which the US, with subtle lamenting, expressed admiration? As the story goes, the lament was that had there been such an outstanding law in the US the subprime credit crisis could have been avoided.
Competition policy according to the ANC is located within a range of policy areas meant to pursue a broader programme of economic transformation. That is why the ANC has argued that in transforming the structures of ownership and production, there is a need to put in place antimonopoly and anticoncentration policies aimed at creating competitive markets. In this regard the ANC has also stated that the concentration of economic power in the hands of a few conglomerates has been detrimental to economic development in South Africa.
The Congress of South African Trade Unions, Cosatu, has also warned of creeping concentrations where it claims that large companies are steadfastly acquiring small companies that at times have unique products and services to buttress their market dominance. This is just another piece of evidence about the level of sophistication in which unsavoury behaviour is preparing to indulge.
Amongst the most notable supporters of this Bill was the Black Sash, that even went further and insisted that companies found guilty of anticompetitive behaviour should be barred from doing business with government. If there is any strong expression of such public opinion regarding anticompetitive behaviour, I'm very keen on it.
In conclusion, allow me to state the obvious. The state should spare no effort to create an environment conducive to dynamic business activity and consequently enhance the socioeconomic wellbeing of citizens. Such efforts include the role of the government in providing leadership to creation of a fair, competitive business environment. Therefore, the ANC unequivocally supports this Competition Amendment Bill. Thank you.
Chairperson, I think that there is a lot of support for this initiative. Just to reiterate, we are really not overhauling the legislation, we are strengthening it. We are doing that on the basis of the experiences that we have had. One of those experiences is the experience of continued conduct that has been found to be anticompetitive. Therefore the need to strengthen the hand of the state and the hand of the competition authorities is part of what we are trying to do with this legislation. I think that that is the context in which even the introduction of personal liability must be seen.
The nervousness that exists about whether this personal liability might undermine the corporate leniency programme is maybe fear of something that may not materialise at all. We do believe that at one level the deterring effect of the existence of possible criminal sanctions is something that is important to have in legislation, so that those that have not yet embarked on this kind of activity don't do so. But with regard to those who have done so, we also do believe that it's something that would encourage them to be forthcoming and to be more truthful to the competition authorities, and doing so in a manner that may or would guarantee their own freedom, if I may put it like that.
But I think it's also important from another angle. The private sector often does need a stick. One could cite experience in a number of areas where you often have to turn to something of a stick or the potential of a stick in order to get the private sector to behave in a particular way. So, I think that we should do this because these are things that have been thought through. These are things that we are doing on the basis of experiences that we have had. We have studied what happens in other jurisdictions. We have looked at trends globally. So we have tried to come up with as balanced an approach as possible.
I don't know how the hon Turok missed it. But with regard to the reference he made to directors, our understanding is that this is aimed at officers of a company and directors who cause a company to be involved in cartel activities. So I think your concern is taken care of. I agree with the hon member who said that the co-ordination between state institutions is going to be vital in order to ensure the effect of this legislation. Thank you very much, Chair.
Debate concluded.
Bill read a second time.