TRADE ASSOCIATIONS CAUTIONED NOT TO PLACE MEMBERS AT RISK

Thursday, August 02, 2012
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Trade associations might be viewed with suspicion by South Africa’s competition authorities; yet they can serve a legitimate purpose, says Gcobisa Sibango, candidate attorney at corporate law firm Bowman Gilfillan.
Sibango says that while South African Competition law recognises that purpose, it is also well aware that trade associations (particularly of competing firms) can also be used as “platforms” for engaging in anti-competitive conduct through the exchange of competitively sensitive information.
“The Competition Act does not prohibit the exchange of information, whether generally or through trade associations. However,” Sibango points out, “where the exchange takes place between competing firms and relates to competitively sensitive information such as pricing, trading terms, strategy, and customers, such exchange is likely to pose competition law risks.”
This is because, Sibango explains, an essential prerequisite for healthy competition in any market is that each firm should act independently in the market and not co-ordinate its behaviour with that of its competitors.
“Therefore, if members of a trade association are competitors and they agree to share detailed information about, for example, their pricing policies, it becomes easier for them to act in concert.”
“By so doing they risk contravening the provisions of the Competition Act, for such conduct may ultimately enable the competing members to engage in ‘cartel’ behaviour by, for example, fixing prices, allocating customers or rigging bids.”  
Cartel behaviour is punishable through the imposition of an administrative penalty of up to 10% of the annual turnover of the firms involved. In circumstances where it is the trade association that is found to have engaged in cartel conduct, the fine is generally imposed on the trade association itself.
Sibango says that various trade associations have been investigated and fined for cartel conduct in the past on account of having exchanged competitively sensitive information. The most recent finding was in 2011, when the road industry trade association was fined for facilitating exchange of competitively sensitive information which enabled its members, who were competitors, to fix prices.
Even so, Sibango says it is generally permissible to exchange general statistical information which can give a picture of industry performance without identifying individual firms. The following information is generally deemed acceptable to exchange:

historical information (usually more than one year old) with no direct or indirect bearing on the future strategic and commercial strategies of the members;

anonymous or aggregated information, particularly if compiled by independent third parties, which does not permit the recipient to identify information concerning individual members;

information that is already in the public domain; and 

information related to methods of accounting, book-keeping, stock control, standard-form contracts and benchmarking (but depending on how the study is structured).

Sibango cautions, however, that it is often difficult to pinpoint exactly where the exchange of information poses a competition risk, as the answer generally depends on the nature of the market concerned.
“Consequently, trade associations should ensure that their members submit firm-specific information to them under strict confidentiality (such that this information is not shared with other members); and that the manner in which the trade association processes the information and disseminates it to its members adheres to the guidelines I have spelled out”.
“Any trade association involved in or facilitating the exchange of information of its members is strongly advised to seek specialist competition law advice in order to ensure it does not inadvertently contravene the Competition Act and place itself and its members at risk.”