Presentation to the 11th Nedlac Annual Summit by Competition Commission

Shan Ramburuth, Commissioner

1. ACHIEVEMENTS

   1.1. Credible institutions:

   The Competition Act is a consequence of great debate and discussion in Nedlac. Following a Nedlac agreement on competition policy principles, legislation was drafted and promulgated. The Competition Act (1989) provided for the regulation of mergers and the prosecution of anti-competitive business practices. It set up three institutions, the Competition Commission, the Competition Tribunal and Competition Appeal Court.

   A lot of hard work by dedicated people went into setting up these authorities. Within a relatively short period of time, we have put into place sophisticated institutions with reputations for being fiercely independent; and we have gained the respect of the constituencies we deal with. This is no small achievement considering that we started from scratch and the technical complexity of the subject matter.

   I recall during the policy negotiations the fears about institutions with high turnaround times and arbitrary decision-making, These fears were unfounded. On the contrary, interaction with the competition agencies are guided by clear procedural rules and there has been consistency in the interpretation of the substantive provisions of the act. The emerging jurisprudence thus creates certainty on what kinds of business behaviour are considered anti-competitive (that is, restrictive practices and abuse of dominance); and what characteristics of market structure are considered anti-competitive (when evaluating merger transactions).

   The way the policy was determined, institutional design, procedural fairness and consistency in decision making have all contributed to having institutions with integrity. But equally important has been that the competition authorities have been managed effectively and we have not had any of the corporate governance controversies that can so seriously undermine fledgling institutions. .

   1.2. Decisions:

   The competition authorities have taken some important decisions that have had demonstrable effects on consumer markets.

   I would like to illustrate this with a few cases:

   • In 2002, the Treatment Action Campaign and others filed a complaint with the Competition Commission against two multinational pharmaceutical companies (Glaxo Smith Kline and Boehringer Ingelheim). The Commission reached agreement with the drug companies that they would issue voluntary licences to generic manufacturers of their patented ARV's. As a consequence of competition in the generic market, the prices of these anti-retrovirals fell dramatically. The monthly cost of an ARV cocktail, which included drugs from the respondent drug companies, for a person living with AIDS, decreased from R4500 a month to R450 a month,
   • The Commission levied fines on several motor vehicle manufacturers (Toyota, General Motors, Volkswagen, Daimler Chrysler, Nissan and Citroen) for engaging in the practice of minimum resale price maintenance. Settlement agreements with the motor manufacturers resulted in fines totalling R37.5m and a commitment from each of them to cease their anti-competitive conduct (ie. limiting the discount that the dealer could offer a customer) and comply with the Competition Act.
   • The Commission successfully prosecuted South African Airways ("SAA") for abusing their dominant position with an incentive scheme for travel agents which incentivised the agents to offer their customers only SAA tickets even when there were cheaper tickets available from rival airlines. The Competition Tribunal imposed a fine of R45m on SAA. Subsequent to this, SAA settled three other cases that were under investigation at the Commission and undertook to put into place compliance programmes to prevent further transgressions of the Competition Act.

   Important decisions have also been taken in merger regulation. The prohibition of the merger between the JD Group and Ellerines in 2001 prevented concentration in the retail furniture market which is also a market for credit for lower wage earners. In the past year, we prohibited the proposed merger between Sasol and Engen - a transaction that would have had far-reaching effects in the economy when the petroleum industry is deregulated.

   1.3. International reputation

   Another of our achievements is the high regard we enjoy internationally. The Commission and Tribunal have participates in the OECD, Unctad and the ICN, the latter a network of competition agencies that shares experiences and best practice. We hosted the annual ICN conference in May this year.

   South Africa provides leadership in addressing developing country issues at these forums. We have defended our policy choice to explicitly include public interest factors in evaluating cases. This is a contested approach in the practice of competition law.

2. CHALLENGES

   2.1. Legal interpretation of policy based legislation

   An ongoing challenge for the Competition Commission is to ensure that the legislation is interpreted true to its policy objectives and that the jurisprudence does not create legal hurdles and obstacles to investigating and prosecuting cases. I must confess that, at the time of the policy negotiations at Nedlac, I had no idea how "lawyer-intensive" the implementation would be.

   While the Competition Appeal Court has found in favour of a purposive interpretation of the act, that is, an interpretation that has regard first and foremost to the objectives of the act, legal interpretation is prone to approaches with scant regard to policy purpose.

   In the litigious environment that is developing, procedural and interpretive legal challenges are taking up an enormous amount of the institutions' resources; and this distracts from, and frustrates, the achievement of policy objectives.

   2.2. Resources

   Prosecuting cases is costly. Respondents are always better resourced than the Commission and have access to increasingly more sophisticated legal and economic expertise. Respondents also have an incentive to frustrate and delay. (Example: American Natural Soda Ash Corporation)

   In terms of the act, we are obliged to investigate every complaint. This dilutes our resources and our ability to focus on more strategic cases.

   With respect to human resources, the Commission competes for skilled staff with a private sector that pays substantially higher salaries than we can offer. We find ourselves in a situation of training and developing staff who are then poached by the private sector.

   2.3. Concurrent jurisdiction

   The Commission shares concurrent jurisdiction over competition regulation with sector specific regulators. This situation allows regulated parties to forum shop and exploit jurisdictional disputes through protracted litigation. (Example: Telkom).

   The Commission has agreed MOU's with some regulators to avoid forum shopping, to get the regulators to cooperate and to prevent conflict between regulators on jurisdiction.

3. GOALS FOR THE YEARS AHEAD

A high profile intervention of the Commission is the inquiry into bank charges and access to the national payment system. This is not an investigation, but an example of the use of advocacy to increase market transparency. The inquiry will advise the Commission of what further action to take but the process will, in and of itself, create an awareness and understanding of the workings of payment system and empower consumers to make informed choices and assert their rights.

The primary goals of competition policy are to promote access to the economy and advance the interests of consumers. Competition agencies must therefore unashamedly champion these goals even when it brings them into conflict with other interest groups.

One of the areas we have neglected as we (correctly) concentrated on setting up and developing our investigative and prosecutorial capacity, is our advocacy role in influencing policy. Despite the commitment to competition policy, policy-makers and legislators often ignore the role of competition, admittedly more through neglect rather than design. The Commission has an important role in challenging regulators and policy makers (some of whom may be acting in the interests, or on behalf, of one or

other of Nedlac's constituencies) when the approaches, actions or behaviours undermine access to the economy or the interests of consumers.

It is significant that the Competition Act, legislation enacted in the interests of consumers, was agreed in Nedlac without the direct participation of consumers as an organised constituency. But we are, after all, all consumers. Even businesses are consumers - of banking services, for example. I expect the continued support of Nedlac, and its constitutencies, for our further work even when this has us challenging the narrow interests of any of its members.

Thank you.