A Competition Policy for Malaysia?*

Malaysian Journal of Economic Studies, Jun-Dec 2001 by Lloyd, Peter J

Abstract: Several developing countries in East Asia and other regions of the world economy are currently developing competition laws and other competition-promoting policies. At present Malaysia does not have a specific act dealing with competition. Subsequent to discussing the trends in competition policy in East Asia, this paper examines the case for developing in Malaysia competition-promoting policies in general and for a comprehensive competition law in particular. It also considers the main features of a competition law.

1. Introduction: Competition Policy Trends in the World Economy

In the last decade or so, more nations have placed much emphasis on making markets for goods and services competitive. Consequently, they have adopted competition polices. The term 'competition policy' is now used widely. It encompasses all government policies that promote competition among producers.

The literature on contestability of markets emphasises that competition requires freedom of market entry and exit. At the level of competition across national borders, foreign firms enter or have access to other countries by two modes. The first mode is the traditional method of competition by means of production in the home country and exporting to the foreign country. This mode emphasises trade liberalisation and national treatment of goods and services. The second mode is establishment of an affiliate in the foreign country. This mode requires the right kind of establishment and national treatment in the country in which the affiliate is established in order to compete on equal terms with national producers. Thus, this mode highlights the importance of relaxing foreign direct investment regulations. Freedom of capital movements is especially important in the case of service industries that require a commercial presence such as electricity and gas generation and distribution, and telecommunications. Freedom of labour movement may also be important in those goods and services that require the movement of natural persons such as managers and technical personnel.

Thus, the set of competition-promoting policies is very broad. Policies relating to the liberalisation of international trade, reduction in restrictions on foreign direct investment, privatisation, deregulation and the protection of intellectual property rights are all relevant to the promotion of competition in markets.

Competition (anti-trust) law is a subset of the competition-promoting policies. In fact, it is the last resort. Commodity and factor trade liberalisation promote competition but, in case producers still act anti-competitively, laws have been put in place to discourage them from acting anti-competitively.

More countries are adopting policies to promote competition too. In the APEC region, APEC as an organisation has taken the lead. The 1995 Osaka Action Plan included 'Competition Policy' as one of the fifteen specific policy areas that are to be developed by member economies. The objective of this policy area is given as:

APEC economies will enhance the competitive environment in the Asia-Pacific region by introducing or maintaining effective and adequate competition policy and/or laws and associated enforcement policies, ensuring the transparency of the above and promoting cooperation among the APEC economies, thereby maximising, inter alia, the efficient operation of markets, competition among producers and consumer benefits (APEC 1995).

To make these plans operational, APEC members developed both a Collective Action Plan (CAP) and an Individual Action Plan (IAP) in the area of competition policy. In 1999, APEC adopted the APEC Principles to Enhance Competition and Regulatory Reform (APEC 1999). More APEC member economies have introduced competition-promoting policies since the adoption of the Action Plans. Similarly, other multilateral organisations such as the World Bank, the WTO and UNCTAD are encouraging developing countries to adopt competitionpromoting policies.

More countries are adopting national competition laws (UNCTAD 2000). In East Asia, Thailand has had a national competition law since 1979 but extended the coverage of the act in 1999 and Indonesia introduced a comprehensive national competition law in 2000. Vietnam completed a draft Competition Law in early 2001 and China is currently drafting a comprehensive national law. The Philippines is considering a more comprehensive law. (For an outline of competition law in East Asia, see Lloyd 2000). There is an even stronger trend in Latin America (Tavares 2001). Rigorous enforcement of competition laws is essential too.

Malaysia does not have a national competition law. Given the strong trend towards the introduction of competition laws in other developing countries, the question arises - should Malaysia introduce a comprehensive national competition law and, if so, what form should it take?

2. The Role of Competition Policy

It is essential to understand the reasons why it is important to promote competition in an economy. Without this understanding, it is unlikely a country will develop sensible and effective competition policies and law.