The Harmonisation
of ASEAN
Competition Laws and Policy from an Economic Integration Perspective
By
Dr. Lawan Thanadsillapakul
regionalism
in ASEAN. However, the central issue to be considered is, to what extent
and at what level can ASEAN harmonise substantive competition law and
policy among its members.
Section
III surveys existing ASEAN laws relating to unfair competition and considers
how they function and whether they are effectively enforced. Section
IV focuses on the rationale for a regional ASEAN competition law, Section
V provides the optional models of regional ASEAN competition law and
policy and Section VI looks at the interaction between regional competition
law and policy and open regionalism. Section VII concludes the argument.
II.
- COMPETITION LAW AS AND THE ASEAN INVESTMENT
1.
WHY DOES ASEAN REQUIRE COMPETITION LAW?
First,
since ASEAN aims to strengthen economic integration in the region, it
needs laws and institutions to support the implementation and elaboration
of trade and investment liberalisation within the ASEAN market. The
interaction between government, consumers and producers has given rise
to a concern that the rules-based system needs to be strengthened. How
the competitive process actually works and to what extent governments
should regulate relationships between producers and consumers is significant.
In this sense, competition law is essential as an instrument to regulate
fair competition because, as mentioned earlier, it is compatible with
liberalisation in that it is basically neutral and non-discriminatory.
Second,
in an emerging ASEAN free market economy, monopolies and restrictive
business practices are viewed as undesirable, since they are likely
to distort prices and inhibit the efficient allocation of resources.
Thus, there is a call for contestability to ensure that free entry and
the pressure of new competitors can function and balance market powers
and structures in the ASEAN market. Ultimately, the goal of market contestability
and undistorted competition is to benefit consumers, to enable great
varieties of product ranges at minimum price. (12) Competition law generally takes a pro-consumer policy perspective that
fundamentally consolidates social wealth and the well-being of consumers.
In
addition, competition law and policy enables small and medium-sized
enterprises to enter the market and as such can be implemented as an
alternative to an industrial strategy-based policy, which has been regarded
as a non-neutral form of government intervention. Hence, competition
law not only enhances consumers' interest, it also helps small and medium-sized
firms to compete equally with other businesses in the regional economy,
again while complying with the principles of liberalisation on a non-discriminatory
basis. Additionally, the State continues to play an important role in
preventing market failure so that the ASEAN countries may feel confident
in their role of monitoring private sector conduct, preferring, as they
do, to take part in overseeing economic transactions and not to leave
the private sector a free hand to interact with each other as in neo-liberal
ideology. It would be advantageous for the ASEAN countries to launch
an effective, comprehensive competition law in the region, in parallel
with the implementation of trade and investment liberalisation.
As
regards foreign investment, the implementation of competition law in
the ASEAN countries would yield further advantages apart from liberalising
the entry, establishment and operation of foreign investors. It would
regulate and control mergers and acquisitions as well as abuse of dominant
market positions in the ASEAN economy. This would probably be a better
way of dealing with the fear of economic conquest by powerful foreign
TNCs than the investment screening process currently in vogue in all
ASEAN countries. The implementation of competition law and policy in
the ASEAN region could be a key factor in phasing out the currently
somewhat restrictive investment laws and regulations, even admitting
that some investment restrictions tend to be applied in almost all,
if not all, countries, (13) not only in ASEAN. The
implementation of competition law in ASEAN countries along similar lines
as those in use elsewhere may help align these laws on a possible future
general agreement on the regulation of foreign direct investment. (14)
2.
Interaction between competition laws and investment laws in the ASEAN
countries
Currently,
all ASEAN countries employ a screening process and apply pre-entry requirements
to all foreign investors. There are also some regulations to prevent
foreign investors/firms from becoming a dominant force in the economy,
for instance, limitations on foreign equity/ownership, and divestment
requirements. These laws and regulations can be used to prevent foreign
investors from merging with or acquiring a local firm, as they cannot
own shares above a specified limit. (15) Foreign firms
also cannot merge with or acquire other foreign firms if their equity
in the new company is beyond the equity ratio set by the law. Obviously,
under these circumstances, the ASEAN countries need competition law
to control mergers and acquisitions. Even though they have been relaxing
some of the regulations concerning the equity ratio of foreign investors,
this has been on a case-by-case basis under specific conditions only.
At the same time, these regulations do not control local firms or prevent
them from merging with or acquiring other local or foreign firms. Indeed,
local companies have been known to establish an oligopoly position in
specific sectors. For instance, in the telecommunications sector, Shinnawat
Co., Ltd. have a dominant position in mobile phones and related products
in the Thai market; Telecom Asia, TOT as well as TT&T are likewise
dominant telephone network providers in Thailand, and Sammart Telecom
Co. Ltd. is the sole provider of satellite dishes. The oligopolistic
market can hardly be regarded as a fair competition market, and could
in fact easily distort prices and restrict consumers' choice.
The
ASEAN countries also reserve some business sectors, excluding foreign
investment therein. All these laws and regulations now have to be phased
out. All industries will be opened to ASEAN investors by 2010 and to
all investors by 2020, barring some exceptions. (16) In thus liberalising their investment regimes, the ASEAN countries may
experience some concern at this move seemingly from a system of screening
all foreign take-overs of national firms to screening none. They may
apprehend foreign firms acquiring dominant positions. Yet to replace
these investment laws by competition laws may not only prove more effective
than the screening process, it may also be a more efficient way of assessing
the competitive impact of foreign firms both at the time of entry and
thereafter.
Competition
laws and policies thus have a major role to play in the process of ASEAN
liberalisation, also to ensure that the ASEAN market is kept as open
as possible to new entrants, and that firms do not frustrate this goal
by engaging in anti-competitive practices. In this manner, the vigorous
enforcement of ASEAN competition law can provide reassurance that investment
liberalisation will not leave the government powerless against anti-competitive
transactions or subsequent problems.
Competition
laws may replace the current restrictive investment laws and regulations,
with principles based on non-discrimination in the control of restrictive
business practices among firms, regardless of their origin or nationality.
Competition laws normally apply to all firms operating in given national
or regional territories, whether in the form of domestic sales, imports,
affiliates or non-equity types of foreign direct investment. They do
not, in principle, discriminate between national and foreign firms,
or between firms of different national origins. In this way, competition
law monitors the competitive behaviour of TNCs in the ASEAN host countries,
to ensure that firms do not abuse dominant market positions and to prevent
inefficiencies stemming from market allocation agreements which might
curb trade and investment. Therefore, competition law strengthens the
principle of national treatment and enhances investment liberalisation,
to comply with the objectives of the ASEAN investment area and economic
integration in ASEAN.
Let
us now turn to the existing ASEAN laws relating to unfair competition,
to assess to what extent ASEAN needs a comprehensive regional competition
law and how competition law might replace the current foreign investment
laws in the ASEAN countries.
Part
3
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(12) UNCTAD World Investment Report 1997: Transnational
Corporations, Market Structure and Competition Policy, United Nations
Publications, (New York / Geneva) (1997).
(13)
GEIST, Michael A., "Towards a General Agreement on the Regulation
of Foreign Direct Investment", Law and Policy in International
Business 26, No. 3 (Spring 1995), 673-717. Geist surveyed national investment
laws in 11 countries from every region of the world and found that every
country, including the US and the UK, which are the most liberal, employ
common restrictions on entry of foreign investors in specific areas
that affect economy or security of the country: (restricted industries).
Geist further found that the convergence of FDI policy has led to significant
similarities in the standards and procedures applied to the admission
of FDI internationally. The countries surveyed have adopted general
policies of permitting FDI subject to certain exceptions. The almost
uniform use of notification and/or prior approval procedure are widely
used.
(14) GEIST, 1995: Part III the framework for a General
Agreement on the regulation of foreign direct investment.
(15)
Generally, in ASEAN countries, except Singapore, foreign ownership or
share equity cannot exceed 49% of the total share, except when the company
is granted promoted status under a promotion scheme.
(16)
See THANADSILLAPAKUL, supra note 1.