It's all about choice for consumers, firms

A wider range of products and services at better prices is in store when the new Competition Act is enforced, experts tell SANTHA OORJITHAM


New Straits Times, 6 February 2011



TRAVEL agencies in Malaysia have been told to charge a consultation fee when asked for a quotation or proposed tour package, starting last month.

The Malaysian Association of Travel and Tour Agents (Matta) has announced a fee structure which it says is a guideline, and which travel agents are free to adjust according to the service provided.

But Datuk Pardip Kumar Kukreja wonders if this would infringe the Competition Act 2010.
"What are the implications?" asks the executive chairman of the Paradise group of companies, which includes hotels and travel agencies.

"Can Matta impose that or not?"

The Act was gazetted in June last year but will not be enforced until January next year. Meanwhile, the Competition Commission will be appointed within the first quarter of this year and will produce guidelines by the end of the year.

After that, there will be a "transition period" of about six months for businesses and groups to comply, says Shila Dorai Raj, head of the Interim Competition Unit at the Ministry of Domestic Trade, Co-operatives and Consumerism.

"The impact will be huge," predicts Shila, who was on a roadshow to all the states.

"When we went to Sarawak in September last year, people were shocked. They said the Act would outlaw what they had been doing."

But the end result should benefit both businesses and individuals, since the Act aims to protect both the competition process and consumer interests.

The New Economic Model, announced last year, stressed private sector-led growth and promised that the government would not use its regulatory powers to protect Government-Linked Companies (GLCs) from competition.

"GLCs are subject to the law too, so they will not be able to hide behind the skirts of the government," points out Shila, although there will be exemptions for "services of general economic interest" such as postal services and water.

The Act will apply to all commercial activity -- including by government companies and public authorities. Shila notes that in 2009, the Malaysian Fisheries Development Board ordered fish importers, exporters and wholesalers to use insulated containers from one supplier.

If they didn't, they were liable to a fine of RM15,000 and/or two years' jail. That was eventually dropped and under the Act, such a practice would be an offence.

The law prohibits two kinds of anti-competitive practices -- anti-competitive agreements and abuse of dominant position. And if the commission determines there is an infringement, the financial penalty can be up to ten per cent of worldwide turnover of the enterprise during the period in which it happened.

Agreements include contracts and understandings, whether they are legally enforceable or not, and even the decisions of associations. For example, when Singapore bus operators discussed fixing the price on trunk routes to Kuala Lumpur and implemented it, the Competition Commission of Singapore prosecuted 16 of them and their Express Bus Agency Association and fined them S$1.69 million (RM4.03 million) for price fixing.

"If you don't agree to what your organisation is discussing when it is about issues relating to price fixing, don't attend," warns Shila.

Abuses of dominant position include predatory pricing (dropping the price below cost to wipe out competition and then increasing the price afterward) and tying or bundling -- such as a developer insisting that buyers get a mortgage or loan from their panel of banks.

"The consumer has to be given a choice, the chance to shop around and get a deal," says Shila.

There have been demands for Malaysia to address competition issues during negotiations for Free Trade Agreements, says Darren Kor, a lawyer who helped draft the Communications and Multimedia Act, which includes anti-competitive provisions.

With the Competition Act, he says, "Malaysia will gain more 'points' as an investment destination. Foreign investors do not want local enterprises to muscle them out. And locals, especially Small and Medium Enterprises (SMEs), also want the same protection."

With the Act, SMEs have an avenue to tackle anti-competitive practices, says Tan Sri Yong Poh Kon, immediate past-president of the Federation of Malaysian Manufacturers (FMM) and co-chair of the Special Task Force to Facilitate Business (Pemudah).

It will help to create "a business environment where monopolies and restricted oligopolies (control of a product or service by a few companies, influencing its price) are not created artificially through excessive government protection and interference with market forces."

"The Act will allow SMEs to operate more freely," says Pardip, who is an adviser to the Malaysian-Indian Business Association and whose group is an SME.

"If there is no control upstream they will have a much better negotiating base to get better pricing from suppliers. And people will be more open to entering various industries if there are no barriers."

As for consumers, they can take a civil case to court for loss or damage directly as a result of an anti-competitive practice prohibited under the Act. And the Federation of Malaysian Consumers Associations will be able to file a case with the commission, says its chief executive officer, Datuk Paul Selva Raj.

"The commission will deliberate and tell us their findings. We want that process to be transparent and to give their reasons. And we want investigation and enforcement to be strong."

By all accounts, the process of drafting the Act was open and transparent. The ministry set up a consultative group of 25 in 2007 with representatives from 10 ministries, 10 private sector organisations (including FMM) and five non-governmental organisations (including Fomca) to go through the declassified draft.

The Act includes "elements of good governance", notes Dr Cassey Lee Hong Kim at the School of Economics in the University of Wollongong, New South Wales. The commission is to publish its decisions, investigation results and market reviews.

FMM's Yong hopes the guidelines will be published in time for the private sector to "study, understand and provide feedback on any concerns or impractical applications regarding the proposed implementation of the Act".

In the meantime, businesses should begin to examine their own practices and systems and correct any which could be anti-competitive, he advises.

They could look at the guidelines used by some of Malaysia's major trading partners as the provisions are likely to be similar. Singapore, Thailand, Indonesia and Vietnam already have competition laws.