FIFTEEN years in the works, the Competition Act 2010 has finally come into fruition and will be fully enforced as of January next year. The Act will help provide a level playing field for businesses operating in Malaysia and promote economic development by protecting the process of competition domestically. This would result in better products and services as well as competitive prices in the market, therefore benefiting consumers.
Meanwhile, the Price Control and Anti-Profiteering Act 2010 enforced at the start of this month, was an older Price Control Act amended to include anti-profiteering elements ahead of the Goods and Service Tax (GST) implementation for fear that businesses may raise prices excessively.
In an interview with StarBizWeek’s Jeeva Arulampalam, Domestic Trade, Cooperatives and Consumerism Ministry secretary-general Datuk Mohd Zain Mohd Dom (pic) explains how both Acts will be implemented and addresses questions on how effective these Acts will be in transforming current practices in the local market. Below are excerpts of the interview:
SBW: How does the Competition Act set the stage for a more mature economy here? What are some of the tangible benefits?
Zain: Essentially, any business wants to be able to compete on a fair and even playing field. But say there are some companies, possibly government-linked companies (GLCs), that may benefit in term of contracts and so forth by being government-linked and with 40% of the economic activities carried out by GLCs here, the remaining 60% will be aggrieved by the fact that GLCs could be receiving preferential treatment.
That to us would be anti-competitive because it is not a level playing field when it comes to tendering for contracts. So the Act allows for healthy competition and since GLCs also fall under the scope of the Act, everyone will have to compete with better quality products and services and it allows for competitive pricing.
A main prohibition in the Act is that there must not be collusion between parties for example, collusion between parties that could lead to bid-rigging.
Before the Act, investors, be it local or foreign, would fear that there was no competition quality and no recourse for anti-competitive behaviour. This policy is now seen as an important component for confidence building in drawing in private or foreign direct investments.
If you look at developed countries where there are Competition Laws in place, everyone has the right to compete openly in a healthy environment whether you are a big, medium or small player. Prices are not artificially inflated because there is no price-fixing done beforehand.
Another key point to remember is that the Act is not anti-monopolistic because a monopoly can exist in an economy but that monopoly must not abuse its dominant position, either by way of controlling supply or in pricing of products or services.
Questions have been raised on the effectiveness of the Competition Act in addressing dominance and anti-competitive practices adopted by larger business, some of which would be GLCs. Will the Competition Commission be able to address these issues without any intervention?
The private sector was very clear that if GLCs were exempted, they would not support the law. Secondly, it was not without difficulty that we sat down with Khazanah (Nasional Bhd) and the big GLCs, who eventually came on board and said they had no reason to fear the Competition Law. The bigger ones said that they were already competing outside of the country and had to abide by Competition Laws of developed countries. So, no one is exempted. But I’m realistic to say that it is not an ideal world but we would like to believe that the personalities we have chosen for the tasks are strong and independent-minded personalities. So, they would keep to the letter and spirit of the law.
Which players or sectors would be the most impacted by the implementation of the Competition Act?
It is hard to say because we don’t really know whether people are engaging in anti-competitive behaviour as we have not carried out market reviews. We have looked at certain cases and there is an example that comes to mind, although it may not be applicable here.
There was a case in Germany about the power of hypermarkets and how they were willing to sustain losses for selected items called loss leaders -it is usually goods that are essential in nature, perhaps rice, sugar and cooking oil. So, what they do is slash prices and being powerful as they are, they are able to sustain losses for quite a long period of time, killing the mom and pop stores that cannot afford to slash their prices for these essential goods due to their financial position.
The promotional effect of getting customers to come in and buy these items while picking up other products kills competition. Whether it is done deliberately or not, the effects could be seen as anti-competitive. The German case saw a ruling made against the hypermarkets for loss leader practices because it undermines competition. Another point to consider here is that when you are drawn to the hypermarkets for their loss leaders, they cap their losses by increasing the prices of other essential goods such as milk and biscuits, knowing that customers will not only pick up the promotional items but look to buy these essentials. The Competition Commission will have to decide if this is anti-competitive.
Do you foresee resistance by certain governmental bodies or ministries in changing policies if the Competition Commission were to find in its market reviews that anti-competitive policies are being adopted by selected industries?
First and foremost, if you look at the law, exemptions are given to all things government be it legislation, laws and regulations. Therefore, you cannot touch it if it is a government decision. But we would like to believe that as we carry out advocacy programmes at the various government ministries and at the state level (on the Competition Act), they would understand that if something were to be done in contradiction to the Competition Law, then they may look pretty silly.
If the market review and recommendations by the Competition Commission is critical of the government and can prove that certain laws or regulations in a specific industry are not helping the economy and that the economy can be much better without these laws, I think it would be foolhardy for a good government not to reflect on this.
Also, this is why we believe that the government has to listen and while listening to the commission may not be enough, the market reviews need to go into a public domain.
What will be the key challenges faced in the adoption of the Competition Act?
One of the biggest constraints would be human capital. We do not want to build an empire straight away as we do not know what the workload is going to be. The Government knows the importance of this policy but the current executive body would have to prove its worth before more money can be put in. The Competition Commission and its executive body would have to be independent and receive its financing from the Government. So getting dedicated people is one thing while getting the right people is another. We have people out there that are extremely good but the pay that we can afford to give may not be able to drive people in.
Another challenge is in educating the companies about the law. Some of the small and medium enterprises need to be educated that this law will benefit them and that certain anti-competitive practises are prohibited under the law.
The Act provides a comprehensive Competition Law across all sectors except for anti-competitive practices regulated under the Communications and Multimedia Commission Act 1998 and Energy Commission Act 2001. What happens if complaints of anti-competitive practices under the Communications and Energy Acts are not addressed by their respective regulators?
We would definitely look at the cases brought up within their regulator function and the complaints made by the aggrieved parties. If it comes to a point where we feel that the regulatory body is just not doing anything, and this is an assumption, maybe there can be a request made to the Government to make a policy decision (via the market review proposal) that the regulators be allowed to regulate while the competition law/practices be brought under the wider umbrella of the Competition Act. There would definitely be resistance (by some parties on this proposal) but that is what the market review is for.
Why was anti-profiteering included under the Price Control and Anti-Profiteering Act 2010?
The ministry received many complaints pertaining to price increases and why the ministry had not taken action.
We explained that the Price Control Act allowed for price control to be imposed depending on circumstances such as during festive seasons and emergency situations like the price hike in surgical masks.
We also believed that if everything were to come under price control, that would kill the market place as we would not be able to know what is a fair price and what is the profit people make.
But we had to address concerns and complaints pertaining to profiteering by businesses. Therefore, this is why anti-profiteering was included in the Act.
Also, the GST was in the works and knowing the way our businesses work, a tax being imposed would mean that prices would increase. So assuming that a bottle of mineral water costs RM1 including sales tax, and GST amounts to 2%, maybe we can accept a 2% price hike but if the price was increased by 10%, the 8% profit increase cannot be justified.
The Act says that “profiteer” means making unreasonably high profits. Has high profits been further defined?
Not yet. That is in the works and that is our dilemma because if the GST had come into force just about the same time as the Anti-Profiteering Act, then it would have been easy as we would have had benchmarks for calculations. Right now, we do not have the GST and we are still working within the group on what constitutes as profiteering.
We are sitting down with experts from the Malaysian Institute of Economic Research, Institute of Strategic and International Studies Malaysia and other bodies to help input in this process but we believe we will be able to come up with a definition before the GST is implemented.