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Competition  Law  Part 8

One of the main restrictions on foreign investment found in all ASEAN countries’ investment laws and regulations is the limitation of foreign investors’ share or equity in a company established in these countries. One rationale for limiting foreign equity in a firm established in these countries is to ensure that foreign investors can not dominate the market and abuse their market power. A foreign company also cannot merge with or acquire another local or foreign firms, since its equity will exceed the specified legal limit. But this kind of restrictive investment law has been regarded as being discriminatory and impeding foreign investors. Moreover, it has resulted in negative effects in ASEAN countries’ economy. For instance foreign investors cannot generally hold more than 49% of shares in a company located in ASEAN countries, except in a particular case where the company has been promoted under a promotion scheme or is entitled to a specific status, such as pioneer status. Therefore, the majority of shares are held by domestic investors who have to seek capital by various methods. They mostly turn to loans and because domestic loans incur very high interest due to the financial policy of ASEAN governments to encourage domestic saving, they turn to offshore loans. Ironically, the inflow of capital in this case is short-term foreign debt instead of an inflow of direct foreign investment. Consequently, the more foreign investment projects take place in ASEAN countries, especially with a huge capital fund project, the more offshore loans increase. This is an example of the negative impact of wrong policies implemented in ASEAN countries, where at first, each policy seems good but the way they interact with each other eventually results in a negative impact on the overall economy. In my view this can be regarded as one of the important causes of the Asian financial crisis.

Moreover, merger regulations are also needed to control the abuse of a dominant position by domestic companies that nowadays does occur in ASEAN countries. Therefore all firms, whether domestic or foreign, would be subject to the same regulations and control, so complying with the national treatment principle and the implementation of the ASEAN Investment Area.

1.3 Rationale for a Regional ASEAN Competition Law

The removal of internal barriers among ASEAN countries to implement regional economic integration should not be allowed to result in companies creating territorial protection through cartels as well as the abuse of dominant position. While investment liberalisation in ASEAN can help promote the free entry of firms, and enhance the contestability of the ASEAN market, it is not a sufficient progress; competition laws become necessary to ensure that former statutory obstacles to contestability are not replaced by anti-competitive practices of firms, thus negating the benefits that might arise from liberalisation. The reduction of barriers to FDI in ASEAN and the establishment of positive standards of treatment for TNCs need to go hand in hand with the adoption of measures aimed at ensuring the proper functioning of the market, and measures to control anti-competitive practices by firms. The 1997 World Investment Report suggested that:

"The culture of FDI liberalisation that has grown world-wide and has become pervasive, needs to be complemented by an equally world-wide and pervasive culture of competition, which needs to recognise competing objectives" (UNCTAD, 1997).

This statement could be truly applied to the ASEAN practical regulatory regime. Now I will discuss anti-competitive business practices that may occur among the international firms and to deal with the substance of competition laws designed to effectively regulate those unfair practices.

Part 9