THE 2ND EAST ASIA CONFERENCE ON COMPETITION LAW AND POLICY
- TOWARDS EFFECTIVE IMPLEMENTATION OF COMPETITION POLICIES
IN EAST ASIA NOVOTEL CORALIA BOGOR, INDONESIA
MAY 3 – 4, 2005
Development of Competition Policy and Recent Issues in East Asian
Economies
Presented By
Dato’ Seri Talaat bin Hj. Husain,
Secretary-General, Ministry of Domestic Trade and Consumer Affairs,
Malaysia
Development of Malaysia’s Competition Policy
Introduction
Currently Malaysia is adopting a sectoral competition regulation
approach in some sectors while other sectors have legislation and
guidelines and policies to address unfair trade conditions. These were
implemented during the latter half of the 1990s. This might sound
rather late in the economic development of the country compared to
our neighbouring countries. However, as you are well aware, Malaysia
has always preferred a cautious and conservative approach in this
respect. We are now looking towards a more comprehensive
regulatory framework and hope to soon introduce a competition law
for the country.
Sector Regulators
There are two sectors with legislation to address competition issues
i.e.
the
communications
and
multimedia
sector
through
the
Communications and Multimedia Act 1998 and the energy sector
through the Energy Commission Act 2001.
Section 133 of the Communications and Multimedia Act 1998 provides
for a general prohibition of any conduct which has the purpose of
substantially lessening competition in a communications market. The
Malaysian Communications and Multimedia Commission (MCMC) has
issued several guidelines which clarify the meaning of “substantial
lessening of competition” and “dominant position”. In addition
Section 135 specifically prohibits collusion, rate fixing, market sharing,
boycott of suppliers or competitors. Section 136 prohibits per se
product or service tie-in arrangements in the communications market.
If there is any infringement of the prohibition, the Commission is
empowered to instruct the offender to cease the conduct and
implement remedial measures. The Commission may also seek to
obtain an interim or interlocutory injunction against the offender and
the permission of the Public Prosecutor to prosecute the offender in
the Sessions Court. To date, complaints received have been resolved
through mediation and moral suasion.
The Energy Commission Act 2001 broadly defines enforcement of
competition in the energy sector. Its aim is to “promote and safeguard
competition and fair and efficient market conduct or, in the absence of
a competitive market, to prevent the misuse of monopoly or market
power in respect of the generation, production, transmission,
distribution and supply of electricity and the supply of gas through
pipelines”.
On the other end of the spectrum, consumers are protected against
unfair trade practices through the Consumer Protection Act 1999. A
Consumer Claims Tribunal was established to hear and determine
disputes relating to any violation of consumers’ rights, for which the
threshold for claims is RM25,000. Some protection is also offered
through the Trade Descriptions Act 1972 which has been in force for
the past 32 years. Its scope, however, is restricted as it prohibits the
mis-description of goods provided in the course of trade and false or
misleading indications of the price of goods.
2
In the financial sector, the Central Bank of Malaysia (Bank Negara
Malaysia –BNM) through the Banking and Financial Institutions Act
1989 (BAFIA) and Insurance Act 1996 is responsible for controlling
financial institutions including commercial banks and insurance
companies. While monitoring prudential standards of their activities,
BNM is also responsible for their market conduct. This includes the
formulation and implementation of suitable policies to ensure that
consumers are fairly treated. In line with this, BNM has taken some
steps as outlined in the Financial Sector Master Plan i.e. to establish a
comprehensive and effective consumer protection framework. This
involves efforts to increase the availability, transparency and
comparison of financial products and services, dispute settlement
mechanisms which are effective and continuous efforts at consumer
awareness.
In the insurance sector, BNM has issued guidelines on unfair practices
with the aim to promote fair treatment of consumers in the conduct of
insurance business. An insurer or any person acting on its behalf is
prohibited from engaging in any activity that constitutes an unfair
practice in the business of insurance. Practices that are deemed unfair
include false advertising of insurance policies, coercive tied selling
practices, unfair discrimination and contract terms and default selling
via automatic enrolment schemes. In addition, several disclosure
requirements were imposed on insurers to raise consumers’
awareness on their insurance dealings.
Progress in developing a Competition Law
The idea to introduce a national competition law began some ten years
ago. To date however a competition law has yet to be introduced. The
failure to address the concerns and apprehension of politicians,
officials as well as the private sector on the impact of such a law has
been one of the main stumbling blocks. Further, the lack of capacity
3
(both human resources and institution) and knowledge among
government officials to formulate and implement such a law is
expected to slow down this process.
However, the Eighth Malaysia Development Plan (2001 – 2005)
acknowledges the need for a policy to prevent anti-competitive
behaviour such as collusion, cartel price-fixing, market allocation and
the abuse of market power, The Prime Minister has also acknowledged
the need for such a policy and towards this end, the Integrity Institute
of Malaysia, which aims to inculcate core values of integrity and
accountability was established in 2004.
As known to all, introducing a competition law is driven by the need
for greater efficiency in the economy. Local firms eventually become
stronger as they become more cost-productive or efficient in order to
compete with one another as well as with foreign rivals. Consumers
are at the other end of the chain and gain through lower prices, wider
choices and better quality goods and services.
Nonetheless, developing countries like Malaysia have to be cautious
when trying to implement a competition law. Markets and firms are
smaller and to some extent under-developed. The ethnicity of society
is also a factor to be considered. Various policies to attain
development goals need to be recognised and factored in. The lack of
expertise and knowledge among politicians as well as bureaucrats
also compounds the constraints faced by policy makers.
Although it is acknowledged that a competition law is beneficial for an
economy such as Malaysia, public policy requires a cost-benefit
analysis approach in its assessment. The problem of compiling
empirical evidence of anti-competitive conduct is difficult especially
so when the competition authority is non-existent. In the past,
Malaysia relied on international cases to support its need for a
4
national competition law. This did not work and it was difficult to
convince relevant parties that such practices exist in the local market.
In trying to address this issue, the Ministry commissioned a
preliminary study to assess the extent of anti-competitive conduct in
the country. This study however, was based on a market survey
undertaken. Detailed economic analysis was not done by an authority
competent in competition issues. The findings of the study however,
indicated that a significant number of industries in the manufacturing
sector are highly concentrated.
Nonetheless, the Ministry began and intensified its outreach program
(advocacy) during the past two years to consult and convince the
private sector as well as officials from other Ministries that a national
competition law will benefit the nation. This process is on-going and it
has been an invaluable experience as issues and challenges facing
each of the sectors have come to the forefront and were particularly
useful to the Ministry.
Recent Issues in East Asian Economies (specific reference to
Malaysia)
As the Malaysian economy progresses, so too the economic structure
has changed. The services sector has become the largest sector in
the national economy accounting for 57.4% of GDP.
The economy is now witnessing a trend towards concentration as well
as mergers and acquisitions (M&As), where big players are not only
entering into agreements but also merging with other entities to gain a
stronger foothold in the economy in the wake of globalisation.
In the retail industry, increased competition especially with the entry
of foreign players has witnessed a trend towards M&As which are
seen as an option for them to expand and solidify their positions and
5
grow in the market. In Malaysia, for example, Hong Kong based Dairy
Farm Group has acquired the entire chain of Tops supermarkets,
making it the largest supermarket chain in the country. Besides Tops,
the Group also owns Giant TMC, another company which operates
hypermarkets and supermarkets, Cold Storage supermarkets and
Guardian Pharmacies. This has clearly made the Hong Kong Group a
major player in the Malaysian retail industry.
Other local supermarkets are also making the move to merge. The
rising competitiveness and changing behavioural spending patterns
are expected to see more such consolidation. They also see the need
to protect their market share from being snatched away by foreign
ones in the market and this is one major reason why Malaysia has put
in place “Guidelines on Foreign Participation in the Distributive Trade
Services”. Malaysia needs to enact industry controls so as to ensure
that local players are not severely disadvantaged by the presence of
foreign retailers. The position of small local retailers must not be
unduly compromised and Government policies need to address the
existence and survival of these small traders.
The finance sector has also seen some mergers between banks and
finance companies. This was encouraged by the Government so as to
develop a more resilient, competitive and dynamic financial system.
The demarcation between commercial banks and finance companies
has narrowed due to the Central Bank’s ongoing efforts on
deregulation and the merging of these institutions is seen as a natural
progression.
Since 1999, 55 banking institutions (made up of 20
commercial banks, 23 finance companies and 12 merchant banks) in
the country were merged into 10 banking groups in order to improve
their ability to compete with higher capital adequacy justified by
criteria such as improvements in capital adequacy.
Other
sectors
are
also
seeing
M&As,
such
as
telecommunications, accounting, research and in advertising.
6
in
the
Although two statutes govern mergers and acquisitions, i.e the
Securities Commission Act 1998 and the Malaysian Code on TakeOver and Mergers 1998, they only protect investors’ interest. There are
no provisions in these statutes for the impact of M&As on competition
and on the consumers.
With the proliferation of large foreign retailers and merged entities,
come intense competition for the consumer ringgit. This has recently
led to price wars. The consumer of course benefits but how are the
local retailers hurting? They are unable to offer such low prices while
trying to survive as they lack capacity and the bargaining power.
Such price wars also exist in the air transport sector. Prior to 2002,
Malaysia Airlines System Berhad (MAS) was virtually a monopoly
operator in Malaysia's domestic airline market. With the entry of
AirAsia, the market became more competitive. MAS responded by
introducing a new pricing scheme (Super Saver Scheme) which
offered a 50% discount for 10 seats in every flight, even though, in
July 2001, the Government had allowed MAS to raise fares by 52%.
AirAsia in turn countered MAS' pricing strategy in September 2002 by
offering lower fares. Despite MAS' plea for intervention by the Ministry
of Transport to resolve the price war, the Government maintained that
the competition between the two firms is healthy. This case highlights
an important impact of market entry on competition in a Malaysian
service industry.
Free Trade Agreements (FTAs), are another growing phenomena.
Malaysia as with other countries in the region has embarked on
entering into several FTAs and in some instances Closer Economic
Cooperation Agreements. These include not only tariff reductions or
abolitions but also cover a broad range of areas, one of which is
competition law. Malaysia stands to gain to some extent from this
trend as countries with advanced competition legislation such as
7
Japan, is in a position to offer capacity building in competition policy
which includes technical assistance.
Conclusion
The Malaysian Government is moving cautiously and will approach the
implementation of a competition law gradually. Many challenges lie
ahead beyond the political and public acceptance of the proposed
competition law. These include issues such as institutional design as
well as capacity building that will determine whether the competition
law will be effectively enforced.
Although several cases reported in the press have elements of anticompetitive behaviour, the absence of a comprehensive competition
law and authority through which these can be addressed hinders such
efforts. As the economy progresses and industries compete to get a
larger share of the economic cake, anti-competitive practices such as
price wars and unfair distribution policies amongst others will prevail.
A national competition law will certainly be welcome to address
competition in the marketplace.
Ministry of Domestic Trade and Consumer Affairs
Malaysia
25 April 2005
8