Commencement of certain sections of the Competition Amendment Act, 2018
On 13 February 2020, the South African President announced the promulgation of certain significant sections of the Competition Amendment Act, 2018, including a change to the confidentiality regime, the new buyer power provision and the new price discrimination provision. The Minister of Trade and Industry has also published new regulations on buyer power and price discrimination. These amendments seek to support fair participation in the economy by small and medium-sized businesses (“SMEs”) as well as firms controlled or owned by historically disadvantaged persons (“HDPs”).
- a dominant buyer in the grocery retail, agro-processing and online intermediation services sectors may not require from or impose, on an SME or HDP supplier, unfair prices or trading conditions.
- a dominant supplier cannot discriminate on price against an SME or HDP firm, if it is likely to have the effect of impeding the SME or HDP firm’s ability to participate effectively.
- in relation to dominant suppliers, price difference based on quantities purchased is no longer a valid justification when selling to an SME or HDP firm.
- wider powers have been granted to the Competition Commission (the “Commission”) in determining whether information is confidential.
- these provisions are in force and effect from 13 February 2020.
Buyer power provision
The new buyer power provision prohibits dominant firms in the grocery retail, agro-processing and online intermediation services sectors to require or impose on an SME or HDP firm unfair prices or other trading conditions. A dominant firm is also prohibited from avoiding or refusing to purchase goods or services from an SME or HDP firm in order to circumvent the new buyer power provision. HDP firms that supply more than 20% of the relevant good or service purchased by the dominant buyer do not fall within the category of HDP firms to which section 8(4) applies.
The factors that must be considered in establishing a contravention of the new buyer power provisions include:
- the buyer must operate within a designated sector and be dominant within that sector in relation to the goods or services that are the subject of the complaint;
- the supplier must be an SME or HDP firm within the identified parameters;
- the price or trading condition must be imposed by the buyer; and
- the price or trading condition must be unfair.
In determining the unfairness of the price, the Commission may consider the prices paid to other suppliers of like goods or services and compare the magnitude of any differences in prices. Any retrospective, unilateral or unreasonable imposition of costs by the dominant buyer on the SME or HDP firm, will be viewed in a negative light. A trading condition may be deemed unfair if it unreasonably transfers risk or costs onto a firm within the designated class of suppliers or it is one-sided, onerous or not proportionate to the objective of the clause (such as unduly long payment terms).
Price discrimination provision
The section of the Competition Act dealing with price discrimination by a dominant firm now includes a new section whereby an action by a dominant seller is prohibited price discrimination if it is likely to have the effect of impeding the ability of SMEs or HDP firms to participate effectively. Circumvention is prohibited in that a dominant firm cannot avoid or refuse to sell goods or services to an SME or HDP firm, merely to evade the operation of the new price discrimination provision. Another important amendment is that volume-based discounts are no longer available as a defence when dealing with SMEs or HDP firms. The justification, however, is still available when dealing with other purchasers. Protection in terms of this new provision, however, does not extend to HDP firms that purchase 20% or more of the relevant good or service supplied by the dominant seller.
The elements to establish a case of price discrimination include:
- the selling firm must be dominant in relation to the goods or services that are the subject of the complaint;
- there is differential treatment between the purchaser in the designated class and other purchasers outside that class, in respect of equivalent transactions for goods and services of like grade and quality (the differential treatment can be on the price, discounts, rebates or credit given etc);
- there is no available defence to the differential treatment (including that there is no reasonable allowance for differences in supply costs based on location or methods of supply); and
- the price differential relative to other purchasers impedes the effective participation of a firm or firms in the designated class of purchasers.
The Commission previously published enforcement guidelines on these subject matters setting out its views on application of the new provisions. It is expected that the Commission will publish updated guidelines in line with the final regulations. The current draft guidelines do not allow for a grace period for compliance within which the Commission will not investigate and act on complaints. Leniency or sympathy may be shown in certain circumstances, for example, where dominant firms can show genuine efforts to review pricing conduct in light of the amendments. A contravention of either of the new provisions will attract a potential administrative penalty of up to 10% of turnover for a first time offence, and up to 25% for a repeat offence.
Changes to confidentiality regime
The amended sections on confidential information are now also in force. These provide the Commission with wider powers in determining whether information is in fact confidential or not. The onus will be on the disclosing firm to object if it is aggrieved by a decision of the Commission on confidentiality. Fortunately, information cannot be disclosed pending an objection.
For further information contact our Competition/Anti-trust team.