Competition Law in Singapore
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Transcript of Competition Law in Singapore
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Competition Law in Singapore
R Ian McEwin1
I. INTRODUCTION
In August 2002 a small unit was set up within the Ministry of Trade and Industry
(MTI) to look at the possible introduction of a competition law in Singapore – the
location of the unit within an economic ministry rather than a legal one indicates the
stress that Singapore placed on economics in its implementation. In February 2003, the
Economic Review Committee recommended that Singapore enact a competition law.
MTI conducted public consultations on the draft competition bill in July and October
2004. Subsequently, the Parliament of Singapore passed the Act in 2004.
The Singapore Competition Act2 (“the Act”) is based on the United Kingdom’s
Competition Act 1998 but with some differences reflecting the fact that Singapore is a
small but open economy. For example, the Section 47 prohibition dealing with abuse of
dominance explicitly says undertakings that are dominant anywhere in the world can
breach the section if their conduct has an anticompetitive effect in Singapore. Vertical
agreements are also excluded from the Section 34 Prohibition Act (as long as a dominant
firm is not involved), reflecting the view that vertical restrictions are normally pro-
competitive, and those that are not are often limited by international competition or are
difficult and costly to evaluate—an important factor in a small country with limited
administrative resources.
Singapore has adopted a total welfare approach under which anticompetitive
conduct can be excused if there is Net Economic Benefit (“NEB”). A notification system 1 Former Chief Economist, Competition Commission of Singapore, Professor of Law, National University of Singapore. The views expressed here are solely those of the author and do not necessarily represent those of the Competition Commission of Singapore. 2 Cap 50B, 2006 Rev Ed.
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has been introduced for NEB to allow companies to enjoy the certainty of a decision by
the Competition Commission of Singapore (“CCS”), something considered important in a
new competition regime. Accordingly, businesses and their lawyers have greater certainty
in dealing with a new and unfamiliar area of law. At the same time, as is currently the
situation in Europe, NEB can be argued as a defense so there is no need to notify ex ante.
As a result, unlike in Europe, the CCS has not been inundated with notifications.3
One other important difference from the United Kingdom and other European
nations is the deletion in the abuse of dominance provision of the subsection dealing with
“imposing unfair purchase or selling prices or unfair trading conditions” replaced with
“predatory behavior towards competitors.” This makes it clear that abuse is confined to
exclusionary conduct and not price regulation or consumer protection, which makes the
prohibition different from most competition laws in Asia that prohibit unfair conduct.
One of the difficulties with a new competition law regime is making sure both businesses
and the general public understand what competition law is all about, as some confuse
competition law with consumer protection law and see competition law as being
primarily concerned with high prices, product misrepresentation, etc. However,
Singapore has made a clear division between consumer protection and competition law.
To administer and enforce competition law in Singapore, a new statutory board,
the Competition Commission of Singapore (“CCS”) was set up on January 1, 2005 under
3 As Hawk commented in 1995 on the EU approach to vertical restraints: “It was evident as early as the 1960s that DG IV lacked the resources to deal with notifications seeking individual exemptions. This should not be surprising. No competition authority in the world has the resources to examine the vast number of vertical agreements (and licences) whose enforceability has been called into question by the overbroad application of 85(1).” Barry E. Hawk, System Failure: Vertical Restraints and EC Competition Law, 35 COMMON MKT. L. REV. 973, 982 (1995).
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the Ministry of Trade and Industry. In a press release, the Minister for Trade and Industry
said:
The functions and duties of the CCS shall be to:
• Remove or limit practices that have an adverse effect on competition in
Singapore
• Maintain and enhance efficient market conduct and promote competition
in markets in Singapore
• Act internationally as the national body representative of Singapore in
respect of competition matters
• Advise the Government or other public authority on national needs and
policies in respect of competition matters generally.4
The substantive provisions were implemented in phases:
1. Phase 1: On January 1, 2005, the provisions establishing the CCS came
into effect.
2. Phase 2: On January 1, 2006, the provisions on anticompetitive
agreements, decisions and practices, abuse of dominance, enforcement,
appeal processes, and other miscellaneous areas came into force.
3. Phase 3: On July 1, 2007, the remaining provisions relating to mergers and
acquisitions came into force.
In addition to the exclusion of vertical agreements and those that have NEB, the
Third Schedule of the Act provides for a number of exclusions for the Sections 34 and 47
4 Ministry of Trade and Industry (MTI), Press Release, “Ministry of Trade and Industry Launches Competition Commission” (December 30, 2004, available on the MTI Web site at <http://app.mti.gov.sg/default.asp?id=123&cat=1&intCategory=4>. These functions were incorporated into s 6 of the Act.
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prohibitions. These include agreements or conduct engaged in to comply with a legal
requirement or to avoid conflict with international obligations, and to a number of
services, including ordinary letter and postcard services, the supply of potable water and
wastewater management services, bus services, rail services and cargo terminal
operations, and clearing house services. Contrary to a widespread perception,
government-linked corporations engaging in economic activity are covered by the Act
II. COMPETITION LAW GOALS IN SMALL, OPEN ECONOMIES
An important policy question is whether small, open economies really need a
competition law given that open markets place considerable competitive pressures on
domestic markets. Switzerland introduced a competition law in 1995 in recognition that
large Swiss companies were moving production offshore due to the higher costs of
domestic products caused by lack of competition.5 As with Switzerland, Singapore is
likely to benefit from more competition in non-traded domestic industries such as
services. Not only will consumers benefit from lower prices, but businesses in Singapore
will enjoy lower input prices that will make them more competitive overseas and in
meeting import competition.
Singapore recognized that its competition law should be appropriate for its own
circumstances. Singapore’s goals are unambiguously economic. In the Second Reading
Speech of the Competition Bill, Dr. Vivian Balakrishnan, the Senior Minister of State for
Trade and Industry, said:
Sir, the objective of the Bill is to promote the efficient functioning of our markets
and hence enhance the competitiveness of our economy. The Bill seeks to prohibit
5 See Roger Zach, Competition Law as Comparative Advantage, Towards WTO Competition Rules: Key Issues and Comments on the WTO Report (1998) on Trade and Competition (proceedings of the seminar, Zurich University, July 8–10, 1999) (Kluwer Law International, 1999) at 395 and 402–403.
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anti-competitive activities that unduly prevent, restrict or distort competition. We
recognize that any regulatory intervention in the market may impose costs.
Therefore, we need to balance regulatory and business compliance costs against
the benefits from effective competition. Instead of attempting to catch all forms of
anticompetitive activities, our principal focus will be on those that have an
appreciable adverse effect on competition in Singapore or that do not have any
net economic benefit. In assessing whether an action is anticompetitive, we will
also give due consideration to whether it promotes innovation, productivity or
longer-term economic efficiency. This approach will ensure that we do not
inadvertently constrain innovative and enterprising endeavors.6 [emphasis added]
6 Singapore Parliamentary Debates, Official Report (Oct. 19, 2004), vol 78, cols 863–890, available on the Parliament website at <http://www.parliament.gov.sg/ parlweb/hansard_search_latest.jsp> (last visited Sept. 4, 2006) (Dr. Vivian Balakrishnan, Senior Minister of State for Trade and Industry).
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As is pointed out in the Second Reading Speech, the enforcement focus is on
conduct that has an appreciable adverse effect on competition in Singapore or that does
not have any net economic benefit. The use of the term appreciability in this speech (but
not in the Act itself) signifies the regulatory focus is on the practices that cause the most
harm—and that can be justified after the costs of regulatory intervention are taken into
account. The notion of appreciability comes from EU competition law jurisprudence that
was imported into U.K. law via s 60(1) of the U.K. Act to ensure uniformity between EU
and U.K. law. As there is no equivalent of s 60 in the Act, its application in Singapore
depends on the intention of Parliament as reflected in the Second Reading Speech.
The CCS Guidelines 2005 provide guidance on how appreciability will be
assessed.7 Rather than looking at the impact of the agreement, etc., the CCS will focus on
other factors including the market shares of parties to the agreement. For example, there
will generally be no appreciable adverse effect on competition if the aggregate market
share of the parties to the agreement does not exceed 20 percent or where all the
undertakings are small or medium enterprises (for manufacturing enterprises this means
having fixed assets investment of less than $15 million, and for service enterprises having
fewer than 200 workers).
While restrictions on competition generally reduce output, product quality, and
consumer choice, some agreements that reduce competition may also promote economic
efficiency. For example, agreements may lower costs of production, improve product
quality, or create a new product. When efficiencies outweigh the detriment to competition
via reduced costs and better products, society is better off. The criteria to be used in
7 See Competition Commission of Singapore, Guideline on the Section 34 Prohibition (Dec. 2005), available on the CCS website at <http://www.ccs. gov.sg/Guidelines/index.html> (last visited Sept. 4, 2006) at para 2.19.
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assessing NEB are set out in s 41of the Act, which is similar to Art 81(3) in the European
Union – except that there is no requirement that the parties must show that consumers
will get a ‘fair share of the resulting benefit’ . An agreement can have a NEB if it
contributes to improving production or distribution or promotes technical or economic
progress if it is done in the least restrictive way and does not eliminate competition in a
substantial part of the market. In addition, as pointed out in the introduction, Singapore
has retained a notification system to allow for greater business certainty in the early
stages of the Act’s implementation, but also allows for self-assessment in that NEB can
be claimed as a defense where conduct would otherwise breach the Act.
III. ENFORCEMENT
Section 62 of the Singapore Competition Act provides that the CCS may conduct
an investigation if there are reasonable grounds for suspecting that the Section 34 or
Section 47 prohibition has been infringed. The formal powers of investigation can be
used only when this requirement is met.
Under the Act, the CCS has the power to:
1. Require the production of specified documents or specified information
2. Enter premises without a warrant
3. Enter and search premises with a warrant.
The CCS may also obtain information about undertakings, agreements, practices,
and markets through informal enquiries, either before or during the course of an
investigation (such as at a meeting, in writing, or by telephone). The CCS can require any
person to produce documents or information that it considers relates to an investigation.
Once the CCS has reasonable grounds for suspecting that the Section 34 or Section 47
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prohibition has been infringed, it may conduct an investigation. It has the power to enter
into any premises to carry out inspections, either with or without a warrant, and to gain
access to documents relevant to an investigation. (Premises generally refers to business
premises; it does not include domestic premises unless they are used for business.)
While there are no criminal penalties for breach of the Section 34 or Section 47
prohibitions, there are criminal penalties for obstructing the CCS. For example, it is an
offense to fail to provide required documents or information; obstruct by refusing to give
access, assaulting, or delaying the CCS; intentionally or recklessly destroy documents; or
provide false or misleading information.
The CCS has the power to give directions to bring an infringement to an end,
give directions on interim measures during an investigation, and impose financial
penalties on undertakings for infringing the Act. The amount of the penalty imposed may
be up to 10 percent of the turnover of the business of the undertaking in Singapore for
each year of infringement, up to a maximum of three years.
IV. DAMAGES
While parties do not have rights of private action with respect to breaches of the
Act, parties suffering loss or damage arising directly from an infringement of the
Section 34 and/or Section 47 prohibitions are entitled to commence a civil action for
damages against the infringing undertaking. This right of private action only arises after
the CCS has determined infringement has occurred and any appeals have been exhausted.
There is a two-year limit for the taking of such private actions from the time that the CCS
makes its decision or from the determination of the appeal, whichever is the later. The
court will be bound in such proceedings by the relevant infringement decisions.
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V. ECONOMICS AND COMPETITION LAW IN A NEW COMPETITION
REGIME
In a new competition regime, there is unlikely to be many economists or lawyers
familiar with competition law. In Singapore, most economists are macroeconomists.
Even in such a sophisticated economy data and economic studies of sectors are limited as
are studies of particular markets. Unlike bigger economies, only limited data is publicly
available to properly determine the likely impact of market conduct.
Competition law enforcement is made even more difficult in a small economy
where levels of concentration are likely to be high and in which established practices
have reached a balance between interest groups over time. In particular, current
collaborations between competitors could be the result of informal government
intervention in the past. For example, some trade association price guidelines may have
come about by consumer pressure to limit price increases in the past—and there may be a
general consensus that guidelines are beneficial to consumers because they appear to
serve a consumer protection function.
Singapore has essentially adopted an effects-based law in which it is less
concerned with examining the form of the conduct as with assessing its impact. However,
conduct assessments take time. There seems to be little point in specifying bright-line
rules from other jurisdictions that give clear guidance to an industry when those adopted
rules do not necessarily unambiguously improve welfare. Without established case law,
lawyers will tend to look to overseas jurisdictions for guidance on the principles to be
used in particular fact situations, but care needs to be taken that rules not be adopted
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unquestioningly if there is a possibility of different outcomes. All in all, new competition
regimes need to tread carefully.
In a small, open economy, some economic issues may be assumed away in bigger,
more self-contained economies. For example:
• Geographic markets: should a presumption be made that geographic markets are
Singapore itself, or should normal geographic market approaches be used so that
relevant markets may be wider than Singapore? The first is easier to articulate for
public consumption, as here outside constraints on anticompetitive conduct within
Singapore are considered via imports and potential entry. However, a broader
geographic market may be justified particularly where products are differentiated,
with some may not even being produced in Singapore. Therefore, it is better to
make these decisions on a case-by-case basis.
• Anticompetitive effects: the Act has wide extraterritoriality coverage in that
essentially any conduct overseas is proscribed if it has an anticompetitive impact
in Singapore. However, obtaining the necessary evidence to prove anticompetitive
conduct may be difficult even if the effect in Singapore can be identified.
• Regulatory arbitrage: what should be done if stopping anticompetitive conduct in
Singapore leads to firms deciding to relocate to an adjoining country that does not
have a competition law? The effect could be to limit competition in Singapore.
For example, prohibiting anticompetitive agreements between air or shipping
companies could lead to fewer airlines or shipping companies using Singapore.
These issues are examined under the total welfare test of the NEB.
VI. THE WORK SO FAR
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A. Infringement Decisions
Since the Sections 34 and 47 prohibitions came into force on January 1, 2006 up
until February 2008 there have been 4 leniency applications, 29 complaints, 9
Notifications for Guidance, and 3 Notifications for Decision. The merger provisions
came into force on July 1, 2007, and by February 2008 there had been 5 Notifications for
Decision (all but one asked for a prenotification meeting).
The CCS issued its first infringement decision in January 2008 against some pest
removal companies for bid rigging. The companies involved colluded to submit
quotations to termite treatment projects. In each of the projects, one of the companies was
already providing pest control services or had recommended the use of a termite
treatment chemical to the customer. The first company would then inform some or all of
the other companies of the project via e-mail, phone, or short message service (“SMS”) to
request them, in effect, to submit bids at prices higher than its own bid. The first
company would also let them know the price of its bid or the prices they should quote.
The CCS started investigations in October 2006 and issued proposed infringement
decision to the parties in October 2007. The January 2008 decision found infringement
and imposed financial penalties amounting to S $262,760.
Three Notifications for Decision have been lodged. The first in January
2006 was by Visa International in which the applicants requested a decision from
the CCS that the multilateral interchange fee (“MIF”) system does not infringe the
Section 34 prohibition, or in the alternative, that it meets the NEB exclusion criteria
set out under the Third Schedule to the Act. This is a difficult issue for a new
competition authority to deal with. Apart from dealing with the issues relating to
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changes in economic theory (traditional versus two-sided markets theory), the CCS
has to rigorously evaluate the claimed benefits to Singapore.
Two other Notifications for Decision relating to aviation were received in April
2006. In the first Notification, Qantas and British Airways were parties to a joint services
agreement that had been in operation since 1995. This agreement allowed Qantas, British
Airways, and their subsidiaries to coordinate scheduling, capacity, prices, yields, and
marketing on all routes, including between Australia and Europe, Australia and Asia, and
Asia and Europe. In Asia, Singapore is the primary hub through which the applicants
operated a large number of their services
The applicants claimed that the agreement met the NEB exclusion criteria set out
under the Third Schedule to the Act as there are positive economic effects to Singapore
and its consumers, with no indispensable restrictions or elimination of competition. The
services involved passenger air (the principal focus of the application), air freight, and
sale of air travel services, but the applicants argued there were no appreciable effects in
those markets.
The Commission concluded that the agreement was likely to have the effect of
appreciably preventing, restricting, or distorting competition in the provision of
scheduled air passenger transport, but was excluded from the Act because there were
NEBs. The Commission also concluded the agreement did not and was unlikely to have
an appreciable effect on competition in the provision of services relating to air freight and
sale of air travel services.
The other Notification related to the Qantas–Orangestar Cooperation Agreement.
Besides being Australia’s largest domestic and international airline, Qantas is the holding
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company for a number of subsidiaries including Jetstar Airways Pty Limited (“Jetstar”)
that conducts Australian domestic and international airline operations. Orangestar is the
holding company of two Singapore value-based airline subsidiaries, Jetstar Asia and
Valuair. Qantas owns approximately 44.5 percent of Orangestar with the other major
shareholder being Temasek Holdings (Private) Limited.
Qantas and Orangestar entered into a cooperation agreement in April 2006 to
better coordinate their activities and the activities of their subsidiaries, including network
and scheduling decisions, sales and marketing initiatives, and pricing and inventory
decisions. The applicants argued that they and their subsidiaries were part of a single
economic entity and that the cooperation agreement resulted in significant NEBs to
Singapore. As such, the applicants argued the cooperation agreement did not infringe on
the Section 34 prohibition.
The Commission concluded that the applicants did not form a single economic
entity.8 However, although the agreement between the applicants fell within the ambit of
the Section 34 prohibition of the Act, the Commission was of the view that it did bring an
NEB to Singapore. Therefore, the agreement was excluded from the Act.
B. Mergers
Although there is no requirement for merger parties to provide notice of their
mergers to the CCS, they may nevertheless do so and apply for a decision as to whether
the Section 54 prohibition has been or will be infringed. Parties can seek pre-notification
discussions with the CCS, which gives parties intending to file a notification the
opportunity to have informal discussions to help identify the information to be
8 See the article by Burton Ong “Competition Law Takes off in Singapore: An Analysis of Two Recent Decisions” 3(2) Global Policy International Autumn 2007, pp 101-131.
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submitted with the notification. These discussions are confidential and enable the
CCS to more quickly deal with a subsequent notification.
Up until March 2008, there had been six notifications. They were the joint venture
among Intel Corporation, STMicroelectronics N.V., and Francisco Partners LLP; the
merger between Flextronics International Ltd and Solectron Corporation; the merger
between Kraft Foods Global, Inc. and Groupe Danone S.A.; the merger between
Thomson Corporation and Reuters Group PLC; the merger between Dubai Drydocks
World LLC and Labroy Marine Ltd; and the merger between Chartered Semiconductor
Manufacturing Ltd and Hitachi Semiconductor Singapore Pte Ltd.
VII. BLOCK EXEMPTION
Following a recommendation from the CCS, in July 2006 the Minister for Trade
and Industry issued a block exemption order (“BEO”) to exempt from Section 34 of the
Competition Act liner shipping agreements relating to liner shipping services provided
they fulfilled certain conditions and obligations, such as allowing member liner operators
to offer their own service arrangements on a confidential basis.
As set forth in Section 41, the criteria for block exemptions are the same as for
NEB: an agreement must contribute to improving production or distribution, or to
promoting technical or economic progress, without imposing on the undertakings
concerned restrictions that are not indispensable to the attainment of those objectives or
that afford the undertakings concerned the possibility of eliminating competition in
respect to a substantial part of the goods or services in question.
Use of the BEO by the CCS would broadly align Singapore’s regulatory
environment with that of major jurisdictions. It would also help to maintain Singapore’s
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position as a premier international maritime center and ensure that businesses in
Singapore would continue to have access to reliable and competitively priced liner
shipping services of adequate frequency.
The BEO took effect retrospectively from January 1, 2006 (when Section 34 of
the Act came into effect). It will last for five years.
However, when the members of a liner shipping agreement collectively hold
more than 50 percent market share in any market operated under the agreement, they are
required to fulfill additional obligations relating to the filing and publication of
information for the agreement to be exempted. An exemption may be cancelled in a
particular case in which, for example, a liner shipping agreement produces effects that do
not satisfy the NEB criteria as set out in Section 41.
VIII. FUTURE STRATEGIC DIRECTIONS
Being a new authority, CCS has taken its first three years to put in place the basic
regulatory and organizational foundations, including drawing up the CCS Guidelines,
developing staff capabilities, and setting up work processes and systems. In the future the
CCS will need to concentrate on:
• Revising sectoral regulation: currently, some sectors with their own competition
codes (e.g., telecoms, media, and energy) are exempted from the Competition
Act. A review of these exemptions is scheduled in 2009.
• Strengthening the CCS’s role as an effective enforcer. So far the number of
complaints and notifications has been only modest, but steady. The CCS should
be more proactive in identifying markets with competition concerns. As part of
this process, the CCS will be more concerned with ensuring the public is aware of
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competition law. This includes making certain that the public appreciates that
competition law is not the same as consumer protection law and deals with a
different kind of market failure.
• Expanding competition advocacy, particularly in industries currently exempted
under the Competition Act (e.g., where the government or its agent is involved as
an industry player or sometimes as a regulator).
• Expanding capabilities. As a relatively young organization, the CCS needs more
experience in both competition policy issues and case management. This is a
continual process that is more important for new competition authorities given the
high demand from the private sector for people with competition law skills. Apart
from developing core economic skills, case management is particularly important
in areas such as evidence gathering, interviews, investigation, economic analysis,
case building, and appeal fighting. So far the main emphasis has been on
developing economic and legal capacity.
IX. INTERNATIONAL
The CCS is also playing a more active international role, for example, at the
ASEAN and the Asia-Pacific Economic Cooperation (“APEC”) level. The CCS hosted an
APEC training course August 2007 under the auspices of the APEC Competition Policy
and Deregulation Group. The CCS has also assumed chairmanship of the ASEAN
Consultative Forum for Competition (“ACFC”).9
X. CONCLUSION
Singapore has introduced a competition law that is strongly economics-focused,
and in which considerable care has been taken to ensure that the policy goals and 9 See Economics 101: The Competition Commission of Singapore Annual Report 07/08 for more details.
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enforcement approach clearly improve economic efficiency in the country. The
Competition Commission has been staffed with highly qualified economic and legal
professionals who have received considerable training. While staff retention is a problem,
as elsewhere, those leaving the Commission have mostly gone to competition law
positions in private enterprise, thereby improving the overall competition law culture in
Singapore. It is too early to tell the extent to which competition law will actually improve
economic welfare in Singapore, but it seems any positive impact is likely to be greater
there than in many other countries that have recently introduced competition law.