Beware the Competition Amendment Bill

TG van Onselen writes on an economically damaging piece of legislation quietly sailing through parliament

Competition Amendment Bill: Fuzzy laws make for stronger bureaucracy

The Competition Amendment Bill of 2018 is progressing smoothly, perhaps too smoothly, through parliament. It appears that the gatekeepers of competition are getting their wish, which seemingly is more control over South Africa’s commercial environment. Opposing this, Sakeliga has made three written submissions on this Bill. By the 14th of November, we would have made a third and further presentation in parliament to the NCOP.

We appreciate that competition policy is no simple matter. It is a matter that divides economists and even free-market economists. It is, however, not a trivial matter. The Competition Commission and the Competition Tribunal, clearly creatures of the South African regulatory state, through their coercive say over among other things merger and exemptions from the competition act, are already gatekeepers to much of SA’s commercial activity. Their flavour of enforcement in no way represents a hands-off approach to economic regulation, something of which, I would say, we need much more.

The recent refusal of the intended merger between SA Airlink and FlySafair aptly illustrates the powerful influence of the competition authorities to put on or lead to a handbrake on commercial activity. In free markets, if there were to be competition enforcement, it would amount only to ensuring a level regulatory legal playing field, especially pertaining to state-supported industries. This clearly is not the aim of local competition enforcement, which evidently amounts to a form of state-management of commerce.

The refusal of the merger shows regulators attempting to judge “optimum conditions” for competition – something that is very hard, I would say impossible, to do considering all of the nth order complexities of dynamic real-world markets. Less enforcement, however, is not on the cards, especially when one considers the further prominence of supposed “public interest” considerations in merger approval or exemption applications.

If the 2018 Bill were passed in its present form, it would grant the Commission more sway over the economy, especially to drive government’s policy of BEE. This is a policy the likes of Sakeliga deem dysfunctional and costly to true economic progress. The competition authorities would drive this form of empowerment through newly drafted and dubious clauses that aim to benefit small and medium businesses (SMEs) or firms controlled by historically disadvantaged individuals (HDI).

Among many problematic elements, the Bill now includes even more stipulations to clamp down on firms which regulators have declared “dominant” through legal fiat. Previous versions of the 2018 Bill included clauses in terms of which dominant firms, if accused, would have to prove that they are not imposing “unfair prices” or “unfair trading conditions” on SMEs or HDI businesses that supply to them.

Surely, one would think, considering the principles of the rule of law, it would be a simple matter for designated “dominant” businesses to determine when they are imposing unfair prices and unfair trading conditions in breach of the law. But, simply put, there is no clear answer or method by which to know when one’s business would transgress one these stipulations.

If there is a prima facie case of such contraventions, a dominant firm would have to “show” they aren’t transgressing applicable provisions, which, in itself, would probably require expensive legal advice and expert testimony. It also raises serious questions on the Bill’s treatment of the matter of the burden of proof. In the end, such cases are likely to end up at the Competition Commission or Tribunal, which, legally speaking, is another expensive kettle of fish.

Dominant firms would now also have to “show” that they are not “avoiding or refusing to purchase” from SMEs or HDI businesses in designated sectors in order to circumvent the operation of the Bill’s prohibition on imposing unfair prices or trading conditions.

The converse would also apply in situations where dominant firms supply products to SMEs or HDI businesses. In such cases dominant firms would have to show, for instance, that they are not supplying products or services at prices that “lessen competition” or “impede” SMEs or HDI businesses to “participate effectively” in markets.

Dominant firms would also have to show that they have not “avoided selling or refused to sell” products or services to SMEs or HDI businesses in order to circumvent the Bill.

Whereas some firms may come to be prohibited from refusing to sell to or buy from specified types of businesses, there is another way to “circumvent” the Bill, a way which, on the margin, will harm the economic potential of SA further in our estimation.

This is the loss of economic potential when firms exit markets, abort entry, stay small or refrain from expanding further owing to mounting increases in the regulatory compliance load continually heaped on the economy. This will leave more powerful government enforcers of competition the only questionable winners of excessive regulation.

TG van Onselen is Senior Analyst: Sakeliga