This blog was co-authored by James Donald, Candidate Attorney
Following the economic fallout of the Covid-19 pandemic, one of the aims of government’s Economic Reconstruction and Recovery Plan (ERRP) is to encourage localisation. With a focus on purchasing local inputs instead of importing, this is intended to assist in uplifting the economy. The challenge is however that often firms are too small to independently achieve such goals, and collaboration with competitors may be required. But with this, comes risk under the Competition Act.
In an attempt to address this, the Competition Commission recently published draft guidelines on collaboration between competitors on localisation initiatives. The intention of these guidelines is laudable as it aims to encourage localisation by giving assurance to firms that they are not in fact inadvertently engaging in anti-competitive conduct.
The Commission has indicated that it will not regard collaboration on local procurement, which is conducted with accordance with the guidelines, as a contravention under the Act. Having said that, and as dealt with in more detail below, the guidelines in the current format do not provide sufficient detail to assure firms on what can and cannot be done in this process.
Points for consideration
In terms of the draft guidelines, if a firm intends on becoming party to a localisation initiative, any collective discussions must be notified to the Commission within a reasonable time and all ensuing discussions must be minuted, so that the documents can be provided to the regulators if need be. If competitors collaborate with regard to localisation, they must first identify available opportunities for such initiatives, industry and individual local procurement targets must be set, and demand forecasting should be done. Where practical, the guidelines call for such initiatives to include small, micro and medium-sized enterprises as well as firms owned by historically disadvantaged persons.
Once an appropriate product has been identified, collaboration is required in order to assess the scope of localisation across the industry. In terms of the draft guidelines, such collaboration must involve an independent facilitator or a government entity to perform that role.
The guidelines recognise that the process of setting industry-level localisation targets may require discussions among competitors. The guidelines indicate that in all instances, only aggregated information on volumes and percentages of the identified product and not firm-specific competitively sensitive information may be shared by the facilitator with the competitors. Ultimately, the facilitator must determine the final industry target and consequently, sensitive information may be shared by competitors with the facilitator on a confidential basis in order to assist the facilitator in coming to a decision. In comparison, the process of setting individual firm localisation targets must be conducted on a bilateral basis between the facilitator and individual firm. Progress reports set out in the individual firm’s localisation plan must then be submitted to the facilitator on a bilateral and confidential basis. Since this process does not involve competitors it is unclear why the Commission has felt the need to include it in the document, and in particular why the Commission recommend the involvement of a facilitator in a process which could otherwise, without attracting risk under the Competition Act, be less cumbersome.
A localisation initiative may include industry commitments to providing demand forecasting guidance to input suppliers. Such guidance may also only contain aggregated information and not a firm’s individual procurement plans and information, which is peculiar given the normal basis upon which one engages with suppliers.
Whilst well-intended it is not certain that these guidelines create an efficient procedure or the required comfort to encourage localisation. With obligations such as notifying the Commission of initiatives, and using and paying a facilitator, even for bilateral engagements where there does not seem to be risk under the Act, the guidelines may be seen to unnecessarily increase the demands on firms in this process.
Further, whilst helpful to understand that the Commission agrees with our interpretation, more certainty and protection to potential participants of localisation programmes may lead to better outcomes.
It may well be that an appropriate, full exemption under the Competition Act, as we have seen for other Covid19 related market conduct, is a better solution to allow conduct of this nature, if we are achieve the desired outcomes in the current climate. The Commission has recently expressed that parties may apply for such an exemption in the ordinary course.
Any industry association, or firm that may want to be party to a localisation initiative and wishes to comment on the draft guidelines reach should reach out to us before the deadline for submission, 27th of September 2021.