The Harmonisation of ASEAN
Competition Laws and Policy from an Economic Integration Perspective

By Dr. Lawan Thanadsillapakul

industry, there is no objection to its monopoly.(55) Many markets can be supplied only after considerable capital investment is made or technology developed.

Korah further explained that if capital requirements are a hindrance to the entry of small and medium firms into the market and one goal of competition is to enable small firms to compete in the market, then entry barriers exist on the ground of financial constraint. Hence there are no barriers to the entry of an equally efficient firm in this case where a huge investment is required, but obviously small and medium firms are unable to compete with the larger firms. Should this be regarded as unfair competition? The evaluation of whether there is unfair competition requires consideration of the public good: an enhanced distribution system, provision of goods and services, reduced cost of operation, a technological lead or reduced capital requirements in those fields of business considered. It is noted that a small firm protected only for such reasons alone cannot hold its customers or suppliers to ransom except in the short term.(56) Therefore, to control the conduct of firms by such fragile protection of small firms may discourage larger firms from making investments to enable them to compete aggressively. This implies that the regulation of restrictive business practices is intended not only to ensure fair competition, but also to maximise the public good and sound resource management. The ASEAN countries should give careful thought to this particular issue when they establish and enforce their competition law. They need to have a clear perspective in mind balancing the imperatives of collaboration, competition, the public good and efficient resource allocation.

There is a dichotomy between market function and government role that lies at the heart of competition law. On the one hand, a liberal law of the market implies that it needs no barriers, no intervention and no control, and that the market should be left to function by itself based solely on the rule of supply and demand. On the other hand, fair competition means that there should be no dominant enterprise, no restrictive business practices, no predatory pricing, no mergers and acquisitions that impede competition. All these forms of conduct may need regulatory control through competition laws. However, if there is absolute freedom from constraints or, in other words, if there is no regulation at all to ensure fair competition, dominant firms could easily conquer the market so that no one can compete. Hence, the proposed criteria for regulating the behaviour of firms may need to consider the type, size, competitive position, range or category of business, so that the same level of undertaking may be treated fairly subject to the same conditions, rules and laws, as well as the economic environment.

1. - Development of an international competition regime

In fact, there have been various previous attempts to develop international competition laws for the private sector, such as part of the 1948 Havana Charter for an International Trade Organisation, the UN Codes of Conduct and the OECD Decisions and Guidelines,(57) the Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices,(58) and the Resolution adopted by the Conference to strengthen implementation of the Set.(59) However, these were "soft-law rules" rather than international/multilateral treaty law, aimed generally at avoiding mutually harmful competition policy conflicts(60) and overcoming the policy divergences and jurisdictional gaps between national competition laws.(61) Regulatory differences in competition laws and the decentralised administration of competition policies are mainly due to the particularity of national conditions. For instance, the final decision as to whether the costs of restraints of competition may be outweighed by economies of scale and by positive externalities will require case-by-case analysis with due regard to the particular conditions in a national market. Conflicts between national regulations can also result in barriers to market access, market distortions and harmful international externalities.

2. The new search for an international competition regime(62)

Recently, the issue of competition law and policy in the global trading system has been taken into consideration by various international organisations, including GATT/WTO, OECD and the World Bank. The approach to a common international competition law and the various routes to achieve it have been studied in order to shape and elaborate a comprehensive multilateral regime. The WTO has sought a consensus on the issue of internationalisation of antitrust law focusing either on the extent to which antitrust rules should be harmonised or on the content of those rules.(63) The World Bank and OECD have jointly developed a framework for the design and implementation of a competition law and policy that could be used by developing countries and transitional economies. Optional models for creating an common international law of competition have been proposed by various experts. Nonetheless, no consensus has been reached among countries on any single model. A variety of ideologies, methodologies and competition regimes, especially the issue of effective enforcement of competition law to cross-border transactions, have stood in the way of such consensus.(64)

On the one hand, the proposed optional models(65) for an international competition / antitrust law are essentially as follows: (1) the WTO model, which is one of international agreement. It would include an international enforcement system and there would be an international agency or commission responsible for ensuring respect of the international antitrust rules or competition law; (2) the sovereignty model, which applies purely national law to all antitrust disputes within the jurisdiction of the nation State involved but where the extraterritorial principle would be applied where the disputes relate to cross-border transactions; (3) the network model, which relies on the adoption of mutual assistance and co-operation agreements or formal protocols, enforcement networks, information-sharing and networking of substantive competition law.

On the other hand, the proposed routes to an international competition law are as follows:(66) (1) uniform law, the most complete but least frequently achieved approach; (2) harmonised law, which is less than uniform and narrows the distinctions between national laws while leaving variations of detail to national legislators; (3) Convention law, which has less harmonising effect (Convention law allows to implement national laws for solving cross-border cases while avoiding heavy inroads by claims to national sovereignty); (4) the conflicts-of-law approach or "choice-of-law approach".

All these approaches and models have their strong and weak points that suit the particular legal and economic structure of each economy or group of countries. For instance, uniform law or harmonised law may be more effectively implemented and suited to more deeply integrated regional economies. Convention law may be more flexible for countries engaged in bilateral or multilateral economic co-operation. The WTO model, which would be easier to implement, may be efficient in a global trading system. Co-operation between WTO and WIPO, which has long experience in setting international competition standards, is regarded as helpful in drafting an international competition code. International attempts at drafting international competition law has influenced the ASEAN move towards a regional competition regime, especially in the APEC as a whole. APEC strongly encourages the development and enhancement of regional competition law and policy.(67)

3. ASEAN regional competition law: harmonisation and the networking approach

Since there is no single agreed set of international competition law that suits all and no consensus has so far been reached on any of the proposed models or approaches towards a multilateral competition regime, the ASEAN countries need to develop a consensus on their own regional competition regime. Now, in fact, would be the time for ASEAN to implement a regional competition law and policy with each single ASEAN country currently in the process of creating its own national competition law. It would be easier to agree on the design of a regional competition regime by harmonising the substantive national competition laws to achieve the effective enforcement of competition law at the regional level.

Adapted from the optional models for, and approach towards international competition or multilateral competition law, there are two main approaches to regional harmonisation of competition Law. The first rests on trade policy measures, which have indeed been implemented in ASEAN through its trade and investment liberalisation. Under this approach, governments can rely on trade liberalisation and favour foreign direct investment to promote competition. In this case, existing trade rules can be used or some competition principles may be introduced into trade policy measures. This approach is consistent with the WTO system.(68) The alternative approach is based on competition rules, which opens up three options.(69) First, under the co-ordinated or sovereignty model, governments can rely on the co-ordinated application of national competition laws based on positive comity agreements. Second, using the harmonised law model, countries can harmonise their national competition laws following international guidelines. Finally, the highest degree of collaboration would be an agreement on international competition laws, involving, of course, a notion of supranationality. Of these three options the second, the harmonised law model, is the most feasible for ASEAN to implement regional competition law.

Why is the harmonised law model particularly suitable for ASEAN? ASEAN should bear in mind the diversity of its economic structures, economic history, legal systems, societal goals and culture as well as differences in national socio-economic infrastructure. As Fr?d?ric JERNNY puts it,

"any solution to the general problem of promoting the complementarity of trade liberalization, regulatory reform (regional economic integration) and competition policy must be flexible enough to allow such national differences to continue to exist" (70)

and
"the existing international commitments at the multilateral level in the trade area are not designed to prevent countries from pursuing the domestic policies they see fit to pursue. Multilateral agreements allow differences in national legislation as long as these differences are not contradictory with the underlying principles of the WTO." (71)

Even in the European Union, national competition law is still in effect. With this perspective in mind, this author agrees with Jernny's statement, especially where it applies to ASEAN. Currently, a single, unified/unique regional competition law is too ambitious a goal for ASEAN. First, because ASEAN is not a supranational organisation, and thus there is no regional institute or court to implement or enforce supranational law. Under those circumstances, it would be difficult to create a supranational competition law at this stage unless ASEAN were to develop its regional legal and institutional framework for that very purpose. Second, even though ASEAN has embarked upon the implementation of de facto regional economic integration, there is not the political will to develop such a supranational organisation right now. Third, the ASEAN countries have widely diversified levels of economic development: Singapore is regarded as a more developed economy, Indonesia, Malaysia, and Thailand are somewhere in the middle, Cambodia and Laos are less developed economies and Vietnam and Myanmar are transitional economies. Fourth, the ASEAN countries' economic structures are different. For example, Brunei is a small, rich oil country; Thailand, Indonesia and the Philippines are mixed agricultural/industrial/commercial economies, while Malaysia is an industrial/commercial economy but endowed with oil resources; Singapore is a commercial economy. This variety of economic structures within ASEAN affects the competition regime in each ASEAN member State. Economic theory and economic policy in each ASEAN country are geared towards its own brand of economic development, and perforce so are their national competition law and policy. Consequently, in harmonising its national competition laws, ASEAN may need to tolerate some national differences to continue to exist until the individual economies are more evenly developed.

A combination of these factors and the structure of ASEAN "Open Regionalism", and more especially the "ASEAN Way", as well as concerted action in terms of economic co-operation have forced ASEAN to consider the synchronised model(72) of harmonised law and enforcement networks. As to substantive competition law enforceable at the regional level, ASEAN can refer to general basic rules of conduct established in the various codes and guidelines that have common features, while leaving the national authorities to deal with particular features of their specific competition laws. At the regional level, ASEAN may need the Regional Task Force to oversee and enforce competition law in cross-border cases, as well as to co-ordinate with the national authorities. This may be regarded as an initial step towards further development of the common regional institutions, which is to lead ASEAN to a higher degree of integration.(73) As BILAL and OLARREAGA have argued:

"Indeed, successful RTAs inevitably entail the existence of common rules, the creation of common institutions, the delegation of authority to supranational instances, and more generally the development of a co-operative framework among member countries. Of course, a crucial aspect here is the degree of regional integration." (74)

4. Some concerns in designing substantive competition law

(a) Determination of "market power"

In principle, competition policy does not aim at prohibiting market power per se, but rather abuse of a dominant position. The basic idea is that competition law should not penalise efficient firms that have established a dominant position in the market by performing better than their competitors. The objective is rather to ensure potential access to the relevant market and to guarantee "fair" competition.(75) The contentious issues, then, are, how to determine what behaviour constitutes "abuse" of market power and how to promote competition without penalising successful enterprises possibly in a dominant position. Generally, competition law specifies that if an enterprise gains a market share exceeding the specified ratio, it must be carefully monitored to ascertain whether or not it abuses its dominant market position. However, market share is not a correct indicator of market power for at least three reasons. WOOD has argued that, first, the definition of relevant market is not clear when there is high substitutability in consumption. This is illustrated in United States v. E. I Du Pont de Nemours &

Part 8

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(55) Ibidem: Korah concluded that "it is so much cheaper to produce a product in a large plant that can be continuously used than in many smaller ones, when one or two plants of the minimum efficient size can supply the expected demand and there is room for only one or two suppliers".

(56) KORAH, Valentine, An Introductory Guide to EC Competition Law and Practice, 6th ed., Oxford: Hart Publishing (1997a).

(57) PETERSMANN, E.U., "Codes of Conduct", in Bernhardt, R. (ed.), Encyclopaedia of Public International Law (1992), Vol. I, 627.

(58) Source: United Nations Conference on Trade and Development (1981). "The Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practice". United Nations Document TD/RBP/CONF/10/Rev.1 New York, United Nations. This was adopted by the United Nations General Assembly at its thirty-fifth session on 5 December 1980 (Resolution 35/36). The Second United Nations Conference to Review all Aspects of the Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices was held in Geneva from 26 November - 7 December 1990. That Conference adopted a resolution on "Strengthening the implementation of the Set" at its sixth meeting on 7 December 1990. A third review Conference took place on 13-21 November 1995 and adopted a resolution calling for a number of concrete actions to give effect to the implementation of the Set. The Set of Principles and Rules was also adopted by United Nations Conference on Restrictive Business Practices as an annex to its resolution of 22 April 1980.

(59) Source: United Nations Conference on Trade and Development (1991), "Resolution Adopted by the Conference Strengthening the Implementation of the Set". Report of the Second United Nations Conference to Review all Aspects of the Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practice, United Nations Document TD/RBP/CONF.3/9 (Geneva), United Nations, Annex, 48-51.

(60) Since the more than two hundred international sovereign States have different resources, preferences, comparative advantages and, political and regulatory systems, the national competition laws also differ in many respects, such as exclusion of regulated sectors, exemption of exporters, rule-of-reason exceptions, focus on corporate conduct or market structures, support of "crisis cartels" and small businesses, actual enforcement and judicial review of the "law on the books".

(61) PETERSMANN, supra note 49 (at 37.)

(62) See Graham, Edward M. / Richardson, J. David (eds.), Global Competition Policy, Institute for International Economics, (Washington, D.C.) (1997); Also see Zach, Roger (ed.), Towards WTO Competition Rules: Key Issues and Comments on the WTO Report (1998) on Trade and Competition (1999); Yang-Ching Chao / Gee San / Changfa Lo / Jiming Ho (eds.), International and Comparative Competition Laws and Policies, Kluwer Law International, (The Hague/London/New York) (2002) and Drexl, Josef (ed.), The Future of Transnational Antitrust - From Comparative to Common Competition Law, Max Planck Institute for Intellectual Property, Competition and Tax Law, Munich Series, Kluwer Law International, (The Hague/London/New York) (2003).

(63) ZACH, Roger (ed), Towards WTO Competition Rules: Key Issues and Comments on the WTO Report (1998) on Trade and Competition, Kluwer Law International The Hague/London/Boston 1999. Kluwer Law Internationl

(64) At the OECD Conference on Trade and Competition held at Paris on 29-30 June 1999, the US and the EU, the two leaders in the competition regime stakes presented diametrically opposing views. The EU suggested that negotiations on multilateral or international competition law should begin immediately while the US, for it part insisted that "it was far too early to move in that direction". However, according to Frederique JERNNY, "the divergence of opinions was really a question of methodology: one believes in negotiating before agreeing on the solutions to be found, and the other believes in exploring alternatives solutions before agreeing to negotiate". See WILSON, Joseph (2003) Globalization and the Limits of National Merger Control Laws, Kluwer Law International The Hague/London/New York, 241.

(65) FIRST, Harry. "Towards an International Common Law on Competition" in Zach, Roger (ed.) (1999) note. 63.

(66) FIKENTSCHER, Wolfgang, "Antitrust, Market Conceptualization and the World Trade Organization - The Convention Approach", in Zach, supra note 63.

(67) WASHINGTON UNIVERSITY, "Symposium on APEC Competition Policy and Economic Development", in Washington University Global Studies Law Review, Vol. 1, No. 1 and 2 (Winter/Summer 2002). Also see Yang-Ching Chao / Gee San, Changfa Lo / Jiming Ho (eds.), International and Comparative Competition Laws and Policies, The Fair Trade Commission of the Republic of China, Kluwer Law International, (The Hague/London/New York) (2002).

(68) See BACCHETTA, Marc / HORN, Henrick / MAVROIDIS, Petros C., "Does Negative Spill-Over from Nationally Pursued Competition Policies Provide a Case for Multilateral Competition Rules?", June 4, mimeo 1997); HOEKMAN, Bernard M. / MAVROIDIS Petros C., "Competition, Competition Policy and the GATT", World Economy, 17 (1994), 121-150; MESSERLIN, Patrick A., Development in European Competition Policy, European Institute of Public Administration (Maastricht) (1996); PETERSMANN, E.U., "The Need for Integrating Trade and Competition Rules in the WTO World Trade and Legal System", PSIO Occasional Paper, WTO Series No. 3, The Graduate Institute for International Studies, (Geneva) (1996).

(69) See MATTOO, Aaditya / SUBRAMANIAN, Arvind., "Multilateral Rules on Competition Policy: a possible way forward", Journal of World Trade, 31 (5), October (1997), 95-115.

(70) See JENNY, "Globalization, Competition and Trade Policy: Convergence, Divergence and Co-operation" in Yang-Ching Chao et al, supra note 67 (at 68).

(71) Ibidem.

(72) See THANADSILLAPAKUL, supra note. 1.

(73) Winters identified five forms of economic integration, ranked in increasing order of integration:
1. Preferential Trade Areas (PTAs), where member countries agree to levy reduced, or preferential, tariffs on partner countries;
2. Free Trade Area (FTAs), where trade barriers between partner countries are abolished, but each member country determines its own external barrier;
3. Custom Union (CUs), where intra-union free trade prevails and a common external trade policy is adopted by member countries;
4. Common Markets, which are CUs with further provisions to facilitate the free movement of goods, services, and factors of production, and the harmonisation of trading and technical standards;
5. Political Unions, which are the ultimate form of economic integration.
While PTAs and FTAs do not require inter-governmental institutions, since each member country remains fully in charge of its own policy, CUs and higher forms of economic integration do involve a delegation of sovereignty, and thus an element of supra-nationality, as at least external trade policy is the result of a common decision by member countries.

(74) See BILAL Sanoussi, / OLARREA Marcelo, Regionalism, Competition Policy and Abuse of Dominant Position, Working Paper, European Institute of Public Administration, (the Netherlands) (1998).

(75) See WOOD, Diane P., "Competition and the Single Firm: Monopolisation and Abuse of Dominant Positions", Paper presented at the Symposium on Competition Policy in a Global Economy, Pacific Economic Co-operation Council, (Taipei, Taiwan) (1995) and see citation in BILAL et al, supra note 74.