Before 2010, Malaysia had not had a national competition law despite carrying out heavy privatisation since the 1980s. Consequently previous regulation, mainly concerned with economic regulation rather than with competition, was carried out at the sectoral level and has been found to be limited and ineffective (source: ISEAS, Implementing Competition Policy in Malaysia, 2003).
Finally in 2010, the Government passed the Competition Bill 2010 and the Competition Commission Bill 2010 , which will come into force on Jan 1, 2012.
Developing countries are particularly susceptible to anti-competitive behaviour as competition can be low due to markets being difficult to access because of a limited number of people capable of entering and high entry barriers. This means that markets typically have a low concentration of firms which allows anti-competitive behaviour to flourish. International cartels and anti-competitive practices by foreign firms and multinationals can also damage competition in developing countries’ markets; in an increasingly liberalised world, competition law is therefore of great importance.
Competition laws bring many positive economic effects. Consumers will benefit from lower prices, more choice and a higher availability of goods and services. Increased competition and easier access to markets will force firms to be more efficient and to innovate and invest in the research and development of new products and new manufacturing techniques. It will also lead to positive welfare effects such as: costs savings; weeding out of inefficient firms; larger market shares to more cost-efficient firms; and more entry in to the market by new firms.
These consequences are likely to cause economic growth and development and help to reduce poverty. Many benefits will be accrued by domestic players, however it will also benefit and encourage foreign investment in to the country; in fact many international institutions include competition law as a requirement in their evaluations of country risk.
Malaysia’s Competition Act 2010 seems to cover all the necessary points when compared with other nation’s competition policies. It contains the prohibition of anti-competitive behaviour which deals with restrictive practices that distort, restrict or prevent competition in horizontal or vertical agreements in the business chain and prohibition of the abuse of a dominant market position i.e. monopolies and oligopolies. It also introduces a Competition Commission to monitor and investigate potential uncompetitive markets and a Competition Appeal Tribunal to allow companies to petition a decision.
A closer look however, reveals some causes for concern. How much will GLCs and companies with close connection to the government be able to be investigated under the Act? Are there loopholes that allow the commission to backtrack on investigations or close them down? Below we will analyse Malaysia’s competition policy in comparison with the UK’s competition law (Competition Act 1998 and Enterprise Act 2002) as it is a suitable and well-regarded benchmark.
Selected issues:
(a) Anti-competitive behaviour
The anti-competitive behaviour outlined in the bill includes:
- fixing (directly or indirectly) a purchase or selling price or any other trading conditions;
- sharing market or sources of supply;
- limit or controlling – production, market outlets/access, technical or technological development or investment; and
- performing an act of bid rigging.
These are almost identical to the behaviours outlined in the UK’s Act and covers typical cartel behaviour.
(b) Abuse of dominant position
The abuse of a dominant market position, whether independently or collectively, includes:
- imposing unfair purchase or selling prices or any unfair trading conditions;
- limiting or controlling – production, market outlets/access, technical/technological development and investment;
- refusing to supply to a particular enterprise/group;
- applying different conditions to equivalent transactions;
- discouraging new market entry, expansion, or investment by an existing competitor;
- forcing from the market an existing competitor which is no less efficient than the dominant firm;
- harming competition in any market in which the dominant enterprise is participating or in any upstream or downstream market;
- predatory behaviour; and
- buying up a scarce supply of intermediate goods/resources with no commercial justification.
These are also consistent with the UK’s competition policy.
(c ) Competition Commission
The Competition Commission is the body in charge of overseeing competition policy enacted. The Competition Commission Bill will enforce the Competition Act by taking action against companies involved in anti-competitive practices. It may conduct a review in to any market on its own initiative or at the request of the Minister or any person that finds reason to complain. Commission officers have significant powers to obtain and retain any information or documents deemed necessary and can search and seize without a warrant.
They also have the power to require an infringement upon the law be stopped immediately, specify steps for ending such an infringement, impose a financial penalty of not less than 10% of worldwide turnover during the period the infringement occurred, or give any other direction as deemed appropriate.
All findings and recommendations must be published publicly. To assist the companies to know if they are committing an infringement, perhaps the Commission should be able to issue specific guidelines to companies that seek advice as the UK Commission is able to.
(d) Competition Appeal Tribunal (CAT)
The CAT has exclusive jurisdiction to review any decision made by the Commission and has powers to summon parties to: give evidence; procure and receive evidence on oath; and require any information or document. It also has the powers of a subordinate court under the Subordinate Courts Act 1948.
A decision is made by the majority and is final and binding on all parties to the appeal. It can: confirm or set aside the Commission’s decision; remit the matter to the commission; impose, revoke or vary the amount of a financial penalty; or take such steps or make a decision as the Commission could itself made.
The Competition Commission and CAT are fairly in line with the UK’s regulatory bodies; Competition Commission and Office of Fair Trading (OFT), in terms of powers of investigation and the ability to make decisions on infringements, penalties and the set of remedial steps to be taken.
(e) Undertakings
Both UK and Malaysian competition law allows for the Commission to accept from an enterprise an undertaking to do or refrain from doing anything as the Commission considers appropriate. However, the Malaysian law states that if the Commission accepts such an undertaking in relation to an infringement, the Commission will close the investigation without making any finding of infringement and shall not impose a penalty on the enterprise.
Although the undertaking will be made public, this part of the law is not featured in the UK Competition Act and presents a possible area for firms to evade a finding of infringement especially if undertakings aren’t monitored by the public.
(f) Mergers and Acquisitions (M&A)
The Act does not include investigations into anticipated and completed M&A which comes under the UK’s Enterprise Act 2002 and is a key part of EU and USA competition law as well. Mergers are when two companies combine together to form one new company and acquisitions are when one company is bought by another.
M&A occurs as the value that is created is believed to be bigger than the sum of the two separate parts, creating synergy and reducing costs by removing duplicate departments or operations and thereby increasing profit margins.
This is a valuable part of competition policy as M&As reduce competition as there are subsequently less firms in the market. This can hurt consumers by leading to less choice and higher prices. They can also disturb the balance of firms’ power in a market and an M&A law can be a way to prevent future potential abuse of a dominant position before it occurs and hurts consumers.
This omission can perhaps be explained by competition law in Malaysia being designed with the primary aim of promoting economic development, with the protection of consumers’ being a secondary aim. In the UK however, the principal aim of competition law is to protect the interests of consumers.
(g) Government Linked Companies (GLCs)
According to the Domestic Trade, Cooperative and Consumerism Minister Ismail Sabri Yaakob, GLCs will not escape prosecution and investigation under the act . However a subsection under Application of the Act details that ‘commercial activity’ means any activity of a commercial nature but does not include any activity, directly or indirectly in the exercise of governmental authority’.
It is hard to define what activities are under government authority indirectly, particularly in the case of GLCS where governments have a direct controlling stake of a company which allows them to appoint BOD members, senior management and make major decisions (e.g. contract awards, strategy, restructuring and financing, acquisitions and divestments etc) (source: Khazanah Nasional Berhad).
As this detail is not found in UK competition law, one should be wary of this subsection and evidence of GLCs being held accountable under the law will be needed to prove that the competition law will be fully effective.
While the passing of this competition bill is of great merit and covers the most important parts of competition policy; ie, agreements that distort, prevent or restrict competition and abuse of a dominant position in the market, its success will ultimately be judged on whether it can be implemented effectively and whether the Competition Commission, which is entrusted to monitor and assess markets for anti-competitive practices, can live up to its high expectations.
Most importantly, the key in making competition law succeed in Malaysia is that both the regulators and the regulated are educated in and subscribe to the values that underpin competition policy, i.e. the preservation of economic freedom and the free enterprise system. Failing that, the Competition Act 2010 would just be a piece of competition legislation that is not quite embracing competition!
The writers are a political analyst and intern with Sedar Institute respectively. Opinions expressed in this letter are the personal views of the writers and should not be attributed to any organization they are connected with.
