PUBLIC INTEREST PROVISIONS IN THE SOUTH AFRICAN COMPETITION ACT-

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Oct 28, 2013 (3 years and 7 months ago)

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1


PUBLIC INTEREST PROV
ISIONS IN THE SOUTH
AFRICAN COMPETITION
ACT
-


A CRITICAL REVIEW

Authors: James Hodge, Sha’ista Goga, Tshepiso Moahloli

Competition Policy, Law and Economics
Conference 2009

Abstract

The South African Competition Act No 89 of 1998 was enacted ten years ago with the
specific purpose of promoting and maintaining competition in South Africa. One of the
ways in which the Act differed from those enacted in other jur
isdictions was the
innovative inclusion of public interest objectives. These objectives are reflected in the
preamble and purpose of the Competition Act and are explicitly detailed in sections of
the Act dealing with the assessment of exemptions and the as
sessment of mergers.

This paper
e
xamin
es

the motivation for the inclusion of public interest provisions and
the shape they took in the Act. It then discusses how the Competition Tribunal has
chosen to interpret these provisions through a series of cases o
ver the ten year
period, and in so doing establishing the case precedent in relation to public interest.

The paper then critically assesses the manner in which public interest has been
interpreted. It finds that whilst public interest has not yet trumped
competition
considerations, the approach adopted by the Tribunal has generally been both in line
with the original motivation and sound practice. Yet challenges remain in ensuring that
public interest does not gradually slip off the agenda of competition a
uthorities and
that it
is rigorously assessed in the event that a substantive public interest case does
emerge in future.







2


1

INTRODUCTION

The South African Competition Act No 89 of 1998 was enacted ten years ago with the
specific purpose of promoting and m
aintaining competition in South Africa. One of the
ways in which the Act differed from those enacted in other jurisdictions was the
innovative inclusion of public interest objectives

as part of the assessment of
competition issues
.


Given the potential for

mergers to impact on government policy objectives, many other
jurisdictions including the UK, Germany and Canada provide a mechanism for
politicians to overturn otherwise anti
-
competitive mergers under particular
circumstances. One concern is that this le
aves the competition process, which should
ideally be independent, open to some form of government interference. The South
African Competition Act is unusual in that it has provided mechanisms to resolve
conflicts between policy and competition, but has li
mited the discretionary component
by placing the responsibility for determining whether a merger is required for public
interest objectives in the hand of the independent competition authorities.

However, several
problem
s

nonetheless remain

in

contrasting

and weighing up
competition effects on the one hand, and public interest on the other
. This is
particularly evident where

the units of analysis
are

quite different.

This paper seeks to discuss the public interest objectives of the Act and how they
have
been brought to the fore, assessed and dealt with in South African precedent.
We conclude that while the competition authorities have dealt well with

public interest
considerations

in the past, we may face particular challenges going forward
.

The paper is

structured as follows:



The first section provides a background on the public interest provisions South
Africa by discussing some of the motivation behind the inclusion of public
interest in the Competition Act, and outlining the actual provisions.



The sec
ond section outlines the way in which the Tribunal has interpreted and
dealt with public interest provisions in the past 10 years.



The third section provides an assessment of the Tribunals approach, and
discusses some challenges that may occur with respec
t to the assessment of
public interest in the future.



The fourth section concludes.





3


2

A BACKGROUND ON PUBL
IC INTEREST IN SOUTH

AFRICA

The Competition Act of South Africa is written in a manner that explicitly
acknowledges the importance of public interest a
nd therefore provides a role for the
consideration of factors that go beyond the boundaries of competition. This is
at the
first instance
reflected in the preamble and purpose of the Competition Act and is
furthermore
stipulated as a consideration in the
b
oth the
assessment of exemptions
and the assessment of
mergers
.

We first discuss the motivation and context for the
introduction of public interest in the Competition Act before outlining the provisions
within the Act that relate to public interest.

2.1

Motiva
tion and context for the public interest provisions in the
South African
Competition Act

Discussions on an appropriate competition framework for South Africa began in the
late nineties at a time when the South African economy was being restructured in
nume
rous ways to redress the dual legacies of an uncompetitive, concentrated
economy and a country replete with socio
-
economic inequalities. The government at
the time was looking to create a comprehensive framework that would achieve a
competitive and fast
-
gr
owing economy. Competition policy was seen as a core part of
this strategy.

Improved competitiveness would assist in furthering the government’s public interest
objectives on two levels. Firstly, it would support the national macro
-
economic strategy
and se
condly, it would support microeconomic restructuring in that it would promote
efficient firms and industries. According to the DTI, this would occur through the
optimisation of

production and distribution efficiencies


including appropriate
production pr
ocesses and technological innovation
-

through effective economic and
commercial interactions including supply and demand, unhindered by anti
-
competitive
conduct’,
1

A well
-
structured competition policy was therefore seen by the DTI as something that
would l
ead to a more competitive and efficient economy with the following benefits.

(a)

It would lower costs along the value chain.

(b)

It would enhance the attractiveness of South Africa to foreign investors.

(c)

It would allow for a more balanced regional economy.




1

Department of Trade and Industry, Proposed
Guidelines for Competition Policy, A Framework for
Competition and Development , 27 November 1997, para 1.3.2






4


(d)

It wou
ld stimulate entrepreneurial activity.

(e)

It would promote international competitiveness of South African firms.

(f)

Through its influence on production processes it would assist in furthering the
government’s socio
-
economic aims.

In addition, competition polic
y was also seen to directly assist in the promoting
particular socio
-
economic objectives. For example with relation to small and medium
enterprises the DTI noted that
‘the policy will ensure that participation of efficient
small
-

and medium
-
sized enterpris
es in the economy is not jeopardised by anti
-
competitive structures and conduct.’
2

While taking cognisance of the standalone benefits of competition policy, the
government recognised that the competition policy that they wished to develop
needed to be alig
ned to the broader government policies and objectives of redress
and development. This is important because there are likely to be instances in which a
transaction would result in small private gain but extremely high social costs. Thus,
competition in thi
s instance would be undesirable in that it conflicts with other
objectives.

The alignment of these policies was seen as achievable since the government
believed that
‘competitiveness and development are mutually
-
supporting rather than
contradictory objecti
ves, if policies are properly aligned’
3
. The key challenge in
developing the legislation was therefore to design legislation that would ‘
ensure policy
alignment between goals of competitiveness and development
.

4


As such, alignment was required in two are
as. Firstly, it was believed that competition
policy needed to be aligned with
industrial and trade policy

in order to synchronise
varying domestic and international development tools. This is something that is
particularly important for developing countri
es as these tools are often used in activist
government policies to nurture the economy
5
.

Secondly, competition law needed to be aligned with the policies that the government
needed to address the
‘challenges that follow from our legacy of economic
distortions
.

6

As such, competition policy was also seen as something that should be
complementary to efforts to improve employment, support emerging entrepreneurs
(particularly those from historically disadvantaged backgrounds) and complement
consumer tra
nsparency.




2

Ibid, para 3.8
.
3

3

Ibid, para 2

4

Ibid, para 8

5

Lewis David, The Role of Public Interest in Merger Evaluation, International Competition Netwo
rk,
Merger Working Group, Naples, 28
-
29 September 2002


6

Department of Trade and Industry, Proposed Guidelines for Competition Policy, A Framework for
Competition and Development , 27 November 1997, para 4





5


Aligning competition policy to these public interest objectives was crucial to the
success of the Competition Act and the envisioned Competition Authorities. A
disregard for major public interest issues would have led to a loss in credibility i
n the
eyes of the public and the government agencies which would have meant a reduction
in the stature of the Competition Act and the Competition Authorities enforcing it. The
DTI therefore attempted to create guidelines with features that would be attract
ive
both to those stakeholders who value market discipline and those who prefer direct
intervention and therefore combines competitiveness and development as its aims.
The DTI at the time of drafting its guidelines viewed public interest as a broad concept
:


the public interest is far broader than the sectional interests of firms and their
workers within a particular industry. It also stretches beyond the interests of
consumers, of emerging black entrepreneurs or of labour and community
constituencies
-

alth
ough each must be satisfied that the end result fairly
addresses their concerns.’
7


A key aspect of this was creating a role for public interest within the competition
framework in a manner that supports developmental aims via competition as well as
through other policies. The result was a Competition Act that explicitly required the
consideration of particular public interest objectives in merger evaluations. Its more
novel features include the following:

1.

It placed the responsibility for public inte
rest decisions at the hands of
independent competition authorities.

This limited the scope for political
interference. In addition, this reduced the likelihood that processes could be
derailed through lobbying that might occur if political bodies had the d
iscretion
to overturn rulings on the basis of public interest considerations. This is
especially true given the transparency and public nature of the competition
processes defined by the Act. By allowing the same body to assess the
competition and public i
nterest aspects it allows for a weighing up of the
relative merits of both aspects of the case.

2.

It limited the scope of public interest by defining in detail the grounds on which
public interest could be considered
. By detailing the public interest the Act

creates structure and provides a filter for the public interest analysis.

2.2

Public interest in the Competition Act

We now outline some of the key provisions of the Competition Act that relate to the
public interest. This occurs in three parts, the preamble

and purpose of the Act, the
consideration of mergers and exemptions.

The preamble of the Competition Act discusses the context and reasons for enacting
the Competition Act

and is

the first place in the Act that refers directly to public



7

Ibid, para 1.1.3





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interest. It stat
es that the Act will benefit all South Africans and i
s necessary in order

to regulate the transfer of economic ownership in keeping with the public interest’
.

Section 2
of the Act
outlines the
purpose

of the Act as the provision and maintenance
of compet
ition in order to achieve six outcomes. This includes several that can be
seen as not directly related to competition, but rather to public interest. These include
the promotion of employment and advancement of the
‘social and economic welfare of
South Afr
icans’,

expanding opportunities for South African companies in world
markets, providing equitable opportunities for small and medium sized enterprises and
to promote a greater spread of ownership, particularly with respect to historically
disadvantaged ind
ividuals. These key themes are reiterated throughout the Act and
developed further with respect to mergers and exemptions.

The concept of public interest
with respect to the consideration of mergers
is
more
fully
d
eveloped in section 12(A) which

states tha
t in addition to competition and
efficiency considerations it is also necessary to assess
whether a merger
‘can or
cannot be justified on substantial public interest grounds by assessing the factors set
out in subsection (3)
’.
8

This is to be done whether o
r not a merger is found to be
anticompetitive.


Subsection 12A(3) builds the understanding of public interest further by outlining the
factors that are seen as public interest grounds. These factors mirror those outlined in
the purpose of the Act:


‘When d
etermining whether a merger can or cannot be justified on public interest
grounds, the Competition Commission or the Competition Tribunal must consider the
effect that the merger will have on
-

a)

a particular industrial sector or region

b)

employment

c)

the ability

of small businesses or firms controlled or owned by historically
disadvantaged persons to become competitive;

d)

the ability of national industries to compete in international markets’
.

T
he Competition Act provides no scope for public interest arguments to
be considered
once a prohibited practice investigation is under way (see sections 4, 5, 8 and 9 of the
Act). However, public interest considerations can enter the assessment of whether or
not to provide an exemption to a practice or ag
reement that may be c
onsidered
‘prohibited practices’
. S10 which discusses exemptions notes that an exemption may
be granted for an agreement or practice (or category of agreements or practices) if
it




8

Section 12A(1)(a)(ii).





7


contribute
s

to
one of
the
four objectives listed below. This allows a measur
e of
flexibility regarding practices that would be anti
-
competitive if they are necessary for
the public good. These are:

(i)


Maintenance and promotion of exports

(ii)

Promotion of the ability of small businesses, or firms controlled or owned by
historically
disadvantaged persons, to become competitive

(iii)

Change in productive capacity necessary to stop decline in an industry; or

(iv)

The economic stability of any industry designated by the Minister, after
consulting the Minister responsible for that industry.


3

INTERPR
ETATION OF THE ACT

BY THE COMPETITION T
RIBUNAL

The interpretation of the Act with respect to public interest has centred on the
evaluation of mergers.
Ove
r the past 10 years the Tribunal has assessed numerous
mergers with a public interest component. While

to our knowledge

no transaction has
been determined on grounds of public interest alone’
9

(as David Lewis himself noted)
,
the Tribunal has built up a wealth of knowledge and tests related to the assessment of
public interest.
We now consider how the Trib
unal has interpreted the Act in various
cases by outlining some of the key points that have emerged from their rulings.

A)

PUBLIC INTEREST CAN
SERVE TO SALVAGE AN
ANTI
-
COMPETITIVE MERGER
OR CAN LEAD TO THE P
ROHIBITION OF A PROC
OMPETITIVE MERGER

S12A(1)(
)(ii)

of the Competition Act

states that

in assessing the impact of a
transaction on public interest

it is also necessary to assess
‘whether it
can or cannot

be justified on substantial public interest grounds by assessing the factors set out in
subsection (3)

.

This has been interpreted by the Tribunal to mean that public interest
can work in two directions or
‘can have both adverse or benign effects.’
10

On th
e one
hand it can be used as a basis for approving an anti
-
competitive merger and it can be
used to prohibit a pro
-
competitive merger. The Tribunal has stated that


‘a merger that has failed the competition test can still be passed on the public interest
t
est and hence be approved. Conversely, that a merger that has passed the
competition test could still fail the public interest test and hence be prohibited’
.
11





9

Lewis David,
Competition Policy in South Africa


Where has it come from and where is it going

?

Speech to Investment Analysts’ Society of South Africa, Johannesburg, 16
th

May 2002
, pg 6

10

Competition Tribunal, In a large merger between Harmony Gold Mining

Company Limited and
Goldfields Limited, Case no: 93/LM/ Nov04, para 54

11

Ibid, p
ar
a

45





8


B)

PUBLIC INTEREST NEED
S TO BE CONSIDERED R
EGARDLESS OF THE
COMPETITION ANALYSIS

In s12A

of the Act

it is stated that the authorities

should

determine the competition
effects of the merger and if it is likely to impact on competition determine the efficiency
effects. According to s12A(1)(b) it should


otherwise
, determine whether the merger
can or
cannot be justified on substantial public interest grounds by assessing the
factors set out in subsection (3)’
.
The use of the word ‘otherwise’ has been interpreted
by Tribunal as meaning that an evaluation of public interest must be undertaken
whether the

competition analysis has a positive or negative outcome.

The argument regarding the phrase surfaced in the large merger between Anglo
American and Kumba Resources
12

in which the Tribunal found that

the use of the
word

otherwise


in section 12A(1)(b) me
ans that the public interest evaluation must
still be undertaken by the Tribunal, regardless of the outcome of the section 12A(2)
‘competition’ analysis. As we have previously stated the public interest can operate
either to sanitise an anticompetitive mer
ger or to impugn a merger found not be
anticompetitive.’
13

C)

PUBLIC INTEREST NEED
S TO BE SUBSTANTIAL

The Act does not only require the Tribunal to assess public interest, but s12A
(1)(b)
requires that the public interest grounds should be

substantial

.
However, the Tribunal
argues that the Competition Act does not provide further
guidance

in determining what
constitute
s ‘substantial’ public interest. In the

merger between Distillers Corporation
and Stellenbosch Farmers Winery
14

the Competition Tribunal no
ted that
‘the
legislation offers no criteria as a yardstick
.

15

In addition, they

note in par
a

38

of the
Shell
-
Tepco ruling
16

that the Act
‘does not otherwise guide us in balancing the
competition and public interest assessments except insofar as section 12A
(1)(b)
requires that the public interest grounds should be substantial’
.

This has at times proved to be problematic to interpret. For instance, in the Distillers
Corporation and Stellenbosch Winery case the Tribunal notes

‘How many jobs must be lost befo
re one has grounds for substantial public interest?
The legislature wisely does not seek to answer that for us, nor can we assume that it
should be a uniform figure for all merger
-

it would depend on the context.’
17




12

Competition Tribunal, Case no. 46/LM/Jun02

13

Ibid, para 138

14

Competition Tribunal, Case no 08/LM/FEB02

15

Ibid, para 236

16

Competition Tribunal, Case 66/LM/Oct01

17

Competition Tribunal, Case no 08/LM/FEB02, para 240





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D)

THE TRIBUNAL IS ONLY

CONCERNED WITH THE R
ESIDUAL PUBLIC INTER
EST

Given the lack of guidance as to what constitutes substantial public interest, the
Tribunal’s
approach is therefore to
focus on

‘residual public interest or that part that is
not susceptible to or better able to be dealt with under
another law, is substantial’
.
18

In
practice the Tribunal has applied this to both HDI and employment.

In the Shell and Tepco merger, the Tribunal noted that its role
is secondary
in matters
where there is already legislation. In paragraph 58 the Tribunal stated that

the role
played by the competition authorities in defending even those aspects of the public
interest listed in the Act is, at most, secondary to other statutory and r
egulatory
instruments in this case the Employment Equity Act, the Skills Development Act
.


This point was further emphasized in the Distillers Corporation (SA) Limited and
Stellenbosch Farmers Winery group Limited merger, whe
re the Tribunal argued that
the

‘parliament has in many instances enacted legislation that deals quite specifically
with the issues referred to in section 12A(3)’
19
.

In this case they note that

employment is no exception’
20
. The Tribunal argued
other

legislation and institutions
they

create are

better placed and resourced to deal directly and effectively with
issues’
21

and that
would only intervene in cases where merger
-
specific losses were
‘so
adverse that no other law or regulator can remedy them’.
22

4

ASSESSMENT OF THE IN
TERPRETATION

OF PUBLIC INTEREST

In a speech to the Investment Analysts Society of South Africa in 2002, Tribunal chair
David Lewis noted that

to date, no transaction has been determined on grounds of
public interest alone

23



to our knowledge this situation has not changed by 2009
.

The
fact that public interest has not been a decisive influence in any case to date has led
some analysts and practitioners to question whether the Tribunal has established such
a high bar


findi
ng a residual yet substantial public interest


that
de facto

public
interest no longer plays a role in competition law in South Africa and our Act has been
reduced to purely one of the assessment of competition issues alone much like the US
despite the
de

jure
inclusion of public interest in the Act.

Certainly a visible effect of the Tribunal’s approach has been for many legal
representatives of merging firms to advise their clients that public interest
considerations will never be decisive before the Tr
ibunal and that they will only
succeed in gaining approval by demonstrating no substantial prevention or lessening
of competition. Reflective of this is that we simply do not see merger filings where an



18

Ibid, para
237

19

Ibid, para 232

20

Ibid, para 232

21

Ibid, para 232

22

Competition Tribunal, Case no: 08/LM/Feb02,
Par 238

23

Lewis David,
Competition Policy in South Africa


Where has it come from and
where is it going

?

Speech to Investment Analysts’ Society of South Africa, Johannesburg, 16
th

May 2002
, pg 6





10


anti
-
competitive effect is conceded but a substantive

public interest is argued to
outweigh it. This is despite numerous merging firms firmly believing that their
transaction has real and substantial positive spin
-
offs for the development of the
economy regardless of the competition merits.

Despite these c
riticisms, we are of the view that the Tribunal has broadly acted in a
manner that is both consistent with the original motivation for including public interest
in the Act, and achieving the correct balance between competition and public interest
concerns.

We take this position for a number of reasons:



First, is the astute observation by former Tribunal chair David Lewis that
emerging competition authorities in developing countries need to first establish
credibility if they are to ultimately serve the purp
ose of competition
enforcement. As Lewis noted in a speech at the International Competition
Network, ‘[
w]
hile credibility will certainly not be achieved by bending to the
whim of every interest group, nor will it be secured by a competition authority
that
refuses to take direct account of major national economic problems and
aspirations.

24

The point is that credibility is lost either if public interest
dominates most decisions or is ignored in its entirety. The public interest
override on competition assess
ment must therefore be preserved for that rare
beast where the public interest is truly at risk. This is well illustrated by the
credibility problems facing two other domestic agencies


the Reserve Bank for
a mandate that does not include public interest,

and ICASA for bending to the
whims of interest groups.



Second, is the fact that public interest is primarily served by competition itself
and direct consideration in merger proceedings is secondary. Recall that one
of the original motivations for a comp
etition law in South Africa was the
recognition that competition enforcement would
in and of itself

be in the public
interest simply by reducing prices to the poor and entry barriers to economic
participation by SMEs and historically disadvantaged persons.

This benefit is
generated with every robust competitive assessment, but is even more visible
following the Commission’s decision to deliberately focus their efforts in
sectors of the economy that have more direct relevance to the poorer
members of society
. The broad political and social support that the competition
authorities now benefit from reflects the fact that they are indeed serving the
public interest well in their actions. This focus should remain if the competition
authorities are to do justice t
o the purpose of the Act and the broader public
interest mandate.




24

Lewis David, The Role of Public Interest in Merger Evaluation, International Competition Network,
Merger Working Group, Naples, 28
-
29 September

2002
, pg 2





11




Third, despite the fact that the Tribunal has “
never allowed an anti
-
competitive
transaction because of its positive impact on public interest; and
[
we
]

have
never prohibited a pro
-
competit
ive transaction because of its negative impact
on public interest

25
, this is not necessarily the benchmark that determines
whether public interest is being considered seriously or not. Few mergers are
prohibited and yet there is broad agreement that a robu
st and fair competition
assessment occurs. In reality, public interest considerations do not loom large
in the vast majority of transactions. This is especially true in the context of ten
years of sustained economic growth following the enactment of our co
mpetition
law, and it is probably only in times of economic hardship that the true nature
of public interest assessment will be revealed. However, where public interest
has been raised during this period, it has been seriously and robustly
scrutinised by t
he Competition Tribunal as the case law reveals. Finally, public
interest has not been immune to the ‘remedies revolution’ in competition law.
The case law reveals that not only have substantive negative public interest
impacts often been remedied with a c
ondition allowing a pro
-
competitive
merger to proceed
26
, but also that the competition authorities have made
serious efforts to provide workable remedies for anti
-
competitive mergers
where substantive positive public interests are at stake
27
. This is a very
positive
development that permits us to achieve the benefits (of competition/public
interest) without necessarily incurring the costs (to public interest/competition).

Whilst we consider the broad approach adopted by the Tribunal sound, it is likely th
at
some of the real challenges around public interest provisions are maybe yet to come
as the economy lurches into recession and government objectives shift with time. We
foresee a number of potential challenges moving forward.

4.1

Residual public interest cou
ld become restrictively defined

The Tribunal interpretation of the public interest provisions is, for the most part, a
purely sound interpretation of the legislation. Section 12A(1) is relatively clear that a)
public interest should always be considered (a
nd can trump either way), and b) that
the public interest grounds need to be substantive. However, the fact that considered
public interest should be residual
to

the protection offered by other legislation



25

Lewis David,
Competition Policy in South Africa


Where has it come from and where is it going ?

Speech to Investment Analysts’ Society of South Africa, Johannesburg, 16
th

May 2002, pg 6

26

These have generally been employment conditions in a
large number of transactions.

27

See for instance the Competition Tribunal rulings in : Distillers Corporation/Stellenbosch Farmers
Winery, case no o8/LM/Feb02 and Nasionale Pers Ltd/Education Investment Corporation, c
ase no.
45/LM/Apr00





12


specifically directed at protecting those element
s of public interest

28

is an innovation
of the Tribunal
.

Whilst there is certainly some merit in this approach
-

a policy tool is more effective in
achieving a stated aim if it is designed around the specific objective
-

there is also the
potential that a broad interpretation of what other legislation is presume
d to protect
may permit public interest issues to fall between the cracks. One only has to be
reminded of the unintended consequences of the initial Act in relation to the exclusion
of sectors regulated by other institutions.

In addition, it is not appare
nt from the original motivation that competition law should
necessarily be secondary to other legislation. The placing of public interest within the
Act was also done on the basis of ensuring ‘mutually
-
supporting’ rather than
‘contradictory’ policies by en
suring policy alignment. From that perspective
competition policy should not undo the efforts of other government instruments.


4.2

Challenge of a careful weighing up of public interest

In most other jurisdictions that are strong reference points for South

Africa’s own
competition law, there is either no public interest component or the public interest
decision lies outside of the Competition Authorities. It may either reside with another
regulator or a Minister. The result is that the public interest decis
ion is less a process
of a careful weighing up competition and public interest effects, and rather a process
of determining whether a negative public interest is substantial or not (trumping the
competition assessment regardless
29
) or sometimes simply ignor
ing public interest in
the event that it is positive
30
.

As our Act requires the deliberate balancing of the two, there is very little assistance
from other jurisdictions on how precisely this careful balancing should be done. The
case history suggests we m
ay have been spared this taxing question because public
interest considerations were either a) not merger
-
specific, b) in the same direction as
the competition considerations, c) not substantive or d) could be resolved through
remedies. However, at some po
int that rare beast which does not fall into these
categories may rear its head and a robust approach to a careful weighing up process
may need to occur.




28

Lewis David, The
Role of Public Interest in Merger Evaluation, International Competition Network,
Merger Working Group, Naples, 28
-
29 September 2002
, pg 3

29

For instance where media diversity is harmed and the merger fails at a communications regulator, or as
Lewis David,

The Role of Public Interest in Merger Evaluation, International Competition Network, Merger
Working Group, Naples, 28
-
29 September 2002, pg 2

30

For instance where media diversity is not harmed but may be greatly enhanced.





13


We suggest that economics probably remains a useful tool to assist in such a process.
Specifically, w
hilst merger analysis forces the competition economist to focus squarely
on whether a transaction is likely to
substantially prevent or
lessen
competition

in the
relevant market

only
, economists are quite accustomed to dealing with and quantifying
both eco
nomy
-
wide effects and socio
-
economic variables other then price effects
.




A few of the public interest considerations have regard to potential effects
beyond the individual relevant market such as those concerned with impacts
on a region or broader sector.

‘General equilibrium’ analysis in other contexts
considers how the impact of a policy on a single sector (partial equilibrium)
may have ripple effects through the economy based on linkages that clearly
exist with both factor and product markets in order t
o determine the general
welfare effect, including any feedback effects on the market in question. These
range from complex computer models to more simple socio
-
economic impact
assessments that map the forward and backward linkages of individual
investments
. Arguably, competition analysis is somewhat unique in the world
of economic analysis by remaining narrowly focused on the direct effects on a
single market and not considering the broader general equilibrium effects
31
.



Whilst other public interest conside
rations have units of analysis (like jobs) that
may be difficult to compare with potential price and output changes, the ability
for economists to both quantify and determine the incidence of different effects
may still prove useful in reaching a decision.

For instance, if faced with a
substantial employment gain from a potentially anti
-
competitive transaction, it
would be useful to understand both the magnitude of the price effect and the
incidence on different groups of consumers who may themselves hold d
ifferent
weight in public interest.

4.3

Shifts in public interest.

The Competition Act defines the range of public interest considerations quick
specifically both in terms of merger control and exemptions. This certainly has its
virtues insofar as it offer
s clear guidance to the competition authorities on what should
be considered, and not placing the competition authorities in the difficult position of
determining public objectives themselves which itself may bring them into conflict with
the legislature.
However, specificity can present its own difficulties. In particular,
government objectives and priorities will naturally shift over time as economic
development circumstances change. This might result in some objectives becoming
less important, and others

moving to the fore. Competition authorities acting within the
guidelines of the Act may then still be placed in a position of conflict with the revised



31

Competition analysis does of
course extend beyond purely static effects and does consider the
dynamic implications of a transaction. However, this remains confined to the relevant market only.






14


public interest, impacting their credibility and political standing. A case in point is the
difficultie
s that have faced our energy regulator


Nersa


whose mandate was to
consider nurturing competition in the energy sector, only to find government objectives
had shifted strongly towards energy security and away from competition.

Of course it may be that
the public interest objectives specified are sufficiently broadly
defined to accommodate subtle shifts in objectives


for instance the focus within
economic empowerment from individuals to broad
-
based empowerment


or the likely
path of future public inte
rest. However, there is an interesting innovation in the UK
Competition Act whereby public interest is defined outside the legislation itself and
rather done through an act of parliament. This permits greater flexibility in determining
the public interest,

which our Act does not permit, but may also permit greater
opportunistic behaviour by politicians.

5

CONCLUSIONS

The public interest provisions within the Competition Act are often lauded as a healthy
innovation that provides scope for ensuring the polit
ical credibility of the Competition
Authorities whilst retaining their credibility. This fine balance has certainly been
achieved in how the Tribunal has interpreted public interest over the first ten years.
This is despite the fact that public interest fa
ctors are yet to trump competition in the
manner originally envisaged. However, challenges remain in ensuring public interest is
robustly assessed and remains relevant.