South Africa Refers International Air Cargo Cartel Case International Air Cargo
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Edition 36 • September 2010 Towards a fair and efficient economy for all. In this Edition South Africa refers Page 1 - 3 South Africa refers International Air Cargo Cartel Case International Air Cargo Page 4 - 5 Cartel Case Settlements reached in two fertilizer abuse of dominance cases n 28 July 2010, the Commission referred a Page 6 - 7 case of cartel conduct The Commission concludes its investigation into the Polymers Oin South Africa’s industry international air cargo trade against certain airlines namely, British Airways Plc, South African Airways Page 8 - 9 (Pty) Ltd, Air France Cargo-KLM Power Metal Recyclers settles its scrap metal cartel case Cargo, Alitalia Cargo, Cargolux International S.A., Singapore Airlines, Martinair Cargo and Lufthansa Cargo Page 9 AG (“the airlines”). The case is By: William Kganare Dawn raids notable because of its international dimensions, the importance of the Page 10 - 11 industry for the economy and also Bid-rigging and other cartel conduct because of the insights it provides into by smaller players the determination of cartel penalties in different countries. Page 11 - 12 Some pick-up in Merger Activity The Commission’s investigation and referral followed an application for immunity by Lufthansa under the Page 12 - 13 Commission’s Corporate Leniency Bedrock and Mondi merger approved Programme. The application was subject to three conditions filed at the beginning of 2006 with the Commission and the complaint was By: Azraa Mohamed Page 14 - 15 subsequently initiated in March 2006. The Commission’s Call for the Voluntary Notification of Small The airlines are all members of the Mergers international cargo, this conduct was International Air Transport Association (IATA), an international trade still continuing in February 2006. The Commission brought the second case Page 15 - 16 association for major passenger and Agency Effectiveness Workshop cargo airlines established over sixty only against Cargolux, Air France, years ago. and KLM which involved price fixing of cargo rates, that is, the rate at which Page 16 - 17 The Commission referred two airlines ship cargo on behalf of their An overview of 2009/10 activities distinct cases against the airlines. respective customers. This conduct The first is that the airlines concluded was still continuing in August 2005. Page 18 - 19 agreements, or engaged in a concerted Impact of cartel activities on business: practice, the effect of either of which The background to the conduct An ethical perspective was to fix the rate of fuel surcharges on goes back to the mid 1990s. During 1 Editorial Note This edition of Competition News of dominance cases involving fertilizer yet these still reflect low levels reflects the continued growth in products. Sasol was also the subject when a longer time period is taken enforcement work, especially involving of a referral of cartel conduct and into account. The quarter under cartels. As large numbers of firms excessive pricing regarding propylene review also included the contested take advantage of the Commission’s and polypropylene, explained in the Bedrock - Mondi merger analysed Corporate Leniency Policy to come article by Itumeleng Lesofe and Pamela by Alex Constantinou. In addition, clean, the Commission has to Nqojela, while the Commission settled the Commission has highlighted that it is paying greater attention to small investigate and, in recent months, is with Safripol, the other party to the mergers and asking companies to increasingly involved in concluding alleged cartel conduct. And, there was voluntarily notify, especially where settlements. also a settlement with Power Metals there are competition concerns being regarding a non-ferrous scrap metal assessed as part of enforcement Our lead story relates to one of the cartel, reported by Jabulani Ngobeni. biggest global cartel cases in recent investigations. years, involving airlines coordinating Enforcement actions continue Lastly, the articles by Liesl Van Der air cargo rates. South Africa is just against large and small companies. In Rede and Molebogeng Taunyane the quarter the Commission conducted one of many countries prosecuting highlight the issue of agency two raids, in the airline and electric this conduct, and the article by effectiveness under increased William Kganare and Azraa Mohamed wire industries. Small companies have pressures and expectations. This is the highlights some of the penalties that also been under the spotlight for cartel subject of an International Competition have been imposed and settlements conduct, with the referral of conduct in Network working group in which the reached. the sale of bicycles and a settlement Commission is involved, and also a key involving government tendering. part of the Commission’s new strategic Notable settlements were reached plan developed in the past year and Merger activity has begun to pick- in several other cases. As described now going into implementation. by Mervin Dorasamy, the Commission up somewhat after the recession, reached separate settlements with as indicated in the month on month Simon Roberts (Dr) Sasol and Foskor regarding two abuse comparison with the previous year, Editor-in-Chief 1996 there was a substantial increase 1996). A fuel price index, starting It was decided in January 1997, in in the price of jet fuel, so much so that, from 100 as a base value, would view of the importance of an industry for the first time, the airlines decided then be compiled by IATA; agreement, to delay the adoption of to introduce a surcharge on cargo the resolution because of opposition they carried on behalf of customers. In • If the IATA fuel price index to it by some IATA members. IATA January 1997, at a meeting in Geneva, equalled or exceeded 130 for thereafter circulated amongst its IATA proposed a resolution by which a two consecutive weeks, then a members a revised version of the general surcharge mechanism would surcharge would be introduced; resolution which provided for the be introduced. The resolution was exact amounts, in local currency, to • If the IATA fuel price index was proposed to be applicable to all routes be imposed as a surcharge should lower than 110 for two consecutive and sought to introduce a mechanism/ the relevant trigger event occur. For weeks, then a surcharge would formula by which airlines would example, in respect of cargo out of be suspended; decide when and how to charge a South Africa to other African countries, • If the IATA fuel price index surcharge on cargo and determine the a surcharge of 25 cents per kilogram was higher than 150 for two introduction and suspension thereof. was to be levied; and, in respect of consecutive weeks, then IATA This worked as follows: cargo to countries outside of Africa, would convene a special meeting a surcharge of 50 cents per kilogram • IATA would on a weekly basis to discuss a course of action. was to be imposed. monitor the average spot price of jet fuel. This was to be done These events were known by IATA There was another important part to against a postulated base of 100 members as “trigger events”. The the revised resolution: it pertained to (which in turn was an equivalent of surcharge was to be levied, on a per those airlines which, having voted for US$0.535 per gallon, the average kilogram basis, on the weight of cargo the resolution, nevertheless wanted to price of fuel for the month of June as it appears on the waybill. introduce their own surcharge rates. 2 In that event, the resolution provided and a compromise proposal. If there airlines allegedly agreed to impose that the relevant airline ought to file its was no protest, then the proposed surcharges in concert with each other, proposed rate with IATA, together with deviation would be allowed. by some pre-determined method, the reasons for the proposed deviation. application of which resulted in the Then IATA would upon receipt of the The resolution, as revised and fixing of prices in breach of section proposed deviation circulate it amongst circulated, was adopted in August 4(1)(b)(i) of the Competition Act. its members, who in turn would within 1997 and was intended to take effect Some of the airlines have indicated 10 days have an opportunity to protest in October 1997. All the carriers voted willingness to settle the matter with the against such proposed increase. The in favour of the resolution as revised Commission and the parties are now protesting party would file its reasons and circulated. By these acts, the engaging in settlement processes. Recent settlements by For a second count relating to AL ($15.7mn), Cargolux ($119mn), airlines in other jurisdictions passenger travel BA was fined NCA ($45mn) and Asiana ($50mn). $100mn. This case has been settled in a Other jurisdictions number of jurisdictions. We highlight The US therefore imposed a total the example of the USA before penalty of $300mn for both counts. The size of penalties has been smaller briefly discussing some of the other BA made an admission of guilt. in other jurisdictions, reflecting both countries. This penalty took into account the the smaller turnover when only these defendant’s substantial assistance in markets are taken into account, as USA the investigation and prosecution of well as different fining criteria. other cartel members. British Airways In Canada, British Airways was fined Penalties for co-conspirators $4.5mn, Qantas $155 thousand, Air The USA determined the penalty to France $4mn, KLM $5mn, Martinair be paid by British Airways as a base Fines imposed on other airlines by the $1mn and Lufthansa $5.3. fine of 20% on the turnover of British US were mainly penalties on cargo Airways cargo sales originating from shipments. Virgin Atlantic however was In Australia, Qantas was charged the the US totalling $488.7mn in the required to pay restitution, and Korean largest fine of $20mn, Air France - relevant year.