By: Sandhya Foster and Jean Meijer - Herbert Smith Freehills Kramer South Africa 

The Department of Trade, Industry and Competition (DTIC) has taken a decisive step towards revitalising exports by publishing a draft block exemption for the promotion of exports (the block exemption). The proposed block exemption is a direct response to the mounting pressures faced by South African exporters, specifically the introduction earlier this year of import tariffs by the US government. The aim of the block exemption is to enable firms to get South African products to export markets cheaper. Although the block exemption is in response to the US tariffs, it applies to all exports. At this stage, the block exemption is under ministerial consideration and the date of publication of the final block exemption is not clear. The sooner it is published, the sooner South African companies can start finding ways to collaboratively promote exports. 

The block exemption provides more freedom for competing firms to share competitively sensitive information and collaborate

The block exemption exempts various forms of coordination between firms, some of which may otherwise constitute prohibited cartel conduct under the South African Competition Act, including: (i) sharing or offsetting the landed costs faced in the export markets; (ii) joint financing and development of infrastructure required for exports; (iii) funding and sharing export related market information; (iv) sharing the cost of logistics in the export market; (v) collective marketing of South African goods as a brand in the export markets; (vi) joint negotiation of protocols of export programmes and compliance with quality specifications or standards of goods in the export markets. It also exempts coordination aimed at achieving economies of scale and efficiencies in the export market with the object of improving the competitiveness of South African export products – a broad category with significant scope for firms to devise creative coordination efforts to get their products to export markets more cheaply. 

Although firms would ordinarily be hesitant to share competitively sensitive information (CSI), the block exemption explicitly permits the exchange of information provided that it is strictly necessary for the purposes of the conclusion and implementation of the exempted agreements and/or practices.  

The exemption applies only to export markets and not the domestic market 

While the block exemption provides relief for certain collaborative activities, there are boundaries beyond which firms must continue to compete. All collaborations must be genuine efforts to promote exports and not serve as a vehicle for anti-competitive conduct in South Africa. As the block exemption does not cover conduct in respect of product that is intended to be sold in South Africa, the ability of firms to take advantage of it is potentially limited. For example, if a firm does not have separate production facilities for products sold domestically and internationally, it appears that collaboration on production will not be possible, even if the majority of the products are destined for export markets. Technology is another area where the use of the block exemption may be limited if the technology is used both in export markets and domestically. 

The block exemption specifically excludes (i) market allocation of goods and services sold to end customers or consumers; (ii) collusive tendering for goods and services intended for sale to end customers or consumers; (iii) resale price maintenance of goods and services sold to end customers or consumers; and (iv) any merger transaction. Price fixing is not included in the list of exclusions, likely to allow for coordination on purchase prices but it may also be possible to persuade the Commission that co-ordination on selling prices is necessary too. Caution should, however, be exercised as although an initiative may be exempted from the application of the South African Competition Act, it may fall foul of the competition laws of the export jurisdiction. 

Competition Commission approval is required before firms may engage in exempted conduct 

Firms are expected to submit detailed documentation outlining the proposed agreement and/or practice, including the parties to the agreement and/or practice and the implementation timeline to the Commission. The Commission will confirm whether the proposed agreement and/or practice falls within the scope of the block exemption prior to implementation. If confirmed, firms are required to maintain records and report periodically as directed by the Commission, ensuring transparency and continued alignment with the stated objectives of the exemption. 

Exemptions apply for a period of five years, with a reasonable wind down period 

The block exemption is contemplated to endure for a period of five years, which may be extended by the Minister. This may be another area that potentially limits the ability of firms to take advantage of the block exemption as procurement cycles in some industries are longer than five years. Provision is, however, made for a reasonable wind-down period before the withdrawal of the block exemption, which may for longer term contracts to terminate in the ordinary course. It may also be that appropriate competition law protocols could be developed to allow for the continued operation of other joint initiatives in compliance with competition laws following the withdrawal.