UNFAIR TRADE PRACTICES MALAYSIA DR CHEAH CHEEWAH INFOJCASIAPACIFIC

UNFAIR TRADE PRACTICES – MALAYSIA DR CHEAH CHEE-WAH INFO@JCASIAPACIFIC. NET WWW. JCASIAPACIFIC. NET 12 September 2012

Competition law and economic regulation are not the same thing 2 Competition law Does not intervene in markets Deals with matters “after the fact” (ex post) Sustains and enhances competitive process for benefit of consumers Economic regulation Necessitated by on-going or impending ‘market failures’ Deals with matters “before the fact” (ex ante) Direct intervention (minimum supply or price ceiling; or both) – for the benefit of firms / industries

Economic regulation 3 Legislation Regulator Road Transport Act 1997 Tariffs for privatized roads (usually subject to consultation with and approval by the Cabinet) Malaysian Highway Authority (within Ministry of Works) Railways Act 1991; Railways (Successor Company) Act 1991 Train fares Railways Department (within Ministry of Transport) Ministry of Transport (Federal ports) Ports Authorities Act 1963, and respective Port Commission in each State Port access charges set by Ministry Port access charges, general charges in consultation with the State-based for loading/unloading of cargoes port authorities. Corporatized or privatized ports regulated by respective port commissions Civil Aviation Act 1969; Landing, Parking and Housing, Passenger Services and Air Navigation Facility Charges (and) Regulations 1992 International passenger service charge; aircraft landing and parking charges Civil Aviation Department (within Ministry of Transport)

Economic regulation 4 Legislation Communications and Multimedia Act 1996 Regulation Licensing, USO and access pricing (ex ante) Service/product market competition (ex post) Electricity Supply Act 1990; Electricity Supply Retail tariffs (ex ante) (Successor Company) Act 1990 Water Service Industry Act 2006; and State legislation “Independent” Regulator Communications and Multimedia Commission (SKMM) Energy Commission (ST) Privatized water supplier National Water Service prices are “regulated” via Commission (SPAN); and concession agreements (ex State-based regulators ante)

Unfair trade practices (UTP) 5 What and when should a trade practice be considered “unfair”? Are the economic damages that are actually or potentially caused upon the competitive process by a firm’s unfair trade practice the same as those caused by the firm’s abuse of its market power? A seller charging “too much”; or buyer paying “too little”; or when either party imposes inequitable trading conditions? There is little conceptual or practical difference between UTP and any forms of conduct that are rooted upon abuse (misuse) of market power Actions taken by a firm to defame the quality of its competitor’s product, or to deceive consumers through misleading advertising are typically unrelated to product prices “Unfair” in the sense that asymmetrical information between producers and consumers are being exploited by the former

Control of Supplies Act (1961) 6 Ministry of Domestic Trade, Cooperatives and Consumerism (MDTCC) given the power to control the price and supply (including the importation, distribution and marketing) of goods that are considered “essential” Currently the supply and respective prices of (at least) 21 items are controlled The Enforcement Division within the Ministry (established in 1972) carries out frequent and on-the-spot checks of the prices charged by wholesalers and retailers of the controlled items Market prices for some specific food items are “fixed” by the Ministry for no more than 15 days over the respective festival periods of Hari Raya Puasa (Aidilfitri), Chinese New Year and Deepavali. These food items include local poultry meat and eggs, as well as local and imported beef, mutton, fish and vegetables.

Consumer Protection Act (1999) 7 Comprising 14 parts and a total of 150 sections that deal with consumer rights and protective measures Part II of Act deals with misleading and deceptive conduct, false representations, and unfair practices similar to those of Australia’s Competition and Consumer Protection Act 2010 and New Zealand’s Fair Trading Act 1986. specific provisions pertaining to misleading indication of price, bait advertising, gifts, prizes, and free offers

8 Price Control and Anti-Profiteering Act (2010) Came into force on 1 April 2011 Illegal for traders or business operators to increase the prices of goods or services to earn “unreasonably” high profits: previous Price Control Act (1946) repealed during festive seasons, or when there is a shortage of supply of the goods or services, or when the increase in petrol or commodity prices does not have any tangible impact on the supply cost of the goods or services Price Controller (located within Ministry, of Domestic Trade ) determines the maximum, minimum or fixed price of a good or service ; as well as different prices for the same good or service that is sold in different geographical areas Ministry, together with the Malaysian Institute of Economic Research (MIER) and Institute of Strategic and International Studies (ISIS) Malaysia, formulating economic ‘test” and conditions under which the level of profit is deemed “unreasonable”

Competition Act (2010) 9 Came into force on 1 January 2012, following an 18 -month transitional period for both private businesses and government-linked companies (GLCs) s 4(1) pertains to horizontal and vertical agreements that firms have entered into with the objective; or which have the effect; of preventing, restricting or distorting competition s 4(2) prohibits cartel-related (i. e. horizontal) agreements aimed at “filling the members’ pockets” with a share of higher joint profits through price fixing, market sharing, limited production or supply and bid-rigging s 5 provides a “relief of liability” (i. e. defence of an anticompetitive agreement) on the grounds that: there are significant identifiable technological, efficiency or social benefits arising from the agreement; the benefits could not have been realized if not for the effect the agreement has on preventing, restricting or distorting competition; these benefits are proportionate to the detrimental effects on competition; and the agreement does not eliminate competition completely

Competition Act (2010) 10 s 10(1) of the Act proscribes conduct which amounts to an abuse of dominant position in any market Actions specified in s 10(2) include: limiting output, or refusing to supply, with no objective reason (e. g. market foreclosure); applying different conditions to equivalent transactions with other trading partners (e. g. price discrimination and margin squeeze); concluding a contract on the basis of supplementary conditions that are totally unrelated to the subject matter of the contract (e. g. tying); and responding to market entry by others by selling at a price that is lower than the product’s cost of production (e. g. predatory pricing). No legal reference to any specific UTP technically, UTP could be defined or conceptualized as a subset of (instead of being distinctively different from) practices rooted upon market power

Case 1 11 A firm engages in pure bundling by selling two products together with no option for consumers to buy either product individually (s 139) Under the agency contract between L and an appointed agent, it was the latter who have to impose the bundling condition on customers to buy VAS in order to receive L’s supply of service X. the VAS provider was not a communications licensee and therefore not subject to s 139 however, to the extent that L’s supply of service X was legally bound to the bundling actions of its agents, a case could have been made of L’s contravention of s 136 indirectly through the appointed agents

Case 2 12 Revenue- or profit-sharing Interline Reciprocal frequent flyer Code-sharing, “block-space” arrangements Joint market operations Yes Possible No No Tactical – expanded cooperation and joint network Possible Often Yes No No Strategic – mergerlike actions Possible Very often Yes Relationship Simple (and possibly limited cooperation on specific routes) Equity transfer

Case 2 – Domestic market HHI 13 Airline (Airport) Passenger-traffic (million persons) Year 2008 2009 2010 MAS (MTB) 4. 30 4. 41 4. 36 55. 1 39. 8 40. 3 Air. Asia (LCCT) 3. 20 6. 00 5. 59 41. 0 54. 2 51. 7 Firefly (Subang) 0. 30 0. 67 0. 86 3. 9 6. 1 7. 9 TOTAL 7. 80 11. 08 10. 81 100 100 4737 4553 4364 HHI Market share (%) The exit of Firefly is likely to have the effect of reverting the current oligopolistic but increasingly competitive domestic market back into a duopoly, or even a monopoly if the allied airlines operate like a merged business the allied partners may and can dissipate any “residual” competitive tension by reducing the number of flights in selected domestic routes even if the allied partners were to continue with the provision of overlapping flights in selected domestic routes, they may be able to charge airfares that are no less than those that were charged before the alliance.

Looking ahead … 14 The need for on-going competition reforms and coordinated legal system with appropriate rules and instruments that could be applied in a transparent manner facilitate optimal regulation and constrain interest group influence which often subvert legal processes and regulatory institutions My. CC has the power to conduct “market review” that will invariably involve empirical studies of industries and competition issues My. CC should promote such studies in higher degree curricula

DR CHEAH CHEE-WAH INFO@JCASIAPACIFIC. NET WWW. JCASIAPACIFIC. NET +60 16 946 2851 (MALAYSIA) +61 405 147 297 (AUSTRALIA) Thank you