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Brief Report
National Reference
Group Meeting: South Africa
29th
June 2001, Johannesburg
Welcome:
Garth le Pere (IGD)
The
nature of the exercise is to:
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introduce the competition policy
regime,
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Evaluate existing competition law and
review the implementation of existing competition structures,
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Identify problems and propose
solutions, and
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Discuss ways of strengthening existing
legislature.
Introduction:
Rashad Cassim (TIPS)
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I think what is interesting about this
project is that it is a global programme that seven countries are
involved in. As a manager of a research institution, I have always had
mixed feelings about local institutions taking on research projects that
are part of a global network because there is an uneasy tension between
what the needs of your policy makers in your own country are and the
what the global people want from the global project system. What I think
is important about global projects is that when you do an analysis, and
you find this particularly in competition policy and in the area of
regulation, we don’t have much benchmarks. If we were to do an
analysis of South Africa we not quite clear which country prices we
should compare with. Should we compare with the Brazilians, should
compare with other African countries, or should we be comparing with
Europe. International collaborative studies play an important role to
develop some kind of benchmark in the way we evaluate and assess our own
competition policy relative to many other countries.
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As you know this project is managed by
the IGD with the assisstance of TIPs. One of the interesting things
about this project was that it somehow complements some of the major
work done by TIPS on competition policy. Some of the major work that
TIPS has done was on the economics of competition policy. The major
issues we tried to grapple with is trying to understand in more serious
terms what is really the nature of market contestability in South
Africa. Currently you have the economic growth debate in South Africa.
One of the arguments put forward by Thabo Mbeki to current academics is
that there are major inefficencies in the supply side of the economy and
one the reasons for these inefficiencies in the supply side is that
there are large inefficiencies product service markets. We are trying to
come to terms with really trying to understand these inefficiencies. We
all say that the South African economy is highly concentrated therefore
we have inefficiency, but we all know that working in competition policy
doesn’t tell you much about market concentration.
Ross
Thomas (Development Bank of Southern Africa):
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I realise that the report is a work in
progress and that you are still waiting for feedback of the assessments
of the effectiveness of the competiton law. I also bear in mind that
this is a comparative analysis of developing countries, but I don’t
think we should ignore developed countries competition law/policy as a
benchmark. And I want to suggest that this report include developed
countries legal frameworks on competition so that we see where we are
with regard to them as well. Perhaps we should look at what informed our
government and policy makers to produce this piece of legislation. What
were the issues considered when the competition law was formulated (that
is, the Competition Act of 1998). Then I want to look at the objectives
and you are suggesting in
your opening that there are a range of concerns that are not necessarily
consistent with each other. I would like to ask you to unpack the
objectives in a little more detail
and don’t be afraid to say whether or not these objectives are
potentially contradictory.
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I want to raise a couple of them that
give that kind of effect, and whether they are right or wrong in a
competition policy. Your first objective in the Act is to promote
efficiency, adaptability and development of the economy and equally
importantly, to provide consumers with competitive prices and product
choices. But the third objective that might be
in conflict, is to promote employment and advance socio-economic
welfare for all South Africans. Is
that necessarily something that should be in competition policy and
legislation? You can have things like
promoting greater spread of ownership, but
when you are talking about expanding opportunities, you are
potentially creating conflict. You need to be clear as to what you can
do and what you can’t do. I am posing these issues because I think
they need to be analysed and interrogated to determine whether these
kind of objectives can be achieved. Are they contradictory and if they
are contradictory under what circumstances can they be complementary?
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Then I would like ask what is the likely impact on investment,
both locally and internationally as a result of this legislation? I also
want to challenge the comments on page 13 when you use the example of
the sugar merger. You said that the tribunal believed that the merger
might deter investment. Then the issue of concentration as a success is
raised with some tentative conclusions on page 16. Is addressing
concentration a major objective? I don’t see it there in the
objectives. So you got see whether your conclusions tally, and whether
the objectives of the Act are met.
Garth
le Pere (IGD):
As a response to your first observation
on the framework of competition policy in developed
countries, this study is subject to some quite tight submission
deadlines and therefore looks specifically at seven developing
countries. The developed country comparative dimension might be useful
for benchmarking but it means additional research which time will not
allow.
Ross
Thomas:
I’m not talking only about developed
countries, but also for example the Newly Industrialised Countries (NICs).
There is a lot literature out there that one can look at. Europe has a
very advanced competition policy which is very sophisticated. But to
what extent can it we be informed by it. I’m just saying we
mustbenchmark ourselves. Your point was that from the research
conducted, we are way ahead of other developing countries in terms of
setting up the policy framework but how do we measure against those that
have already set up their frameworks?
Garth
le Pere:
But do we need to measure up to
developed countries’ frameworks
Ross
Thomas:
I think we need to, if we want to be
part of a globalising economy and markets, and if we look at DTI’s
policy that they just launched. How do we make ourselves part of that
globalising world economy?
Shan
Ramburuth (Competition Tribunal):
In terms of our law there is not a
significant difference between us and the developed world.
Ross
Thomas:
Then that should be put into the
report.
Tanya
van Meelis (COSATU):
Why was the act developed? One of the
key things we are looking at is not only the economic side but also the
social side and we cannot ignore that capital in this country is of a
specific color. to try and take employment out of this equation is a
particulary dangerous. Are issues of
employment compatible with efficiency? Even if you look at the
DTI document where there are a number of stated successes, those
successes have taken place with a high degree of job loss and those
issues have to be taken into account. If the way the economy is
structured and performing is inefficient, there is a social cost that
has to be borne. If you are looking at mergers and so on then I think
you should look at job loss and consumers as well.
Ross
Thomas:
That reiterates the point of
conflicting interests and stresses the need for analysis.
Simon
Roberts (Wits university):
I think in some senses the objectives
reflect the agenda of government. However, when you look at the actual
criteria in the Act, when you look at what criteria was used to evaluate
mergers, what criteria was used to evaluate practices in sections of the
Act, then you don’t see these objectives. You rather see economic
efficiency and some stringent balancing concerns, which is exactly the
same as you have in other economies. So I
think that’s what needs to be brought out. The conflict from
that point of view is one of welfare
concerns and economies of scale. What has been very useful, from my
understanding of the Asian countries is that they adopted a very
different approach to competition policy. When you say that NICs must be
considered, the outcomes of
my assessment was that their competition policy was very much part of
their industrial policy. I
would argue that this is the kind of step we should take, but that is
very different from saying that we should be benchmarking against the
OCED and industrialised countries. We need some criteria to do that
rather than saying that we are different in all of these ways.
I agree that we are trying to grapple with the nature of the
South African economy. There
are, for example, very large chemical companies in South Africa.
What do we do about the behaviour of those companies as opposed
to their structure?
Ross
Thomas:
When I talk about benchmarking,
you don’t have to look at everybody but those that are percieved to have the
most successful of competition laws and policy. With the NICs and
developed countries, I don’t mean compare with all of these countries,
but just with those that have been most successful in their competition
law. As far as what I think we should be doing and the last comment
concerns me: if we have these nice objectives and legislation when you
go down into detail, it looks superficial. These objectives are very
specific and we should not be afraid to say that it doesn’t achieve
what it supposed to. And frankly there is nothing wrong with having such
competition policy in a globalising world. In my view you cannot do all
these things in one document. If you going to have a competition policy
that maximises efficiency in the economy at the expense of labour, you
can’t have a little of both. If your policy is unclear you are only
going to turn away investors. We need to be honest about our competition
policy by identifying where the
strengths and weaknesses are.
Shan
Ramburuth:
I don’t think you can say that any
competition policy is perfect. The French government, for example, take
a position with regard to their farmers. They don’t do that because of
their competition objectives but because of the pressure put on them by
a particular group of their society to take that decision. We opted to
make our objectives explicit and these emanate from a rather
philosophical approach. This is motivated by a clearer definition of
what is competition and what is efficient. This act is saying that we
don’t want competition for competition sake. We want as far as we are
able to achieve other social and economic objectives.
Dianne
Terblanche (Consumer Institute of South Africa)
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When
you talk of the preliminary
assessment of the competition law of South Africa and you talk of doing
this with the view of determining the effectiveness of the competition
policy, two issues are provoked: one about efficiency and the other
about consumer welfare. I
almost expected to see some sort of construct on your part with regard
to what you see as promoting economic efficiency and what you see as
promoting consumer welfare, how you see that happening, how you see that
being built into the competition law, and how is that done comparatively
in other countries both developing and developed. I believe this
assessment is going to fit into the 7-up project which basically deals
with developing countries. That is the kind of thing I’d like to see
in this sort of report. I like to see how we play out these two major
objectives within the provisions of the competition law. I’d like to
see how in the enforcement
of this law, in its
monitoring and how from the cases that will flow, how it will all play
out in terms of participation of the people whose interest it was
supposed to meet. Thats the
kind of thing I’d like to see coming from a consumer organisation.
There are very drastic laws that do not really serve the welfare of the
consumer. The interests of the consumer and the welfare of the consumer
falls away in the tide of maximising profits.
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Ultimately, you are not just doing the study because of the sake of the
study, but you want to see how this can improve the objectives set out.
My particular interest is how this study you have done improves consumer
welfare very specifically. The second issue relates to regulatory bodies
and specifically the competition commission and the competition
tribunal. No where in the world do I know of any examples of an
objective model against which these bodies are tested. I would like to
see much more clear cut criteria against which you measure their success
in terms of meeting their mandate, as specified in the Act itself. But
their mandate is perhaps
not completely encapsulated in the Act in terms of promoting economic
efficiency and consumer welfare. Those are the sort of things which
would be very useful not only for this study but could also provide a
template so to speak that could be used by regulators across the board
Tanya
van Meelis:
With regard to objectives, I
think it would be useful to draw out some of the assumption
people are making. The one debate is, do you try and promote domestic
competitiveness within your domestic economy or do you lessen your
domestic competitiveness and try and go for increased competitiveness on
an international scale? Those are the assumptions and debates which the
investigators of this study or the tribunal should look at. The other
thing is that the Competition Act is only one instrument of industrial
policy among others, and I would like to see the impact that competition
policy in terms of meeting a range of objectives and how that might be
supported or obstructed by other instruments of industrial policy. In
that sense I think it would be very useful to locate these discussions
so that we can have a dialogue with the new DTI document.
Ross
Thomas:
Just to come back to the point on
objectives. From what I’m now just hearing, the competition policy
framework, ha some objectives that deal with social issues which are not
carried through into the Act. I think you need to say in the report that
the act falls short of meeting the intended objectives.
Menzi
Simelane (Commissioner – Competition Commission of South Africa):
The Annual Report will reflect whether
the objectives are met or not.The
competition law was a product of a negotiated settlement. It was decided
upon by a consultative process in which labour was represented. With
regard to the competition law fulfilling the social obligations and
addressing the social element, the main thrust of the discussion ought
to be about how to balance, for example, pro-competitive mergers that
results in job loss with the long term gains in terms of contributing to
the efficiency of the economy. How do you balance the two? This may not
be a conflict with other developed countries. There has however never
been an issue that has been judged on purely a competition basis or on
purely an employment basis. A balance must be struck. You cannot allow
mergers to happen without the employment issue being addressed. In terms
of providing for efficiency and employment you can allow for monopolies
to exist. But the critical thing you need to do is make an assessment of
its impact on investment. For example, the sugar case did affect
investment. In instances where acquiring your local competitor can
result in a duopoly, it would certainly not be in the long-term
interests of the economy. With regard to benchmarking, whether it is
with Eastern European countries, Asia countries like Singapore, the
issue is understanding how these countries have achieved their
objectives, and whether they have achieved them. It was not foreseen or
expected that the competition law would solve all problems. Finally, can
black companies take advantage of the Act? As in the sugar case, black
companies are not in a position to take advantage because of finance
difficulties
Vani
Chetty (Attorney on Competition Law)
South Africa has unique public
interests because of it history and therefore
competition law needs to be in the public interest. But we need
more consumer activism. Consumers, NGOs and interest groups need to be
pro-active. At the same time, however, you cannot have a situation
where, for example, unions intervene in a merger case just for the case
of intervening. Such interventions have in my experience stalled the
process and ultimately been counterproductive.
Dianne
Terblanche:
There is no doubt a low level of
involvement of consumers in overseeing the implementation of the
competition law. While consumer institutes have specific functions,
consumers are basically lazy to take the initiative. There needs to be
that individual interaction, eg. lobbying. It is not what your consumer
institute can do for you, but what you can do for and by yourself. Also
interaction with parliament is important. The bottom line is that
competition law cannot be all things to all people. For some it is about
economic efficiency while for others it’s about consumer welfare.
Dr
Dewulf (South African National Consumer Union):
The consumer movement is well
established and the consumer is to blame if the competition act is not
addressing their interests. With regard to benchmarking, South Africa
has a totally different approach to business than the Pacific Rim, Asian
or Carribean. So I’m not sure how you are going to benchmark your law.
The other worrying aspect is the mergers, especially the bank mergers.
At the onset of these kind of mergers, there should be consultation with
the shareholders of these companies or banks. For example that between
NEDCOR and Standard Bank. We in NEDCOR did not want a merger with
Standard Bank, but we were just ignored as shareholders. That is
something we should be looking at.
Shan
Ramburuth:
Can I suggest that what is coming out
from this discussion is that for the effective implementation of
competition policy, you new greater levels of awareness, greater culture
of consumer awareness and a culture of using these institutions. One of
the things that came up before was that the Commission was weak on
cartel cases. Now there’s a very good reason for this. Most of the
cases reported to the
Commission are vertical cases, with one business having a problem with
another business, because either they are not supplying them or there is
a distribution problem. So the one business makes a complaint. Cartel is
when competitors get together and scheme a deal that is anti-competitive
and affects the consumer. We are weak on cartel cases because there is
not enough consumers knocking on the Commissioners door saying that we
are being affected by this.
Rashad
Cassim:
I think if we were to review the
discussion, I don’t think there is any major disaster about the
Competition Policy and Law. What needs to be done is to increase the
ability of the consumer to participate better and more effectively.
Thank
you
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