Competition
Law, Part 8
One
of the main restrictions on foreign investment found in all ASEAN countries’
investment laws and regulations is the limitation of foreign investors’
share or equity in a company established in these countries. One rationale
for limiting foreign equity in a firm established in these countries is
to ensure that foreign investors can not dominate the market and abuse
their market power. A foreign company also cannot merge with or acquire
another local or foreign firms, since its equity will exceed the specified
legal limit. But this kind of restrictive investment law has been regarded
as being discriminatory and impeding foreign investors. Moreover, it has
resulted in negative effects in ASEAN countries’ economy. For instance
foreign investors cannot generally hold more than 49% of shares in a company
located in ASEAN countries, except in a particular case where the company
has been promoted under a promotion scheme or is entitled to a specific
status, such as pioneer status. Therefore, the majority of shares are
held by domestic investors who have to seek capital by various methods.
They mostly turn to loans and because domestic loans incur very high interest
due to the financial policy of ASEAN governments to encourage domestic
saving, they turn to offshore loans. Ironically, the inflow of capital
in this case is short-term foreign debt instead of an inflow of direct
foreign investment. Consequently, the more foreign investment projects
take place in ASEAN countries, especially with a huge capital fund project,
the more offshore loans increase. This is an example of the negative impact
of wrong policies implemented in ASEAN countries, where at first, each
policy seems good but the way they interact with each other eventually
results in a negative impact on the overall economy. In my view this can
be regarded as one of the important causes of the Asian financial crisis.
Moreover,
merger regulations are also needed to control the abuse of a dominant
position by domestic companies that nowadays does occur in ASEAN countries.
Therefore all firms, whether domestic or foreign, would be subject to
the same regulations and control, so complying with the national treatment
principle and the implementation of the ASEAN Investment Area.
1.3
Rationale for a Regional ASEAN Competition Law
The
removal of internal barriers among ASEAN countries to implement regional
economic integration should not be allowed to result in companies creating
territorial protection through cartels as well as the abuse of dominant
position. While investment liberalisation in ASEAN can help promote the
free entry of firms, and enhance the contestability of the ASEAN market,
it is not a sufficient progress; competition laws become necessary to
ensure that former statutory obstacles to contestability are not replaced
by anti-competitive practices of firms, thus negating the benefits that
might arise from liberalisation. The reduction of barriers to FDI in ASEAN
and the establishment of positive standards of treatment for TNCs need
to go hand in hand with the adoption of measures aimed at ensuring the
proper functioning of the market, and measures to control anti-competitive
practices by firms. The 1997 World Investment Report suggested that:
"The
culture of FDI liberalisation that has grown world-wide and has become
pervasive, needs to be complemented by an equally world-wide and pervasive
culture of competition, which needs to recognise competing objectives"
(UNCTAD, 1997).
This
statement could be truly applied to the ASEAN practical regulatory regime.
Now I will discuss anti-competitive business practices that may occur
among the international firms and to deal with the substance of competition
laws designed to effectively regulate those unfair practices.
Part
9 |