Willemien Viljoen, tralac Researcher, discusses a recent investigation by the Competition Commission of South Africa concerning exports of various canned fruit products

The Rhodes Food Group (RFG) is a South African food producing company that exports canned fruit and fruit juice purees and concentrates primarily to Europe, the Far East, United States, Canada, Australasia, Russia and the Middle East. According to its Pre-listing Statement the company has increased its market share in the international market for canned products by 64 percent in key geographical areas over the last three years. This corresponds with a significant increase in South African exports of canned fruit products to various export destinations over the last 13 years:

• Exports of pears to Australia, Netherlands, UK, Germany and Japan increased by 102%, 11%, 10%, 6% and 3%, respectively.

• Imports of apricots by Netherlands, UK and Australia increased by 10% and 4% respectively with exports to Japan decreasing by 4%.

• Exports of peaches to Australia, Netherlands, Germany and UK increased by 50%, 11%, 8% and 3%, respectively while exports to Japan decreased by 2%.

In 2009 an investigation was launched by the South African Competition Commission into the alleged anti-competitive behaviour of the RFG and one of its competitors Langeberg & Ashton, also a South African Company, in the export market for various canned fruit products. This was not the first time that the spotlight fell on the actions of these two companies in the international market. Canned fruit exports from these two competitors were also included in recent anti-dumping (peaches) and safeguard investigations (various canned fruits) in the Australian market (see a previous tralac Discussion on this topic).

Following its investigation the Commission concluded that the companies had contravened Section 4 of the South African Competition Act by engaging in prohibited restrictive horizontal practices of price fixing, dividing markets and collusive tendering in various foreign markets. Specifically, the practices included price fixing in the Japanese (peaches), Australian (apricots, peaches, pears and fruit cocktail), European (apricots, peaches and pears) and UK (apricots, pup apricots and peaches) markets and collusion on tenders to customers in the UK market.

On Wednesday 8 October 2014 the South African Competition Tribunal heard the application for an order to confirm a settlement agreement between the Competition Commission and the RFG in the case. In terms of this settlement the RFG has agreed to pay a penalty for its participation in collusion in foreign markets. This penalty is only applicable to RFG, given that Langeberg & Ashton was granted immunity for its participation in the colluding activities in accordance with South African Corporate Leniency Policy. However, RFG indicated that they did not apply for leniency based on the understanding that their conduct in export markets fell outside the jurisdiction of both the South African Competition Act and Competition Commission. This was the first case in which the Commission sought to address prohibited horizontal practices of a South African company in foreign markets. This has resulted in an interesting debate regarding the jurisdiction of national laws and governing bodies in the particular case.

Traditionally national laws are only applicable within the geographical boundaries of the country it pertains to. The reach of national laws and the jurisdiction of its governing bodies are contained within the provisions of the act and the mandate of the governing body. This is especially the case in competition law due the fact that there is no international competition agreement among countries. Although the idea of concluding an international competition agreement among the member states of the World Trade Organization came on the multilateral trade negotiations agenda at the Singapore Ministerial Meeting in 1996 and incorporated into the Doha Development Agenda, this has now been abandoned due to the lack of support for the extra-territorial application of national competition laws and the unwillingness of countries to surrender sovereignty to regulate competition within their national markets. This requires countries to ensure that they address issues of competition in their domestic and export markets in accordance with the jurisdictional provisions of their national laws. However, there are specific cases where countries have agreed upon variations of the rule to apply domestic competition policies only within the confines of national and export markets. This has been the case in various bilateral and regional trade agreements that have included either the harmonization of competition laws or cooperation in this regard within the legal texts. For instance, this is the case in the Common Market for Eastern and Southern Africa (COMESA) and East African Community (EAC) which has established regional competition policies to address competition issues within the respective regional configurations. In the case of the Southern African Customs Union (SACU) and the Southern African Development Community (SADC) member states have only agreed to cooperate in the enforcement of their respective national competition laws.

The application and jurisdiction of the South African Competition Act of 1998 (as amended in 2009) are contained in Chapter one which states that ‘the Act applies to all economic activity within, or having an effect within, the Republic’. The Act prohibits restrictive horizontal practices (Section 4) when horizontal relationships among parties:

(a) it has the effect of substantially preventing, or lessening, competition in a market, unless a party to the agreement, concerted practice, or decision can prove that any technological, efficiency or other pro-competitive gain resulting from it outweighs that effect; or

(b) it involves any of the following restrictive horizontal practices:

(i) directly or indirectly fixing a purchase or selling price or any other trading condition;

(ii) dividing markets by allocating customers, suppliers, territories, or specific types of goods or services; or

(iii) collusive tendering.

These provisions must also be understood within the definition of the market which is a fundamental concept in the realm of competition law. If the market is identified incorrectly, it is likely that the competitive effect of the challenged conduct will also be identified inaccurately. However, the definition of the market is a complex and challenging exercise but as a simple starting point the market can be defined as “a product or group of products and a geographical area in which it is produced or sold...” (Harriott, 2010:8). This definition recognizes the important role both existing and potential importers and import products play in correctly defining the market. The definition is also consumer orientated in that it identifies the set of products the consumers perceive to be substitutable in order to satisfy a specific need.

Importantly, the Competition Commission found that it had jurisdiction to address the actions of the RFG in the export market within the ambit of the South African Competition Act. Based on evidence the Commission received it was evident that price fixing, dividing markets and collusive tendering was engaged in by the parties involved. Although the Commission clearly states that the impact of the restrictive practice was not in South Africa, the economic activity of these companies, in terms of their production of the canned products and their collusive activities took place within the geographical boundaries of South Africa which falls within the application of the Act. Also, based on the definition of the market it is clear that the market in which the companies operated were not just the export markets of the EU, UK, Japan and Australia but also the South African market, given that the products were produced within South Africa. This case also had an additional dimension in the fact that the companies were also competing for market share in these export markets with other South African firms which produce similar products. Thus the anti-competitive behavior also affected export competition among South African firms.

This decision of the Commission has undoubtedly set the tone for future actions by South African firms in export markets. The mere fact that the production activities of companies take place within the geographical boundaries of South Africa gives the Competition Commission the jurisdiction to address collusion among competitors in accordance with the domestic laws of South Africa, irrespective of the fact that the impact of such activities were only on the consumers and producers of the destination market. However, the fact that these restrictive practices had an adverse effect on export competition among South African companies in the specific export markets further confirms the jurisdiction of the national legislation and governing body. This highlights the importance of correctly defining the market within the ambit of competition law.

Tell us what you think.

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Sources:

BusinessDay (www.bdlive.co.za)

Global Trade Atlas (www.gtis.com/gta)

Harriott, K. 2010. Antidumping and competition law in conflict. [Online]. Available: http://www.jftc.com/Libraries/Staff_Opinions/Antidumping_and_Competition_Law_in_Conflict.sflb.ashx

South African Competition Act 1998 (as amended in 2009)

World Trade Organization (http://www.wto.org/english/tratop_e/comp_e/comp_e.htm)

Pre-listing statement of the Rhodes Food Group (http://www.rhodesfoodgroup.coP/news-pre-listing-statement)