Malaysia: Overview

The first comprehensive competition law in Malaysia, the Competition Act 2010 (the Act), was gazetted on 10 June 2010, and came into force on 1 January 2012. Previously, Malaysia did not have a general and comprehensive competition law that applies across all economic sectors. Existing competition laws and regulations in Malaysia have been implemented only in two specific sectors, which are the communications and multimedia sector governed by the Communications and Multimedia Act 1998 and the energy sector governed by the Energy Commission Act 2001 (Act).

The Act follows the prime minister’s unveiling of the New Economic Model in March 2010, which aims at doubling Malaysia’s per capita income by 2020 by transforming the Malaysian economy through eight Strategic Reform Initiatives (SRIs), including a programme of liberalisation and deregulation to promote a competitive domestic economy.

The recently established Malaysia Competition Commission (Competition Commission or MyCC)1 is now in the process of implementing the new regime, including the publication of supplementary guidelines for public comment outlining how the Act will be interpreted and applied by the new Competition Commission. Firms are taking steps to ensure compliance with their new obligations (including government linked companies or GLCs, which will also be subject to the provisions).

This chapter provides an overview of the key provisions of the Act.

Key provisions of the Competition Act

The Act regulates business activity in Malaysia through two main areas of regulation: a prohibition on anti-competitive agreements and a prohibition on the abuse of a dominant market position.

The Act applies to any commercial activity, both within Malaysia and transacted outside Malaysia that has an effect on competition in any market in Malaysia. Commercial activity regulated under the Communications and Multimedia Act 1998 and the Energy Commission Act 2001, however, is not subject to the Act.2

In addition, prohibitions on anti-competitive agreements and the abuse of a dominant market position do not apply to the following:3

  • an agreement or conduct engaged in, in order to comply with a legislative requirement;
  • collective conduct relating to negotiating and concluding employment terms and conditions; and
  • conduct of enterprises entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly.

Anti-competitive agreements

The Act prohibits horizontal and vertical agreements between enterprises where an agreement has the object or effect of significantly preventing, restricting or distorting competition in any market for goods or services.

In particular, the Act lists the following horizontal agreements that are deemed to have an anti-competitive object, including an agreement that has the object to:

  • fix, directly or indirectly, a purchase or selling price or any other trading conditions;
  • share market or sources of supply;
  • limit or control production, market outlets, market access, technical or technological development or investment; or
  • perform an act of bid rigging.4

The Act does not contain prohibitions on third line forcing or other forms of vertical agreements unless they have an anti-competitive object or effect. That is, ‘per se prohibitions’ in Malaysia apply only to horizontal agreements.

As with other jurisdictions, the prohibition on anti-competitive agreements in Malaysia applies not only to formal contracts, but also to any arrangement or understanding, whether or not legally enforceable, including ‘concerted practices’. The term ‘concerted practices’ is defined broadly to include any form of coordination between enterprises that knowingly substitutes practical cooperation for the risks of competition, and includes any direct or indirect communication between the enterprises, the object or effect of which is either to influence one or more enterprises’ conduct or even merely to disclose an enterprise’s contemplated course of conduct in circumstances where such disclosure would not have been made under normal conditions of competition. Thus, conceivably, a public announcement by an enterprise concerning its pricing strategy or the way it would compete in the market could give rise to a concerted practice if the announcement has the object or effect of influencing competitor behaviour in the market.

Unless an exemption applies, anti-competitive agreements will be subject to financial penalties of up to 10 per cent of the worldwide turnover of the enterprise over the period during which the infringement occurred.

A leniency regime is established under the Act. A reduction of up to a maximum of 100 per cent of any penalties that would otherwise have been imposed may be granted if an enterprise has admitted its involvement in a prohibited horizontal agreement, and provided significant information or other form of cooperation to the Competition Commission.5

An enterprise that is a party to a prohibited agreement may claim relief from liability if it establishes all of the following:

  • there are significant and identifiable technological, efficiency and social benefits arising from the agreement;
  • the benefits could not reasonably be achieved without the agreement having the effect of preventing, restricting or distorting competition;
  • the detrimental effect of the agreement on competition is proportionate to the benefits; and
  • the agreement does not completely eliminate competition in respect of a substantial part of goods or services.6

If the above conditions are met, an exemption from the anti-competitive agreement prohibition may be granted by the Competition Commission either in the form of an ‘individual exemption’ with respect to a particular agreement or in the form of a ‘block exemption’ with respect to a particular category of agreements.7 Exemptions may be granted subject to conditions or obligations as the Competition Commission considers appropriate and for a limited duration as specified in the relevant exemption order.

The power to issue block or individual exemptions confers on the Competition Commission an adjudicatory role in assessing claims that restrictions on competition are justifiable. It remains to be seen how such power to issue block and individual exemptions will work in practice. We make the following observations:

  • the Commission must consult publicly before issuing block exemptions. There is no such requirement for individual exemptions;8
  • whereas the Act confers on the Commission an express power to revoke or vary individual exemptions, no similar provision applies to block exemptions.9 It is not clear if this suggests that the Commission has no power to revoke or vary block exemptions;
  • in addition, the Commission may cancel the block exemption in respect of individual agreements that do not meet the requirements under section 5.10 The Commission may also issue block exemptions subject to conditions;11
  • as with block exemptions, the Commission may issue individual exemptions subject to conditions or obligations, and for a limited duration.12 The Commission may vary or revoke individual exemptions if there is a material change of circumstance or if an obligation is breached. An individual exemption may be cancelled ab initio if the exemption was granted based on information that is false or misleading in a material way.13

It seems likely that the Commission will issue block exemptions sparingly and subject to relatively stringent conditions. Individual exemptions may be subject to shorter duration in return for less stringent conditions.

Abuse of a dominant position

Abuse of a dominant position is prohibited in respect of conduct engaged in by an enterprise independently or collectively with other enterprises, including the following behaviour:

  • imposing an unfair purchase or selling price or other unfair trading conditions on a customer or supplier;
  • limiting or controlling production, market outlets/access, technical or technological development or investment to the prejudice of consumers;
  • refusing to supply;
  • applying discriminatory conditions that discourage new market entry, seriously damage a competitor that is no less efficient than the dominant enterprise, or harm competition in the relevant market;
  • imposing supplementary conditions that by their nature or commercial usage have no connection with the subject matter of a contract;
  • engaging in predatory behaviour towards competitors; or
  • buying up scarce supplies in excess of the dominant enterprise’s own needs.

The above listed types of behaviour are not exhaustive in determining whether certain conduct amounts to an abuse of dominance. In addition, there is no express requirement that the abusive conduct has the object or effect of significantly preventing, restricting or distorting competition. However, the conduct is not prohibited if:

  • the dominant enterprise has a reasonable commercial justification for the conduct; or
  • the conduct is a reasonable commercial response to market entry or competitive conduct.

In establishing if an enterprise has a dominant market position, market share is a relevant factor but not conclusive under the Competition Act 2010.

Enterprises found to have abused their dominant market position may be subject to financial penalties of up to 10 per cent of the worldwide turnover of the enterprise over the period during which the infringement occurred.

The Competition Commission and enforcement under the Act

Investigation

As with Europe and China, Malaysia’s competition regulator will have an inquisitorial role. The Competition Commission may conduct an investigation into any enterprise, agreement or conduct if it has reason to suspect an infringement of the Act or upon a direction of the minister or a complaint by any person.14

The Act grants to the Competition Commission and its officers the same investigatory powers as those of a police officer in relation to corresponding police investigations,15 including the power to:

  • require provision of information from any person whom the Commission believes to be acquainted with the facts and circumstances of the relevant case;16
  • retain documents and have access to records, books, accounts or other things for carrying out any of the Commission’s functions or powers under the Competition Act 2010;17 and
  • to the extent authorised under a warrant issued by the Magistrate or where a search is urgently required, enter into premises, search, seize or seal, or both, any records, book, account, document and computerised data, search suspicious persons in or on the premises.18

During the investigation, the Commission may impose ‘interim measures’ if the Commission reasonably believes there is an infringement and the measures are necessary as a matter of urgency to prevent serious and irreparable damage or to protect the public interest.19 Such an interim measure may involve requiring or causing any person to:

  • suspend the effect of and desist from implementing any suspicious agreement;
  • desist from any conduct that is suspected of infringing the prohibitions on anti-competitive agreements and abuses of dominance; or
  • do, or refrain from doing, any act (but excluding the payment of money).20

The Act allows an enterprise to propose an undertaking, which the Commission may accept subject to conditions. If the Commission accepts an undertaking, the Commission must close its investigation without making any finding on infringement, and must not impose penalties. The provisions of the undertaking are enforceable by the Commission.21

Decisions

If on completion of its investigation, the Commission finds there is an infringement, the Commission will:

  • require the infringing enterprise to take specified steps to end the infringement;
  • impose a financial penalty not exceeding 10 per cent of the worldwide turnover of the enterprise over the period during which the infringement occurred; or
  • give any other direction as it deems fit.22

The High Court can be involved in enforcing any decisions of the Competition Commission.23

Before determining an infringement and making a decision, the Commission must notify the enterprise affected by the Commission’s proposed decision with its findings, reasons and any proposed penalties or remedial action. The enterprise affected is entitled to make a written submission or seek an oral hearing. 24

Appeals

The Competition Appeal Tribunal has exclusive jurisdiction to review any decision made by the Commission.25 The Commission’s decision on whether there is an infringement and any penalties or remedial measures is, on appeal by the enterprise or any person who is aggrieved or whose interest is affected by the Commission’s decision, subject to review by the Competition Appeal Tribunal.26 Pending the appeal, the Commission’s decision continues to be binding and enforceable unless the Appeal Tribunal grants a stay of the decision.27

The Competition Appeal Tribunal may confirm or set aside the decision that is the subject of the appeal, or any part of it, and may:

  • remit the matter back to the Competition Commission;
  • impose, revoke or vary the amount of a financial penalty; or
  • give a direction, take such other step, or make any other decision that the Commission could itself have given, taken or made.28

The Tribunal’s decision is final and binding on the parties to the appeal.29

Market reviews

The Competition Commission will also have a market review role, similar to the role of the Office of Fair Trading in the United

Kingdom. The Commission may on its own initiative or at the minister’s request conduct a market review to determine whether any feature or combination of features of a market prevents, restricts or distorts competition in the market.30 On completion of a market review, the Commission must publish a report of its findings and recommendations. The report must be available to the public.31 We understand the requirement to publish a public report following a market review reflects an expectation that the Competition Commission will conduct its proceedings in a transparent manner.

Given the Malaysian government’s commitment under the New Economic Model to transform the Malaysian economy through innovation and competition, the Competition Commission’s market review role may well have far-reaching implications.

Guidelines

In late 2011, the Competition Commission commenced a consultation process on draft guidelines relating to market definition, chapter 1 (relating to anti-competitive agreements), and its complaints procedure (see http//mycc.gov.my).

The draft guidelines on market definition indicate that the Commission will adopt a hypothetical monopolist test in line with practice in other international jurisdictions when defining the relevant market for the purpose of investigating possible infringements.

The draft guidelines on anti-competitive agreements confirm that the Commission will assess the aims pursued by the agreement in the light of the agreement’s economic context in addition to considering the actual common intentions of the parties. If the ‘object’ of an agreement is highly likely to have a significant anti-competitive impact then the Commission may find the agreement to have an anti-competitive ‘object’. Once anti-competitive ‘object’ is shown, then the Competition Commission considers that it does not need to examine the anti-competitive impact of the agreement. If an anti-competitive object is not found, the agreement may still breach the Act if there is an anti-competitive effect.

MyCC’s draft guidelines on anti-competitive agreements contain the following ‘safe harbour’ provisions when assessing the impact of an agreement on competition:

  • where the combined market share of the parties to a horizontal agreement (between competitors) is less than 20 per cent; or
  • where the market share of individual parties to a vertical agreement (between parties who are not competitors) is less than 25 per cent, any anti-competitive impact that the agreement may have will not be considered ‘significant’.

Competition Committee

To facilitate collaboration and to improve consistency of the approach, the government intends to establish a Competition Committee made up of the Competition Commission, the Communications and Multimedia Commission and the Energy Commission to coordinate the three regulators’ approach to competition law matters.

Implications for multinational companies

Multinational corporations operating in Malaysia will be subject to the Competition Act 2010. The Act also applies to ‘any commercial activity transacted outside Malaysia that has an effect on competition in any market in Malaysia’.32 ‘Commercial activity’ is defined to mean any activity of a commercial nature excluding:

  • any activity, directly or indirectly in the exercise of government authority;
  • any purchase of goods or services not for purposes of offering goods or services as part of an economic activity.

Therefore multinational corporations outside Malaysia (such as those exporting into Malaysia) should also ensure that their activities do not infringe the Act.

It is likely that the Malaysian Competition Commission will in due course enter into mutual-assistance protocols with its counterparts overseas and be involved in investigating any international cartels that affect markets in Malaysia. This may enhance the Competition Commission’s capacity to take action against foreign enterprises without a local presence in Malaysia.

An infringement of the Competition Act 2010 can lead to financial penalties not exceeding 10 per cent of the enterprise’s world wide turnover. However, it is not clear whether the relevant ‘turnover’ is confined to turnover from the market in which the infringing activity took place, or applies to all of the enterprise’s turnover from any market. The Commission is expected to issue guidelines on penalties and remedies that may address this issue.

2012: the year ahead

In order to provide more certainty for stakeholders, it is expected that the Competition Commission will finalise the draft guidelines it published for comment in late 2011, and will issue further guidelines regarding the proposed approach to the exercise of functions under the Act including guidance regarding the application of the abuse of dominant market position provisions.

Notes

1
See Competition Commission Act 2010.
2
Section 3 of the Competition Act 2010.
3
Section 13 of the Competition Act 2010.
4
Section 4 of the Competition Act 2010.
5
Section 41 of the Competition Act 2010.
6
Section 5 of the Competition Act 2010.
7
Sections 6 and 8 of the Competition Act 2010.
8
Section 9 of the Competition Act 2010.
9
Section 7 of the Competition Act 2010.
10
Section 8(5)(c) of the Competition Act 2010.
11
Section 8(4) of the Competition Act 2010.
12
Section 6(4) of the Competition Act 2010.
13
Section 7 of the Competition Act 2010.
14
Sections 14 and 15 of the Competition Act 2010.
15
Section 17 of the Competition Act 2010.
16
Section 18 of the Competition Act 2010.
17
Sections 19 and 20 of the Competition Act 2010.
18
Sections 25 and 26 of the Competition Act 2010.
19
Section 35(2) of the Competition Act 2010.
20
Section 35(3) of the Competition Act 2010.
21
Section 43 of the Competition Act 2010.
22
Section 40 of the Competition Act 2010.
23
Section 42 of the Competition Act 2010.
24
Section 36 of the Competition Act 2010.
25
Section 44 of the Competition Act 2010.
26
Section 51(1) of the Competition Act 2010.
27
Section 53(1) of the Competition Act 2010.
28
Section 58(2) of the Competition Act 2010.
29
Section 58(3) of the Competition Act 2010.
30
Section 11 of the Competition Act 2010.
31
Section 12 of the Competition Act 2010.
32
Section 3(2) of the Competition Act 2010.

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