Competition
Law, Part 9
1.3.1
Anti-Competitive
Business Practice
and Substance of Competition Laws in ASEAN
Anti-competitive
business practices that generally occur among international firms, and
hence may also happen in ASEAN countries, include the following(16):
1. |
Horizontal
restraints or the hard-core cartels among firms in an oligopolistic
market, engaging, for example, in price fixing, output restrictions,
market division, customer allocation, and collusive tendering and
other anti-competitive co-operation between firms selling competing
products. All these business practices distort prices and the allocation
of resources as well as resulting in a dysfunctional market that
causes consumer disadvantages(17) Fair competition would exist if no single supplier or consumer could
influence the market price. Competition laws and policy may play
an important role not only in prohibiting the formation of cartels
but also in balancing the competitive effects of each firm in the
market. |
2. |
Vertical
restraints or distribution strategies between manufacturers, suppliers
or distributors, such as: tying the sale of one good as a condition
for the purchase of another good; exclusive dealing (the seller
requires the buyer to purchase the products only from the seller);
territorial restraints (the seller requires the buyer/distributor
to resell the product within a limited geographical area); and resale
price maintenance (the seller requires the buyer to resell the product
only at a specified price). Resale price-fixing also tends to be
generally prohibited. The pro- and anti- competitive effects of
such vertical restraints need to be evaluated and where necessary
controlled. |
3. |
Abuse
of intellectual property rights (IPR), for example where technology-licensing
arrangements abuse the monopoly position of IPR holders, such as
through non-competition clauses and the so-called ‘grantback’. This
means the licensee is required to assign inventions made in the
course of working on the transferred technology back to the licensor.
Another aspect of IPR abuse, "non-contestation clauses",
is that the licensee is prevented from contesting the validity of
the IPR or other right of the licensor. IPR abuses might be subject
to general competition rules on horizontal and vertical restraints. |
4. |
Abuse
of market dominance: dominant firms accounting for a significant
market share may attempt to monopolise a market, for instance through
excess prices, price discrimination, predatory low prices, refusal
to deal, or vertical restraints. Rules against the abuse of a dominant
position may be conduct-oriented, in other words, a general prohibition
against monopolising and foreclosure of competition. Another approach
is result-oriented, with a prohibition for example of predatory
pricing only if the losses can be recouped. |
5. |
Mergers
and acquisition policies, where horizontal, vertical or conglomerate
mergers, may reduce competition or decrease efficiency. Merger policies
may be designed to ensure the contestability of markets by preventing
monopoly or price-setting by a single seller and price-taking by
a single buyer, as well as oligopolistic or monopolised market power.
On the other hand, acquisition policies also overlap with industrial
policy instruments. |
6. |
Public
undertakings and enterprises with special privileges, which are
not required to behave according to market principles, (Art. XVII
of the GATT and Art. 90 of the EC Treaty) in view of their market
power or financial independence. This includes firms with exclusive
trading rights and monopolies. |
In
the new era, ASEAN countries do need to regulate these anti-competitive
business practices to attain fair competition conditions. However, what
ASEAN countries have to be aware of is the balance of market failure and
government failure. If governments intervene so as to correct market failure
or supply public goods, the risk of market failure has to be weighed against
the risk of alternative government failure, because government intervention
may lead to additional distortions. Therefore, fair competition conditions
require rational behaviour of market participants or firms, perfect information,
perfect mobility of the market, stable preferences and technologies, and
reflection of all costs in the prices of good and services (Petersman,
1996a). All these requirements need a comprehensive set of competition
laws and regulations among ASEAN countries. Current national laws and
policy on restrictive business practices differ among these countries
and the law focuses on different aspects such as anti-monopoly, anti-dumping,
protection against state competition, etc. As seen in the previous section,
there are no systematic competition laws in ASEAN countries. For instance,
Singapore has refrained from adopting competition laws on the grounds
that its liberal trade policies and its rather liberal investment regime
are a significant guarantee of the contestability of its open economy.
But now ASEAN countries need to introduce comprehensive competition laws
and policies, and enforce them effectively. In fact, the general infrastructure
and other economic comparative advantages of ASEAN countries still appear
good; the only important thing that ASEAN countries lack is good governance
and a rule-based system.
Part
10
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(16)
Compiled from various sources: UNCTAD, 1997; Petersman, E.U., 1993, 1996a;
Schoenbaum, Thomas J., 1996.
(17)
If market prices are distorted either through cartels or monopolies, they
are likely to distort also the allocation, co-ordination and distribution
functions of market competition so that consumer welfare will be reduced
by higher prices, fewer products and less freedom of choice. |