COVID-19: Exempting Coordinated Conduct and Tackling Exploitative Pricing

Since 19 March 2020, the Minister of Trade and Industry, Minister Ebrahim Patel, has published four sets of regulations in the Government Gazette which aim to:

1. allow healthcare providers, suppliers and funders to coordinate in an efficient manner to respond to the impact of the Covid-19 pandemic in South Africa;
2. allow banks to coordinate in an efficient manner to respond to the impact of the Covid-19 pandemic in South Africa;
3. allow retail landlords and tenants to coordinate in an efficient manner to respond to the impact of the Covid-19 pandemic in South Africa;and
4. strengthen the ability of the Competition Commission and the National Consumer Commission to respond to incidences of exploitative and unfair pricing during the Covid-19 pandemic in South Africa.

These regulations have been introduced with the recently announced national lock-down in mind which became effective from midnight on 26 March 2020 and will last for 21 days. South Africa is now facing unprecedented times, and Government is using every tool to combat the adverse social and economic impact that the Covid-19 pandemic will have on South Africa.

Block exemption – Healthcare providers

The first set of regulations is a block exemption in favour of the healthcare sector which aims to strengthen the Government’s health programs designed to fight the Covid-19 pandemic. It does so by promoting:

• concerted conduct to prevent an escalation of the national disaster and to alleviate, contain and minimise the effects of the Covid-19 pandemic; and
• access to healthcare, preventing exploitation of patients, enabling the sharing of healthcare facilities, management of capacity and reduction of prices.
  

The categories of agreements or practices in the healthcare sector that have been exempted from the application of sections 4 and 5 of the Competition Act include:

• Hospitals and healthcare facilities. Coordinating to ensure that patients are allocated between hospitals in the most efficient manner possible and communicating in relation to capacity and utilisation of facilities including intensive care units and isolation beds.
• Medical suppliers. Communicating in relation to availability of medical supplies and co-ordinating the procurement and distribution of medical supplies.
• Medical specialists and radiologists. Communicating and sharing data in relation to the scale of the Covid-19 outbreak and communicating in relation to capacity and utilisation, standardising quality of care protocols, and transferring of medical supplies and equipment.
• Pathologists and laboratories. Communicating in relation to capacity and utilisation, and coordinating the procurement and transfer of inputs required for testing.
• Pharmacies. Communicating in respect of availability of pharmaceuticals and medical consumables, and coordinating the procurement and transfer of pharmaceuticals and medical consumables.
• Healthcare funders. Any other agreements or practices between healthcare providers with the sole purpose of reducing the cost of diagnosis, tests and diagnostics, treatment and other preventative measures.

 
The practices above are exempt only insofar as they are undertaken at the request of, and in coordination with, the Department of Health for the sole purpose of responding to the Covid-19 pandemic.  The exemption excludes communication and agreements in respect of prices unless specifically authorised by the Minister of Health.

Block exemption - Banks

The second set of regulations is a block exemption in favour of the banking sector.  It aims to:

• promote concerted conduct to prevent an escalation of the national disaster and to alleviate, contain and minimise the effects of the national disaster;
• enable the banking sector to minimise the negative impact on the ability of customers, including both business and private individuals, to manage their finances during the national disaster, and be in a position to continue normal operations beyond the national disaster; and
• enable the banking sector to manage the banking infrastructure, including the payment infrastructure, ATMs and branches.

The categories of agreements or practices in the banking sector that have been exempted from the application of sections 4 and 5 of the Competition Act include:

• Payment systems. Agreements with the sole purpose of ensuring essential payment systems continue to operate during the Covid-19 pandemic, which are limited to the development of industry monitoring, operational policies and contingency plans in respect of:
  • the continued availability of bank notes to ATMs, branches and businesses;
  • the continued provision of essential ATM, branch and corporate banking services; and
  • the continued provision of electronic payments systems.

• Debtor and credit management. Agreements with the sole purpose of ensuring the management of debtors and extension of credit continue during the Covid-19 pandemic, which are limited to the development of industry policies and monitoring in respect of:
  • payment holidays and debt relief for business and individual debtors subject to financial stress;
  • limitations set on asset repossessions of business and individual debtors subject to financial stress; and
  • the extension of credit lines to individuals and businesses subject to financial stress.

As with the healthcare block exemption, the practices above are exempt only insofar as they are undertaken at the request of, and in coordination with, the Minister of Trade, Industry and Competition or the Minister of Finance for the sole purpose of responding to the Covid-19 pandemic. The exemption excludes communication and agreements in respect of prices unless specifically authorised by the Minister or the Minister of Finance.

Block exemption – Retail market

The third set of regulations is a block exemption in favour of retail landlords and designated tenants with the sole purpose of ensuring the survival of tenants of retail properties during the Covid-19 pandemic. It does so by:

• promoting concerted conduct to prevent an escalation of the national disaster and to alleviate, contain and minimise the economic and social effects of the national disaster; and
• enabling the retail property sector to minimise the negative impact on the ability of designated retail tenants, including small independent retailers, to manage their finances during the national disaster and be in a position to continue normal operations beyond the national disaster.

The categories of agreements or practices in the retail sector that have been exempted from the application of sections 4 and 5 of the Competition Act include:

• Payment holidays and/or rental discounts for tenants;
• Limitations on the eviction of tenants; and
• The suspension or adjustment to lease agreement clauses that restrict the designated retail tenants from undertaking reasonable measures required to protect viability during the national disaster.

To qualify for an exemption, the agreements must extend to all South African retail tenants in the designated retail lines, including small, independent retailers, unless otherwise authorised by the Minister of Trade, Industry and Competition or the Competition Commission.

The designated trading lines for the purpose of the identification of designated retail tenants are –

• Clothing, footwear and home textile retailers;
• Personal care services; and
• Restaurants.
  

Exploitative pricing

The fourth set of regulations is promulgated in terms of the Competition Act, the Consumer Protection Act and the Disaster Management Act and similarly aims to promote coordinated conduct to prevent an escalation of the Covid-19 pandemic and to curb market participants from charging excessive, exploitative or unfair prices to consumers as a result of the Covid-19 pandemic. It does so by:

• promoting coordinated conduct to prevent an escalation of the Covid-19 pandemic and to alleviate, contain and minimise the effects of the Covid-19 pandemic; and
• protecting consumers and customers from unconscionable, unfair, unreasonable, unjust or improper commercial practices during the Covid-19 pandemic.
  

The regulations aim to achieve this by imposing pricing and supply obligations and restrictions. These are dealt with in turn.

Pricing

The pricing part of these regulations apply to goods and services which relate to –

1. basic food and consumer items;
2. emergency products and services;
3. medical and hygiene supplies;
4. emergency clean-up products and services.
   

In respect of these goods and services, the pricing part of the regulations:

• Adds relevant factors to be taken into account when determining an excessive price in respect of section 8(1) of the Competition Act. An excessive price could therefore be where a price increase:
  • does not correspond to or is not equivalent to the increase in the cost of providing that good or service; or
  • increases the net margin or mark-up on that good or service above the average margin or mark-up for that good or service in the three month period prior to 1 March 2020.

• Adds, in terms of section 120 of the Consumer Protection Act, that a price increase is unconscionable, unfair, unreasonable and unjust in terms of sections 40 and 48 of the Consumer Protection Act if that price increase:
  • does not correspond to or is not equivalent to the increase in the cost of providing that good or service; or
  • increases the net margin or mark-up on that good or service above the average margin or mark-up for that good or service in the three month period prior to 1 March 2020.
    

It is important to note that the regulations relating to section 8(1) of the Competition Act do not change the legislative test in the Act.  To contravene, a firm must still be show to be dominant in a relevant market, and must fall foul of the existing test for an excessive price taking into account the comparative analysis required by the Act.  The new regulation simply adds one additional factor to be considered in the analysis, although this factor is likely to be given significant weight during the coming weeks in particular.

The Minister of Trade, Industry and Competition, after consultation with the Minister of Health, may issue directions in terms of the regulations issued in terms of the Disaster Management Act should it become necessary, to set maximum prices on private medical goods and services relating to the testing, prevention and treatment of the Covid-19.

Supply of goods

The supply part of these regulations apply to the following goods –

The supply part of these regulations also applies to the pricing and supply of private medical services relating to the testing, prevention and treatment of Covid-19.

In respect of these goods and services, the supply part of the regulations further adds obligations on suppliers to develop and implement reasonable measures to:

• ensure the equitable distribution to consumers or customers, including small businesses, of goods; and
• maintain adequate stocks of goods.
  

In terms of the regulations, the measures taken by a supplier may include limiting the number of items of the goods referred to above which a consumer or customer may purchase in a defined period of time.

Obligations are also placed on retailers and wholesalers:

• Retailers must “prominently display a notice in each of its stores that states that it has developed and will implement the measures”.
• Wholesalers must take all reasonable steps to ensure that purchases by customers and consumers are not intended to circumvent the object and implementation of the measures taken by suppliers, which are discussed above.
  

The Minister of Trade, Industry and Competition may issue directions in terms of the regulations issued in terms of the Disaster Management Act should it become necessary to set maximum quantities limiting the number of items of the goods referred to above which a consumer or customer may purchase in a defined period of time.

The Competition Commission has subsequently issued a media statement, stating that they, together with the National Consumer Commission, will be prioritizing enforcement of the new pricing and supply regulations discussed above.