Challenges in implementing competition p&l in aec
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The document discusses the challenges of implementing competition policy and law in ASEAN countries. It begins with an introduction and outlines of the contents. It then identifies several issues, including which ASEAN member states have not implemented national competition policies and whether differences in frameworks across countries could cause problems. Next, it provides a brief overview of competition policy concepts. It proceeds to examine challenges in implementing competition policy in ASEAN, such as differences in laws across members and delays in adoption by some countries. Finally, it concludes with recommendations.
Challenges in implementing competition p&l in aec
- 1. May’25,2015 UNIVERSITI KEBANGSAAN MALAYSIA SEMESTER II SESI 2015/2016 IJAZAH SARJANA UNDANG-UNDANG International Law & 3rd World Countries (UUUK 6175) The challenges of implementing Competition Policy & Law in Asean at the Regional & National Level Prepared by: MAS&INDO team
- 2. May’25,2015 CONTENTS 1) Introduction 2) Issues 3) Brief Glance on Competition Policy & Law 4) The Challenges of Implementing Competition Policy & Law in AEC 5) Conclusion & Recommendations
- 3. May’25,2015 CONTENTS 1) Introduction 2) Issues 3) Brief Glance on Competition Policy & Law 4) The Challenges of Implementing Competition Policy & Law in AEC 5) Conclusion & Recommendations
- 4. May’25,2015 2020 1967 1997 2003 Adopt AEC Blueprint Bangkok Declaration ASEAN CommunityCebu Declaration 2007 2015 ASEAN Vision 2020 Bali Concord II ASEAN Community:- that can achieve higher levels of economic dynamism, sustained prosperity, inclusive growth and integrated development of ASEAN. Target Single market and production Base Focus Competitive Economic Region Equitable Economic Development Integration into the Global Economy Free flow of goods Free flow of services Free flow of investments Free flow of capital Free flow of skilled labor Priority integration sectors Food, agriculture and forestry Competition Policy Consumer protection Intellectual property rights Infrastructure development Taxation E-commerce SME development Initiative for ASEAN integration Coherent approach towards External Economics Relations Enhanced particpation in global supply networks Human Resource Development Research & Development 2014 Post-2015 ASEAN THE ASEAN ECONOMIC STRATEGIES Objectives:- • To identify the challenges faced in implementing the competition policy & law in ASEAN member states • To identify steps taken to narrow down the gap in implementation of the competition policy in ASEAN states that have not implement competition policy • To identify whether there is any element of fragmentation and the impact of it.
- 5. May’25,2015 CONTENTS 1) Introduction 2) Issues 3) Brief Glance on Competition Policy & Law 4) The Challenges of Implementing Competition Policy & Law in AEC 5) Conclusion & Recommendations
- 6. May’25,2015 ASEAN Economic Community:- • Single Market and Production Base • Competitive Economic Regions • Equitable Economic Development • Integration into Global Economy THE ASEAN Economic Community Objectives Which member states that have not yet implement their National Competition Policy? For those member state that have implement competition policy and law → is there any diversification in the framework and implementation? Does the differences in the f/work causes any problem at regional level? Is there any way to harmonize the differences? National level: is the competition law applicable to all industries? To have a highly competitive economic region Why the delay in implementation? Issues Identified
- 7. May’25,2015 CONTENTS 1) Introduction 2) Issues 3) Brief Glance on Competition Policy & Law 4) The Challenges of Implementing Competition Policy & Law in AEC 5) Conclusion & Recommendations
- 8. May’25,2015 In a Nutshell:- Brief information on Competition Policy 1) Definition of Competition Law:- The British Competition Commission defined competition as “a process of rivalry between business seeking to win over customers.” 2) General Concept of Perfect Competition:- Consumer Surplus means:- a value of the goods for the consumer is higher than the actual price paid. Etc: Value of Goods is RM7, but Customer pays RM6. Producer Surplus means:- When there is a difference between selling price and actual value of the goods Example of perfect market competition:- A ( a seller) think the value of his goods are worth RM5 and B (a buyer) thinks that the goods is worth RM7. The result of perfect competition will be when A sells his goods at a price in between i.e RM6. Result:- A as the producer is making a producer surplus of RM1 – as he sold the goods more than he had valued and at the same time, B as a consumer has made a consumer surplus as he could buy the goods less than what he expected.
- 9. May’25,2015 3) General Concept of Competition Policy Framework:- 4) Objectives & Benefits of Competition Law:- a) Control the market structures and behavior and the redistribution of wealth and power; b) To guarantee the operations of effective market mechanism; c) To protect the competition process itself and ensure that the firms operating in the market do not harm competition. d) It forces the market players or undertakings to be more efficient, innovative and responsive to consumer demand. In a Nutshell:- Brief information on Competition Policy General concept of Competition Policy Abuse Based System Prohibition Based System • The control item is based upon some finding of an abuse behavior. • Any undertakings or agreements that have effect on competition are usually allowed. • Once the abuse behavior has been established, then the agreement will be found against competition law. • It will look immediately at the starting point of the agreement whether the intention is to restrict or hinder competition. • If it does have, then this agreement is prohibited.
- 10. May’25,2015 Agreements (which are horizontal or vertical, which have object of hindering competition will be prohibited. Supplier Supplier Supplier Wholesaler Distributor Customers Horizontal Agreements Vertical Agreements KEY POINT: Horizontal and vertical agreement between enterprises are PROHIBITED if their OBJECT or EFFECT is to SIGNIFICANTLY PREVENT, RESTRICT, DISTORT COMPETITION In a Nutshell:- Prohibition in Competition Policy
- 11. May’25,2015 Agreements (which are horizontal or vertical, which have object of hindering competition will be prohibited. Supplier Supplier Supplier In a Nutshell:- Prohibition in Competition Policy Horizontal Agreements Key point: Horizontal agreements between enterprises which have the object to:- • Price fixing •Fix trading conditions •Limit or control production, market outlets, market access, development, technology, investments •Bid rigging ARE PROHIBITED Bid rigging Controlling market outlets Examples of prohibited horizontal agreements Cartel activity
- 12. May’25,2015 Agreements (which are horizontal or vertical, which have object of hindering competition will be prohibited. Supplier Wholesaler Distributor Customers Vertical Agreements In a Nutshell:- Prohibition in Competition Policy Key point: Vertical agreements which are at different levels of suppliers who have the object such as:- •Resale price maintenance, fixed price •Exclusive territory •Exclusive purchase/supply @ tying •Non-compete ARE PROHIBITED Fixed pricing Exclusive territory & No discount Exclusive supply Tying purchase Examples of prohibited vertical agreements
- 13. May’25,2015 In a Nutshell:- Prohibition in Competition Policy Factors indicating dominance: •Large market share •Market concentration •Barriers to entry & exit •Degree of buyer power Not an offence to be dominant but if abuse the dominant position, it is an OFFENCE Examples of abuse of dominant position Predatory behaviour Controlling market outlets Buying up scarce intermediate goods required by competitors without justifiable reasons Abuse bargaining position Discrimination
- 14. May’25,2015 CONTENTS 1) Introduction 2) Issues 3) Brief Glance on Competition Policy & Law 4) The Challenges of Implementing Competition Policy & Law in AEC 5) Conclusion & Recommendations
- 15. May’25,2015 ASEAN Economic Community:- • Single Market and Production Base • Competitive Economic Regions • Equitable Economic Development • Integration into Global Economy THE ASEAN Economic Community Objectives Which member states that have not yet implement their National Competition Policy? To have a highly competitive economic region Why the delay in implementation? Challenge No. 1 Does the differences in the f/work causes any problem at regional level? Is there any way to harmonize the differences? National level: is the competition law applicable to all industries? For those member state that have implement competition policy and law → is there any diversification in the framework and implementation?
- 16. May’25,2015 ASEAN MEMBER STATES National Competition Law Authority administering the National Competition Law Does the agency also take on functions to protect consumer interests? Are there specific sectors that come under sectorial regulators with own competition law? Prohibition on anti- competitive Agreements? Prohibition against abuse of dominant position Prohibitions against anti- competitive mergers Main exemption from the Competition Law Adjudication Appeal Leniency Program Does national competition law have settlement provisions? Criminal liability for breaching prohibitions against anti- competitive conduct? Rights of private action Brunei Is in the process of drafting Not available Not available Not available Not available Not available Not available Not available Not available Not available Not available Not availab le Cambodia Is in the process of finalizing the draft Proposed to be Cambodia Competition Commission – might change No. There is another agency No sectorial Yes Yes No Yes – and this law does not apply to small business Yes Yes Yes Not availab le Lao PDR Is in the process of drafting new law Division on Consumer Protection & Competition Yes Yes Not available Not available Not available Not available Not available Not available Not available Not availab le Myanmar Still drafting Not available Not available Not available Not available Not available Not available Not available Not available Not available Not available Not availab le Challenge No. 1:- Why BCLM have not implement Competition Policy? The current status of competition policy in BCLM
- 17. May’25,2015 BCLM Difficulties in Implementing Competition Policy at the National Law ASEAN Member States Justifications Brunei It’s a small country and are looking at the suitable system for their country. Cambodia Due to global financial crisis, it gave impact on their export activities. Due to that they have to restructure their structural policy. For example:- they are focusing on agricultural development and rural infrastructure;. Challenges faced:- The challenge of building and upgrading its infrastructure for example in its agricultural sector, to turn it into the commercial mainstream. Milled rice exports could become and engine and thereby will be able to help reduce poverty. However it will be not be able to do so if the export procedures have not been streamlined and the milling process made more efficient. The challenge of creating productivity in human capital development. Cambodia’s education and technical and vocational education and training systems must be reformed where the enrolment rates at all levels are very low. Laos PDR Reformed national policies:- Policy instruments that sustain high growth along controlling inflation; Diversifying product structures for export; Fiscal reforms Challenges faced:- to diversify its products and services for export and challenges in human capital development. Myanmar Reformed national policies:- Extensive agenda of reforms are needed – fiscal reforms, regulatory reforms and social reforms, Development of financial framework Challenges faced:- pre 2010, its political scenario was not stable which led to less foreign investment. However, post 2010, there have been political reforms and it is expected that due to its stability, will create the interest of foreign investors Common problems that CLM faced are:- lack of technical assistance, the needs are different in terms of capacity building, lack of experts, lack of training and exposure in preparing project proposal paper and lack of coordination among the line agencies at the national level & among relevant ASEAN Sectorial bodies at regional level.
- 18. May’25,2015 Does the differences in the f/work causes any problem at regional level? Is there any way to harmonize the differences? National level: is the competition law applicable to all industries? ASEAN Economic Community:- • Single Market and Production Base • Competitive Economic Regions • Equitable Economic Development • Integration into Global Economy THE ASEAN Economic Community Objectives Which member states that have not yet implement their National Competition Policy? To have a highly competitive economic region Why the delay in implementation? Challenge No. 2 For those member state that have implement competition policy and law → is there any diversification in the framework and implementation?
- 19. May’25,2015 ASEAN-6 : Differences in Competition Law Framework Competition Law Framework Indonesia Thailand Singapore Malaysia Philippines Vietnam Prohibition on Vertical Agreement Not expressly mention Not expressly mention Expressly excluded Expressly included in s. 4 CA 2010 Not expressly mention Not expressly mention Threshold for abuse of dominant position a) Single entity:- market share 50% and above b) More than one enterprise:- market share of 75% and above a) Single entity:- market share 50% and above b) More than one enterprise:- market share of 75% and above There is no presumptive market share threshold as market share on its own does not determine market dominance. However an undertaking with a market share of 60% and above is likely to indicate market dominance. There is a presumptive market share threshold and market dominance is determined by applying the SSNIP Test, i.e. a price range of 5%-10% increase to represent a small but significant increase in price to determine the relevant market Abuse based system – where the monopolies are not prohibited per se but may exists to aid the Govt. in carrying on an enterprise or to aid in the performance of various services & functions in the interest of the public. a) Single entity:- market share 30% and above b) Combine 2 enterprise:- market share of 50% and above c) Combine 3 enterprise:- market share of 60% and above Mergers process and mergers threshold • Art.28 • Need to notify merger to authorities • No filling fees • Approval process: 90 days maximum • Sec. 26 • If mandatory merger and threshold met, must notify • But currently no threshold defined • No filling fees • Approval process: 95 days maximum • Sec. 54 • Not compulsory to notify – but encouraged • Encouraged to do self- assessment • Have filling fees • Approval process: 120 days maximum • No merger control at present Mergers of listed companies requires prior approval the Securities Exchange Commission before becoming effective. • Sec.16 • Mandatory merger notification if threshold are met. • Have filling fees • Approval process: 105 days maximum Challenge No. 2 (a) :- Does the diversification in different competition law poses problems at the regional level?
- 20. May’25,2015 ASEAN-6 : Differences in Competition Law Framework Competition Law Framework Indonesia Thailand Singapore Malaysia Philippines Vietnam Criminal Sanctions Yes Yes No No Yes No Rights of private actions No Yes Yes Yes Yes No Companies have to comply with the different competition laws applicable in each of the ASEAN member states. For examples:- a) Cartels and anti-competitive agreements:- M’sia expressly prohibits vertical agreements that have anti- competitive objects/effects, while Indonesia, Philippines, Vietnam & Thailand does not expressly prohibits while Singapore expressly excludes vertical agreements → could cause several hurdles to companies when dealing with cartel activities. b) In terms of dominance:- cross borders transactions and companies with high market shares have to ensure that commercial strategies are applied in the manner that takes into account the differences on dominant position. c) In terms of mergers, cross-border mergers have significantly increased within the ASEAN region with the liberalization of the market and implementation of the free trade and economic partnership agreements. With the exception of Malaysia, all the five (5) ASEAN member states have a merger control law in place. The difficulties will arise when the companies are coordinating a merger filing requirement with different procedural regimes, for example in some of the ASEAN member states, mergers requires mandatory notification. Therefore, the companies that are planning or coordinating a merger need to plan carefully in order to avoid penalties for non-compliance. Challenge No. 2 (a) :- Does the diversification in different competition law poses problems at the regional level?
- 21. May’25,2015 Challenge No. 2 (b) :- At national level, are all the industries subjected to Competition Law ? State Owned Enterprise (SOE) ①Concept of Protectionism Private Firms/Business Protected from Competition Law Subjected to Competition Law Protectionism:- “the state is potentially the best friend of the would be monopolist. The State can erect and enforce entry barriers. The State can enact legislations that hamper the ability of competitors to vie for crucial inputs or the business of big customers.” The state protects by creating an uneven playing field and also by granting benefits to SOEs not offered to private firms. ① Outright subsidization:- is when SOEs receive direct subsidies from Govt. in form of financial assistance, in kind benefits such as land usage ②Concessionary financing & guarantees:- is when the SOEs received credit benefits directly from Govt. and interest is below market interests rates. ③Exempted from regulator regimes:- for example exempted from bankruptcy rules, given exclusive rights etc in postal or telecommunications services ④ Justifications by Govt:- • SOEs are needed to maintain public service obligations; • Is a tool for industry policy • A tool to protect country fiscal revenue ②Examples of Protectionism:-
- 22. May’25,2015 CONTENTS 1) Introduction 2) Issues 3) Brief Glance on Competition Policy & Law 4) The Challenges of Implementing Competition Policy & Law in AEC 5) Conclusion & Recommendations
- 23. May’25,2015 Conclusion:- 1. AEC was not able to meet its target to have all its state members to implement competition policy and law at their national level by 2015 due to some of members (CLM) internal challenges; 2. About the competition law framework at the regional level, there are differences identified such as the process and procedures for mergers. 3. Meanwhile, at the national level, the implementation of competition law is not realistically applied to all industries since the State Owned Enterprise are mostly protected from it. This practice indicate a poor corporate governance by the said government. Recommendations:- 1. CLM is a new member of the ASEAN – the challenges in implementing competition law are due to lack of resources, technical and expert knowledge, fragmented organization and power to implement competition policy, less political and stakeholders’ support. 2. It is beneficial to CLM to implement competition policy - for example in terms of agriculture, food and forestry, CLM can increase their productivity for example reducing the costs of inputs, including agricultural tractors, tools and machinery, fertilizers and pesticides and transport evidences, removal of barriers to trade. By removing this barriers, it will attract foreign investment. 3. Towards harmonizing the different framework in Competition policy in ASEAN, the AEGC had introduced the ASEAN Regional Guidelines on Competition Policy in 2010. The Regional Guideline on Competition Policy intent to provide a regional harmonization of competition policy and law to be applied among its member states. 4. Meanwhile for the issue of differences framework of competition law applied by the ASEAN-6 member states, although it is understandable that cultural, social and economic factors have played in the important role in the design of each jurisdiction competition policy, it is recommended for the ASEAN-6 to find some common ground among the ASEAN members. At least if all the ASEAN members have a common clause in competition, it will help to ease any bilateral or regional economic partnership agreement with other countries such as the EU, where EU has paused negotiations with ASEAN and is now pursuing bilateral Free Trade Agreements with individual ASEAN member states. 5. It will be useful if the ASEAN countries were to implement “competitive neutrality” framework as practiced by the OECD countries. Competitive neutrality as defined by Australia is it requires that government business activities should not enjoy net competitive advantages over their private sectors simply by virtue of public sector ownership. These framework address the anti-competitive behavior of the SOEs by establishing mechanism to identify and eliminate such competitive advantages that the SOEs have such as taxation, financing costs and regulatory neutrality. By implementing this framework, it can remove resource allocation distortions arising out of public ownership and improve competitive processes. Conclusion & Recommendations
- 24. May’25,2015