Malaysian Competition LawEnsuring A Level Playing Field for All to

Prosper

Presented by

Dr. Wafi Nazrin Abdul Hamid

Sarawak 18 and 19 October 2010

© 2010. All rights reserved

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Part I - Background The need for competition law - an economic issue World-wide enforcement Back home in Malaysia

Part II – the Prohibitions Application Exclusions Prohibition 1: Agreements which Distort Competition Prohibition 2: Abuse of Dominant Position General Exclusions

Part III – Malaysian Competition Commission Guidelines and Competition Champion Complaints and investigation Sanction and Appeal Civil actions

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Synopsis

"Healthy competition is needed to make the economy more efficient and dynamic. For this, the Competition Law will be introduced to provide a regulatory framework against market manipulation and cartel practices that may affect market efficiency,"

Dato’ Seri Najib Tun Razak tabling the 10th Malaysia Plan

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Part I: Background

Crystal Clear Message

Caveat and Disclaimer !

The Malaysian Competition Commission will only be set up on 1st January 2011.

However, in the public interest, the advocacy programme has to commence immediately.

Although reasonable care has been taken to present and articulate the issues involving Malaysian Competition Law, the views expressed herein is without prejudice to the views the Malaysian Competition Commission may take eventually.

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BACKGROUND – AN ECONOMIC ISSUE

Principles of Free Market Economy

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Adam Smith, The Wealth of Nations (1776)

“Production and distribution of goods and services in competitive free markets maximizes social welfare. Markets may fail to be efficient for a variety of reasons, so the exception of competition law's intervention to the rule of laissez faire is justified.” Joseph Schumpeter

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BACKGROUND: What’s in it for me?

GovernmentMalaysia Remains Competitive International commitments

BusinessesFairness and Rules for all (big and small)Protect from abuses by Dominant FirmsTo be on par with foreign companies

ConsumersLower pricesBetter products and innovationFreedom of choice

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Background: Fraud on Consumers“I want the future for cartelists to continue to look as bleak as possible. That is why I am further sharpening our tools in this area.” (Neelie Kroes, Former European Communities Commissioner for Competition)

“Hard core cartels are like theft. Criminalisation makes the punishment fit what is indeed a crime.” (John Vickers, then Director of UK Office of Fair Trading) 8

“Cartel activities, such as bid-rigging, price-fixing and market

sharing, will almost always result in less competitive markets.

In the longer term, this will result in industries with lower

levels of efficiency and less innovations. Customers will be

worse off. Therefore, we strongly believe that companies

which engage in such anti-competitive activities must be

deterred.”

(Tan Eng Cheong, Chief Executive , Competition Commission of Singapore)

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World-wide enforcement – More than 130 countries already have competition laws

Highest individual UK fine to date

GBP 122 million in Aug08

(BA, fuel surcharges)

Highest EU cartel fine to date

EURO 1.4 billion In 2008

(Car Glass manufacturer)Largest recent US cartel fine USD 700 million

in 2005/06 (DRAM semiconductor

memory products)

INTEL fine on abuse of dominance for

EURO 1.06 billionon May 2009

Microsoft fined for BundlingEURO 497 million in

March 2004 and further EURO 899 million for not paying earlier fine

in February 2008

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“Mat Sallehs don’t understand Asian culture and the way we do business” ??? Singapore – Competition Commission of Singapore fined

SGD 1.69 million for 16 coach operators.

Korea- Korea Fair Trade Commission fined Microsoft Korea and Microsoft Corporation USD 31 million (33 Billion Won)

Indonesia – Commission for the Supervision of Competition fined few foreign and local telco companies including Temasek holdings & Singtel Rp 15 billion.

China – Anti-Monopoly Commission fined 33 producers of rice noodles for fixing prices. Fines of RMB 100,000. Some had their fines reduced under the leniency programme.

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MALAYSIA BOLEH !

Back home in Malaysia

MALAYSIA BOLEH !

Back home in Malaysia

Malaysian Competition Law – Legal Basis

Competition Law Act 2010

Competition Commission Act 2010

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Part II: The Prohibitions

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The Prohibitions - Application

“commercial activities” - goods or services

Govt companies

Public authority when carrying out “commercial activity”

Within or outside Malaysia

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First prohibition: (a) horizontal and (b) vertical agreements

Covers “agreements” – contracts, understanding, whether or not legally

enforceable“concerted practices” Decision of associations

Prohibition: agreement which has the “object” or “effect” of preventing, restricting or distorting competition.

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Prohibits anti-competitive conduct between Competitorse.g. of hardcore infringements – fixing prices or other trading

conditions, allocate markets, market allocation, bid rigging.

Towkay, we are losing money. Let’s all sell at RM150 per unit so we all prosper.

Okay. I scratch your back and you scratch my back!!!

What about my

back?

First prohibition: (a) Horizontal agreements

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First prohibition: (b) Vertical agreements

Agreement between supplier and its independent distributors

Example of infringement: Resale price maintenance (setting a minimum price)Setting Maximum price or Recommended retail

price for distributors is allowed.

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Prohibit anti-competitive conduct within a distribution chaine.g retail price maintenance (setting a MINIMUM price)

You all must not sell below

RM15

Consumer

RM10

RM15

RM15

Okay, I will not sell below RM15

Okay, I will not sell below RM15

Okay, I will not sell below RM15

First prohibition: (b) Vertical agreements

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RM15

Relief and Exemptions for First Prohibition4 conditions :

technological benefits indispensible proportionate and does not eliminate competition

Commission may grant exemptions and publish in gazette.Individual exemptionBlock exemption

Hard core infringements such as price fixing and bid rigging unlikely to be exempted

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“Dominance” - Market power to “behave independently”

Factors indicating dominance: large market share barriers to entry countervailing buyer power

No prohibition of becoming Dominant

Prohibition relates to ABUSE of Dominance Bundling predatory pricing, refusal to supply, discrimination, margin squeeze

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Second Prohibition: Abuse of dominant position

Prohibit dominant companies from abusing their power e.g tying and bundling.

If you want to buy the sweets, you must also

buy the cigarettes.

MEROKOK MEMBAHAYAKAN KESIHATAN !

Second Prohibition: Abuse of dominant position

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Abuse of Dominance –Refusal to supply and Margin squeeze

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A

A B

Relief for Second Prohibition

Dominant firm may take stepsReasonable commercial justificationReasonable commercial response to conduct of

competitor

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General Exclusions Commercial activity under

Energy Commission ActCommunications and Multimedia

General exclusionCompliance with LEGISLATIVE requirementEmployee Collective agreements Services of “general economic interest” or

National Service

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Part III – Malaysian Competition Commission

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Guidelines and Competition ChampionCommission has power to publish Guidelines to

clarify and supplement the Competition ActProcedureDefinition of MarketLeniency etc.

CommissionTo advise Govt. on all matters concerning

competitionConduct market review on competition issues in any

market and make recommendations to the Govt.

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Very broad powers Commission officers have powers of police officersMay RETAIN (not merely make copies) documents and

recordsMay seal premises and seize all things “other than the

necessary clothing”

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Complaints and Investigation

Complaints and Investigation Any victim of anti-competitive behavior can

complain to the Commission

Commission has very wide powersRaidsSeizure of documents

OFFENCE (distinct from INFRINGEMENT):Obstruction“tipping off” is an offenceThreats and reprisals are offences – includes

cancellation of orders or refusal to trade

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Commission Decisions: Sanctions Power to grant interim measures

INFRINGEMENT - Financial penalty not exceeding 10% of worldwide TURNOVER of an “enterprise” (includes the group turnover)

General penalty for OFFENCES (obstruction, tipping off, threats and reprisals, false information, concealment): Companies: fine not exceeding RM5m or RM10m for

subsequent offence Individuals: up to fine of RM 1m and/or 5 years jail; up to fine

of RM 2m and/or jail up to 5 years for subsequent offence

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Commission Decisions: Sanctions and AppealFor OFFENCES - Director, CEO, COO, manager, secretary, other

similar officer responsible for management may be charged severally or jointly unless he had no knowledge AND all reasonable precautions / due diligence taken to prevent the infringement

Whistle blower – leniency and reduction up to 100% of penalty

Victims of infringement may bring action for Damages in civil courts

Appeal to Competition Appeal Tribunal

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Kini, “Anti-trust law” menjadi kenyataan,

Ianya terpakai kepada semua perniagaan,

“Compliance Programme” dijadikan amalan.

Jangan terlambat, nanti terkilan.

Kuih Bangkit, Kuih Bahulu,

Mak Janda mengidam berlian,

Dalam Anti-trust bersusahlah dahulu,

Supaya kita tidak di Saman kemudian.

Only 2 things to remember!

1. Avoid Anti-competitive Agreements (e.g cartels and

price fixing)

2. If you are Dominant, do not abuse your Dominance

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Don’t we tell our kids that “Competition is Healthy?”

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