GMUL 5063: LAW, ETHICS & CSR

KAMALCHI A/P GUNAGAGERAN

MATRIK NO: 816482

QUESTION NO. 4
MALAYSIAN COMPETITION COMMISSION (MYCC) IS AN INDEPENDENT BODY
ESTABLISHED UNDER THE COMPETITION COMMISSION ACT 2010 TO
ENFORCE THE COMPETITION ACT 2010. ITS MAIN ROLE IS TO PROTECT THE
COMPETITIVE PROCESS FOR THE BENEFIT OF BUSINESSES, CONSUMERS AND
THE ECONOMY.
DISCUSS AND ANALYZE THE ROLE OF MALAYSIAN COMPETITION LAW TO
PROTECT THE COMPETITIVE PROCESS FOR THE BENEFIT OF BUSINESSES,
CONSUMERS AND THE ECONOMY.

1.0 INTRODUCTION
The Competition Act 2010 was established on 1st January 2012. It applies to any
agreement or conduct that commences or continues after the date. Any agreement or conduct
that ceased before 1st January 2012 will not be caught. The Malaysian Competition
Committee (MyCC) is an independent body established by the Competition Commission Act
2010. One of the key functions is to implement and enforce the competition law. The CA
2010 applies to any commercial activity within or, in certain circumstances, outside
Malaysia. Commercial activity is defined broadly and it is likely that almost all activities
of Malaysian businesses will be commercial activities.
The Act prohibits Anti-Competitive Agreements and Abusive conduct by dominant
enterprises as stated below:

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GMUL 5063: LAW, ETHICS & CSR

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Anti Competitive
Agreements

Horizontal or vertical agreements

between enterprises that have the
object or effect of significantly
preventing, restricting or distorting
competition in any market for
goods or services.

Abusive conduct
by dominant
enterprises

An enterprise is prohibited from

engaging, whether independently
or collectively, in any conduct
which amounts to an abuse of a
dominant position in any market
for goods or services.

Business will not be covered by CA if the below circumstances appears:

a. Business does not undertake commercial activity
b. Its activity is excluded or exempted from CA 2010
2.0 ROLE OF MALAYSIAN COMPETITION LAW TO PROTECT THE COMPETITIVE
PROCESS FOR THE BENEFIT OF BUSINESSES, CONSUMERS AND THE
ECONOMY.
2.1 ECONOMY
The CA 2010 applies to any commercial activity within, or in certain circumstances, outside
Malaysia. Commercial activity is defined in section 3(4) CA 2010 as any activity of a
commercial nature. This is a very broad definition and it is likely that almost all activities of
Malaysian businesses will be commercial activities. If the commercial activities are conducted
within Malaysia, the CA 2010 will apply. If the commercial activities are transacted outside
Malaysia, the CA 2010 will apply (if the activity has an effect on competition in any market in
Malaysia). For example, an agreement entered into between a Malaysian business and a nonMalaysian business will not automatically fall outside the CA 2010 simply because the
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MATRIK NO: 816482
agreement was transacted overseas. The MyCC will need to assess, on a case-by-case basis, the
extent to which a particular commercial activity has an effect on competition in a market in
Malaysia.
Excluded commercial activities under Competition Act 2010
The CA 2010 excludes certain activities from the definition of commercial activity:
Any activity directly or indirectly in the exercise of governmental authority;
Any activity conducted based on the principle of solidarity. This covers activities carried
out for purely social objectives. The provision of government run medical care or
benefits paid by SOCSO will be covered by the principle of solidarity. This is because
the benefits payable to an individual are not dependent on the value of the contributions
made by that individual. An exclusion will not be available if the services are being
carried on as a commercial activity;
Any purchase of goods or services as an end user or consumer.
Activities that are ancillary or related to those excluded non-economic activities done will also
be excluded. The MyCC will need to consider, on a case-by-case basis, whether any of the above
exclusions apply.
Other Exclusions
The CA 2010 excludes activities regulated by the:
Communications and Multimedia Act 1998; and
Energy Commission Act 2001, as these Acts contain specific competition law

regimes.
It also excludes:
An agreement or conduct which complies with a legislative requirement;
Collective bargaining activities or collective agreements in respect of
employment terms and conditions;
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MATRIK NO: 816482
An enterprise entrusted with the operation of services of general economic
interest or having the character of a revenue producing monopoly.
As stated in paragraph 7 of the Guidelines on Chapter 1 Prohibition (Anti-Competitive
Agreements), the MyCC intends to apply these exclusions narrowly. The burden of proof will be
on the enterprise seeking to benefit from the exclusion.
An agreement will be caught by Competition Act 2010 (CA) even if it is:
Not in writing

An agreement could be reached verbally over the phone, at a meeting or at a social

function. It may simply be a gentlemans agreement. For example, managers from two
competing banks may meet to play golf once a week. At the end of their game, they
discuss interest rates and agree that it would make sense if both banks charged the same
interest rate to business customers. This would be an illegal price fixing agreement
even though nothing has been written down or signed.
An informal agreement

An exchange of emails or letters could be an agreement.

Not legally enforceable

The agreement does not have to be able to be enforced by the parties. Illegal agreements
are generally unenforceable but the CA 2010 will still apply.

An agreement is only covered by the CA 2010 if it is between enterprises so there must be at

least two enterprises that are parties to the agreement. Therefore, despite being two separate
legal entities, an agreement reached between a parent and a subsidiary that form part of the same
single economic unit will not be caught by the CA 2010. Whether a parent and subsidiary truly
form part of a single economic unit will need to be determined on a case-by-case basis
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2.2 BUSINESSES
Enterprise is a wide concept and will apply to an entity carrying on commercial activities
regardless of its legal status or the way it is financed.
Small and medium enterprises (SMEs) that carry on commercial activities will be
subject to the CA 2010.
Government linked companies (GLCs) will also be subject to the CA 2010. GLCs will
often carry out commercial activities alongside their governmental activities. It is
possible that a GLC could be subject to the CA 2010 in respect of some of its activities
(i.e. commercial) and not in respect of others (i.e. governmental).
In determining whether parent and subsidiary companies will be regarded as a single
enterprise, the MyCC will have regard to factors such as the shareholding held by the
parent in the subsidiary, the parental control of the board over matters such as investment
and marketing decisions of the subsidiary, and the amount of profit the parent takes from
the subsidiary. This is not an exhaustive list and the MyCC will have regard to other
factors it considers relevant on a case-by-case basis.
Where a parent and subsidiary form a single enterprise:
The companies may reach anti-competitive agreements between themselves without
infringing the CA 2010;
The parent company will be liable for the actions of the subsidiary;
The turnover of the parent company will be relevant for the calculation of penalty under
section 40(4) CA 2010.
Horizontal Agreements:
A horizontal agreement means an agreement between enterprises that operate at the same level in
the production or distribution chain, for example, an agreement between retailers, or an
agreement between wholesalers.

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Vertical Agreements:
A vertical agreement is an agreement between enterprises that operate at a different level in the
production or distribution chain, for example, an agreement between a retailer and a wholesaler
or between a manufacturer and a wholesaler.
What agreements are not permitted?
Price Fixing
Market Sharing
Limiting production or supply
Bid Rigging
Price Fixing
The fixing of purchase or selling prices or other trading conditions, either directly or indirectly, is
prohibited by section 4(2)(a) of the CA 2010.In an efficient competitive market, the forces of
supply and demand will determine issues such as price. Instead, when prices are fixed or
maintained at a certain level, prices become artificial and do not truly reflect supply and demand.
Artificial prices are normally higher, resulting in harm to consumers.
a. DIRECT price fixing is likely to occur where parties agree:

to increase price to a certain level or by an agreed percentage;

to maintain price at a certain level;

the components of a price (such as the price of key inputs or the profit margin
to be earned);

not to price below a minimum level e.g. Recommended Retail Price (RRP);

to price within an agreed range;

to consult each other before making pricing decisions.

b. INDIRECT price fixing is likely to occur where parties agree:

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not to offer discounts, allowances or rebates;

trading conditions such as transport charges or credit terms;

to impose higher prices, without specifying the exact price.

GMUL 5063: LAW, ETHICS & CSR

KAMALCHI A/P GUNAGAGERAN
MATRIK NO: 816482

In all these cases, although a specific price may not necessarily be agreed, each of the parties to
the price fixing agreement loses the ability to independently determine their own price. In
addition, each of the parties has knowledge of its competitors pricing strategy or intentions, thus
removing a significant degree of the uncertainty (i.e. competitiveness) in the market. Businesses
should not share information or discuss with competitors:
Current or future prices;
Profit levels;
Pricing policy or rationale for pricing;
Possible increases or decreases in price;
Standardization or stabilization
Standardization of credit or trading terms of prices;
All of these decisions should be made independently
Case Example:
In April 2012, British Airways (BA) and Virgin Airlines (VA) were found guilty of price fixing in
breach of the UK Competition Act. The case involved an agreement between the airlines in
respect of the passenger fuel surcharges payable on long-haul flights to and from the UK. The
agreement was in place from August 2004 to January 2006.The parties used the exchange of
pricing and other commercially sensitive information to agree on the prices. In its press release,
the Office of Fair Trading said that this decision sends out a strong message that coordinating
pricing through the exchange of confidential information between competitors is unlawful. BA
was fined $58.5 million; VA blew the whistle and received a 100% reduction in fine under the
OFTs leniency policy.

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MATRIK NO: 816482

Market Sharing
Sharing markets or sources of supply is prohibited by section 4(2)(b) of the CA 2010. The harm
to competition from market sharing is a reduction in choice for consumers, often leading to an
increase in price.
Sharing markets or sources of supply could occur either by:
Dividing up the market. This could relate to either:
The geographic market
Company A agrees to operate only in Kuala Lumpur; Company B agrees
to operate only in Shah Alam;
The product market
Company A agrees to sell sugar and not sell flour; Company B agrees to
sell flour and not sell sugar;
The temporal market
Company A agrees to operate bus services in the morning only; Company
B agrees to operate bus services in the afternoon only;
Businesses should not share information or discuss with competitors:

the division of any market;

the allocation of customers;

exclusive dealing arrangements;

a decision to specialise in certain products, ranges of products or particular

technologies.

All of these decisions should be made independently.

Dividing up customers Company A agrees to supply retailers; Company B agrees to
supply wholesalers;

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MATRIK NO: 816482
Agreeing not to sell or supply in areas, or to customers, outside their allocated
territories.
Businesses should not share information or discuss with competitors on:
The division of any market;
The allocation of customers;
Exclusive dealing arrangements;
A decision to specialize in certain products ranges of products or particular technologies.
Example of case:
Visy supplied corrugated fibre board packaging products in Australia. For nearly 5 years, Visy
and one of its competitors had an agreement whereby they maintained their market shares.
They did this by refusing to deal with each others customers. If one of the customers chose to
switch providers, a different customer was swapped in return. Together, they held a 90%
market share. Penalties of $36 million were imposed on the company; penalties of $2 million
were imposed on two executives.
ACCC v Visy Industries Holdings Pty Ltd (No. 3) [2007] FCA 1617
Limiting Production
Limiting or controlling production, market outlets or market access, technical or technological
development or investment is prohibited by section 4(2) (c) of the CA 2010. The harm to
competition from these types of limitations is that supply will be reduced, forcing prices up as
demand will outweigh supply.
Business should NOT agree:
production quotas;
not to increase production capacity or utilise available capacity;
not to introduce new products;
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to boycott certain suppliers;
technology standards that prevent other competitors from selling their products;
location of retail outlets;
to restrict access to the market by new entrants;
to stay out of each others markets.
All of these decisions should be made independently.
Technological and technical innovation and investments are one of the key concerns of
competition authorities as this is the way that production becomes more efficient and
products/services are improved. This generates obvious benefits for consumers. Any agreement
which limits this sort of investment is therefore considered anti-competitive.
Case example is as below:
As part of a complex price fixing arrangement, 5 producers of zinc agreed to limit their
individual output of zinc so that surplus zinc would not be sold to the London Metal Exchange or
other customers, possibly at lower prices. This ensured that their agreed price was not put at risk.
The 5 producers also agreed not to build any new zinc production capacity without first
obtaining the agreement of the other parties. The European Commission found a restriction of
competition and imposed fines of more than 3 million.
Zinc Producer Group [1984] OJ L220/27
Bid Rigging
Bid rigging is prohibited by section 4(2) (d) of the CA 2010.
Bid rigging occurs when two or more bidders collude to distort the normal conditions of
competition in respect of a tender. Bid rigging limits price competition between the parties.
Instead of competing to submit the best solution at the lowest possible price, parties agree
amongst themselves which of them should win the contract and collude to set tender prices to
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guarantee the agreed outcome, thereby removing the competitive element of the tender process.
For example, bid rigging may be achieved through the use of:

Bid Suppression

Bidder A does not bid at all

Bid Rotation

Bidder A and Bidder B take turns

at submitting the most competitive
tender price (and therefore winning
the contract).

Bid Withdrawal

Cover Pricing

Non-conforming
bids

Bidder A deliberately withdraws its

bid leaving Bidder B as the only
bidder and thereby winning the
tender.
This involves Bidder A submitting
a bid price that is deliberately
higher than Bidder B (and has been
determined in coordination with
Bidder B).
Bidder A deliberately submits its
tender not in accordance with the
terms or conditions specified in the
tender.

Bid rigging results in a number of anti-competitive effects on the market:

The bidders do not set their tender price independently, thereby removing competitive
uncertainty.
The contractor that is seeking submission of tenders falsely believes that the bidders are
submitting competitive bids. The contractor can no longer obtain the best price and the
best terms.

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KAMALCHI A/P GUNAGAGERAN
MATRIK NO: 816482
The collusion often requires the exchange of commercially sensitive information in order
to determine the relevant cover price.
Bid rigging is also a form of market sharing as the contracts are divided up between the
bidders.
Business should not:
a. Share bid prices;
b. Agree to submit cover prices that are not intended to win;
c. Agree not to bid or submit non-conforming bids;
d. Agree to take turns to submit bids or withdraw bids
All of these decisions should be made independently.
Case example:
In 2009, the UK Office of Fair Trading imposed fines on 103 construction companies for bid
rigging which had taken place over a period of 6 years. The case involved cover pricing, a
process by which a bidder who did not wish to bid for a particular contract sought a cover
price from its competitor which was higher than the competitors price, thus ensuring the
competitor would win the contract. In some cases, compensatory payments were paid to the
losing bidder. The Office of Fair Trading found that both the cover pricing and the
compensatory payments were breaches of Chapter 1 of the UK Competition Act. Total fines of
129.2 million were imposed.
Bid rigging in construction industry in England (2009) OFT Decision, Case CE/4327-04
What Can Your Business Do To Help Prevent An Infringement?
Compliance

All Malaysian businesses should take steps to ensure compliance with the

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CA 2010. This will require:

A review of current contractual and non-contractual arrangements and business
practices to determine whether there are any existing concerns that need to be addressed;
The introduction of a tailored compliance program which includes an ongoing
commitment to competition law compliance.

There is no one size fits all compliance program. An effective compliance program needs to be
specific to the particular business. A small business with only a handful of employees will
require something very different to that which is required by a large business employing
hundreds of employees. Businesses in different industries will face different risks and these will
need to be reflected in your compliance program.
For most businesses, a Compliance Program should include:
1. A compliance policy statement
Setting out the policy of the business relating to competition law compliance and
evidencing a commitment to compliance by senior management;
2. A competition Law Compliance Manual
Setting out guidelines on the law in simple language for your employees to understand.
This manual should address the key areas of risk for your business;
3. Training
The training should be offered to all employees, particularly those most likely toface
competition law risks e.g. sales and procurement employees, personnel that attend trade
associations. Senior management should also be trained. The training should include
practical examples relevant to your business;
4. A Competition Compliance Committee
A committee (or individual in smaller businesses) that is responsible for ensuring
competition law compliance. This committee (or individual) should also be available to
provide guidance to, and answer questions from, your employees;
5. A Periodic Audit
To check that the business is maintaining its compliance culture and to identify any new
risks that may have arisen;
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6. An Annual Report to the Board
In larger businesses, the board of directors or senior management should receive annual
reports on competition law compliance. This will only be necessary in smaller businesses
where senior management are not already aware of the compliance issues.
2.3 CONSUMERS
Malaysian Competition Law has played a huge role to protect the competitive process for the
benefit of consumers. This is shown when they draft the Malaysian Competition Act 2010 as the
portion for consumers are also highlighted. Having a consumer protection bureau will deter
monopolies, price fixing and cartels as they are the consumer watch-dogs. In other countries,
they do have a law on Fair Trade which is not implemented in Malaysia but we have cartels and
anti-competition to protect ourselves. We would be closer to becoming a developed country with
an increased importance of a market economy if we have such safeguards to our economy. When
the consumer interests are given consideration, price control is introduced under Price Control
Act 1946.
Although by having a price control can bring relief to consumers in the short term, traders can
create artificial shortages and hike up prices before price control is enforced. So, now the price
control is enforced all year round and is quite predictable such as during festive seasons and
shortages.
Example of case is a case of a monopoly using its dominant position to charge the
consumer a price higher than what he should justifiably pay, as well as tie him down to the said
monopoly company by certain other practice, both of which were deemed to be against the
public interest. An Order was issued directing the respondent company to bring down the price
by the specific amount which the Commission thought was being unjustifiably overcharged, and
also to correct the practice which was tying down the customer to the monopolistic respondent
company. The respondent company has now appealed to the Court of Appeal to have the Order
quashed. The Commission is contemplating filing counter action against it for contempt of court
in not complying with the order.
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3.0 CONCLUSION
Under perfect competition, not only are resources allocated efficiently but also consumer welfare
is maximized. Since this ideal condition does not exist and markets are imperfect to varying
degree, a Competition Policy backed by legislation is necessary to promote competition. To
make this policy very effective, however, other Government policies must be in harmony with it.
The Competition Act and the MYCCs guideline overall still at experimental stage focusing
more on competition advocacy. They have strived to so far to maintain a fair application to all
although its main concern is economic efficiency and consumer welfare. There are various
allocations in the Act and policy for giving SMEs a level playing to balance with the bigger
counterparts which requires awareness, understanding and knowledge of the law itself. It is
therefore crucial to bridge the gap and make SME understand the idea of competition, its
importance, and implication of an anti-competitive conduct and accept it as a part of their
business culture in Malaysia.

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