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 applied across all economic sectors. Previous competition laws and regulations in Malaysia had been implemented only in two specific sectors: the communications and multimedia sector (governed by the Communications and Multimedia Act 1998) and the energy sector (governed by the Energy Competition Commission Act 2001).

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 (MyCC) has published its first infringement decision for a price-fixing cartel by a trade association. In addition to its advocacy initiatives, the MyCC has also published four guidelines, following public consultation, to aid self assessment and interpretation of the Act.

Firms (including government-linked companies) are taking steps to ensure compliance with their new obligations.

This chapter gives 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.

Application and exclusions

The Act applies to any commercial activity, transacted both within and outside Malaysia, that has an effect on competition in any market in the country. Commercial activity regulated under the Communications and Multimedia Act 1998 and the Energy Competition Commission Act 2001, however, is not subject to the Act.1

In addition, prohibitions on anti-competitive agreements and the abuse of a dominant market position do not apply to the following:2

  • an agreement or conduct engaged in so as 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 deems the following horizontal agreements to have an anti-competitive object if the agreement 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.3

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.

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 of the 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 enterprise successfully claims relief from liability or an exemption applies, anti-competitive agreements found to infringe the Act will be subject to financial penalties of up to 10 per cent of the enterprise’s worldwide turnover for the period during which the infringement occurred.

A leniency regime is established under the Act. A reduction of up to 100 per cent of any penalties that would have been imposed may be granted if an enterprise has admitted its involvement in a prohibited horizontal agreement, and provided significant information or some other form of cooperation to the MyCC.4

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.5

It is not necessary to notify or obtain an exemption as a precondition to claiming relief from liability. Enterprises are encouraged to conduct self-assessment of their conduct and implement compliance programmes at all levels of the enterprise. If the above conditions are met, an exemption from the anti-competitive agreement prohibition may be granted by the MyCC 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.6 Exemptions may be granted subject to conditions or obligations as the MyCC considers appropriate and for a limited duration as specified in the exemption order.

The power to issue block or individual exemptions confers on the MyCC 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 MyCC must consult publicly before issuing block exemptions. There is no such requirement for individual exemptions.7
  • Whereas the Act confers on the MyCC an express power to revoke or vary individual exemptions, no similar provision applies to block exemptions.8 While there is no express power for the MyCC to revoke or vary block exemptions, it must be noted that block exemptions can be for a limited duration and subject to conditions9 and the MyCC may cancel the block exemption in respect of individual agreements that do not meet the requirements under section 5.10
  • As with block exemptions, the MyCC may issue individual exemptions subject to conditions or obligations, and for a limited duration.11 The MyCC 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.12

It seems likely that the MyCC will issue block exemptions sparingly and subject to relatively stringent conditions. Individual exemptions may be subject to shorter durations 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 where:

  • unfair purchase or selling prices or other unfair trading conditions are imposed on a customer or supplier;
  • controls or limitations are placed on production, market outlets/access, technical or technological development or investment, to the prejudice of consumers;
  • supply is refused;
  • discriminatory conditions are applied 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;
  • supplementary conditions are imposed that by their nature or commercial usage have no connection with the subject matter of a contract;
  • predatory behaviour towards competitors occurs; or
  • scarce supplies in excess of the dominant enterprise’s own needs are bought up.

The types of behaviour listed above are not exhaustive in determining whether conduct amounts to an abuse of dominance. There is no express requirement that the abusive conduct has the object or effect of significantly preventing, restricting or distorting competition. However, 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 but not conclusive factor under the Competition Act 2010. Nonetheless, the MyCC has indicated in its Guidelines on Abuse of Dominance that it will generally consider a market share exceeding 60 per cent of the relevant market to be indicative of dominance. However, given the text of section 10(4), there may well be findings of dominance below this threshold. The Guidelines indicate, for example, that a new product with patented features may be considered dominant even if its market share is only 20 to 30 per cent of the market, but rapidly growing as consumers switch to the product.

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

The MyCC and enforcement under the Act

Investigation

As with Europe and China, Malaysia’s competition regulator will have an inquisitorial role. The MyCC may conduct an investigation into any enterprise, agreement or conduct if it has reason to suspect an infringement of the Act or upon direction of the minister of domestic trade, co-operatives and consumerism or a complaint by any person.13

The Act grants the MyCC and its officers the same investigatory powers as those of a police officer in relation to corresponding police investigations,14 including the power to:

  • require provision of information from any person whom the MyCC believes to be acquainted with the facts and circumstances of the relevant case;15
  • retain documents and access records, books, accounts or other items for carrying out any of the MyCC’s functions or powers under the Competition Act 2010;16 and
  • to the extent authorised under a warrant issued by the magistrate or where a search is urgently required, enter into premises; search, seize and/or seal any records, books, accounts, documents and computerised data; or search suspicious persons in or on the premises.17

During the investigation, the MyCC may impose ‘interim measures’ if the MyCC 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.18 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).19

The Act allows an enterprise to propose an undertaking, which the MyCC may accept subject to conditions. If the MyCC accepts an undertaking, the MyCC must close its investigation without making any finding on infringement, and must not impose penalties. The provisions of the undertaking are enforceable by the MyCC.20

Decisions

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

  • require the infringement to be ceased immediately and may 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 it deems fit.21

The High Court can be involved in enforcing any decisions of the MyCC.22 Before determining an infringement and making a decision, the MyCC must notify the enterprise affected by the MyCC’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. 23

Appeals

The Competition Appeal Tribunal has exclusive jurisdiction to review any decision made by the MyCC.24 The MyCC’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 MyCC’s decision, subject to review by the Competition Appeal Tribunal.25 Pending the appeal, the MyCC’s decision continues to be binding and enforceable unless the Appeal Tribunal grants a stay of the decision.26

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 MyCC;
  • 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 MyCC could itself have given, taken or made.27

The Tribunal’s decision is final and binding on the parties to the appeal.28

Market reviews

The MyCC has a market review role, similar to the role of the Office of Fair Trading in the United Kingdom. The MyCC 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.29 On completion of a market review, the MyCC must publish a report of its findings and recommendations. The report must be available to the public.30 We understand the requirement to publish a public report, following a market review, to reflect an expectation that the MyCC 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 MyCC’s market review role may well have far-reaching implications.

In 2012, the MyCC conducted a market review, through public consultation, in relation to the domestic broiler (ie, chickens bred for consumption) market. The findings of the market review may prompt changes in the law (eg, price controls during festive seasons) and investigation into anti-competitive conduct.

Guidelines

Following public consultation, the MyCC has published four guidelines (see www.mycc.gov.my/guideline.asp

The Guidelines on Market Definition indicate that the MyCC will adopt a hypothetical monopolist test in line with practice in other jurisdictions when defining the relevant market for the purpose of investigating possible infringements.

The Guidelines on Anti-Competitive Agreements confirm that the MyCC will assess the aims pursued by the agreement in 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 effect, then the MyCC may find the agreement to have an anti-competitive object. Once an anti-competitive object is shown, then the MyCC considers that it does not need to examine the anti-competitive effect 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.

The MyCC’s 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’. The safe harbours do not apply to hard core restrictions which are deemed anti-competitive by object.31

The Guidelines on Abuse of Dominance describe how the MyCC will determine dominance taking into account the relevant product and geographic markets and evaluate the enterprise’s market power by reference to market shares and other constraints, including constraints imposed by potential entrants and countervailing buyer power. The MyCC is concerned with two kinds of abuse:

  • exploitative conduct such as excessive pricing (but the MyCC indicates that it will only be concerned if there are no market forces which are likely to reduce dominance); and
  • exclusionary conduct which adversely affects consumers and prevents equally efficient competitors from competing, such as predatory pricing; price discrimination; exclusive dealing; loyalty rebates and discounts; refusal to supply or share essential facilities; and buying up scarce intermediate goods or resources.

The MyCC has also indicated that it will be prepared to consider reasonable commercial justifications as defences and the onus of proof will be on the dominant enterprise.

Sector regulators

To facilitate collaboration and to improve the consistency of the approach, a Special Committee on Competition has been formed comprising representatives from the MyCC and the sectoral regulators, namely the Malaysia Communications and Multimedia Competition Commission, the Energy Competition Commission, the National Water Services Competition Commission, the Land Public Transport Competition Commission, the Central Bank of Malaysia and the Securities Competition Commission.

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 as any activity of a commercial nature, excluding:

  • any activity that is directly or indirectly exercising government authority;
  • any activity based on the principle of solidarity; and
  • 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 ensure that their activities do not infringe the Act.

It is likely that the MyCC 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 MyCC’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 worldwide turnover for the duration of the infringement. However, it is unclear whether the relevant ‘turnover’ is confined to turnover from the market in which the infringing activity took place, or if it applies to the enterprise’s entire turnover from any market. The MyCC is expected to issue guidelines on penalties and remedies that may address this issue.

2013: the year ahead

In 2012, the MyCC’s efforts have focused on advocacy and encouraging compliance. In its first infringement decision against the Cameron Highlands Floriculturist Association for a horizontal agreement to increase the prices of flowers by 10 per cent, the MyCC indicated in its proposed decision that it would fine the association 20,000 ringgit if it did not immediately cease the anti-competitive conduct and take the remedial action required by the MyCC. In the final decision, the financial penalty was dropped as the association had been co-operative during the investigation.

For 2013, the MyCC’s chief operating officer, Shila Dorai Raj, has indicated that the Commission will shift gears and no longer adopt a ‘soft approach’. The MyCC’s enforcement priorities will be cartels, bid rigging and trade associations. The MyCC has commenced investigations in the cement and steel sectors following complaints. It has also indicated its intention to focus on food production, import and distribution, transport and logistics, health care, professional services, housing developers and financial institutions.

Notes

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

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