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.