This article was first published in the July 2012 Malaysia edition of Accounting and Business magazine.
In many developed countries, the regulation of competition has become pivotal to keeping commerce on an even keel. But it was only recently that Malaysia finally caught up, with the Competition Act 2010 coming into force on 1 January 2012.
The passing of the act is the culmination of a long and arduous process, as the mandate to develop it was given long ago, under the Eighth Malaysia Plan (2001-2005).
‘I’ve been working on it since 2002, conceptualising both the policy and law,’ says Shila Dorai Raj, CEO of the Malaysia Competition Commission (MyCC), the competition regulator established under the act.
‘There is always the temptation for businesses to misbehave,’ concedes Shila. ‘[But] if they’re bad, they will have to be disciplined. The act provides for this because small businesses, especially, still do need protection from larger, better-established ones who may practice bad business ethics which are anti-competitive in nature. With the act, a carrot-and-stick approach is used.’
While the carrot comes in the form of a level playing field and fairness for all players regardless of size, which will eventually lead to an increase in national competitiveness, the stick is a large one, which can work out to be quite painful for big firms, especially those with worldwide networks.
‘If found to have contravened the act, guilty companies can expect to pay a fine of up to 10% of their worldwide turnover,’ she clarifies.
Although the act was almost a decade in the making, Shila says the real challenge was establishing the commission itself, putting in place internal procedures and generally setting the guidelines for dealing with business issues.
MyCC currently has 12 staff but she hopes to have 26 by year-end, when everything is due to be operational.
‘This should be the optimum number of staff for now, considering the type of work we will be involved in,’ she explains. ‘There will be a need for administrative staff as well as investigators who will look into the complaints that are lodged with us.’
Too much red tape?
One of the queries she frequently has to respond to is whether another piece of legislation to regulate business is necessary, especially in a country as small as Malaysia.
‘At present, there is no single law in Malaysia that addresses the behaviour between two companies, although there are several that quite effectively regulate business-to-consumer relationships,’ she says.
‘But we are looking beyond the current environment, towards developed-country status. Regulations such as the Competition Act have been seen to increase investor confidence. Although there is no direct correlation between the act and an increase in gross domestic product, research by the World Bank shows that they do not impact negatively on trade.’
The passing of the act must also be viewed within the context of the ASEAN economic community, where all member countries are required to establish appropriate legislation by 2015. Indonesia, Singapore, Thailand and Vietnam already have competition acts.
Although established for the local environment, Malaysia’s Competition Act quite closely resembles the European Union model. Shila acknowledges, ‘Our counterparts in Singapore were particularly helpful. They gave a lot of input, and were really generous about sharing their experiences. We learned a lot from them, such as how to restructure the remuneration scale for our staff, considering that we are a statutory body governed by public-sector salary scales, with the need to access high-level expertise which has to be fairly compensated.’
The federal government and commission are institutionally connected through the appointment of commissioners from the Attorney General’s Office, the Ministry of Domestic Trade, Consumerism and Cooperatives, the Ministry of International Trade and Industry, and the Economic Planning Unit (EPU). The Attorney General’s Office advises on and drafts legislation, while the ministries and the EPU generate national and international economic and commercial policies that drive the country’s trade.
Shila also reveals there are plans for the commission to collaborate with an accounting regulating body on a competition audit for firms in the near future.
So how will the public benefit from the implementation of the act? Shila is realistic about results, conceding that these will not be immediately apparent.
‘The effect will be gradual,’ she admits. ‘Consumers won’t see it immediately, but they will benefit, particularly if big businesses try to fix prices, as in the case of Samsung and LG in Korea, where these two multinationals were found guilty of price-fixing in a market where they were already the dominant players. They were both fined heavily by the Korean Fair Trade Commission – so in the end, the consumer does benefit.’
Fines aside, being found guilty of unfair practices can have a negative effect on a company’s reputation and credibility, more so when it is a multinational that is perceived as a bully through abuse of its dominant position in the market.
Education and awareness
MyCC has also been tasked with increasing public awareness on the need for fair competition practices and how this will improve national competitiveness and productivity. ‘We’ve already started receiving complaints about anti-competitive practices,’ Shila says.
‘Once a complaint is lodged, the complainant has to be ready to provide evidence, and if we decide there is enough evidence, an investigation is launched.’
The investigation process can be quite lengthy. Although no Malaysian precedents have yet been established, she says that cases can take as long as four years to be resolved, and, based on her experience at the Ministry of Domestic Trade, Cooperatives and Consumerism (see box, far left), the majority of complaints are consumer-related.
The commission has extensive powers, but its strategy for now is to focus on advocacy rather than enforcement as it believes that compliance with the law should evolve from a change of mindset, not the fear of punishment.
Some have criticised the act – and MyCC – as being draconian, but Shila defends its powers as a necessary aspect. ‘MyCC is an adjudicating body,’ she explains. ‘It needs power to enforce the law, but we would prefer the soft approach, such as advising the offending party to modify its behaviour or review its actions.’
It’s not just private-sector businesses that will have to mind their manners – government-linked corporations will be subject to the same scrutiny.
‘The government should take cognizance of the fact that it should not be in the commercial space,’ she states. ‘It needs to ask what the role of a government is; policy must be formulated in a way that avoids creating dominant players.’
Ultimately, business needs to be protected, and competition encouraged – but through fair play, and a level playing field, says Shila.
Accountants should note that MyCC reads financial reports of companies in detail as soon as complaints are lodged against them. Under the act, anti-competitive practices are, for example, agreements between businesses that aim to prevent, restrict or distort competition in any market for goods or services. ‘Abuse of dominant position’ includes imposing unfair prices, limiting or controlling production and tying or bundling activities by an enterprise either individually or in collaboration with other enterprises.
Malaysia Competition Commission (MyCC) CEO Shila Dorai Raj holds a Bachelor of Economics from the National University of Malaysia, an LLB (Hons) from the University of London, and a Certificate in Legal Practice from the University of Malaya. She is also a fellow of the International Monetary Fund.
Prior to her appointment as MyCC CEO, Shila was head of the Interim Competition Unit at the Ministry of Domestic Trade, Cooperatives and Consumerism (MDTCC) and was tasked with setting up MyCC as well as laying the foundation for the implementation of the Competition Law. Formerly the under secretary of MDTCC’s Policy and Planning Division, she was also an officer at the Ministry of Finance, focusing on international economics and government finance, and chaired the ASEAN Experts Group on Competition from 2009 to 2010.
Established on 1 June 2011 under the Competition Commission Act 2010, the Malaysia Competition Commission enforces the Competition Act 2010. Its main role is to protect the competitive process for the benefit of businesses, consumers and the economy.
It is empowered to implement and enforce the provisions of the act, issue guidelines, act as advocate, carry out studies in connection with competition-related issues, and generally educate the public on the benefits of healthy competition.
The main aim of the Competition Act is to promote economic development and protect consumer interests. This applies to all business activities within and outside Malaysia if they impact on competition in the domestic market. Under the act, anti-competitive practices and the abuse of dominant position are prohibited.
Majella Gomes, journalist