The Asia-Pacific Antitrust Review 2019

Malaysia: Overview

19 March 2019

SK Chambers

It remains to be seen whether the regime change in government following the 2018 general elections will pave the way for holistic review of competition law and policy in Malaysia. Promises by then opposition in the lead-up to election victory were to:

  • re-examine company monopolies to make sure goods and services are fairly priced, and that the competition policy framework is robust, combined with a labour policy that ensures ­profits are shared fairly;
  • subscribe to the tenets of a mixed economy, taking the principles of social market economy for guidance; and
  • ensure that government linked corporations (GLCs) operate in sectors that suffer from market failure and don't compete against private companies.

This vision of competition policy, if maintained, will result in a radically different approach to regulating markets. In prior years, the country's industrial policies tended towards shielding GLCs from competition to make them larger and more resilient to global competition (as evidenced by the lack of cross-sectoral merger control laws), and to promote specific national agenda such as affirmative action policies. The shift to a more consumer-focused agenda through policies directed at evening the playing field will significantly strengthen credibility in the country's commit­ment to prioritising consumer welfare.

Anti-monopoly policy?

There are some positive signs that anti-monopoly competition policy will gain traction in the years to come.

  • On 20 June 2018, the communications and multimedia minister, Mr Gobind Singh Deo, announced that fixed broadband prices were expected to drop by at least 25 per cent by year end following the implementation of the Mandatory Standard on Access Pricing (MSAP), which requires that infrastructure providers give access to their networks at regulated prices. It is reported that government intervention has resulted in more than 30 per cent reduction in broadband prices for entry-level packages.
  • In August 2018, parliament considered breaking the monopoly on sugar imports to reduce the price of this commodity.
  • A joint committee comprising the Agriculture and Agro-based Industry and the Economic Affairs Ministry is scheduled to hold a series of meetings with Padiberas Nasional Berhad (Bernas) to study the monopoly it enjoys over the country's rice supply, including its sole right to import rice until 2021.
  • The Minister of Domestic Trade and Consumer Affairs is reported to be looking into ending monopolies in the supply of goods and services in sectors under its jurisdiction.

Merger control

Perhaps the most significant impediment to a robust anti-monopoly policy is the absence of merger control provisions in Malaysia's Competition Act 2010 (CA 2010). The CA 2010 presently only sets out prohibitions on anticompetitive agreements (horizontal agreements including ­cartels and vertical agreements) and abuses of dominant position. The absence of merger control powers deprives the agency and the government of a more direct influence over changes in market structures that may be adverse to competition.

Based on news reports, it is understood that the Malaysian Competition Commission (MyCC), which enforces the CA 2010, has begun the process of seeking legislative amendments to include new provisions on mergers and acquisitions into law. It will be important to ensure that the agency is appropriately funded and resourced to take this mandate on.

There are sector-specific laws and guidelines that regulate the antitrust aspects of ­mergers; namely the aviation services and the communications and multimedia sectors, enforced by the Malaysian Aviation Commission (MAVCOM) and the Malaysian Communications and Multimedia Commission (MCMC), respectively. These sectoral regulators also enforce competition rules for their sector through prohibitions on anticompetitive agreements and conduct, as well as abuse of dominance.

Key developments in the mandate of the MyCC, MAVCOM and MCMC are discussed below:

Malaysia Competition Commission

Scope

The CA 2010, which came into effect on 1 January 2012, applies to all commercial activities undertaken within and outside of Malaysia that have an effect on competition in the Malaysian market, save for commercial activity regulated under:

  • the Communications and Multimedia Act 1998 (CMA 1998);
  • the Energy Commission Act 2001 (ECA 2001);
  • the Petroleum Development Act 1974 and the Petroleum Regulations 1974 (insofar as the commercial activities regulated under these pieces of legislation are directly connected with upstream operations comprising the activities of exploring, exploiting, winning and obtaining petroleum, whether onshore or offshore Malaysia); and
  • the Malaysian Aviation Commission Act 2015 (MACA 2015).

Highlights

Changes in leadership

With the regime change, several key changes in the leadership and management at the MyCC have been put in place including the appointment of a new chairman and chief executive officer. No changes have been announced with respect to the MyCC's overarching goal for 2019 following from the changes in leadership.

New guidelines

The long-awaited Guidelines on Intellectual Property Rights and competition law were introduced in April 2018.

Enforcement actions

In terms of enforcement actions, the MyCC has imposed cease-and-desist orders and other ­corrective orders, as well as financial penalties by issuing proposed and final decisions. In 2018, there were two such cases.

In February 2018, the MyCC issued its final decision against seven tuition and day care centres for engaging in a horizontal agreement to fix and standardise the fees for the tuition and day-care services in a specific area. The financial penalty imposed on all seven tuition and day-care centres collectively amounted to approximately 33,000 ringgit.

In July 2018, the MyCC issued a proposed decision against Dagang Net Technologies Sdn Bhd (Dagang Net). Dagang Net was provisionally found to have abused its dominant position in the provision of trade facilitation services under the National Single Window. The MyCC imposed a proposed financial penalty of 17.4 million ringgit, as well as a directive on Dagang Net to cease and desist its infringing conduct.

Market studies

In April 2018, pursuant to two market studies conducted into the pharmaceutical and building materials sectors, the MyCC found no conclusive evidence of anticompetitive behaviour between industry players.

Ex officio investigations

In December 2018, the MyCC revealed it is working closely with the Ministry of Domestic Trade and Consumer Affairs to identify any anticompetitive elements that may occur in the domestic market for chicken eggs, given recent price hikes in the price of eggs. At the time of writing, the MyCC has yet to issue any statement regarding further developments in this investigation.

Cartels

Cartel enforcement is positioned as a key priority for the MyCC. Section 4(2) of the CA 2010 – which deems, price fixing, market sharing and bid rigging, among others, as object infringements – ­continues to be heavily relied upon by the MyCC in its enforcement actions.

Updates from key cases pursued by the MyCC are discussed below.

The legal threshold for the MyCC to discharge in making out an infringement under the deeming provision for cartel infringements is being tested through the Courts

Judicial review of Competition Appeal Tribunal's Malaysian Airlines System Berhad (MAS)/Air Asia Berhad (AirAsia) decision

The MyCC scored a big win in December 2018 when the High Court of Kuala Lumpur reinstated the MyCC's decision to impose a fine of 10 million ringgit each against MAS and AirAsia for in­fringing the prohibition on anticompetitive agreements (sections 4(1) read together with 4(2) of the CA 2010), overturning the decision of the Competition Appeal Tribunal (CAT).

The MyCC's case for market sharing was built largely around the Collaboration Agreement between MAS and AirAsia. The CAT held that a plain reading of the terms of the Collaboration Agreement did not warrant a finding of restriction by object within the meaning of section 4(2)(b) of the CA 2010. It further faulted the MyCC for not giving any reason or analysis for its decision that the purported object of the Collaboration Agreement was one of market sharing.

The MyCC in turn contended that section 4(2)(b) of the CA 2010 can be triggered by mere entry into the Collaboration Agreement. This was rejected by the CAT. Instead, the CAT held that the MyCC is required to establish that the object of the Collaboration Agreement was to share markets in order to succeed under the aforesaid provision.

Grounds for the High Court's decision have not been released. Based on news reports, the judge held that the decision by the CAT in allowing the appeal by MAS and AirAsia to set aside the fine of 10 million ringgit each imposed by the MyCC was tainted with error of law and ­unreasonableness. The judge is reported to have also held that the CAT had failed to consider the Collaboration Agreement entered into between the two air carriers over sharing markets in the air transport services sector had the effect of distorting competition. It is understood that this decision may be appealed by the companies.

For now, it appears that the interpretation preferred by the MyCC – that cartels cause harm by definition – prevails.

The unprecedented public disagreement between a sectoral regulator and the MyCC raises issues of jurisdiction

Proposed decision against PIAM and 22 of its members

In an ongoing case, the MyCC issued a proposed decision to the General Insurance Association of Malaysia (PIAM) and 22 of its members, being insurance companies, carrying a fine of 213.5 million ringgit, for allegedly being parties to an anticompetitive agreement between themselves. The decision received strong opposition from the Central Bank of Malaysia (BNM).

Based on BNM's press release, it is understood that BNM had issued a directive to general insurance companies in 2011 to address disputes between workshops and insurance companies over insurance payments for motor repairs. In compliance with the directive, PIAM and 22 of its members entered into an agreement with the Federation of Automobile Workshop Owners' Association of Malaysia to fix the parts trade discount for six vehicle makes and the labour hourly rate.

The directive issued by BNM in 2011 was in response to disputes between repairers and insurers over the payment of claims for motor repairs causing protracted delays and inconvenience to consumers. The press statement by BNM also highlighted the fact that the arrangement was nece­ssary to reflect the reasonable cost of repairs in an environment where motor insurance premiums are regulated by a tariff.

The MyCC has the most direct overlap with regulators governing key sectors (except those clearly exempted) that usually have the mandate to create, promote and protect competition in their industries. Sectoral regulators intervene where the possibility of market failure is high or where there are natural monopolies. The idea is to regulate firms in these industries in such a way that even when a competitive market cannot be ensured, the outcome in terms of prices and output will be nearly the same as if the market had been competitive.

Third parties may incur liability for facilitating a cartel via vertical agreements

Final decision against Containerchain (M) Sdn Bhd (Containerchain) and four container depot operators

The MyCC's decision in this case is significant because it was decided that even third parties that are not competitors in a relevant market may be held accountable for facilitating a cartel by engaging in concerted practices through vertical agreements. In June 2016, the MyCC found that Containerchain, an information technology service provider to the shipping and logistics industry, had entered into vertical agreements by way of concerted practices with four container depot operators (CDOs) to fix the Depot Gate Charge (DGC) and impose an unfair rebate on hauliers.The MyCC found that by entering into vertical agreements with the four CDOs, Containerchain infringed section 4(1) of the CA 2010 as the agreements had the effect of restricting competition. The high market shares of Containerchain and the CDOs were used to demonstrate significant effect on competition. Containerchain's conduct of influencing the behaviour of the CDOs and coordinating the implementation of the agreed revised DGC, as well as the rebate, was found to be non-trivial. In implementing Containerchain's system, the CDOs were also found to have exchanged confidential information on the DGC and rebate charges through Containerchain's system, thereby collectively engaging in a cartel.

Abuse of dominance

Section 10 of the CA 2010 prohibits enterprises from engaging, independently or collectively, in conduct that amounts to abuse of dominance in a relevant market. Notable cases demonstrating MyCC's committed enforcement efforts against government-installed monopoly concessionaires in 2018 are discussed below.

Decision by the CAT on MyEG Services Bhd (MyEG)

The first abuse of dominance case enforced by the MyCC concerns MyEG, an electronic government service that enables employers to renew insurances for foreign and domestic workers. MyEG, via its subsidiary, also engaged in the sale and purchase of insurance as an insurance agent. For renewals to be approved, employees must upload mandatory insurance policies through MyEG's electronic government service. However, renewals of insurance policies purchased from other insurers were not approved as fast as renewal policies purchased from MyEG. The MyCC found that, as a dominant concessionaire, MyEG is obliged to grant equal access of its facilities and promote competition in the downstream market.

MyEG appealed against the MyCC's decision. However, the CAT upheld the MyCC's decision in finding an infringement under section 10 (2)(d)(iii) of the CA 2010 for abuse of dominance and increased the financial penalty imposed by the MyCC to 6.2 million ringgit.

MyEG has since filed for judicial review of CAT's decision, which is currently pending hearing in the High Court.

Proposed decision on Dagang Net Technologies

In July 2018, Dagang Net was provisionally found to have infringed section 10(2)(c) of the CA 2010 for allegedly abusing its position as a monopoly provider of trade facilitation services under the National Single Window by refusing to supply electronic mailboxes to end users of the Sistem Maklumat Kastam customs operating system. Dagang Net was also provisionally found to have imposed an exclusivity clause on its business partners that would have had the effect of dis­torting competition in the provision of trade facilitation services under the National Single Window, thereby creating a barrier to entry. The MyCC imposed a proposed financial penalty of 17.4 million ringgit, as well as a directive on Dagang Net to cease and desist its infringing conduct and any future conduct that may disrupt competition. The directors and senior management of Dagang Net and its related companies were required to undergo a competition law compliance programme within three months of the issuance of the proposed decision.

Undertakings accepted by the MyCC

Section 43 of the CA 2010 empowers the MyCC to accept undertakings from enterprises. In September 2017, the MyCC conducted an investigation into a group of sand operators that were suspected of entering into a price-fixing agreement for sand. The sand operators signed an undertaking to rescind the price list of sand, terminate any other anticompetitive act in relation to the issuance of the price list and release a press statement of the undertaking in the newspapers. No financial penalties were imposed on the sand operators as a result of the undertaking. It suggests that the MyCC would be willing to accept undertakings even in price-fixing cases.

Outlook for 2019

We believe that the MyCC's focus in 2019 will place special emphasis on preventing large conglomerates' abuse of economic power and guaranteeing fair competition opportunities for small to medium enterprises in light of the agenda of the government of the day.

Its enforcement of cartels and abuse of dominance cases will continue to be bolstered by important wins for the MyCC.

While the public may appreciate the role of competition law in checking anticompetitive practices, there is also apprehension that a competition authority vested with enormous discretionary power may not function in a predictable and transparent manner.

Under the CA 2010, the MyCC is simultaneously the investigator, prosecutor and judge in all matters it decides. As all decisions taken by the MyCC will be subject to rules of natural justice consequently, the MyCC must be extra vigilant to ensure that the process of investigation, prosecution and decision is fair, rational and properly reasoned.

Procedural regulations or guidelines on case handling providing for the separation of the investigation and adjudication function of the MyCC are yet to be issued. Procedural rules to address and emphasise separation will add more transparency, which in turn will bolster confidence in the MyCC's investigation and deliberation process.

Malaysian Aviation Commission Act 2015 (MACA 2015)

The MACA 2015 governs anticompetitive practices in the aviation service market in Malaysia. It largely mirrors the CA 2010 in its competition provisions by prohibiting anticompetitive agreements and abuse of dominance in the aviation service market. However, one major ­difference between the CA 2010 and the MACA 2015 is that the MACA 2015 sets out provisions on merger control.

It is worth noting that MAVCOM, as the sector regulator, has a wide range of ex ante regulatory tools to achieve its outcomes for the sector. As sector regulator, MAVCOM has wider responsi­bility for the regulation of economic and commercial matters within the civil aviation industry. Its responsibilities include the issuance of air services licences (fixed schedule journeys) and air service permits for non-scheduled services. MAVCOM also issues out aerodrome operator licences for airport operators and ground-handling licences to those who wish to carry out ground-handling services in Malaysia.

Its responsibilities also cover the administration and allocation of air traffic rights to airlines based on the available capacity of each route and the approval of schedule filing. It monitors slot allocation for airlines and other aircraft operators.

Highlights

In 2018, via amendment of the MACA 2015, MAVCOM has been empowered to impose high admini­strative penalties of up to 1 million ringgit on individuals and up to 5 per cent of a corporate body's worldwide annual turnover from the preceding final year.

Also in 2018, MAVCOM published the following guidelines:

  • Guidelines on Anti-Competitive Agreements;
  • Guidelines on Abuse of Dominant Position;
  • Guidelines on Substantive Assessment of Mergers;
  • Guidelines on Notification and Application Procedure for an Anticipated Merger or a Merger;
  • Guidelines on Determination of Financial Penalties; and
  • Guidelines on Leniency Regime.

There are no infringement actions taken pursuant to the competition provisions in the MACA 2015, neither have there been merger applications made based on publicly available information.

As with the CA 2010, enterprises in the aviation service sector can make an individual or block exemption application to MAVCOM.

In August 2018, MAVCOM approved an application for individual exemption that was subsequently gazetted. The order is cited as the Malaysian Aviation Commission (Individual Exemption) (Transpacific Joint Venture Agreement Between All Nippon Airways Co, Ltd and United Airlines Ltd) Order 2018, and will expire on 10 May 2022. The exemption concerns a joint venture agreement between Nippon Airways Co Ltd and United Airlines Ltd, and is subject to the following conditions:

  • the parties shall not operate under a common name; and
  • the joint venture agreement shall not restrict either party to enter into any other agreements with another enterprise.

In December 2018, Singapore Airlines Limited and Deutsche Lufthansa AG applied for an individual exemption to MAVCOM for a joint venture agreement. The joint venture agreement provides for parties to cooperate in schedule coordination and capacity management, pricing and inventory management, sales, marketing and revenue sharing. The applicants contend that the joint venture agreement will give rise to significant economic and social benefits to the Malaysian economy and Malaysian travellers. MAVCOM's decision on this application is still pending release.

Merger control under the MACA 2015

Section 54 of the MACA 2015 strictly prohibits mergers that have resulted or may be expected to result in a substantial lessening of competition in any aviation service market.

Parties to a merger can voluntarily make an application to MAVCOM notifying of an anticipated merger or a merger pursuant to section 55 and 56 of the MACA 2015. MAVCOM may also initiate an investigation under section 83 of the MACA 2015 if there is reason to suspect that an anticipated merger or a merger would infringe section 54 of the MACA 2015.

The guidelines published by MAVCOM state that notification of an anticipated merger or a merger is unlikely to result in an imposition of a financial penalty. However, MAVCOM may impose a financial penalty if it is satisfied that the infringement was committed intentionally or negligently. Pursuant to section 59(2) of the MACA 2015, a person affected by MAVCOM's decision can apply to the minister for the anticipated merger to be exempted from prohibition on the ground of any public interest consideration. Public interest considerations are said to be confined only to matters of public or national security and defence.

Applicability to joint ventures

The MACA 2015 treats full-function joint ventures as mergers. The Guidelines on Substantive Assessment on Merger explain that such a joint venture 'operates in an aviation service market and performs the functions normally carried out by enterprises in that market'.

A key factor in determining whether a joint venture falls within the scope of the MACA 2015 is, for example, whether the joint venture is intended to operate on a lasting basis. The treatment of full-function joint ventures as mergers in the aviation services sector is also an important develop­ment for the aviation sector in the wake of increasing collaborations between airlines via alliances and code sharing, and involving varying degrees of integration of operations. Merger laws introduce another vehicle through which airlines may structure collaborations.

Communications and Multimedia Act 1998 (CMA 1998)

The regime changes in government brought about the appointment of Encik Al-Ishsal Ishak as MCMC chairman for a period of two years, effective 1 October 2018.

The MCMC oversees the regulatory framework for the converging industries of tele­communications, broadcasting and information and communications technology industries as set out in the CMA 1998.

The CMA 1998, which came into effect in April 1999, has four key areas of regulatory oversight: economic regulation, technical regulation, social regulation and consumer protection. Importantly, it has exclusive jurisdiction to apply competition law to its licensees.

These regulations were designed to develop the communications and multimedia industry for the ultimate benefit of consumers.

Technical regulation is generally ex ante (ongoing)

This involves setting standards and allocating publicly controlled resources. Allocation of spectrum can be considered a technical issue; namely, determining the most technically efficient use of the spectrum and allocating it to the most technically efficient user. However, this may result in a substantial lessening of competition if the best technical use of the spectrum is for a single operator to get it all. Competition policy has not featured strongly in decisions surrounding spectrum allocation to date.

Economic regulation

Access to bottleneck facilities and services are key to promoting competition in the tele­communications market. Examples of such bottlenecks are last mile copper and fibre networks. As the sector regulator, it has ex ante powers, such as intervention before the fact (eg, price control and access conditions). The MCMC has primarily used ex ante means to resolve structural issues and promote competition.

MCMC also possesses ex post competition law enforcement powers through sections 133, 139 and 140 of the CMA 1998, though it has not used these powers much since 1998. In essence, these set out the three main prohibitions that relate to anticompetitive conduct:

  • section 133 of the CMA 1998 expressly forbids conduct that has the purpose of substantially lessening competition;
  • section 139 of the CMA 1998 gives the MCMC the power to direct a licensee in a dominant position to cease conduct that has the effect of substantially lessening competition; and
  • section 140(1) of the CMA 1998 states that a licensee may apply to the MCMC for authori­sation prior to engaging in any conduct that may be construed to have the purpose or effect of substantially lessening competition.

As regards merger control, more recently, MCMC has conducted an industry consultation on the following draft guidelines, the final versions of which are still pending release:

  • Guidelines on Mergers and Acquisitions (Draft M&A Guidelines), 17 November 2017; and
  • Guidelines on Authorisation of Conduct (Draft AC Guidelines), 17 November 2017.

Highlights

In 2017, the MCMC embarked on a cost review to set access prices for the facilities and services listed in the Access List. This was done in a transparent manner by way of a public inquiry, as required under the law where licensees and the public were given opportunities to make sub­missions to the MCMC.

The MSAP was then issued in December 2017. The MSAP regulates wholesale prices for facilities and services in the Access List, including, for the first time, high-speed broadband services. This MSAP came into effect on 1 January 2018.

In June 2018, the MSAP was fully implemented following the change in government. The positive impact of the MSAP is described as immediate. Lower wholesale prices for access to high-speed broadband networks led to greater competition. This translated into lower retail prices for high-speed broadband services, with entry-level package prices being reduced by more than 30 per cent, and more attractive higher-speed packages for the consumer.

Outlook for 2019

Functional or structural regulation

Countries such as Australia, United Kingdom, Singapore and New Zealand have adopted more onerous approaches, such as functional or structural separation of entities holding their high-speed broadband networks to promote competition that will ultimately benefit consumers. So far, the MCMC has not focused on functional or structural separation. However, the MCMC has said that it is tracking developments in other jurisdictions to leverage on their experience in managing these networks.

Competition law considerations to be applied to spectrum allocation

The MCMC is undertaking studies to push for spectrum optimisation and 5G planning for 2019. As the competition and economic regulator, it is hoped that competition policy will be applied to allocation decisions so that all competitors and new entrants in the market have an opportunity to gain an essential input to provide services and competition. As such, the MCMC should conduct a competition analysis in tandem with technical considerations.

Rationalisation of the regulatory framework

Over-the-top (OTT) services increasingly operate in the telecommunications and broadcasting sectors. They fall outside the regulatory scope of the MCMC as they are not required to be licensed by the MCMC; yet they perform activities that compete with those of licensed entities. This is an area that requires greater integration and close cooperation between competition and sector regulator. There is a need to harmonise the provisions of the CMA 1998 with the CA 2010.

Energy Commission Act 2001 (ECA 2001)

The Energy Commission (EC) was established under the ECA 2001 as a regulating body in the energy services sector. Section 14(d) of the ECA 2001 empowers the EC to implement and enforce energy supply laws such as the Gas Supply Act 1993 (GSA 1993) and the Electricity Supply Act 1990 (ESA 1990). In 2016, the GSA 1993 was significantly amended to include extensive provisions on anticompetitive practices. The amendments largely mirror the CA 2010. As the regulating body for the gas supply market, the EC is empowered to enforce the Gas Supply (Amendment) Act 2016, and in performing its function the EC published the Guidelines on Competition for the Malaysian Gas Market in relation to Market Definition, Anti-Competitive Agreements, and Abuse of Dominant Position in 2017.

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