Keynote Speech by Yg.Bhg Tan Sri Dato’ Seri Siti Norma Yaakob Chairman of Malaysia Competition Commission in “Conversation with YBhg Tan Sri Dato’ Seri Siti Norma Yaakob” organised by Malaysian Institute of Management (MIM), 27 March 2014 Yang Amat Berbahagia Tun Mohammad Hanif Omar, President, Malaysian Institute of Management, Members of the Institute,
Distinguished Guests, Ladies and Gentlemen.
Assalamualaikum WBT and a very good morning to all of you.
May I begin by extending my deep appreciation to the Malaysian Institute of Management for inviting me to this speaking event this morning and to share with you my thoughts on a piece of legislation that has changed the way how businesses are to be conducted in Malaysia. The subject under focus has struck a familiar chord with us at the Competition Commission (MyCC) as we implement the Competition Act 2010 covering businesses, large and small.
As you are well aware Malaysia’s Competition Act (“the Act”) was enacted in April 2010 but implemented wef 1 January 2012. The Act is envisioned to meet with the ever-increasing demands for competition in the current era of globalisation and trade liberalisation. If we look around us, the global centre stage, has altered dramatically. Over the last three centuries, we have seen more than the shifting sands where the centre of economic gravity of the world moved from the Atlantic to Asia. The 21st century market, is driven by the force of globalization. Challenges prompted by internalization of economic activities have brought financial institutions to deal with global regulations and international rules. In general, the sole purpose of formulating competition law around the world, is to achieve economic goal and preserve competition in the market. It also ensures that all financial institutions that operate in the free market economy, do not restrict or distort competition and prevent the market from functioning optimally.
To do that, it is crucial especially for the top management level and leaders of each organisation, to be aware of the negative implications of anti-competitive behaviour in order to shape up your firm to be ready for the Act that is currently being enforced. This is because the consequences for non-compliance and oblivious actions are severe for your corporate image and financially of course when hefty fines are imposed. In countries where large corporations have been found guilty for infringing the countries’ competition laws and are being penalised, the corporations’ shares dropped dramatically and their corporate image severely damaged. That is something that you might not want to happen to you as it takes time to build back your reputation. In extreme cases, the corporations disappear in an instant by way of bankruptcies due to the massive financial penalty imposed or disappear slowly by not being able to lead anymore. So to avoid that from happening to you, it is important for you, as a leader, to provide a good example to make it possible for others, to see the better ways of managing your business.
Before I move on to the impact of the Act on businesses in Malaysia, let me start with the development of the Act itself. In general, there are 2 Acts that govern generic competition issues in the country; namely the Competition Commission Act and the Competition Act, both enacted in 2010. The Competition Commission Act was enacted to provide the legal framework for the setting up of the regulatory body to implement the provisions of the Competition Act. It establishes the MyCC which is made up of the Chairman and nine other members.
Four of the nine members are nominees of the Government whilst the remaining five are drawn from individuals who have experience and knowledge in matters relating to business, industry, commerce, law, economics, public administration, competition, consumer protection or any other suitable qualification as the Minister may determine. The Minister in this case is the Minister of Domestic Trade, Cooperatives & Consumerism under whose Ministry the MyCC has been placed but when exercising its decision making process, MyCC functions as an independent body.
The MyCC is empowered to carry out various roles; namely first; to organize advocacy. Advocacy programmes aim to educate persons particularly businessmen and to keep them informed of the implications of the Competition Act. Since its establishment, MyCC has organised as many as 100 of such programmes throughout Malaysia. However, a
recent survey shows that the awareness level is very low. In the states of Malacca and Perlis, it is 0. This trend is indeed a concern.
Second, to conduct investigations and enforcements in respect of complaints against any anti-competitive practices lodge by third parties, at the Minister’s directive or on MyCC’s initiatives. Currently we have about 25 cases under investigation. We have made a final decision against the Cameron Highlands Flower Association for price fixing. Another 3 cases (which is MAS – AirAsia, Megasteel and Ice Manufacturers) are in the proposed decision stage and 1 case with proposed final interim measures effecting the Pan-Malaysia Lorry Owners Association.
The commission can also conduct market reviews. We have finalized 2 such studies, one being the Broiler Market Review and the other on issues relating to the fixing of fees by professional bodies. The broiler market review or the review on the poultry market was prompted by the trend that prices of poultry escalate with every festival celebrated in this country. The report on this market review can be downloaded at MyCC’s website (www.mycc.gov.my).
MyCC also has the power to exempt companies who have fallen foul of the Competition Act on application subject to certain criteria being met. To date we have assessed 4 out of 5 exemption cases with the remaining one still under review.
As regards compliance, Compliance Guidelines have been issued to assist businessmen to set up an effective competition law compliance programme. Guidelines on penalty and leniency are currently being finalized.
Now let us take a closer look at the substantive legislation on competition, its provisions and its impact on the individual, businesses and the economy. The preamble to the Competition Act 2010 states it to be “An Act to promote economic development by promoting and protecting the process of competition, thereby protecting the interests of consumers and to provide for matters connected therewith”.
What the Act sets out to do is to promote and protect the process of competition and in this way the consumer can enjoy lower prices, better products and wider choices in goods and services.
Since the Competition Act is a new piece of legislation, when it was passed by the Parliament in April 2010, businesses were given an 18 months’ grace to comply with the Act before it came into force in January 2012. This was to enable the business community to take stock that their business activities do not fall foul of the Act and to encourage a compliance culture in all their business dealings.
Therefore, it is important for us to understand the scope of the law and what the objectives are. The Act prohibits enterprises from engaging in two forms of conduct:
- anti-competitive agreements; and
- abuse of dominant position.
Merger and acquisition do not come within the Act.
In a nutshell, an anti-competitive agreement basically prohibits two or more enterprises to come to an understanding, oral or written that has the intention or the effect of distorting competition in the market. It could be done by a consensus through an association’s meeting or it could also happen just between two competitors over lunch or over a friendly game of golf. It could be on price, discount, rebate, production quantity or any agreement that is anti-competitive in nature.
However, there are agreements that are regarded as serious infringements and in some countries, they are called hard-core cartels. Such agreements include price fixing; market sharing; limiting or controlling production, market outlets or market access, technical or technological development or investment, as well as bid-rigging.
Price fixing is an agreement among competitors that collectively agree to set a price at a certain level either at certain percentage or value. By fixing the price or range of prices, this will prevent the consumers from enjoying lower prices which implies that the benefit of competition could
not reach the consumers. A price fixing agreement could be in the form of a direct or indirect agreement. More often than not, a price fixing agreement is accompanied by other provisions which strengthen the operation of the cartel such as market sharing and information sharing.
Market sharing occurs when the competitors agree not to compete by way of sharing geographical areas or customers. There are also cases where the competitors try to prevent switching their respective customers from one to the other supplier, and agree not to compete for each other’s customers.
Another example of an anti-competitive conduct identified by section 4(2) (c) of the Act relates to limiting or controlling production, market outlets or market access, technical or technological development; or investment.
Restricting production for instance may be a form of beneficial collaboration between competitors. A restriction in output automatically creates an inbalance between supply and demand thus causing an increase in market prices. In all these cases, there must be an element of collusion between the competitors.
Bid rigging is yet another example of an anti-competitive conduct which is prohibited under section 4 (2) (d) of the Act. Bidding is a way to buy or sell goods or services through a tender or auction and the bid is usually awarded to the lowest bidder. Bid rigging is a term used to describe any agreement written or oral between bidders that limits or reduces competition in a tender. The agreement may be between a bidder and a potential bidder that does not actually submit a bid. In most countries, all bid rigging agreements are illegal, and in some countries bid rigging is a criminal offence.
The most common form of bid rigging arises from agreements between competitors on who will win the bid, agreements on prices (either to raise, to lower, to maintain prices or not to negotiate on prices), agreements to limit discounts or rebates or even agreements on price formula or guidelines.
Nonetheless, although the anti-competitive agreements are prohibited, there are exemptions that the Commission may grant on the grounds if you fulfill all the 4 conditions i.e. (i) significant identifiable technological, efficiency or social benefits (ii) benefits could not be provided without the anti-competitive agreement, (iii) the detrimental effect of the agreement is proportionate to the benefits and (iv) competition is not eliminated completely. We encourage you to use this section 5 provision to do a self-assessment of all your business dealings to make sure that they are not anti-competitive.
Next, I move on to another prohibition. This prohibition does not mean that if you are the only player in the market, you will be in trouble. But you will be in trouble if you do not have commercial justification for your conduct and abuse your dominant position. Some examples of some abusive behaviour include, setting unfair purchase or selling prices or unfair trading conditions, predatory behaviour, applying different conditions with other trading partners, refusing to supply or limiting or controlling production.
Note that predatory behaviour involves a dominant enterprise reducing the price of its goods below cost in an attempt to drive out a new or existing competitor out of the market. Once the competitor has left the market, the dominant enterprise then increases its price again.
As at February 2014, Malaysia has more than 6.3 million companies and businesses in various industries including agriculture, services, construction and technology. Despite this high number and our targeted advocacy efforts, the surveys from 2011 to 2012 still show a very low level of awareness among local businesses as regards the Act.
This is even so when MyCC’s outreach is focused on trade associations to reach out to their members. There is certainly a gap in disseminating information and MyCC is working at ways and means to improve the situation.
With such a large number of businesses, there is a need to strengthen our collective efforts to give greater emphasis on the implications that the competition law have, among our businesses in Malaysia.
Next, let us now look at what is happening in the ASEAN region. The implementation of Competition Law in the ASEAN region is not at a uniform pace. The introduction of a nation-wide competition policy and law by 2015 is a prerequisite for the ASEAN Member States in fulfillment of the goals of the 2007 ASEAN Economic Blueprint.
So far, five ASEAN member countries have implemented the competition law. They include Indonesia, Singapore, Thailand, Vietnam and Malaysia. The remaining five ASEAN countries will have until 2015 to do so.
With the Act in place, Malaysia joins 140 other jurisdictions worldwide with their own competition policies and laws. As the business landscape is going borderless, our domestic players must prepare to move away from their comfort zones and gear themselves up for a more dynamic and competitive environment. As such, local businesses that intend to go regional and trade with these member countries must start to equip themselves with knowledge on competition law. The competition law is a unique piece of legislation. It contains a combination of legal and economic principles. Thus, developing greater understanding of the economics behind the competition law is also important as the law is designed to support the economic perspectives of competition while economic reasoning supports enforcement of the law.
Most importantly you must know that the Act is not concerned about the status of competitors or ownership of companies, whether private or government linked. What it sets out to do is to promote and protect the process of competition. Not to protect the competitors.
This law applies to all commercial activities, both within and outside of Malaysia, which has an effect on competition in any market in Malaysia.
Therefore in the case where you are a victim of an anti-competitive behaviour conducted by a foreign enterprise, you may launch a complaint to MyCC. But more importantly, if you have a business anywhere else except Malaysia and the activities of your business affect the market in Malaysia, you cannot escape liability.
Second, if you receive a notice from MyCC that you are required to provide information in an on-going investigation for example, please make sure you respond for failure to do so may make you liable to be fined. Such fines range from RM 5 million for a first offence and RM10 million for a subsequent offence if you are a corporate body and RM 1 million or 5 years imprisonment for a first offence and RM 2 million or 5 years imprisonment for a subsequent offence if you are an individual.
The situation is different when an enterprise is imposed with a financial penalty for infringing the Act. The Commission has the power to either issue a cease and desist order, which is to ask the enterprise to stop the infringement, or specify steps to bring the infringement to an end, or impose a penalty. That penalty can go up to a maximum of 10% of the worldwide turnover of the enterprise during the period of infringement.
You may however take consolation by the fact that the Act offers a leniency programme to those who are brave enough to admit their involvement in any prohibition. By providing any information or other form of co-operation in an investigation, an enterprise may enjoy total immunity or reduction of penalty depending on the stage at which an involvement was admitted; and the stage at which any information or other co-operation was provided in exchange for cooperating with MyCC.
And if you are a member of a cartel; your competitor may also use this channel to betray you, report the cartel activity that you are involved with and the whistle blower competitor gets away with zero fines. On the other hand, you may be imposed hefty fines which cause severe damage to your enterprise.
MyCC is in the midst of publishing a guideline on our leniency programme and had conducted public consultation throughout Malaysia. The guidelines will be out soon.
Therefore, please ensure that your business practices are within the permitted boundaries of competitive conduct. It may be necessary to conduct a comprehensive review on all existing agreements and practices to ensure compliance with the competition law.
From a commercial point of view, doing so will retain the trust and loyalty of your shareholders and customers. From a legal point of view, failure to do so could affect arrangements with your business partners. Introduce the compliance programme that suits the need of your company and business nature. Review all existing agreements and practices. Ensure all new agreements are negotiated and concluded on terms that comply with competition law. Ensure robust competition law compliance programmes are put in place such as training your staff on the dos and don’ts and establish a code of conduct.
For this, I invite you to refer to our Compliance Guidelines for more information on this matter and it is available in our website. Download it and share it with all.Know the law inside out, because once an investigation against you has begun, there is no way that you will be able to refrain from giving all necessary documents and any confidential documents which are needed.
To know the law, educate your employees on the rationale of competition law, how competitive markets benefit society, which types of conduct are prohibited and how the legal prohibitions apply to the activities of your company.Self-assessment is encouraged as the MyCC does not give any advice to businesses. Establish periodic competition audits of your company and discuss among the senior management on the course of action to comply if the company is found to be in breach of the Act.
I trust I have shared with you something to think about.
Remember that this Act can be used as a sword to address the anti- competitive or potential anti-competitive practices of your market rivals. You can always lodge a complaint to MyCC and you can be shielded from such anti-competitive behaviour. You may use soft and hard approaches to increase awareness of competition among your colleagues. Make them understand the importance of compliance as much as you do, and train them to be leaders who will carry on the spirit of competition. Always review and reassess your agreements and practices and do periodical competition audit assessments.
I advice you, if you have not done so to immediately start to comply with the Act. Be the first to admit your involvement in cartel arrangements as you may enjoy certain reduction in the leniency programme. Last piece of advice to you, I foresee that you may face hardship in doing so. But a true leader has the confidence to stand alone, the courage to make tough decisions, and the compassion to listen to the needs of others. He does not set out to be a leader, but becomes one by the equality of his actions and the integrity of his intent. Complying with the Act is a great thing to do and it starts with you. Nurture yourselves to become the kind of a leader that people would follow voluntarily in doing the right thing.
I wish to end my presentation with a resounding message from Henry Ford. “Competition whose motive is merely to compete, to drive some other fellow out, never carries very far. The competitor to be feared is one who never bothers about you at all, but goes on making his own business better all the time. Businesses that grow by development and improvement do not die. But when a business ceases to be creative, when it believes it has reached perfection and needs to do nothing but produce-no improvement, no development-it is done…”
I hope his message touches your heart and help you stand tall, as I know that as a leader, you face many challenges in complying with the law.
With that I thank you for your attention.