Competition law enforcement is now an important business issue in most of the Asia-Pacific region's significant economies. Keeping abreast of developments is a challenging task for businesses operating in the region. A particular issue for in-house counsel in the Asia-Pacific region, compared with the U.S. or Europe, is the great diversity of rules among its jurisdictions – from the substantive prohibitions to the level of economic and legal sophistication, and to the approach to enforcement.
While the wealthy developed economies of the region, such as Japan, South Korea, Australia, and New Zealand, have comprehensive and predictable approaches to competition law enforcement, the proportion of business that these countries account for in the region is dwindling. The competition law landscape is even more challenging for businesses operating in some more rapidly growing parts of the Asia-Pacific region, where the economic stakes may be considerably higher.
For example, China, India, Indonesia, and Pakistan are four of the world's six largest countries by population, but their competition authorities are relatively small by world standards. So far they have produced only a limited body of case precedent. Consequently it is difficult to predict what kinds of cases those authorities will pursue, and even more difficult to predict the likely outcomes.
With a combined population of 600 million people, the Association of Southeast Asian Nations ("ASEAN") region is a significant focus for many global businesses. In some countries within this region, there remain gaps in the coverage of competition law. In others, there is no dedicated enforcement agency, or the level of enforcement activity ebbs and flows. Given the vastness of the Asia-Pacific region and the significant legal and cultural differences among the various jurisdictions, staying up to date on significant developments in the region can be challenging.
We hope that this update will help you stay on top of this diverse region. If you have any questions arising out of the topics addressed in this newsletter, please feel free to contact us to discuss them further.
ACCC pursues a "knowingly concerned" accessory to a cartel
In one of the last court proceedings instituted by the Australian Competition and Consumer Commission ("ACCC") in 2013, the ACCC filed proceedings against Australia's leading suppliers of laundry products alleging a "laundry detergent cartel." The ACCC alleges that three manufacturers of laundry products agreed to stop supplying standard-concentrate laundry detergents and agreed to supply only ultraconcentrate detergents starting in 2009.
The companies are alleged to have:
- Coordinated their ultraconcentrate products to meet certain specifications, including packaging dimensions and configuration;
- Entered into a "Pricing Parity Arrangement," agreeing not to pass on the cost savings generated by manufacturing and supplying ultraconcentrates; and
- Two of the manufacturers are alleged to have shared market sensitive information regarding pricing and proposed pricing increases.
The ACCC discovered the cartel as a result of an immunity application by Unilever, one of the three manufacturers. Interestingly, the ACCC is also going after Woolworths, one of two supermarket chains that predominate Australian retail. The ACCC is alleging that the company was knowingly involved in the arrangements, pointing in particular to the fact that various meetings where these arrangements were discussed were held at Woolworths' offices and involved Woolworths' staff.
The case highlights both the importance of active compliance programs to be able to discover potential competition law exposures while immunity is available, and the limits of industry collaboration in setting common standards or agreed approaches to industrywide innovation. In relation to the allegations against Woolworths, this case serves as useful reminder that the ACCC will not hesitate to prosecute those that are not directly responsible for forming and reaching cartel agreements – those that are aware of the elements of conduct that would constitute the breach and who only play a small part in facilitating the breach can also be alleged to be knowingly concerned.
While Bangladesh has had a Monopolies and Restrictive Trade Practice (Control and Prevention) Ordinance in its statute book from prior to independence, neither the Government nor private entities have ever sought to invoke its provisions.
However, there has been some activity of late. The Parliament of Bangladesh passed the Competition Act in June 2012 and in September 2013 announced the appointment of joint additional secretary Md Sujayet Ullah to the post of secretary of the newly created Bangladesh Competition Commission. Ullah will bear responsibility for establishing the Commission's office. While the Commission is not yet in a position to aggressively enforce the competition law, its slow but steady path to a fully functioning organization, in the context of the widespread popularity of competition law among the general public, should prompt businesses with operations in Bangladesh to review their operations from a competition compliance perspective before the new Commission has the opportunity to do it for them.
The Cambodian Government has been finalizing a draft competition law, which was expected to be submitted to the Council of Ministers of Cambodia prior to the end of 2013. As of yet, there have been no updates as to whether the law has progressed past that point. Given the looming 2015 ASEAN deadline for members to have competition laws in place, and Cambodia's progress in legislative reform in a number of other important commercial areas, it is widely expected that the competition law will be passed this year. Further, given the Cambodian government's willingness to work with a number of international organizations in developing its legislative reform agenda, it is likely that the new competition law will feature prohibitions in forms familiar to international businesses.
China moves toward an expedited review for mergers but leaves details unclear
China's Ministry of Commerce ("MOFCOM") has just published new rules that could pave the way for an expedited merger review procedure for transactions that do not raise competition law issues. Unfortunately, these rules do not reduce the amount of information to be provided for transactions qualifying as "simple cases." Nor does MOFCOM commit to approve these transactions within a shorter time frame.
MOFCOM published its Interim Rules Regarding the Criteria for Simple Cases of Concentrations of Undertakings (the "Rules"). These Rules define which concentrations will be treated as "simple" cases:
- Horizontal mergers where the combined share of all parties is less than 15% in each relevant market.
- Vertical mergers where the parties' market shares do not exceed 25% in either the upstream or downstream market.
- Conglomerate mergers where the market share of each party in each market involved does not exceed 25%.
- Joint ventures established outside of China that have no activities in China.
- Acquisition of a foreign company that has no activities in China.
The Rules provide that a case will not be treated as simple if the relevant markets are difficult to define, or if MOFCOM believes that the concentration may result in adverse effects to market entry, technology development, consumers, other undertakings, or the national economy.
MOFCOM also reserves the right to no longer consider a transaction as a "simple" case if the notifying party conceals material information or provides false or misleading information, where third parties provide evidence showing the existence of competitive concerns, or where significant changes have happened to the concentrations or in the relevant markets.
The Rules are a first step towards the adoption of a simplified procedure for those transactions that should not raise competition law concerns. However, the Rules may not result in a significantly lesser burden on companies and quicker clearances. MOFCOM must provide additional details on the likely time frame for reviewing "simple" cases and the information that must be provided for this truly to be a simplified procedure.
Calculation of fines: cartel conduct and gun-jumping
In a decision dated October 29, 2013, the Indian Competition Appellate Tribunal has clarified the amount of fines that the Competition Commission of India ("CCI") can impose for cartel conduct. Section 27(B) of the Competition Act, 2002 gives the CCI the power to impose a fine of no more than 10 percent of the turnover for the last three preceding financial years, or of up to three times of its profit, whichever is higher.
In the case of a cartel entered into by manufacturers of aluminum phosphide tablets, the CCI imposed a fine of nine percent of the average turnover. The total turnover of the defendants was used as a basis to calculate the fine, even if the products subject to the cartel agreements only represented a fraction of their total turnover. The defendants appealed to the Competition Appellate Tribunal, which decided that the turnover achieved in relation to the products subject to the cartel should be used as a basis to calculate the fine, and not the total turnover of the company.
The CCI fined Etihad 10 million rupees (USD 0.164 million) for implementing its acquisition of a stake in Jet Airways before obtaining the CCI's approval. Eithad had notified its acquisition to the CCI under the merger control provisions of the Competition Act, 2002. However, before obtaining approval, Etihad entered into a sale and lease back agreement pertaining to Jet Airways' slots at London Heathrow. The CCI considered that this agreement constituted an implementation of the notified transaction, in violation of the standstill obligation of the Act.
KPPU developing credible competition regime
A number of recent developments illustrate the challenges the Indonesian competition authority, the KPPU, faces in seeking to achieve compliance with competition law norms in a country with more than 500 local and provincial governments governing people living on 922 permanently inhabited islands speaking 700 different languages.
Each of the 500 governments in Indonesia are responsible for substantial public procurement exercises, including the construction of schools, hospitals, public transport infrastructure, municipal buildings, flood drainage projects and other international aid sponsored programs. Fighting bid rigging in public procurement, and corrupt complicity with bid rigging conduct by government officials, continues to be the single top priority of the KPPU. The latest cases concern bid rigging and discriminatory practices in connection with the establishment of a new semitraditional market in East Java Province and a hospital in Southeast Sumatera. The conduct in the former case was facilitated by an industry association and in addition to enforcement activities, the KPPU recommended a number of new initiatives to better supervise the creation of industry associations.
In recent years the KPPU has also made more tentative steps into running cases against international companies based on economic, and often more contentious, theories of harm (rather than per se cases). In this vein, the KPPU has made a ruling against a major Western energy company in relation to conduct concerning an export pipeline FEED project that the KPPU regarded as discriminatory.
Until recent years, merger administration in Indonesia was also complicated by the lack of secondary legislation imposing reporting requirements. Nevertheless, the KPPU did manage to take a small number of merger enforcement matters (e.g., against an international supermarket chain). However, merger filing requirements (of a rather peculiar post-closing nature) were introduced in 2010 and since that time approximately 80 cases have been processed. As occurs in most jurisdictions, the vast majority of mergers have been approved in Indonesia. While the KPPU's analytical approach to mergers is still developing, it appears that the organization is quickly attaining credibility in this area.
Indonesia has quickly developed a credible competition regime. While there are some very substantial challenges to effectively permeating awareness of and compliance with competition law throughout the economy, the KPPU appears to be engaged with the task. We expect to see a continuing maturity of the types of analysis being undertaken by the KPPU and at some point a broadening focus away from just public sector bid rigging.
Amendments to the Antimonopoly Law of Japan
Japan adopted important changes to the procedure applicable under its Antimonopoly Law ("AML") on December 7, 2013. They will come into force within 18 months. The most important change concerns the procedure for appealing decisions of the Japan Fair Trade Commission ("JFTC"). Under the current procedure, appeals against cease and desist orders and surcharge orders issued by the JFTC must be first heard by the JFTC itself. After this hearing, the parties can appeal before the Tokyo High Court. This first appeal was criticized because the JFTC was acting as both prosecutor and tribunal.
Under the new procedure, parties can appeal orders by the JFTC directly before the Tokyo District Court. In addition, the court's review powers have been broadened. Under the current regime, the court can only review whether the JFTC's decision is substantially supported by evidence. Under the new procedure, the court will be able to review whether the JFTC's decision is correct based on the evidence that the court considers relevant, as well as new evidence from the parties.
The procedure before the issuance of an order is also modified. Before the amendments, the JFTC was required to give a defendant the opportunity to submit its views regarding a draft order. In practice, this procedure was a mere formality and the JFTC rarely incorporated the defendant's views in its final decision. Under the new regime, the JFTC will designate one official who will oversee the procedure. This official will not be related to the investigation he must oversee. He will be able to require the investigation team to explain to the defendants a proposed order, its findings and evidence supporting the findings. The defendant will be able to respond to the case team's allegations.
While on paper these amendments seem to ensure more fairness in the process, it remains to be seen how they will be implemented in practice.
Consumer group actions for damage claims
Japan has also promulgated its Special Act relating to Civil Procedures for Recovery of Damages incurred by Group of Consumers (the "Special Act") on December 11, 2013. The Special Act will come into force at a later date within three years.
Thus far, consumer groups could seek injunctive relief but not damages. The Special Act will enable qualified consumer associations (designated by the Consumers Affairs Agency) to recover damages on behalf of similarly situated consumers. The Special Act only applies to damages arising out of consumer contracts and will likely apply in cases of fraudulent contracts and coerced consumer contracts. It is therefore possible that this new procedure will apply in cases where imposition of contractual terms on a consumer also constitutes a violation of the Antimonopoly Law.
Laos has had competition law in some form since 2004, when Decree 15/PMO (4/2/2004) on Trade Competition was promulgated. However, the Decree has not been implemented to date, and this is unlikely to change in the immediate future given that there appear to be plans to have a more comprehensive competition regime passed by the National Assembly Conference in 2015.
MyCC discovers truck owners' cartel
In a case that makes clear the vital need for continued education and compliance programs in Malaysia, the Malaysian Competition Commission "discovered" that the Pan-Malaysia Truck Owners Association had decided that its members would increase their transportation charges by 15%. The Association had previously issued a statement to local papers to the effect that its members had unanimously decided to raise their transportation charges in unison.
Not surprisingly, the Commission determined that this agreement would be in breach of Malaysia's cartel prohibitions and issued orders requiring the Association and its members to refrain from implementing the cartel agreement and amend the Association's constitution to remove any provision concerning discussion and determination of chargeable prices. In a sign that the Commission recognizes the continued need to build awareness among the local business community, it did not impose penalties in this case.
New Zealand cartel case demonstrates the importance of an effective compliance strategy
The construction industry is generally a focus of competition law throughout the world, and therefore it is not surprising that the Commerce Commission's primary focus has been this sector, as the nation rebuilds its third largest city. Christchurch was devastated in a 2011 earthquake. This work has involved the thorough investigation of merger and conduct matters.
Recently, one of the nation's most powerful building products and construction companies, Fletchers, was the leniency applicant in an alleged cartel with Carter Holt Harvey concerning the supply of timber in the nation's largest city, Auckland. Civil penalties are sought against that company and its key staff members.
Otherwise, the Commission's recent cartel investigation work has had an international dimension with enforcement action in cartel matters involving cardboard carton manufacturers that were found to have engaged in cartel conduct in Australia and in the long running international air cargo cartel. In the latter matter, the level of civil penalties imposed within New Zealand has reached NZ$40 million.
CCP finds manufacturer and marketer of Toyota vehicles abused a dominant position
The Competition Commission of Pakistan has demonstrated its capacity to take cases involving some of the more complex competition prohibitions, such as abuse of dominance matters. In November, the Commission found that Indus Motors, a manufacturer and marketer of Toyota vehicles in Pakistan, imposed conditions that amounted to unfair trading conditions on its customers.
The Commission further found that Indus Motors held a dominant position in the market for 1300cc passenger cars and that the attempt to impose unfair trading conditions thus constituted an abuse of its dominant position. The Commission resolved the matter through issuing orders requiring Indus Motors to amend the terms on which they supplied their vehicles.
Updated leniency program
The Commission also published new leniency regulations in September 2013, updating its 2007 leniency regulations. One of the most important changes is the improved confidentiality regime, which provides greater assurances to immunity applicants that their identity and information will not be made public until the grant of leniency.
Interestingly, on the face of the regulations, they also appear to make full immunity available for successful applicants who are party to both horizontal and vertical anticompetitive agreements.
Timing and form of new Fair Trade Commission remains uncertain
Four bills currently are pending in the 16th Session of the House of Representatives. The two leading bills similarly seek the creation of a new body (the Fair Trade Commission) to oversee the implementation of the law. However, they differ in some of the notification and disclosure requirements for merging companies. The version of Congressman Rufus Rodriguez (HB 0388), in particular, is the Consolidated Version – or the version that contains the amendments and revisions after deliberations with the Committee on Trade. This Consolidated Version already passed second reading in the House of Representatives last session, but was suddenly stalled prior to third and final reading because of various questions from other members of the House of Representatives.
The version of the Speaker of the House, Sonny Belmonte (HB11330) is also considered one of the stronger bills, mainly because the House Speaker has recently stated that he will be pushing for an antitrust law to be passed this session.
Both leading bills are similar, in that they seek the creation of a new body (the Fair Trade Commission) to oversee the implementation of the law. They differ in some of the notification and disclosure requirements for merging companies.
It remains unclear at this stage whether any of these bills will be adopted in 2014.
SCC finds its rhythm with regular cartel and merger investigations
In the cartel enforcement area, the Competition Commission of Singapore ("CCS") has been relatively active recently, with one of the standout actions being the issuing of a preliminary infringement decision against both the Japanese parent entities and the local Singapore subsidiaries of ball and roller bearing manufacturers.
In relation to mergers, relatively few have been investigated recently. While all have been cleared, the CCS has flexed its muscles in one case, by initiating a Phase 2 review, in relation to the merger of the Marina Bay Cruise Centre Singapore and Singapore Cruise Centre Pte Ltd (SCCPL), which manages and operates the International Passenger Terminal at Harbourfront Centre, and in a separate matter by extracting a voluntary undertaking from the acquirer, in a Fraser & Neave Ltd. ("F&N")/Heineken merger, to not enforce a non-compete provision in the sale agreement.
The Sri Lankan Consumer Affairs Authority continues to face accusations that it is not proactive enough in enforcing substantive competition prohibitions, but instead focusing on the utilization of its consumer protection powers by undertaking a number of pricing investigations and other consumer protection actions. It is also notable that, apart from a handful of sector specific regulatory controls on anticompetitive mergers and acquisitions, there is still no sector neutral prohibition against anticompetitive mergers in Sri Lanka.
A draft bill to further modernize Taiwan's primary competition law statute, the Fair Trade Act ("FTA"), last amended in 2011, has been sent to the Legislature for consideration. The proposed amendments in the draft bill seek to modify qualification standards, reporting thresholds and exemptions, the FTC review period, and search and seizure powers, to strengthen investigations of anticompetitive conduct.
The proposed amendments in the draft bill primarily aim to:
- authorize the Fair Trade Commission to adjust the monopolistic enterprises qualification standards;
- modify the thresholds and create exemptions for combination (mergers) from reporting;
- amend exemption clauses and extend the effective period of FTC's approval for concerted actions; and
- provide FTC with search and seizure powers to strengthen investigations of anti-competitive conduct.
As of the end of 2013 the draft bill had yet to pass the first reading at the Legislature.
Enforcement in the concerted action area has significantly intensified in the recent years. In the first half of 2013, the FTC imposed a record breaking fine of NT$6.32 billion against nine independent power producers for cartel activity. This set a new record following the fines in late 2011 of NT$20 million against the big four convenient chain stores' concerted action over prices of brewed coffee, and NT$30 million against the three largest milk suppliers' cartel activities in raising milk prices.
In Q4 2013, after administrative appeal, the penalties imposed on the power producers were slightly lowered to NT$6.05 billion. In addition to the dispute over existence of cartel activities, one of the disputes is also over whether the new penalty regime (which removes the old cap of NT$25 million and provides for penalty of up to 10% of annual revenues) was correctly imposed on the producers. Further administrative appeal is expected and to be monitored in 2014.
Thailand continues to see a low level of enforcement of its primary competition statute, the Thai Trade Competition Act. In addition, while the statute prohibits anti-competitive mergers and acquisitions, the Office of Thai Trade Competition Commission has still not promulgated notifications setting out filing thresholds for merger regulations. As a result, the Commission has had a limited role to play in preventing concentration in a number of industries, to levels that would be of concern in other jurisdictions. While information on prosecutions in Thailand is somewhat difficult to gather, it appears that there has been no successful prosecution under the Trade Competition Act to date.