COMPETITION LAW: SEEKING A LEVEL PLAYING FIELD WAN LIZA MD AMIN CLJLAW

 

COMPETITION LAW: SEEKING A LEVEL PLAYING FIELD

by

WAN LIZA MD AMIN[1]

[2011] 1 LNS(A) i

MALAYSIA

In 2004, when I returned from my masters program, a colleague asked me what my dissertation topic was, I replied competition law, and she looked at me and said “huh?”. In 2007, I started teaching at IIUM and fellow lecturers asked in what area my doctorate studies would be. I answered, competition law and the response was “ooh”. Recently, I came back to collect data and to celebrate Ramadan and Eid with my family. To my surprise, there were seminars, symposia, etc on this area of law. I felt both pleased and concerned. Hence, I decided to take this opportunity to share my thoughts on this movement towards implementing competition law in Malaysia.

Why is there a sudden proclivity towards competition policy and law (CPL)? So far we have governed our economy without it. Why is it now that COMPETITION has become the emblem of the liberal market and the proponents of this new concept are drumming into our ears that this is what Malaysia needs. Is it true that CPL enhances not only the economic growth, but also the welfare of the consumer? Do we need this regulation?

The Malaysian government has endorsed and passed the Competition Act, which consists of 4 chapters on anti-competitive practices and 4 parts on regulations for investigations and enforcement, as well as establishing a commission to enforce the law. Before, we assess the Act; I would like to share my humble opinion on competition policy and law.

Does the passing of national competition law denote or symbolize a transformation of market structure, a change in economic policy, the abolishment of a particular business agenda eliminating major corporate privileges, a protection for small and medium business, or an undermining of existing privileges? A straightforward answer is no. However, if the law is administered or enforced erroneously, it may upset desirable economic relations. Does CPL improve consumer welfare? Yes. Although, CPL goals are to instill economic efficiency and protect the competition process, the end results will be maximization of consumer welfare. The law promotes allocative efficiency as well as static and dynamic efficiency, which in turn encourages producers, supplier’s and manufacturers to compete and innovate. Consumers will benefit in getting quality products at a good price. There will be no cartel to mark up prices, no collusion among the oligopoly to raises prices to benefit competitors and no abuse of monopoly of dominant companies or enterprises that will hinder customers/buyers from an option of having choices to get supplies from several sellers.

Competition, to explain simply, is all about leveling the playing field i.e., opening the playing field of business. All business, regardless of their size would enjoy a healthy competition process. Each player will get to participate in the market on equal terms. Who are the players? It is not only the enterprises, i.e., companies, producers, wholesalers, financial institutions, state owned companies, or government linked companies. All of us, as consumers, are part of the market. CPL promotes competition to develop economic efficiency in all industries and businesses in the market. Producers, wholesalers, and retailers may not engage in any conduct that distorts healthy competition. This law prohibits all anti-competitive agreements and conduct. In addition, this law also prohibits firms in the same business from colluding to disrupt competition by fixing prices. For example, the law would prohibit firms in the telecommunications industry from agreeing on call and text messaging prices. The Act also prohibits abusive practices by dominant firms in the market. This means that enterprises such as a giant like an AA Company in the retailing industry cannot require its suppliers to refuse to supply their products to other firms or impose location restriction in leases to ensure that AA is the only firm in a mall. Neither can oligopoly industries (ones where only a few firms control the market) abuse their position by colluding on prices. For example, the airlines industry is oligopolistic today, but this law ensures the potential for entry into the market. Any capable firm can participate in the industry. The threat of such entry as well as actual entry will encourage existing airlines and new entrants to compete in providing better airline services and prices. Consequently customers are likely to get better airline deals. The example illustrates how CPL can improve consumer welfare.

Competition law is not really a new idea; it has been on the multilateral agenda for many years. Malaysia actually implemented CPL starting in 1980; however, it was introduced only in some sector regulations, i.e., telecommunications and energy. Indeed, Malaysia is benefiting from competition in the telecommunications market. Due to competition, that market has thrived and innovated at phenomenal speed. Customers have the advantage of using any number and enjoy call and text messaging rates that are cheaper than before.

In some parts of the world such as Europe and the US, CPL has existed for many years and has been applied to markets generally. The US adopted its initial law in 1890 in response to market conditions and public sentiment that supported free enterprise. The EU adopted CPL as a means of achieving its “single market goal”. The EU seeks to combine the economies of 25 countries into a single economic unit without boundaries and with a unified constitution, currency and bureaucracy. Over 100 countries around the world now have CPL. Why have all these countries adopted CPL?

Over the years, the world has evolved. Thus we see changes from a world that was linked by telegraph that is now assessable via new technologies such as email and Facebook etc. Similarly, whether it is advance or developing countries, economies throughout this world have undergone transformation. There are arguments that CPL obtained its significance due to the aftermath of several merger waves such as the Boeing-McDonnell Douglass merger case. Although the merger was in the US, as the EU had implemented CPL it was able to object to this merger. It objected on the ground of its potential anti-competitive impact in Europe. The community was able to extract important concessions from Boeing before the merger was approved. It is now common place for many countries to scrutinize all large proposed mergers for their potential effects on competition in the reviewing country even if the merger will occur abroad[2]. Developing countries without CPL may also find it difficult to stop anti-competitive behavior by the local subsidiaries of merging corporations based in industrial countries. These companies may behave competitively within industrial countries because of the effective competition regulations of the latter but may indulge in anti-competitive practices in developing countries. Therefore countries without CPL, e.g. Malaysia, are likely to find it difficult to punish predation or collusive pricing by large industrial corporations.

Is it just the international impact which necessitates CPL? Scholars’ studies have shown that structural changes in developing countries explain the need for CPL. Starting in the 1980s and 1990s; many developing countries have been undergoing far-reaching market oriented reforms leading to considerable diminution in the direct role of the State in economic activity. This resulted in widespread privatization, deregulation, and internal and external financial liberalization. Malaysia likewise has undergone all these transitions, thus paving the way towards globalization and liberalization of the market. The latest endeavor was the passing of the Competition Act 2010.

In general, it is not difficult to see why the need for CPL becomes important. In 2000, the United States court ruled against a global cartel in “The Lysine” case. The defendants in the case included executives of the Archer Daniels Midland Co. (ADM), a Decatur, Illinois based agricultural processing company. ADM, a public listed company on the New York Stock Exchange, had global sales of 14 billion in 1999, and 23,000 employees. The defendants were held liable as they, together with two Asian companies namely, Ajinomoto and Kyowa Hakko, created a lysine cartel. In 1991, the lysine[3] market was dominated by three companies in Korea and Japan.

Endnotes:

[1] The author is a doctorate student (SJD) at the University of Wisconsin Madison, Wisconsin, USA and lecturer of IIUM, Private Law Department. She has served as legal officer in the Malaysian Judiciary and has attended and participated in several anti-trust symposiums, conferences and meetings.

[2] Singh Ajit & Dhumale Rahul: Competition Policy, Development and Developing Countries, Trade-Related Agenda, Development and Equity, South Centre 1999 pg. 10 (Jenny, 1999 & Fox, 1999)

[3] Lysine is acid amino used to stimulate an animal’s growth. It is produced by fermentation process in which nutrients, primarily sugar, are fed to microorganisms, which multiply and metabolize. As a product of that process, the microorganism excretes lysine, which is then harvested and sold to feed manufacturers who add it to animal feed. Feed manufacturers sell the feed to farmers who use it to raise chickens and pigs.

Gavi & Kovavic & Baker: Antitrust Law in Perspective: Cases, Concepts and Problems in Competition Policy. 2nd ed Thompson and West, 2002.

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