In 2012, Malaysia joined over 100 other countries worldwide and became the fifth ASEAN nation (after Indonesia, Singapore, Thailand and Vietnam) to establish a competition law regime. The Malaysian Competition Act 2010 (the Act), which came into effect on 1 January 2012, aims to promote economic development by promoting and protecting the process of competition, thereby protecting the interests of consumers. These objectives reflect the government's goal of doubling Malaysia's per capita income by the year 2020 and transforming the country into a more competitive, market-driven and investor-friendly country.
Similar to competition laws adopted in the European Union, the Act contains prohibitions on anti-competitive agreements (chapter 1 of the Act) and abuse of dominance (Chapter 2 of the Act), although it does not provide for competition law regulation on merger control.
The Act is enforced by the Malaysia Competition Commission (MyCC), a corporate body established under the Competition Commission Act 2010, whose members are appointed by the prime minister on the advice of the minister charged with the responsibility for domestic trade and consumer affairs. The MyCC is comprised of representatives from both the public and private sectors who have experience in business, law, economics, public administration, competition law and consumer protection.
In the three years that the Act has been enforced, the MyCC's enforcement activities have focused on cartel conduct, particularly price fixing by trade associations. Despite the emphasis on cartels, the MyCC has also probed anti-competitive vertical agreements and proposed a finding of infringement of abuse of dominance in the steel sector.
The MyCC is empowered to work with other competition authorities and has benefited from cooperation and capacity building exchanges with other competition authorities, which are also expected to lead to cooperation in cartel investigations. Since the Act came into force, the MyCC has received 47 complaints, 15 of which it had indicated that it is investigating. Enterprises are therefore advised not to delay compliance as a penalty for infringement can apply to turnover of the enterprise over the entire duration of the infringement, and relates as far back as 1 January 2012, when the Act came into force.
The Act applies to commercial activities within Malaysia, as well as commercial activities undertaken outside Malaysia that have an effect on competition in any market in the country. Commercial activity does not, however, include:
- any activity, directly or indirectly carried out in the exercise of governmental authority;
- any activity conducted based on the principle of solidarity; or
- any purchase of goods or services done not for the purposes of offering goods and services as part of an economic activity.
There are three sectors or industries that are carved out from the application of the Act. Competition matters relating to communications and energy are enforced by sector regulators, namely the Malaysian Communications and Multimedia Commission in relation to communications and multimedia industries (Communications and Multimedia Act 1998) and the Energy Commission in relation to the energy sector (Energy Commission Act 2001). Commercial activities regulated under the Petroleum Development Act 1974 and the Petroleum Regulations 1974 (directly in connection with upstream operations comprising the activities of exploring, exploiting, winning and obtaining petroleum whether onshore or offshore of Malaysia) are also excluded from the application of the Act.
In December 2013, the MyCC granted its first conditional block exemption order, which was published in the Gazette on 4 July 2014. This block exemption was granted to liner shipping agreements in respect of voluntary discussion agreements and vessel sharing agreements made within Malaysia or which have an effect on the liner shipping services in Malaysia, and took effect on 7 July 2014. It will be valid for three years and will be reviewed after two years.
The Act applies to enterprises. 'Enterprise' is defined as any entity carrying on commercial activities relating to goods or services. This definition is wide and would include, for example, companies, partnerships, trade associations, individuals operating as sole traders, state-owned corporations and non-profit-making bodies. In support of the objective to promote the process of competition, rather than any specific players in the market, the MyCC had clearly sent a message that even government-linked companies are not immune when it imposed a financial penalty of 10 million ringgit each on Malaysia Airlines (MAS) and AirAsia for market allocation (MAS-AirAsia case).
Malaysia does not have a merger control regime and there is presently no procedure to notify the MyCC of a merger. Where there are concerns that a merger or acquisition may have the effect of significantly restricting competition, the parties to the transaction can either conduct self-assessment that the benefits to competition outweigh the detriments or apply for an individual exemption.
Liability within a single economic unit
Where an employee engages in a conduct that would infringe the Act, liability for such infringement may be imputed to the employers. Similarly, a parent company may be liable because a parent and subsidiary company shall be regarded as a single enterprise if, despite their separate legal entity, they form a single economic unit within which the subsidiaries do not enjoy real autonomy in determining their actions on the market. The MyCC first applied the principle of a single economic unit in the MAS-AirAsia case, where it attributed liability to AirAsia for its wholly-owned subsidiary, AirAsia X (which serves the medium to long-haul sector).
Chapter 1 of the Competition Act: prohibition on anticompetitive Agreements
Similar to the provisions of article 101 of the Treaty on the Functioning of the European Union, chapter 1 of the Act prohibits horizontal and vertical agreements between enterprises that have the object or effect of significantly preventing, restricting or distorting competition in any market for goods or services. Provisions in agreements that infringe the Act will be unenforceable as such provisions are considered illegal pursuant to the Contracts Act 1950.
The term 'agreement' is deliberately defined in a broad manner and includes any form of contract (written and oral), arrangement or understanding between enterprises, whether legally enforceable or not, and includes a decision by an association (such as trade and industry associations) and concerted practice. The concept of 'concerted practice' is adopted from European case law and has been defined to mean any form of coordination between enterprises which knowingly substitutes practical cooperation between them for the risks of competition. This usually involves some form of informal cooperation or collusion where parties enter into an informal arrangement or understanding, and would include situations where enterprises mirror or follow the price that is set by another competitor without being unilateral and independent.
The MyCC is likely to follow European cases on exchange of commercially sensitive information, including cases on the huband- spoke cartel where the parties to a cartel use a third party (eg, in a vertical agreement) as a conduit for exchanging such information. Parties to vertical agreements should thus approach the exchange of information with caution, lest they be found to facilitate collusive conduct.
Agreements are prohibited only if they have or are likely to have a significant restriction or distort competition in any market for goods or services in Malaysia. The MyCC has interpreted the term 'significant' to mean that the agreements must have more than a trivial impact. The impact would be assessed in relation to the identified relevant market. When defining the relevant market, the MyCC will identify close substitutes for the product under investigation in the relevant product market as well as the geographic market.
As a starting point, the MyCC's Guidelines on Anti-competitive Agreements provide that the MyCC will generally not consider agreements between competitors in the same market whose combined market share does not exceed 20 per cent of the relevant market to have a 'significant' effect on competition, provided that such agreements are not hard-core cartels. Under certain circumstances, an agreement between competitors below the threshold may nonetheless have a significant anti-competitive effect and the MyCC reserves the ability to take enforcement action against the parties to such agreement.
When assessing whether an agreement has the object of restricting competition, the MyCC will not only examine the actual common intention of the parties but will assess the aims of the agreement taking into consideration the surrounding economic context. If the object of any agreement is highly likely to have a significant anti-competitive effect, then the MyCC may find the agreement to have an anti-competitive object. Once an anti-competitive object is shown, the MyCC does not need to examine the anti-competitive effect of the agreement. However, if the anti-competitive object is not found, the agreement may still infringe the Act if there is an anti-competitive effect.
In the three years of enforcement, the MyCC had targeted cartel practices, mainly by trade associations such as the Cameron Highlands Floriculturists Association, Pan-Malaysia Lorry Owners Association, Sibu Confectionery and Bakery Association, as well as the ice manufacturers that were found to have fixed selling prices. There has only been one market-sharing case thus far, namely the MAS-AirAsia case, which involved a collaboration agreement entered into by Malaysia Airlines and AirAsia, which the MyCC found to have the object of market sharing resulting in the withdrawal of some routes on which both airlines competed. The case is pending the decision of the Competition Appeal Tribunal (CAT), which the MyCC indicated will be finalised in March 2015.
Prohibition on anti-competitive horizontal agreements
The prohibition on anti-competitive horizontal agreements applies to enterprises operating at the same level in the production or distribution chain. Even though the term 'object' is not defined in the Act, there are certain horizontal agreements between enterprises which are deemed as having the object of significantly restricting competition and the MyCC does not need to examine or prove any anti-competitive effects of such agreements. Agreements that are deemed to be anti-competitive under subsection 4(2) of the Act include those which:
- fix, directly or indirectly, a purchase or selling price or any other trading conditions;
- share markets or sources of supply;
- limit or control production, market outlets or market access, technical or technological development or investment; or
- perform an act of bid rigging.
For example, in the MAS-AirAsia case, the MyCC found that the collaboration agreement entered into by the parties in 2011 expressly sets out the object or intention of the parties to share the market in relation to sectors in the aviation services, particularly the clause which states that the airlines agreed that MAS was to only be a full-service premium carrier, while AirAsia and AirAsia X would respectively be a regional low-cost carrier and a regional mediumto- long haul low-cost carrier. It is interesting to note that the MyCC then went on to consider the effects of the collaboration agreement and found that the agreement resulted in an outcome whereby Firefly (a wholly-owned subsidiary of MAS) withdrew from four East Malaysian routes leaving AirAsia to be the sole low cost carrier.
Section 5 of the Act (discussed below) provides relief from liability provided all of the criteria prescribed are satisfied.
Prohibition on anti-competitive vertical agreements
Vertical agreements refer to agreements by enterprises operating at a different level in the production or distribution chain. Generally, the MyCC considers vertical agreements to be less harmful to competition compared to horizontal agreements. This is because parties to a vertical agreement usually have a joint interest in ensuring that the final product or service is competitive as opposed to horizontal agreements which are between competitors operating at the same level in the production or distribution chain.
The MyCC has expressly indicated that it considers resale price maintenance, including other similar schemes which achieve this, such as maximum or recommended retail pricing which serves as a focal point for downstream collusion, as highly anti-competitive. This may apply even where the market shares of the parties are less than the 25 per cent de minimis threshold.
For example, where a manufacturer sets a price which is to be followed by its wholesaler, distributor and retailer, these distribution channels do not compete on price, thus hurting competition.
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Originally published by Global Competition Review
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