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Malaysia – New Competition Law Gathering Speed.

19 December, 2013

 
 

Malaysia’s competition law is in its second year, and its anti-cartel drive is gathering pace. No industry sector is out of bounds. The Competition Commission is using its search and seize powers and is expected to start issuing fines.


The Malaysian competition law came into effect in January 2012. After spending considerable time and effort on advocacy and issuing guidelines in its first year, the Malaysia Competition Commission is now focusing on enforcement.


Although some market players were initially sceptical that there would be rigorous enforcement, companies that do business in, or plan to enter, the Malaysian market should be aware that the Commission clearly means business, particularly when it comes to cartels.


The competition law prohibits both horizontal and vertical agreements that significantly restrict competition, and abuses of dominance, but does not introduce a mandatory merger notification regime. The law applies not only to conduct in Malaysia but also to agreements entered into, and conduct that takes place, outside Malaysia that have an anticompetitive effect within Malaysia.


The Commission Cuts Its Teeth On Cartels


At least in the near to mid term, the Commission will focus its enforcement efforts on cartels. In particular, it will turn its attention to price-fixing, market-sharing, agreements to limit production and to bid-rigging, and will scrutinise information-sharing that facilitates this conduct. In the immediate future, the food production, transportation, healthcare, professional services, housing development and financial sectors are enforcement priorities, but the Commission will not limit its activities to these sectors. As part of its anticartel drive, the Commission has introduced a leniency programme and is also planning to issue leniency guidelines to clarify the application process and encourage applicants.
Although the Commission has not as yet imposed any fines for cartel offences, we expect that it will start to do so in future.


The competition law does not criminalise cartel offences (although officers or employees may face civil liability for breach of fiduciary duty), but companies that infringe the competition law face fines of up to 10 per cent of worldwide sales for the duration of the infringement.


In 2012, the Commission made its first finding of infringement in a cartel case. This was a clear-cut case in which the Cameron Highlands Floriculturist Association announced a price hike in the press. Although the Commission waived the fine in that case, it issued a stern warning that it will not be so lenient next time. Subsequently in September 2013, the Commission published a proposed infringement decision against Malaysian Airline System Berhad, AirAsia Berhad and its subsidiary AirAsia X Sdn. Bhd for market-sharing agreements. The Commission proposed aggregate fines of around $6m for infringements lasting just over four months, indicating that it clearly means business.


The Commission has opened investigations into the steel sector and into complaints of price hikes on depot gate charges in Penang from the Federation of Malaysian Manufacturers and the Federation of Malaysian Freight Forwarders, although it has made clear it does not regulate prices. It is also, at the direction of the minister of domestic trade, cooperatives and consumerism, investigating an alleged attempt by the Pan-Malaysia Bus Operators Association to manipulate bus ticket prices by limiting production.

 

The Commission Will Increasingly Use Its Powers


As well as continuing to use its investigatory powers, we expect to see the Commission increasingly use its search and seizure powers to demand information and conduct dawn raids. The Commission has in several cases already used these powers on domestic companies and, although not an immediate priority, it may expand their use to international companies in the future.


Obstructing an investigation (including tipping-off) is a criminal offence leading (for a first offence) to corporate fines of up to MYR 1.6m or individual fines of up to MYR 300,000 and/or imprisonment for up to five years. Although there have been no such cases to date, we expect the Commission will prosecute particularly flagrant obstructions. As a result, companies that have a presence in Malaysia need to ensure that in the event of a dawn raid they strike a balance between co-operating with the Commission and protecting their legitimate interests.


The Commission is also likely to conduct market inquiries to determine whether any feature or combination of features in the market place prevents, restricts or distorts competition. The Commission has already conducted one such survey into the domestic broiler market, although it has as yet not resulted in any enforcement actions.


Commission Set To Scrutinise Applications For Exemptions


Certain anticompetitive conduct may be justified if it results in pro-competitive benefits that are passed on to consumers (similar to the position under European competition law). Companies can either ‘self-assess’ to determine whether they meet the necessary criteria or apply to the Commission for an exemption.


In future, the Commission will consider applications for exemptions to ascertain whether the criteria are met. No exemptions have been granted so far. One application for exemption has been rejected on the grounds that it resembles a resale price maintenance arrangement, although the Commission is considering a block exemption for liner shipping agreements.


The Commission’s Enforcement Appetite Set To Increase


Tan Sri Lin See-Yan, a member of the Competition Appeal Tribunal, has urged the Commission ‘to act boldly’. The Commission has taken this advice on board and will continue to do so. It has already demonstrated its appetite to enforce the Malaysian competition law and, as it grows in experience, its activity will only increase.


Not only will the Commission continue to initiate investigations but it will also thoroughly investigate third-party complaints of competition law infringements. Looking further ahead, when the Commission is slow to investigate or make a finding of infringement, third parties may bring private actions because such claims are not contingent on a finding of infringement by the Commission.

 

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For further information, please contact:

 

Sharon Suyin Tan, Partner, ZICOlaw
sharon.suyin.tan@zicolaw.com

 

Competition & Antitrust Law Firms in Malaysia

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