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Competition Law, Part 10

In fact, ASEAN countries have been aware of this sensitive issue and have already promoted the small and medium firms in the region preparing them to be ready in competing with extra-ASEAN firms. See Joint Statement on East Asia Co-operation, 28 November 1999, Manila, The Philippines. Also each individual ASEAN country has set up Small and Medium Firm Networks to promote and strengthen S&M enterprises, for example, Malaysia set up the Small and Medium Industry Development Office, The Philippines set up the Bureau of Small and Medium Business Development to help promote S&M enterprises. See Muchlinski, P. T. “A Case of Czech Beer: Competition and Competitiveness in the Transitional Economies” (1996) The Modern Law Review. Vol. 59: 5 (September), pp. 658-675. The dispute was settled by the agreement of 4 September 1911, whereby the US brewer was granted exclusive use of “Budweiser” name in North America, while the Czech brewer was granted the name for the rest of the world. But it did not confer any right or imposed any restrictions on any part with the regard to the use of the name in Europe, nor did it prevent any party from establishing an exclusive right to use the Busweiser trade name as part of its trading style in any European country. The Czech Republic has become a party to an EU Europe Agreement (EA), which entered into forced on 1 February 1995 to ensure greater convergence between EU economic laws and the national law of the non-EU contracting states, as a precondition for any future application for membership. Muchlinski argued that “Maximum foreign shareholding limits in national laws have tended to be relaxed. The most promising avenue for regulation in competition law, in that a level of foreign ownership that may create an anti-competitive concentration can be legitimately challenged without upsetting the logic of free market policies. See Muchlinski (1996: 59). For instance, the issue can be brought to the Regional Merger Task Force, within the spirit of the Regional Merger Regulation, consumer groups can request that the Task Force review a concentration combination of a sound ASEAN legal and economic systems can be viewed as favourable created factor endowments (18) that can affect ASEAN’s competitiveness positively in the international trade and investment sphere.

1.4 The Bases of ASEAN Regional Competition Law

In the modern globally integrated world economy it is not only private enterprises but also governments that engage in competition (Porter, 1990). In ASEAN countries in particular they have widely implemented strategic policies in the trade and investment sphere. In this respect, government plays an important role, as Petersman (1993: 35) pointed out:

"By means of industrial policies aimed at enhancing economies of scale and positive externalities of national industries, strategic trade policies aimed at shifting rents away from foreign to domestic industries, or by means of investment policies designed to attract scarce foreign capital through tax incentives and favourable investment conditions."

Therefore markets are imperfect in many ways. Two different kinds of competition laws are thus required. The one is competition law for private restraints of competition and market failures, which are abuses of market power, externalities and asymmetries in information. The second is competition law for governments so as to limit government failures, which may affect the supply of public goods and created endowments/comparative advantages.

Fair competition should aim to protect less-organised firms, such as small and medium firms, in entering the market while protecting public interest and consumers in a liberal economy. Competition rules may need to be evaluated to determine how far or to what extent competition rules should regulate the behaviour of firms. For instance, in some business areas merged lines of business or operators might provide more adequate and effective operation, more varieties of products, more available services, including advanced research and technological development that individual separate smaller firms/operators are unable to undertake(19). Therefore there is a concern that competition rules may be applied so as to protect smaller firms at the expense of larger, irrespective of efficiency. It is a very difficult decision whether collaboration or competition in a particular market leads to a better use of resources. While competition is desirable in lessening economic power, businessmen believe that in some industries resources are put to better use if competition is limited. Therefore collaboration or natural monopolies may sometimes occur responding to the achievement of economies of scale. For instance, if a firm has merely expanded its plant in good time to meet an expected increase in demand, so that it is unprofitable for other firms to enter the industry, there is no objection to its monopoly (Korah, 1968: 64)(20). Many markets can be supplied only after considerable capital investment is made or technology developed.

On the other hand, 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 not 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 bigger firms. Is this regarded as unfair competition? Therefore the evaluation of whether there is unfair competition requires the 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 of those fields of business considered. It is noted that a small firm protected only for such reasons is not in a position to hold its customers or suppliers to ransom except in the short term (Korah, 1997a).

Part 11


(18)   International competition among firms is influenced not only by "natural" production factor endowments, but also by government-determined conditions of competition as discussed the "created" and "natural" endowments.

(19)   For instance if a single plant or a merged enterprise that can process all the spent nuclear fuel in the region substantially more cheaply than could smaller plants, it would be unprofitable for a second firm to establish a smaller plant. Also see the fact in KEWA (1976) Cc.M.L.R.D15.

(20)   Korah, 1968: 64, she also 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, that one or two plants of the minimum