SOUTH AFRICA: DRAFT BLOCK EXEMPTION REGULATIONS FOR SMALL, MICRO AND MEDIUM SIZED BUSINESSES PUBLISHED FOR PUBLIC COMMENT

By Richard James Bryce,Tamara Dini Thursday, September 01, 2022
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Draft block exemption regulations intended to exempt certain categories of agreements or practices of small, micro and medium-sized businesses (SMMEs) from the application of sections 4(1) and 5(1) of the Competition Act 89 of 1998 (as amended) (Act) were published yesterday for public comment - which is open until 30 September 2022.

The Draft Regulations (available here) note that the COVID-19 pandemic has negatively impacted SMMEs and that a study by the Competition Commission of South Africa (Commission) on Measuring Concentration and Participation in the South African Economy: Levels and Trends (available here) shows that the share of SMMEs of the countries’ aggregate income is comparatively low and declining.

The purpose of the Draft Regulations in exempting certain categories of agreements or practices of SMMEs from the application of sections 4(1) and 5(1) of the Act is to enable collaboration among SMMEs that would otherwise contravene the Act, and to stimulate the growth and participation of SMMEs in the economy.

Section 4(1) of the Act regulates agreements or practices between competitors; and section 5(1) of the Act regulates agreements or practices between a firm and its suppliers, customers or both. 

The Draft Regulations propose to exempt seven categories of agreements or practices of SMMEs from the application of sections 4(1) and 5(1) of the Act, specifically: 

  • Research and development (R&D) agreements which include outsourcing R&D to third parties or entering into co-operation agreements to conduct R&D.
  • Production agreements for the production of a good or the provision of a service, or toll manufacturing by one firm for another (on a standalone or reciprocal basis) which do not result in the removal of a competitor from the market.
  • Joint purchasing agreements which may include collective purchasing by a subset of firms in a market or any other similar arrangement.
  • Joint selling prices of goods or services to and through ‘intermediaries’ (defined under the Draft Regulations as ‘businesses who deliver or otherwise sell another firm’s products or services to customers’) or other ‘business customers’ (defined under the Draft Regulations as ‘customers that purchase goods and services for purposes of reselling or as an input into production’) by a subset of firms in a market or any other similar arrangement.
  • Commercialisation agreements which include co-operation among firms relating to the sale, distribution or promotion of their products. Agreements may cover all commercial aspects or may be limited to a specific function, such as distribution, after-sales service, or advertising.
  • Standardisation agreements which include setting technical or quality requirements with which current or future products, production processes, services or methods may comply. These agreements may cover technical specifications, environmental performance, grades or sizes of products, or the terms of approval by a regulatory body.
  • Collective negotiations with large buyers or suppliers on the terms and conditions for purchasing or supply of goods or services. 

The Draft Regulations do not apply to the fixing of selling prices of goods or services to end consumers. 

The categories of exempt agreements or practices of SMMEs may be expanded or reduced by the Minister by notice published in the Government Gazette
Notably, in terms of scope, the exempt agreements or practices of SMMEs ‘must be inclusive of the majority of SMMEs in a market, including those owned by historically disadvantaged persons’.

Firms applying the exemption under the Draft Regulations are required to notify the Commission and the Department of Trade, Industry and Competition of an exempt agreement or practice within 30 business days of implementation. Further, the firms are required to keep minutes of meetings held and written records of any exempt agreements or practices.

Once finalised, the Draft Regulations are intended to endure for five years from date of publication in the Government Gazette.