Competition Laws and Economic Integration in ASEAN,part10

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Competition Law Part 9
1.3.1 Anti-Competitive

Business Practice and Substance of Competition Laws in ASEAN

Anti-competitive business practices that generally occur among international firms, and hence may also happen in ASEAN countries, include the following⁽¹⁶⁾:

1.

Horizontal restraints or the hard-core cartels among firms in an oligopolistic market, engaging, for example, in price fixing, output restrictions, market division, customer allocation, and collusive tendering and other anti-competitive co-operation between firms selling competing products. All these business practices distort prices and the allocation of resources as well as resulting in a dysfunctional market that causes consumer disadvantages⁽¹⁷⁾ Fair competition would exist if no single supplier or consumer could influence the market price. Competition laws and policy may play an important role not only in prohibiting the formation of cartels but also in balancing the competitive effects of each firm in the market.

2.

Vertical restraints or distribution strategies between manufacturers, suppliers or distributors, such as: tying the sale of one good as a condition for the purchase of another good; exclusive dealing (the seller requires the buyer to purchase the products only from the seller); territorial restraints (the seller requires the buyer/distributor to resell the product within a limited geographical area); and resale price maintenance (the seller requires the buyer to resell the product only at a specified price). Resale price-fixing also tends to be generally prohibited. The pro- and anti- competitive effects of such vertical restraints need to be evaluated and where necessary controlled.

3.

Abuse of intellectual property rights (IPR), for example where technology-licensing arrangements abuse the monopoly position of IPR holders, such as through non-competition clauses and the so-called ‘grantback’. This means the licensee is required to assign inventions made in the course of working on the transferred technology back to the licensor. Another aspect of IPR abuse, "non-contestation clauses", is that the licensee is prevented from contesting the validity of the IPR or other right of the licensor. IPR abuses might be subject to general competition rules on horizontal and vertical restraints.

4.

Abuse of market dominance: dominant firms accounting for a significant market share may attempt to monopolise a market, for instance through excess prices, price discrimination, predatory low prices, refusal to deal, or vertical restraints. Rules against the abuse of a dominant position may be conduct-oriented, in other words, a general prohibition against monopolising and foreclosure of competition. Another approach is result-oriented, with a prohibition for example of predatory pricing only if the losses can be recouped.

5.

Mergers and acquisition policies, where horizontal, vertical or conglomerate mergers, may reduce competition or decrease efficiency. Merger policies may be designed to ensure the contestability of markets by preventing monopoly or price-setting by a single seller and price-taking by a single buyer, as well as oligopolistic or monopolised market power. On the other hand, acquisition policies also overlap with industrial policy instruments.

6.

Public undertakings and enterprises with special privileges, which are not required to behave according to market principles, (Art. XVII of the GATT and Art. 90 of the EC Treaty) in view of their market power or financial independence. This includes firms with exclusive trading rights and monopolies.

In the new era, ASEAN countries do need to regulate these anti-competitive business practices to attain fair competition conditions. However, what ASEAN countries have to be aware of is the balance of market failure and government failure. If governments intervene so as to correct market failure or supply public goods, the risk of market failure has to be weighed against the risk of alternative government failure, because government intervention may lead to additional distortions. Therefore, fair competition conditions require rational behaviour of market participants or firms, perfect information, perfect mobility of the market, stable preferences and technologies, and reflection of all costs in the prices of good and services (Petersman, 1996a). All these requirements need a comprehensive set of competition laws and regulations among ASEAN countries. Current national laws and policy on restrictive business practices differ among these countries and the law focuses on different aspects such as anti-monopoly, anti-dumping, protection against state competition, etc. As seen in the previous section, there are no systematic competition laws in ASEAN countries. For instance, Singapore has refrained from adopting competition laws on the grounds that its liberal trade policies and its rather liberal investment regime are a significant guarantee of the contestability of its open economy. But now ASEAN countries need to introduce comprehensive competition laws and policies, and enforce them effectively. In fact, the general infrastructure and other economic comparative advantages of ASEAN countries still appear good; the only important thing that ASEAN countries lack is good governance and a rule-based system.

Part 10

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(16) Compiled from various sources: UNCTAD, 1997; Petersman, E.U., 1993, 1996a; Schoenbaum, Thomas J., 1996.

(17) If market prices are distorted either through cartels or monopolies, they are likely to distort also the allocation, co-ordination and distribution functions of market competition so that consumer welfare will be reduced by higher prices, fewer products and less freedom of choice.

1.	Horizontal restraints or the hard-core cartels among firms in an oligopolistic market, engaging, for example, in price fixing, output restrictions, market division, customer allocation, and collusive tendering and other anti-competitive co-operation between firms selling competing products. All these business practices distort prices and the allocation of resources as well as resulting in a dysfunctional market that causes consumer disadvantages⁽¹⁷⁾ Fair competition would exist if no single supplier or consumer could influence the market price. Competition laws and policy may play an important role not only in prohibiting the formation of cartels but also in balancing the competitive effects of each firm in the market.
2.	Vertical restraints or distribution strategies between manufacturers, suppliers or distributors, such as: tying the sale of one good as a condition for the purchase of another good; exclusive dealing (the seller requires the buyer to purchase the products only from the seller); territorial restraints (the seller requires the buyer/distributor to resell the product within a limited geographical area); and resale price maintenance (the seller requires the buyer to resell the product only at a specified price). Resale price-fixing also tends to be generally prohibited. The pro- and anti- competitive effects of such vertical restraints need to be evaluated and where necessary controlled.
3.	Abuse of intellectual property rights (IPR), for example where technology-licensing arrangements abuse the monopoly position of IPR holders, such as through non-competition clauses and the so-called ‘grantback’. This means the licensee is required to assign inventions made in the course of working on the transferred technology back to the licensor. Another aspect of IPR abuse, "non-contestation clauses", is that the licensee is prevented from contesting the validity of the IPR or other right of the licensor. IPR abuses might be subject to general competition rules on horizontal and vertical restraints.
4.	Abuse of market dominance: dominant firms accounting for a significant market share may attempt to monopolise a market, for instance through excess prices, price discrimination, predatory low prices, refusal to deal, or vertical restraints. Rules against the abuse of a dominant position may be conduct-oriented, in other words, a general prohibition against monopolising and foreclosure of competition. Another approach is result-oriented, with a prohibition for example of predatory pricing only if the losses can be recouped.
5.	Mergers and acquisition policies, where horizontal, vertical or conglomerate mergers, may reduce competition or decrease efficiency. Merger policies may be designed to ensure the contestability of markets by preventing monopoly or price-setting by a single seller and price-taking by a single buyer, as well as oligopolistic or monopolised market power. On the other hand, acquisition policies also overlap with industrial policy instruments.
6.	Public undertakings and enterprises with special privileges, which are not required to behave according to market principles, (Art. XVII of the GATT and Art. 90 of the EC Treaty) in view of their market power or financial independence. This includes firms with exclusive trading rights and monopolies.