Labour and government take on retail giant

Government and the trade unions may have thrown a spanner in the works by getting the Massmart/Walmart merger hearing delayed by almost two months. However witness statements from the proceedings hint at the ideological war that will take place before the Competition Tribunal in May.

The unions’ objections to the merger have been buttressed by a number of affidavits filed by lawyers, academics and economic advisors from around the world, presenting anecdotal evidence of examples where the entrance of Walmart into a country has allegedly had a negative effect on small businesses and the labour force. Walmart and Massmart, on the other hand, argue that they will bring real competition, efficiency and job creation to South Africa.

The union’s case
The principal union that is objecting to the merger is the South African Commercial, Catering and Allied Workers Union.
The affidavit of its deputy secretary general, Noel Mbongwe, says the union is not against foreign direct investment in South Africa, but rather pro “responsible” foreign direct investment.

Mbongwe points out that the governments of Norway, Sweden and Holland have all disinvested from Walmart because of the risk that they might be complicit in human rights violations if they did not. “International organisations such as Human Rights Watch and numerous academics and activists have reported on Walmart’s poor record as a global corporate citizen,” says Mbongwe.

He argues that Walmart’s “poor” global reputation and “sustained contravention of the law as repeatedly found by regulators and enforcement agencies in other jurisdictions” should exclude it from doing business in South Africa. One of the union’s international witnesses is Claudio Alvarez, a Chilean national who works as an attorney for labour unions in that country.

In December 2008 Walmart entered Chile through the purchase of a controlling shareholding in local retailer D&S. Alvarez argues that Walmart’s entrance has had severe impacts on small suppliers in Chile and states that Walmart only buys products on consignment from small suppliers, which means they bear all the financial risk.

Alvarez argues that Walmart is effectively forcing suppliers to “rent physical space for their products” in Walmart stores. Alvarez also argues that Walmart’s decision to prohibit the sale of products from Iraq, Iran, Cuba and Venezuela had had a “devastating” impact on some Chilean suppliers.

Alvarez states that the impact of Walmart’s entry on small to medium-sized enterprises has been huge. “Since Walmart has forced them to lower their prices, these small suppliers have had to restructure their costs, by reducing personnel and lowering wages and working conditions for workers,” says Alvarez. He also accuses Walmart of having an “anti-union strategy”.

“I believe that Walmart is formulating a strategy to neutralise unions in Chile to the detriment of thousands of workers.” The second of the union’s international witnesses is Sofia Scasserra, the economic advisor to the Argentine Federation of Commerce and Service Workers. Scasserra also argues against Walmart buying stock on consignment.

“This means that in the event that the product sells, the supplier gets paid,” says Scasserra. “But if the product does not sell, then it was deemed never to be Walmart’s to begin with”. “The fact that the producer is responsible for the unsold products has generated a dependence and a great loss, especially in the food sector, as the products are perishable.”

“In short the local sourcing that Walmart does carry out in Argentina is not of a nature which supports a local sustainable supply chain,” says Scasserra. Nelson Lichtenstein, an American academic and chairperson of the MacArthur Foundation, who also filed an affidavit for the unions, stating that Walmart’s business model has led to substantial job losses in the United States.

Lichtenstein argues that a report from the Economic Policy Institute found that Walmart was responsible for 200000 job losses in the US between 2001 and 2006, which equates to 11,2% of all job losses in the country, because of cheap foreign imports during that time. “Because Walmart sets the pattern that other mass retailers follow, this Walmart effect is undoubtedly responsible for at least 50% of all US job losses due to cheap foreign imports during the years 2001-2006,” says Lichtenstein.

Walmart/Massmart’s case
The merging parties’ key witness is Andy Bond, an executive vice-president of Walmart. Bond says that Walmart serves customers more than 200-million times a week from 8969 retail stores across 15 countries.

Walmart had sales of $405-billion in the previous financial year and employs 2,1-million staff members, making it the largest private employer. Bond argues that an independently certified study found that Walmart saves the average American household $3100 a year. “Customers in the US alone could have saved more than $21-billion in 2010 by purchasing the same categories of food at Walmart rather than other stores,” says Bond.

“Walmart’s overall impact on the retail industry and beyond has changed the way business is conducted globally and has significantly increased consumer benefits,” he says. “Numerous studies in different markets around the world indicate that Walmart’s stores create opportunities for small and medium-sized businesses, and that Walmart is accordingly good for the local economy.”

Bond argues that in Mexico, India and Chile more than 90% of products are sourced locally and in China this figure is 95%. He also argues that Walmart creates jobs, pointing to 17000 new jobs created in Brazil, 14500 new jobs created in Mexico and 1400 new jobs created in Argentina.

Bond says it is “premature” to predict what impact a merger would have on job creation in South Africa but stressed that it was anticipated to be “positive”. He categorically denied that Walmart’s business strategy has forced suppliers to break labour laws and treat employees inhumanely. He also claims that many of the allegations made against Walmart in the witness statements are “unsubstantiated by empirical evidence, anecdotal, misleading, inaccurate or untrue”. He specifically claims that Walmart does not sell goods on consignment, a key allegation made by the union’s witnesses.

The stillborn hearing
The Competition Tribunal hearing into the Massmart/Walmart merger began on Tuesday. First on the agenda was the government’s request, via the national departments of economic development, trade and industry, and agriculture, forestry and fisheries, for a postponement of the hearing so that it had more time to lodge its objections to the deal.

This request followed government’s last-minute attempt to intervene in the merger after negotiations over proposed conditions to be applied to Walmart broke down. In their affidavit the three government departments alleged that Walmart and Massmart had agreed to negotiate over the government’s concerns but had become “less flexible” since the Competition Commission recommended last month that the merger be allowed to proceed without any conditions.

Attached to the departments’ submission was a draft pledge that Economic Development Minister Ibrahim Patel wants the two parties to agree to before the merger is approved. It contains many procurement quotas, which Walmart would have to abide by, as well as conditions of engagement with South African suppliers. The Competition Tribunal ruled against the postponement, arguing that it would provide two dates in May when the department could air its views on the merger and cross-examine the economic witnesses of the merging parties.

However, the unions objected to the proposal, arguing that they would be prejudiced because they would not be able to cross-examine the merging parties’ economic witnesses. The unions said they would immediately lodge an appeal with the Competition Appeal Court and if the hearings were not halted they would attempt to interdict the proceedings.

This left the Competition Tribunal with a very tough decision and eventually it agreed to postpone the hearing until May. So, ultimately, the government got what it wanted. Some close to the process suggested this week that the government may have used the unions to force the postponement, a claim the unions denied.

However, it was interesting that the unions did state that those unions that gave them a mandate to pursue the appeal and the potential interdict did not include the South African Clothing and Textile Workers Union, Patel’s former stomping ground. Massmart said it had taken note of the decision and was considering its options, with the input of its legal team.

Walmart said that it was prepared to share details about its positive economic impact on communities around the world. “We do not believe there are any reasonable grounds for further delay and are exploring our options,” said Walmart. “We remain firm in our belief that Massmart is a compelling investment opportunity and look forward to being able to grow job opportunities and serve customers together.”

Lloyd Gedye

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