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Competition Law, Part 3

In addition, competition law and policy enables small and medium sized enterprises to enter the market, therefore it can be implemented as an alternative to industrial policy based on strategic policy, which has been regarded as non-neutral government intervention. Hence, competition law not only enhances consumers' interest, it also helps small and medium sized firms to compete equally with other firms in the regional economy, again while complying with the principles of liberalisation on a non-discriminatory basis. Additionally, the state still plays an important role in preventing market failure so that ASEAN countries may feel confident in their roles of monitoring the behaviour of the private sectors as they still prefer to play their part in overseeing economic transactions, and do not leave the private sectors alone to interact with each other as in neo-liberal ideology. Therefore, since ASEAN countries generally lack national competition laws (as will be discussed in section1.2), it would be advantageous for ASEAN countries to launch an effective comprehensive competition law into the region, in parallel with the implementation of the trade and investment liberalisation process.

As regards foreign investment, the implementation of competition laws in ASEAN countries would ensure the realisation of more advantages from liberalising the entry, establishment, and operation of foreign investors, because competition laws would regulate and control mergers and acquisitions and the abuse of dominant market power in the ASEAN economy. The fear of economic conquest by powerful foreign TNCs might be better dealt with in this way rather than by the investment screening process employed by all ASEAN countries until now. The implementation of competition laws and policies in the ASEAN region could essentially help to eliminate the currently somewhat restrictive investment laws and regulations, even though actually some investment restrictions are in fact employed in almost if not all countries (Geist, 1995: 673-717)(7), not only in ASEAN. The implementation of competition laws in ASEAN countries along similar lines to those implemented in other countries may help bring their laws into alignment with a possible future general agreement on the regulation of foreign direct investment(8).

1.1.2 The Interaction between Competition Laws and Investment Laws of ASEAN Countries

Currently all ASEAN countries have employed a screening process and applied pre-entry requirements to all foreign investors. There are also some regulations to control foreign investors/firms from being a dominant firm 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(9). 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 laws. Obviously, under this condition, ASEAN countries need competition law to control mergers & acquisitions. Even though ASEAN countries have been relaxing some regulations concerning the equity ratio of foreign investors, this has been applied on a case-by-case basis under specific conditions. Nevertheless, these regulations do not control local firms, or prevent them from merging with or acquiring other local or foreign firms.

Part 4


(7) 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 most liberal, employ common restriction 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 uses of a notification and/or prior approval procedure are widely used.

(8) Geist, 1995: part III the framework for a General Agreement on the regulation of foreign direct investment.

(9) Generally foreign ownership or share equity cannot excess 49% of the total share, except in the case that the company is granted promoted status under promotion scheme.