Govt contravenes its own rules
22 July 2011 | Monique Vanek and Sasha Planting
Three government ministers are appealing the Competition Tribunal’s decision to let Walmart buy a controlling stake in Massmart for R16,5 billion on May 31.
They have asked for the merger to be reviewed and set aside, should this not be possible they have asked for the matter to be remitted to the Competition Tribunal for reconsideration of the merger, according to documents posted on the Competition Appeal Court website.
Economic Development Minister Ebrahim Patel, Trade and Industry Minister Rob Davies and Forestry and Fisheries Minister Tina Joemat- Pettersson filed the application.
The ministers believe that the tribunal erred in its decision to approve the merger with conditions by failing to order the merging parties to provide all the documents sought by the applicants and by precluding opposing parties, including the applicants, from fully and properly ventilating their concerns and their submissions on the conditions to which any approval should be subject during the tribunal’s scheduling decisions.
The appeal follows one by Saccawu.
The applicants have asked that their review application be heard in conjunction with Saccawu’s.
Meanwhile, in hearings before the Portfolio committee yesterday, the three ministries gave reasons for their views and the slide show presented was sent to the media. In it, they said:
- government believes that given global purchasing power of Walmart, the merged entity will significantly increase imports and reduce purchases from local suppliers;
- this will affect entire value chains from the suppliers of raw materials and components to the suppliers of the finished product;
- commissioned research estimates that a 1% increase in imports will result in 4 000 job losses in South Africa;
- government believes a ripple effect in the sector is inevitable – competitors of the merged entity will also import more and procure less from local suppliers;
- in this case, government believes that evidence in the possession of Walmart/Massmart would confirm the extent of the negative impact of the merger;
- government has now applied to review the Tribunal’s decision on the merger and the process it adopted in the merger hearing – it is essential that public interest concerns are properly ventilated in Tribunal proceedings after merging parties have made adequate discovery of information and relevant witnesses have had sufficient time to make oral submissions; and
- government supports a transparent, independent and expeditious merger review process, in which all key stakeholders, including government, can engage meaningfully in order to ensure outcomes which are pro-competitive and in the public interest
Should the appeals succeed, chaos could ensue. Some R16,5 billion would have to be repaid to Walmart and Massmart executives will lose out on their share sales of R249million. The rand would almost definitely take a hit and SA’s reputation as an investment destination would be heavily compromised.
Saccawu is persisting even though the merging parties have undertaken not only not to retrench people for two years but to add
15 000 new jobs in the next five years. They have made available R100million to small farmers and businesspeople to help them to become suppliers.
South Africa’s trade laws are said to be among the most liberal in the world and obliges this country to allow companies that fall into specified categories to enter the SA market on the same terms as other, local companies.
Not doing so could put SA at odds with international trade conventions and law.
This may sit uncomfortably with a government which has become increasingly uncomfortable with the free-market stance adopted in 1994 and which has since 2006 begun to unpick.
In 1995 SA was a founding member of the World Trade Organisation and an original contracting party to the General Agreement on Tariffs and Trade and the General Agreement on Trade in Services.
This agreement means that SA has some very specific obligations when it comes to foreign investment.
SA committed 91 (out of a possible 160) sectors in areas including business services, communication, construction, financial services, tourism, transport and significantly, the distribution of goods and products, to the new trade rules, says Paul Kruger, a researcher with the Trade Law Centre for Southern Africa (Tralac). This means that if foreign companies in these sectors want to open shop in SA, then SA is duty-bound to accept them – on the same terms applied to other, local companies.
How does this balance with local laws and regulations – such as those of the Competition Act and the regulatory authorities that act in accordance with those rules?
“The Competition Act makes reference to the trade obligations and states that international law and context must be considered,” says Kruger. “But to what extent this must happen is not clear.”
The Competition Tribunal made little reference to international obligations when it set out its reasons for approving the deal. Possibly because it did not need to.
Comparing SA’s trade agreements with those of a country like Malaysia highlights how liberal they are. “A foreign owned retailer is not allowed to own more than 30% of a Malaysian company,” says Kruger. Malaysia has also imposed minimum capital investment requirements on foreign investments and it insists that a minimum quota of local produce is carried by all foreign supermarkets.
SA could not impose similar quotas. “If SA had imposed local procurement quotas on the Walmart/Massmart deal, such a measure would be directly in conflict with SA’s commitments to the World Trade Organisation (WTO),” says Kruger. The only way to avoid coming into conflict with
the rules, is to impose the same
local procurement quotas on all retailers.
SA is bound to adhere to this process because it has signed and ratified the WTO agreements. There are certain exceptions to these rules – for instance a company may be prohibited from entering a country because it is necessary to protect human, animal or plant life or to protect health. Alternatively, SA could argue that preventing
Walmart from entering the country is necessary to protect public morals or to maintain public order.
So what now?
Obviously the thing to do is to wait until the appeal is heard.
If it goes against Walmart, the US retailer could lobby the US government to intervene at the level of the WTO. “The heavily political nature of the process in SA may have made the US reluctant to intervene,” says Kruger. “But now that the government is involved, it may prompt the US to become involved.”
Global rules don’t matter to everyone. The unions are determined to prevent Walmart’s entrance into SA. National Union of Mineworkers general secretary Irvin Jim paid short shrift to the information. He told the assembled members of parliament: “It doesn’t matter what commitments we have made where. These do not help our problems (of unemployment and poverty).”
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