The Government v Competition Law

Mahathir-Proton

In an emerging economy like Malaysia’s, where the government plays a strong role in guiding the national policy, it is without a doubt that the government has the ability to create an uneven playing field.

There are, summarily, two ways this can arise. The first are government regulations and policy. The second is more direct; where the government itself enters the market.

 

1. Regulation and Policy Making

Not unlike monopolists, the government has the ability to raise entry barriers into a market. This can be in the form of standards imposed on goods and services. But standards are not always objectively justifiable. It could simply be an arbitrary preference for a certain way things should be done, which incumbents may be more readily able to comply with. As for government contracts, nothing more need be said about how competition concerns would arise there.

As Professor Keith N. Hylton from the Boston University School of Law puts it:

“The state is potentially the best friend of the would be monopolist. … defenders have attempted to justify their conduct by claiming that a state or the federal government has authorized it.”

The tug and pull between, on the one hand the interest of the government in guiding the economy to a certain direction, and on the other hand the mandate of competition enforcers, has come to light within Malaysia itself.

In the much publicised proposed decision, MyCC proposed a penalty of RM213 million against members of the General Insurance Association of Malaysia (“PIAM”)  for entering into an agreement with a national automobile workshop association to fix the rates of hourly labour and parts-discount for PIAM approved workshops. It was Bank Negara who came to the defence of PIAM. The allegedly infringing agreement was, in fact, due to a directive issued Bby ank Negara to PIAM to sort out the many complaints the former received in relation to inflated claims, insurance premiums, and protracted delays in repairs (author’s note: presumably due to cost disputes between workshops and insurance companies). In Bank Negara’s eyes, the agreement was necessary to address these problems for the benefit of consumers.

 

2. Entering the Market itself

When the government enters the market, it is inevitable that concerns will arise regarding how the government treats competitors of its state-owned-enterprise, or even a GLC.

As governments and their investing bodies do not operate in a vacuum, government decisions made, in relation to markets it has entered, are necessarily conflicted decisions. As an example, in the midst of the dispute involving taxis, SPAD, Uber and GrabCar, the Malaysian Employees Provident Fund proceeded to invest in Uber.

Highlighting the government of Singapore’s dual role of both market player and regulator, Deborah Healey from the National University of Singapore wrote:

Temasek, the second government fund investment vehicle, has been described as “a behemoth, comparable with some of the world’s largest conglomerates, such as General Electric (GE) of the United States and Germany’s Siemens AG (SI).” … [it] constitute the bulk of Singapore’s GLCs. GLCs are responsible for most telecommunications, power, water and gas services, port operations, and the development of industrial estates and housing. They also compete in sectors such as travel agencies, food supplies, property development, heavy industries; as defence, construction, engineering and trading firms. …

The above discussions leads us to a crucial question: is the government subject to competition law?

 

3. Malaysian Government v. Its own Competition Act 2010

In the European Union, competition jurisprudence there has widely accepted the idea that government bodies can be subject to competition enforcement. The primary sources of competition law in the EU, Articles 101 and 102 of the Treaty on the Functioning of the European Union, describe competition infringement to be acts/agreements done by ‘undertakings’ and ‘associations of undertakings‘.

EU case law in interpreting what the term ‘undertaking’ constitutes have made it wide enough that government bodies can fall under this definition, as long as it engages in activities which are economic in character. The European Court of Justice has held:

It should be borne in mind that, in the context of competition law, the Court has held that the concept of an undertaking encompasses every entity engaged in an economic activity, regardless of the legal status of the entity and the way in which it is financed.

In Malaysia, it is clear that GLCs and SOEs would be subject to competition law. But what about government bodies? The Competition Act 2010 (“CA2010”) does not describe entities subject to competition law as an ‘undertaking’, and instead uses the word ‘enterprise‘. At first sight, it seems that government bodies do fall within the scope of the CA2010, as Section 2 of the CA2010 provides that an:

“enterprise” means any entity carrying on commercial activities relating to goods or services, and for the purposes of this Act, a parent and subsidiary company shall be regarded as a single enterprise if, despite their separate legal entity, they form a single economic unit within which the subsidiaries do not enjoy real autonomy in determining their actions on the market

Following EU case law, there would be certain cases where government bodies engage in such commercial activity and is thus subject to the CA2010. Yet, the CA2010 goes on to provide in section 3(4) that:

For the purposes of this Act, “commercial activity” means any activity of a commercial nature but does not include— (a) any activity, directly or indirectly in the exercise of governmental authority;

For any decision makers on the scope and limits of the CA2010 when applied to government bodies, that question must be considered in light of the above. There may be acts done by government bodies that do not fall within its governmental authority.

 

4. The MyCC v. Everybody else

The MyCC, like many young competition enforcers in other jurisdictions, will face pushback from other governmental bodies, who have their own objectives and views on what is best for consumers and the economy in general. Other possible restraints may come in the form of budget limitations for the MyCC if it steps on too large a toe; the politics behind the law cannot be ignored.

Writing in 2002, John Haley from the University of Washington described, among others, Malaysia as having:

…embedded traditions of active government (or patrimonial ruler) participation in the economy. None have developed fully a vigorous and independent private sector. In short, none has an established economic market free from active government intervention favoring particular economic players. In addition, none of these countries has established either an administrative or judicial system manifestly able to implement effectively and fairly a legal regime either designed to promote firm rivalry based on consumer rather than political preferences or intended to foster democratic processes by reducing the influence of concentrated wealth. …Given the role of government in the economy and the lack of an effective, efficient, and, above all, corruption-free regulatory and juridical infra-structure, the competition law regimes that now exist on the books or are being planned are almost certain to fail.

Indeed, it was rather disconcerting when, during the recent ASEAN Competition Conference held in Malaysia this month, a senior member of the MyCC informed audiences that part of the MyCC’s activities, beyond competition law advocacy, was in fact fund raising for the MyCC.

As ASEAN members reveal a renewed push for all members to have comprehensive competition law regimes by 2025, critics will have to wait and see if John Haley’s words 15 years ago will ring true.

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Author: Mervyn Lai

Lawyer. Competition Law LLM (Distinction) University of Glasgow.

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