On 13 August 2021, the Competition Commission published the ‘Draft Guidelines on collaboration between competitors on localisation initiatives’ (Guidelines). That really is the title of the Guidelines issued by the Commission.
Localisation, a vague concept in reality, has become the heart of the government’s push for industrialisation with the goal of reducing South Africa’s non-oil import bill by 20% over the next five years (the ‘Localisation Initiative’). Until now, it was unclear how localisation could be achieved in the private sector. In the public sector, the government can tie its tenders to a legally binding framework through the ‘designation’ of products and sectors for local production and content under the Preferential Procurement Policy Framework Act and the Preferential Procurement Regulations.
Enter the Competition Commission’s proposed Guidelines, which seek to insulate the companies engaged in collaborations to create a localisation initiative, from the requirements of the Competition Act, in respect of sharing competitively sensitive information.
This builds on the plethora of policy statements on localisation, including the Masterplans, the DTIC Policy Statement on Localisation for Jobs and Industrial Growth and its ‘list’ of 42 products earmarked for localisation as well as the SMME Focused Localisation Policy Framework with its list of 1 000 products and services for localisation. The common theme in all these government pronouncements on localisation is that they are shrouded in mystery and often led by unknown market participants.
The 42 products to be localised are led by ‘Localisation Champions’, made up of the CEOs of market participants. Although the 42 sectors are now in the public domain, the identities of the champions are not. It is not clear which information was shared to determine what the 42 sectors should be, nor what information is shared within each sector cluster and whether this is commercially sensitive.
If implemented as published, the guidelines could have the effect of shielding collaborations where competitively sensitive information is shared between competitors. This could result in prohibited behaviour such as cartel conduct, abuse of dominance and price discrimination.
The Guidelines loosely refer to localisation as meaning ‘any project or effort to achieve greater levels of local procurement or production’, thereby clouding the matter further. What does ‘greater’ mean here? What is the threshold for local procurement or production for each product? The failure to mention or employ the rules of origin criteria under the World Trade Organization opens the door to circumvention.
The Guidelines allow the ‘collaborators’ to seek ‘case-by-case’ guidance on matters that are not covered by the Guidelines. This ad hoc approach is worrying and open to abuse since there are no transparency and accountability requirements for other competitors in the market to get access to the discussions in this regard.
These collaborations must be led by an ‘independent facilitator’ who is defined as ‘both an appointed independent facilitator and any government entity performing the same function as an independent facilitator’. It is not stated who appoints and monitors these facilitators to ensure independence and compliance with the Competition Act.
Furthermore, ‘collective discussions’ on localisation between competitors must be notified to the Commission within a ‘reasonable time’, and all ‘ensuing discussions’ must be minuted. But how does one distinguish between ‘collective discussions’ and ‘collaborations’ since only the minutes of the ensuing discussions are minuted?
It should also be a mandatory requirement that SMMEs and all firms in the affected industry must be included in localisation initiatives and this should not be restricted to ‘where it is practical’. This opens the door to exclusionary behaviour by the bigger players in the market whose market power can only be strengthened.
Localisation is happening, so it is imperative to create a framework that is built on transparency, accountability, and facts. We need to be wary of inadvertently creating an environment of anti-competitive behaviour in the drive for localisation.