Introduction
2020 was meant to be an exciting year, with new challenges and growth. Challenges did face us, but in the strangest of ways, and seem to continue with no immediate end in sight. Amidst the challenges, competition and consumer protection regulators across the region remained active, and hence, we have a meaty year-end issue of Competition Bites for 2020. In this issue, we provide you with updates of key developments across South East Asia.
On 9 June 2020, the ASEAN Experts Group on Competition (“AEGC”) released a joint statement in response to the COVID-19 pandemic, calling on businesses to continue to comply with competition law, and highlighting that anti-competitive conduct is taken extremely seriously and that the ASEAN competition regulators will not hesitate to investigate businesses who take advantage of the pandemic to engage in anti-competitive activities. The joint statement also noted that the AEGC continues to strengthen cooperation among ASEAN competition authorities to address any anti-competitive activity that is taking place amidst the pandemic. Several national competition authorities in the region have also issued their own guidance related to the COVID-19 pandemic.
Focus for this issue – The featured article for this issue is the publication of the findings and recommendations from the E-commerce Platforms Market Study conducted by the Competition and Consumer Commission of Singapore.
In this issue, other snippets include the active merger control enforcement in Indonesia and Vietnam, the finalisation of Malaysia’s market review of the retail and wholesale service sector, and the coming into effect of new market dominance thresholds in Thailand. Separately, the Thailand competition authority has published for public consultation new guidelines on unfair trade practices in the online food delivery services, which demonstrates a common interest in regulators on competition and consumer protection issues in e-commerce and online platforms, partly as a result of the COVID-19 pandemic.
Do touch base with us at [email protected] if you would like any further details or wish to discuss any of the news highlighted in this edition.
Kind regards,
The Rajah & Tann Asia Competition & Antitrust and Trade Practice
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Contents
(1).... Antitrust Enforcement and Merger Control Remain Strong Despite Challenges During Pandemic. 7
(2).... Enforcement of Competition Cases. 7
(3).... KPPU in New Normal: Enabling Online Procedures and View on Business Collaboration. 8
(2).... MyCC Fines 22 Insurance Companies for an Alleged Price-Fixing Agreement 11
(1).... PCC Issues Rules for Exemption from Compulsory Notification of Certain Joint Ventures. 11
(2).... PCC on Alert against Anti-competitive Practices that Exploit COVID-19 Situation. 13
(2).... CCCS Concludes Investigation into Online Food Delivery and Virtual Kitchen Sectors. 14
(3).... CCCS Issues Final Price Transparency Guidelines. 14
(2).... Amendment to Market Dominance Test 17
(1).... Active Merger Review Activity. 17
(2).... Notification Threshold of Economic Concentration under New Guidance. 19
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Singapore - Findings and Recommendations from CCCS E-commerce Platforms Market Study
By: Kala Anandarajah, Dominique Lombardi and Tanya Tang
In line with the Competition and Consumer Commission’s (“CCCS”) recent focus on digital markets, the regulator has issued its findings and recommendations from the E-commerce Platforms Market Study (“E-commerce Study”) on 10 September 2020.
The E-commerce Study, which was conducted between late 2019 and early 2020, was driven by the CCCS’s observations of a significant increase in e-commerce activities in Singapore in the past few years and the rise of regional “super apps” which compete across different market segments. Thus, the CCCS had conducted the study with the objective of learning more about the potential competition and consumer protection issues which could arise from the growing prevalence of e-commerce platforms that operate at least one multi-sided platform, facilitate e-commerce as their primary activity and operate in more than one market segment in Singapore.
Key features of competition involving e-commerce platforms
- Tendency for multi-sided platforms to leverage on existing user base
The CCCS observed that many e-commerce platforms active in the Southeast Asia region start off in a single market segment before expanding into other market segments. In so expanding, the e-commerce platforms may leverage their existing user base in the first market segment to gain a competitive edge in the subsequent market segments, such as by implementing loyalty schemes or using data on consumer preference collected from the first market segment to inform strategies in the subsequent market segments.
Compared to other competitors entering into the subsequent market segments, e-commerce platforms who can leverage on existing user base will face lower entry costs and achieve better economies of scale. Operating across multiple market segments also allows e-commerce platforms to exploit consumption synergies in the form of cost or time savings enjoyed by consumers who buy distinct products from one supplier rather than from different suppliers. Where such consumption synergies are significant, this could represent greater barriers to entry for potential entrants of the individual market segments.
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Significance of externalities such as indirect network effects and its impact on market definition
The CCCS had also found that a key entry cost for e-commerce platforms is the cost associated with amassing a critical number of users to allow the platform to generate and exploit externalities such as indirect network effects, which are characteristic of multi-sided platforms. For instance, indirect network effects are generated when usage by buyers on an e-commerce platform increases with the increase in the number of sellers listed on the platform and vice versa. Such indirect network effects could affect the price structure and strategies of e-commerce platforms – many e-commerce platform operators may choose to not charge a positive price on the side of the platform which generates stronger externalities while charging the other side(s) of the platform, so that they can build the initial consumer base required on the free side of the platform.
Hence, although each side of the multi-sided e-commerce platform provides a different product or service to a different group of users, there are clearly interdependencies in the demand between the various groups. Multi-sided e-commerce platforms could compete with not just other multi-sided platforms that supply the same service(s), but also multi-sided platforms that only have one “coincident” side, and/or single-sided platforms.
- Use of artificial intelligence (“AI”) and algorithms and their impact on anti-competitive agreements or concerted practices
An increased use of AI or algorithms to make pricing decisions could increase the likelihood of collusion between sellers, including e-commerce platforms.
For instance, the CCCS noted that where a third party such as a software company deploys the same algorithm or a coordinated algorithm amongst competitors, this can amount to prohibited concerted practice even if there is no communication between the competitors, if the competitors do not publicly distance themselves despite being aware of such conduct.
To reduce risks, the CCCS has suggested that undertakings can, when designing or deploying AI or algorithms, take reference from existing frameworks in Singapore, such as the Model AI Governance Framework.
Key findings and recommendations on competition issues
Overall, the CCCS concluded that there are currently no major competition concerns involving e-commerce platforms, and the existing competition regime is sufficiently robust and flexible to deal with competition concerns that may be posed by digital platforms. The CCCS noted that:
- Price competition continues to be highly relevant in the e-commerce sector as a significant number of customers practise multi-homing across different platforms. Multi-homing refers to
the practice by suppliers or consumers of using more than one platform simultaneously to buy or sell;
- The absence or lack of data is not currently an insurmountable barrier to entry or a severe limitation on the ability of e-commerce platform operators to compete effectively, as industry players have indicated that they are generally able to collect their own data through various user touchpoints on their platforms, or through third-party market research capabilities; and
- Data protection is not currently a key parameter of competition amongst e-commerce platforms, as survey results from consumers using e-commerce platforms indicate a lack of habitual reading of privacy policies and ambivalent attitude towards data protection breaches.
Nevertheless, the CCCS recognises the need to provide businesses with clearer guidance on how the Singapore Competition Act will be applied to digital platforms, especially in the longer term. The E-commerce Study has thus culminated in, amongst others, the following proposed amendments to the various CCCS competition guidelines, which the CCCS had issued for public consultation:
- CCCS Guidelines on Market Definition: The CCCS will consider the specific theories of harm appropriate to the context to determine if the relevant market to be defined is a single multi-sided market or multiple interrelated single-sided markets before undertaking the market definition exercise. In defining the market and applying the hypothetical monopolist test, the CCCS will take into consideration externalities such as network effects and usage externalities and the platform’s pricing structures and strategies to determine whether the hypothetical monopolist can profitably sustain a supra competitive price. It may also consider how the number of users on the side which is not charged the positive price may respond to changes in non-monetary aspects of the product (e.g. quality). The CCCS will also consider whether consumption synergies may be significant enough to justify defining the focal product as a product ecosystem.
- CCCS Guidelines on the Section 47 Prohibition: As sales-related indicators of market shares may not be as relevant for multi-sided digital platforms which do not charge positive prices to one or more side(s), the CCCS may consider other indicators for market share analysis, such as the number of active users, number of transactions and gross merchandise value where relevant. To assess the extent of market power held by an e-commerce platform, the CCCS is also more likely to consider factors such as barriers to entry, switching behaviour and innovation, as static tools of competition assessment such as market shares may not accurately reflect the extent of competition in the market. The strength of network effects, economies of scope, consumption synergies and control of or ownership of key inputs, including data, will be relevant. Given the strong incentives for leveraging behavior by e-commerce platforms, the CCCS has also highlighted that self-preferencing (i.e., where a
vertically integrated dominant undertaking gives preferential treatment to its own downstream products over competing sellers which utilise the dominant undertaking’s upstream products), tying and bundling, and refusal of access to key inputs (including data) could all potentially amount to abuse of dominance.
- CCCS Guidelines on the Substantive Assessment of Mergers: The CCCS clarifies that it may consider harm to data protection and innovation when assessing the anti-competitive effects of mergers. Further, while conglomerate mergers are generally not objectionable, competition concerns could still arise if the parties operate in closely related markets – the incentive and ability of the merged entity to engage in leveraging behaviour and potential barriers to entry arising from consumption synergies as a result of the merger will be relevant.
The CCCS has also proposed other procedural amendments and substantive changes to its various guidelines, which do not relate to the E-commerce Study.
Key findings and recommendations on consumer protection issues
The E-commerce Study had also revealed unfair practices on some e-commerce platforms, most commonly relating to false claims of limited-time discounts, misrepresentations regarding limited quantities and false claims of discounts or benefits. As these are issues addressed in the CCCS Guidelines on Price Transparency which were published on 7 September 2020 and which will come into effect on 1 November 2020, businesses are reminded to comply with the guidelines to avoid contravention of the Consumer Protection (Fair Trading) Act.
The CCCS highlighted existing good practices by e-commerce platforms, such as entering into contractual agreements with sellers and requiring sellers to provide accurate and complete information of their products, regularly reviewing customers’ feedback and taking action against inappropriate and misleading product listings, and implementing guarantee and pre-payment protection measures to protect consumers against defective goods or non-delivery of goods.
Conclusion
The E-commerce Study has provided valuable insights on the specific concerns the CCCS looks out for when assessing competition issues involving digital markets or platforms. To a large extent, clarifications relating to network effects and consumption synergies, amongst others, are also relevant to brick-and-mortar businesses.
Businesses are therefore strongly encouraged to consider the applicability of the CCCS’s findings to their business. In particular, e-commerce platforms should review their business practices relating to the use of AI and algorithms, or which involve or result in exclusivity, tying/bundling or self-preferencing, as well as measures to safeguard consumers’ interest and ensure price transparency.
(1)Antitrust Enforcement and Merger Control Remain Strong Despite Challenges During Pandemic
The Indonesia Competition Commission (Komisi Pengawas Persaingan Usaha, “KPPU”) has received 104 merger notifications from January to July 2020 alone. This is a significant increase from the total mandatory post-merger notifications submitted to the KPPU in 2019, which amounted only to 90 submissions (58 submissions from January to July 2019 and 32 submission from August to December 2019). This increase in the submission of merger notifications is partly due to the issuance of the new merger control rules in October 2019. The new merger control regulation now requires mandatory post-closing notification not only for any shares transaction but also any asset transaction that meets all notifiability criteria (please see our previous client updates in October, December 2019, and July, October 2020 on the discussions of the latest notifiability criteria).
Based on the information presented by one of the KPPU Commissioners in a KPPU Webinar, the notified mergers from 2013 until June 2020 generally related to the following sectors: (i) processing industry (26%); (ii) property and construction (18%); (iii) energy and mining (18%); (iv) banking and non-bank financial services (12%); (v) agriculture and plantation (10%); (vi) electronic, information, and communication (9%); (vii) transportation and logistics (5%); and (viii) food and beverages (2%).
Separately, it is worth highlighting that close to 25% of the cases handled by the KPPU in 2019 related to late merger filings.
(2)Enforcement of Competition Cases
One of the most interesting cases of 2020 is the KPPU’s price discrimination allegation against PT Solusi Transportasi Indonesia (“STI”) as the Indonesian entity for Grab and PT Teknologi Pengangkutan Indonesia (“TPI”). The KPPU took the view that STI and TPI (a car rental company affiliated to Grab) together had caused unfair competition by giving priorities to TPI-related drivers and imposed an unprecedented fine of IDR 30 million for STI and IDR 19 million for TPI (please see our update on this).
Another significant case is the KPPU’s price-fixing and cartel allegation against seven Indonesian airlines relating to the Scheduled Commercial Air Transportation Services for Domestic Economy Class Passengers (Note: Price-fixing and cartel practices are stipulated under two different articles under Indonesian Competition Law). The KPPU dismissed the cartel allegation but still found PT Garuda Indonesia (Persero), Tbk., PT Citilink Indonesia, PT Sriwijaya Air, PT NAM Air, and Lion Air Group, consisting of PT Batik Air, PT Lion Mentari, and PT Wings Abadi, in breach of the price-fixing allegation as stipulated in Article 5 of the Indonesian Competition Law (Law No. 5 of 1999). However, the KPPU did not impose any administrative fines on the airlines in recognition of the COVID-19 pandemic that has significantly affected the national economy and the recovery efforts thereof. The KPPU also acknowledged that even before the COVID-19 pandemic hit, several airlines had already been struggling. Therefore, in its decision, the KPPU only required all of the airlines to report to the KPPU before making any decision potentially affecting the competition climate and the ticket price paid by the consumer for two years from the decision is legally binding. In response to this KPPU decision, the Lion Air Group filed its appeal to the Central Jakarta District Court. No decision on the appeal has been issued to date.
On the legislation front, the Omnibus Law passed in Indonesia removes the cap on administrative fines and criminal sanctions that can be imposed in competition cases. Whilst more details should be provided in regulations to be issued, this is clearly something businesses should be aware of. Please see our latest update on that front.
(3)KPPU in New Normal: Enabling Online Procedures and View on Business Collaboration
Due to the COVID-19 pandemic, the KPPU has shifted its activities online where possible, including online antitrust investigations, merger notifications, as well as its advocacy programs. On the latter, the KPPU has been very active in hosting and speaking in national and regional webinars.
In one of the webinars, the Chairman of the KPPU, Mr. Kurnia Toha, expressed his support for businesses considering collaborative measures that may be beneficial to the country and aid the government in dealing with the current health and economic crisis arising from the COVID-19 pandemic. He further asserted that the measures must have justifiable economic and legal reasons that outweigh the potential adverse effects of the collaboration (please see our previous client update).
Given that the KPPU's prior approval is needed to implement a proposed collaboration that may conflict with Indonesian Competition Law, businesses are strongly advised to carefully prepare their proposal to ensure that the economic and legal benefits of the proposed collaboration are captured to the satisfaction of the KPPU.
Following a public consultation on its draft Report, MyCC issued the Report on 19 August 2020. The Report sets out MyCC’s findings and recommendations in relation to the wholesale and retail trade (“WRT”) of selected products, namely, processed food and beverages, personal care & toiletries, household cleaning products and clothing (“Selected Products”).
MyCC conducted its market review on the WRT sector of the Selected Products as this sector is crucial to the country’s economy and growth. The Report highlighted that there has been a shift in Malaysian consumers’ purchasing habits as more people have been using digital and e-commerce channels during the COVID-19 pandemic outbreak period. On the industry front, new players have emerged, adopting digital platforms to cater to the needs of the consumers. These growing trends of e-commerce, adoption of new technologies and consumer behavior have all contributed to the current landscape of the WRT industry in Malaysia.
Competition concerns in the WRT sector for the Selected Products
12 theories of harm which could affect competitors within the industry, suppliers, and/or consumer outcomes in WRT sector were identified, of which the Report noted the following eight were observed in Malaysia:
- Downstream buyer power of large supermarkets – suppliers may be subject to onerous conditions (e.g. back margins) or forced to sell at lower prices to large supermarkets, resulting in suppliers having to recoup through increased prices charged to smaller supermarkets such as convenience stores or traditional retailers. 83% of respondents surveyed agreed or strongly agreed that large players dominate and influence the market.
- Price flexing – large retailers that operate in multiple locations might differentiate prices between locations and such practice may distort competition in the market and/or deter new market entrants as smaller players may lack the ability to cross-subsidise low prices in one store by charging higher prices in another. 68% of respondents surveyed indicated that they agree or strongly agree that some companies within the industry sell the same product at different prices to different buyers to maximise sales and profits.
- Loss leader – dominant firms lower their prices and deliberately incur losses or forego profits in the short term, which curtail entry of potential competitors and sometimes even drive out existing competitors. Consumers may benefit in the short term, but they may lose out in the longer term as once these competitors are driven out of business, the dominant firms can raise price above the original level. 65% of respondents surveyed stated that some companies in the industry price their goods or services at such a low level that other firms cannot compete and are forced to leave the market.
- Suppliers’ market power – producers or suppliers with market power may charge exploitative prices or use their powers to engage in practices like exclusive dealing, tied selling or requiring outlets to sell new products or guarantee favourable shelf space, controlling the prices of products sold by retailers to end consumers, or requiring a certain percentage of their products to be displayed and sold by the retailers. 83% of the respondents surveyed indicated that suppliers have higher bargaining power than buyers.
- Supply chain collusion – competitors may agree not to compete on prices they charge or quantities they supply to the market or agree on sharing a relevant market. Such collusion (tacit or otherwise) could result in higher prices than under open competition, or discourage industry players from innovating, or allow the continued survival of inefficient firms that would otherwise have exited the relevant market. About 75% of surveyed companies agreed that some parties do collude to choose the winner of a bidding process while others submit uncompetitive bids. Also, 72% of the respondents surveyed indicated that there are agreements between competing companies that stipulate that they would not do business with one another.
- Exclusive distribution – a large distributor may be able to extract exclusive supply rights from a supplier or producer for a particular territory or region, or a supplier may require that only one distributor can hold the rights to resell its products. Such practices may result in market foreclosures. 72% of the respondents surveyed cited that they agree or strongly agree that a retailer or wholesaler is “tied” to purchase from a supplier on the understanding that no other distributor will be appointed or receive supplies in a given area.
- Price fixing (resale price maintenance) – producers or manufacturers may prohibit resellers or distributors from independently pricing a given product, thus restricting competition in that product segment. 71% of the respondents surveyed agreed or strongly agreed that some groups of businesses “fix” their product prices and dissuade others to compete.
- Bundling – producers or manufacturers may offer multiple products bundled together, inducing customers to take the whole bundle or more than one product, thereby resulting in market foreclosure as a producer or manufacturer in a dominant position in one product market can leverage that into other markets and threaten its competitors in these markets. 74% of respondents surveyed indicated that they do provide products or services on the condition that customers purchase some other products or services.
Based on the findings, MyCC proposed various recommendations aimed at framing the subsequent course of action for the WRT industry in Malaysia. These recommendations include the need to conduct further in-depth studies on the following markets/areas to enable MyCC, if necessary, to commence investigations and to intervene:
- Identified product markets with high market concentration such as (i) wholesale of dairy products; (ii) wholesale of biscuits, cakes, breads and other bakery products; (iii) wholesale of confectionery; and (iv) retail sale of dairy products and eggs in specialised stores;
- Identified areas of possible competition concern which have the highest impact to the industry (and subsequently consumers) such as (i) suppliers having market power (especially large MNCs); (ii) collusion by firms (72% responded that this exists but lacked specifics); (iii) exclusive distribution (which reduces the ability to source better competitive terms) and (iv) price-fixing.
Businesses in the WRT sector (in particular, those with significant market share) should therefore be vigilant and conduct internal review or audits (which may be effected with external competition law practitioners) to ensure their compliance with the Competition Act 2010.
If MyCC determines that there is an infringement of the Competition Act, MyCC may impose a financial penalty of up to a maximum of 10% of the worldwide turnover of the enterprise over the period during which the infringement occurred. Moreover, any private individual who has suffered loss or damage as a result of the infringement of the Competition Act may also bring a private action against the enterprise in the High Court.
(2)MyCC Fines 22 Insurance Companies for an Alleged Price-Fixing Agreement
On 25 September 2020, MyCC issued its final decision (“Decision”) against the General Insurance Association of Malaysia (“PIAM”) and 22 insurers (collectively the “Parties”). The Decision comes more than three years after the provisional infringement decision was issued in February 2017. MyCC found that the Parties had participated in a price-fixing agreement from 2012 to 2017. The total amount of the fines, MYR 173.66 million (approximately SGD 56.96 million), is the highest ever imposed by MyCC, although MyCC applied a discount of 25% to take into account the financial situation of the Parties due to the COVID-19 pandemic. The Decision comes despite Malaysia's financial regulator, Bank Negara Malaysia (“BNM”), having indicated that the agreement was the direct result of a directive by BNM. Under the Malaysia Competition Act, the prohibition of anti-competitive agreements does not apply to “an agreement or conduct to the extent to which it is engaged in order to comply with a legislative requirement”. According to MyCC, however, there was no directive akin to a “legislative requirement” issued by BNM. As such, the agreement was not excluded from the Competition Act. All other arguments made by the Parties, whether on procedural grounds or on substance have been rejected by MyCC. Appeals have been lodged against the Decision.
(1)PCC Issues Rules for Exemption from Compulsory Notification of Certain Joint Ventures (“JVs”)
On 16 June 2020, the Philippine Competition Commission (“PCC”) established a framework to exempt from compulsory notification certain JVs by (i) private and government entities pursuant to the National Economic Development Authority (“NEDA”) JV Guidelines, under PCC Memorandum Circular No. 20-001; and (ii) private entities for an unsolicited Public-Private Partnership (“PPP”) projects under PCC Memorandum Circular No. 20-002.
The NEDA is the Philippine’s principal socioeconomic development planning agency. A PPP is broadly defined as a contractual agreement between the government and a private sector entity to finance, design, implement, and operate projects, including infrastructure facilities and services, traditionally provided by the public sector.
In general, JVs are subject to compulsory notification to and approval by the PCC pursuant to Section 17 of the Philippine Competition Act if the relevant thresholds are met. Under the Memorandum Circulars, the qualified government agency may file an application for a Certificate of Project Exemption with the PCC on behalf of the proponent or prospective bidders to seek exemption from compulsory notification.
The PCC may provide inputs on the selection or tender documents, feasibility study, draft agreement, project proposal, eligibility documents, and other related documents for review (“Project Documents”) and on how the project may affect competition in the relevant market. In addition, the PCC may require Undertakings i.e., commitments to be complied with by the prospective bidders to address any potential competition issues identified by the PCC, to be incorporated in the Project Documents.
The PCC shall issue a Certificate of Project Exemption in favour of the prospective winning Project Proponent or private sector participant upon the submission to the PCC of the final Project Documents. The latter must show the adoption of PCC’s inputs as well as the executed Undertakings by the prospective bidders if required by the PCC. In case the winning proponent or private sector participant violates any of its commitments under its Undertakings, the PCC shall, at its discretion, commence a review of the project.
Further, the PCC may require the winning proponent or private sector participant to notify the PCC (and the PCC will then conduct a full review of the transaction) in the following cases: (i) the PCC’s inputs were not implemented by the qualified government agency; (ii) the Certificate of Project Exemption was secured on the basis of fraud or false material information; (iii) the required Undertakings were not duly executed by the winning Project Proponent; or (iv) there are substantial changes to the project subsequent to the PCC’s review.
We summarise below the rules for each type of JV covered by the Memorandum Circulars:
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JV formed under the NEDA JV Guidelines |
JV formed for unsolicited PPP project |
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Basis |
PCC Memorandum Circular No. 20-001 |
PCC Memorandum Circular No. 20-002 |
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Authorised Contracting Government Agencies/Units |
Government-owned and/or controlled corporations (“GOCCs”), government corporate entities (“GCEs”), government instrumentalities with corporate powers (“GICPs”), government financial institutions (“GFIs”), state universities and colleges (“SUCs”). [Note that local government units (“LGUs”) are not covered.] |
All concerned departments, bureaus, offices, commissions, authorities, or agencies of the national government, including GOCCs, GFIs, SUCs, and LGUs. |
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When application shall be made |
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Any time from the commencement of the negotiations with the original proponent but prior to the issuance of a Certificate of Successful Negotiation. |
(2)PCC on Alert against Anti-competitive Practices that Exploit COVID-19 Situation
The PCC has launched a COVID-19 Complaint Portal on its website to encourage the public to report businesses engaged in anti-competitive behaviour concerning goods and services essential in dealing with the COVID-19 pandemic. In that regard, the PCC has embarked on an information dissemination campaign in its social media accounts and website, mainly by providing explanations and illustrations of anti-competitive acts that may be employed by business entities, such as price-fixing, bid rigging, imposing unfair purchase or selling prices, limiting production, markets or technical development, with the apparent aim of educating the public and protecting consumers from businesses that take or may take advantage of the current pandemic.
(1)CCCS Issues Guidance Note on Collaborations between Competitors in Response to COVID-19 Pandemic
On 20 July 2020, the CCCS issued a Guidance Note on Collaborations between Competitors in response to the COVID-19 Pandemic (“Guidance Note”). The Guidance Note followed upon similar guidance issued by other competition authorities worldwide, and aimed to provide more clarity to businesses on how the CCCS would view collaborations between competitors in response to this exceptional period. The CCCS noted that it would generally not investigate collaborations between competitors which: (i) sustain or improve the supply of essential goods or services in Singapore; (ii) are put in place from 1 February 2020 and end by 31 July 2021; and (iii) do not involve price-fixing, bid-rigging, market-sharing or output limitation – it is assumed that such collaborations are likely to generate Net Economic Benefits and are therefore unlikely to infringe the Competition Act. Businesses are encouraged to perform their own self-assessment first to determine whether their collaboration falls within the framework set out in the Guidance Note.
The Guidance Note provides welcomed clarity to businesses by setting out the scope and time period of collaboration between competitors that the CCCS is less likely to consider problematic during this period. This will give businesses more comfort in considering collaborations to deal with ongoing disruptions in demand and supply as a result of the COVID-19 pandemic. However, the various qualifications in the Guidance Note make clear that COVID-19 does not provide a blank cheque for coordination amongst competitors. All collaborations must continue to be structured carefully, on a limited basis and must be justifiable by reference to their quantifiable efficiencies.
(2)CCCS Concludes Investigation into Online Food Delivery and Virtual Kitchen Sectors
On 5 August 2020, the CCCS announced that it has ceased its investigation into the online food delivery and virtual kitchen sectors in Singapore. The investigation, which commenced slightly less than a year ago on 30 September 2019, focused on concerns involving the refusal to supply by online food delivery providers in Singapore to competing virtual kitchens, such as Smart City Kitchens (“SCK”), which compete to provide virtual kitchens to various F&B operators. Following the CCCS’s investigation, online food delivery providers GrabFood and Deliveroo started to supply their online food delivery services to F&B operators in SCK’s virtual kitchens, which already have access to Foodpanda’s online food delivery service. The CCCS assessed that this has resulted in F&B operators having a wider choice of online food delivery providers to reach out to customers. The CCCS also noted that competition in the virtual kitchen sector remains dynamic, with players entering and competing in the sector. As a result, the CCCS ceased its investigation but will continue to supervise the practices of such platforms to ensure that anti-competitive activities are not being carried out.
(3)CCCS Issues Final Price Transparency Guidelines
On 7 September 2020, the CCCS published the final Guidelines on Price Transparency (“Guidelines”) and announced that the Guidelines will take effect on 1 November 2020. The Guidelines focused on clarifying how the four pricing practices of (i) drip pricing, (ii) price comparison, (iii) discounts and (iv) use of the term “free” may in certain cases amount to unfair practices under the Consumer Protection (Fair Trading) Act (“CPFTA”). In providing these clarifications, the Guidelines also addressed key general points that were raised to the CCCS during the consultation process. In particular, the Guidelines made clear that they apply to all suppliers (whether operating online or in physical stores) and they do not “absolve suppliers of obligations” under any other guidance from any sectoral regulators: where such guidance is more stringent that the Guidelines, then suppliers should follow the stricter approach.
These Guidelines are an important step in enhancing consumer protection in Singapore, which is enforced by the CCCS. As consumer protection is very much on the radar of the CCCS, suppliers must take the Guidelines seriously. We highlight that the burden is on the supplier to prove that it has not committed an unfair practice in the event of a dispute – thus, compliance with the CCCS’s recommended best practices will aid suppliers from an evidentiary point of view. It follows that businesses must take all steps to ensure awareness creation within their organisation and full compliance.
(1)Thailand’s Trade Competition Commission Publishes New Guideline on Online Food Delivery Services for Public Consultation
The Office of the Trade Competition Commission (“OTCC”) has recently published a draft Notification of the Trade Competition Commission Re: Guideline for Consideration of Unfair Business Practices between Online Food Delivery Service Providers and Restaurant Business Operators (“Draft Notification on Food Delivery”) and put up the Draft Notification on Food Delivery for public consultation.
The OTCC issued the Draft Notification on Food Delivery in response to the surge in demand for online food delivery services and intensifying competition in the food delivery market as a result of the COVID-19 pandemic. The OTCC has been pursuing more active enforcement against online food delivery service providers after it received complaints of overcharging and increased commissions during the COVID-19 lockdown.
The Draft Notification on Food Delivery primarily focuses on the relationship between online food delivery service providers and restaurants, with an “online food delivery service provider” defined as a business operator which provides the service of picking up food from restaurants and delivering the food to consumers with the order for such delivery being made by the consumer via electronic means.
The Draft Notification on Food Delivery provides examples of trade practices by online food delivery service providers which may be considered as an unfair trade practice according to Section 57 of the Trade Competition Act, as summarised below.
Charging economic benefit unfairly
- imposing income sharing charges, such as commission fees or commissions on gross profit, at an excessively high rate or at different rates among multiple restaurants without justifiable reason or in a discriminatory manner, for which the type, quality, quantity and cost of the food, as well as size of the order and popularity of the restaurant are taken into consideration;
- imposing income sharing charges in addition to the charges specified in an agreement or previously agreed on without justifiable reason, for which the quality and quantity of the food remain the same;
- imposing advertising fees without clear grounds and justifiable reason for such fees, including rates for advertising via electronic means, such as charging advertising fees for which the restaurants do not receive benefits as agreed or charging excessively high fees for special placement in the platform in order to attract customers;
- imposing special sales promotion fees without justifiable reason;
- requiring the provision of economic benefits unfairly without justifiable commercial, economic or marketing reason; and
- imposing or amending the rates or method of receiving economic benefits between the online food delivery service provider and restaurants for which the online food delivery service provider does not notify the restaurant of the reason or necessity in advance.
Fixing commercial condition which restricts or obstructs business operation of other business operators unfairly
- fixing condition(s) restricting business operations of the restaurants, requiring exclusive dealing or forbidding restaurants from making sales via other online food delivery service providers unfairly, whereby restaurants who fail to comply are penalised by commercial sanctions, such as increased rates of income sharing charges, denying or suspending discounts on income sharing charges and charging other economic benefit at an excessively high rate.
Using marketing dominance or superior bargaining power unfairly
- interfering with or restricting the freedom to set prices of the restaurant unfairly;
- imposing a rate parity clause, such as requiring the restaurant to sell the same type of food at the same price for every channel of sale without justifiable reason;
- delaying the payment of the price of goods or extending credit terms for an unreasonable period of time;
- refusing to deal with or boycotting restaurants who refuse to comply with conditions or requests of the online food delivery service provider or restaurants who file a complaint or prepare to file a complaint regarding trade practices of the online food delivery service provider to a government authority;
- delisting restaurants from electronic distribution channels without justifiable reason or contrary to terms agreed in advance; and
- amending conditions under the agreement or the term of the agreement without justifiable reason and amending the term without an advance notice of at least 60 days.
Other unfair trade practices
- other unfair trade practices where the online food delivery service provider compels, fixes special conditions, restricts or obstructs business of another business operator which causes damage to such business operator.
The Draft Notification on Food Delivery was open for public consultation between 17 August 2020 and 15 September 2020, and is expected to become effective within this year.
(2)Amendment to Market Dominance Test
A new Notification of the Trade Competition Commission on Market Dominance, repealing the 2018 Notification on this issue, came into effect on 26 September 2020.
The test of market dominance under this Notification is as follows:
- a business operator in any market with a market share of 50% or more and with sales volume of THB1 billion (approx. USD32 million) or more in the preceding year; or
- the first three business operators in any market with a combined market share of 75% in the preceding year.
The provision in (2) does not apply to any business operator (amongst the three) having less than THB1 billion sales or less than 10% market share in the preceding year.
(1)Active Merger Review Activity
Following the market trend and the economic recovery process relating to the COVID-19 pandemic, activities of economic concentration such as mergers and acquisitions and joint ventures of enterprises are increasingly prevalent in the market. This is evidenced by the number of merger clearances which have been assessed and issued by the Vietnamese competition authority under the enforcement of new Decree No. 35/2020/ND-CP from 15 May 2020, in particular:
- Proposed transaction between Binh Duong Real Estate 1, BWID New City and Mapletree Business City (Vietnam) Co., Ltd in the industrial real estate sector: On 25 August 2020, this proposed merger transaction was cleared by the Vietnam Competition and Consumer Authority (“VCCA”). In particular, Binh Duong Real Estate 1, which currently owns 100% capital contribution in Mapletree, shall transfer all of its capital contribution in Mapletree to BWID New City. BWID New City and Mapletree were established and operated in the field of industrial real estate in Vietnam. Although not established in Vietnam, Binh Duong Real Estate 1 indirectly operates in the field of industrial real estate management in Vietnam through its subsidiary (i.e., Mapletree Business City). Therefore, the transaction is subject to notification of economic concentration to the Vietnamese authority.
- Proposed joint venture transaction between Zenith Electronics LLC and Luxoft USA, Inc in the automotive sector: On 8 August 2020, this proposed transaction was cleared by the VCCA. Zenith Electronics (a US entity) is a wholly owned subsidiary of LG Electronics Inc., and Luxoft USA (also a US entity) is an indirect wholly owned subsidiary by DXC Corporation. These two entities do not have any commercial presence in Vietnam. Under the proposed transaction, Zenith Electronics and Luxoft USA plan to establish a joint venture company in the US in the automotive sector. The economic concentration between Zenith Electronics and Luxoft USA is entirely carried out in the US. However, as the parent groups of Zenith Electronics and Luxoft USA, respectively LG Electronics Inc. and DXC Corporation, have their business operations in Vietnam, the transaction is subject to notification of economic concentration to the Vietnamese authority.
- Proposed transaction between Bayer Vietnam Limited and Dekalb Vietnam Co., Ltd.: On 7 August 2020, the VCCA cleared the proposed acquisition by Bayer Vietnam Limited of Dekalb Vietnam Co., Ltd. The acquisition of Dekalb Vietnam Co., Ltd. by Bayer Vietnam Limited is to maintain a legal entity in each country where the Bayer Group has a commercial presence. After the transaction, only Bayer Vietnam Limited continues its operation in the market and Dekalb Vietnam Co., Ltd. has ceased its operation in Vietnam.
- Proposed transaction between Transimex Joint Stock Company and Emergent VN Logistic Properties Pte. Ltd: On 6 August 2020, the VCCA cleared the proposed merger transaction in the field of office rental services and warehouse, storage of goods between Transimex Joint Stock Company (an enterprise having its headquarter in Vietnam) and Emergent VN Logistics Properties Pte. Ltd (an enterprises having its headquarter in Singapore). Under the transaction, Transimex (as the Seller) shall transfer 100% stake in ECPVN Binh Duong 1 Limited Liability Company (as Target Company) to Emergent VN (as the Purchaser). After the transaction, Emergent VN wholly owns and fully controls ECPVN Binh Duong 1.
- Proposed transaction between Asia Breweries Limited, International Beverage Holdings Limited and Beerco Limited: On 6 August 2020, the VCCA cleared the proposed merger transaction in which Asia Breweries (Singapore entity) purchased 100% equity of Beerco (Hong Kong entity) from International Beverage Holdings Limited (Hong Kong entity). This transaction is entirely conducted out of Vietnam territory. However, such participating parties are also running their businesses in the Vietnamese market via their directly-owned or indirectly-owned subsidiaries in Vietnam and therefore the transaction is subject to notification of economic concentration to the Vietnamese authority.
- Proposed transaction between Jeju Air and Eastar Jet in the aviation sector: On 6 July 2020, the VCCA cleared the proposed merger transaction performed in Korea. Particularly, Jeju Air acquired a total of 4,971,000 shares, equivalent to 51.17% of the total shares of Eastar Jet, from shareholders of Eastar Jet (transaction value of about USD 45 million). After the transaction, Jeju Air will take control of Eastar Jet's market operations.
- Proposed transaction between Honda Motor Co., Ltd, Keihin Corporation, Showa Corporation, Nissin Kogyo Co., Ltd and Hitachi Automotive System, Ltd: On 1 July 2020, the VCCA cleared this proposed transaction in the industry of manufacturing and trading in the field of automobiles, motorcycles, components and accessories for cars and motorcycles in the Vietnamese market. Particularly, Keihin, Showa, Nissin will be merged into Hitachi AMS, of which Honda owns 33.4% and Hitachi owns 66.6%. After the transaction, the enterprises in Vietnam will still exist and operate independently, and the transaction was deemed as not changing the market structure in Vietnam.
- Proposed transaction between Masan Group, The CrownX, MasanConsumerHoldings and VCM Services and Trading Development JSC: On 25 June 2020, this proposed transaction was cleared by the VCCA. The transaction involves Masan Group’s two subsidiaries, MasanConsumerHoldings and VCM Services and Trading Development JSC, transferring all of Masan's capital contribution in these two companies to The CrownX Company (also under Masan Group). After the transaction, The CrownX will directly own 85.71% stake in MasanConsumerHoldings which manages all of Masan 's consumer goods business and an 83.74% stake in VCM which owns Vinmart supermarket systems in Vietnam.
(2)Notification Threshold of Economic Concentration under New Guidance
Under the provisions of the new Decree No. 35/2020/ND-CP guiding the Competition Law, depending on the circumstances, an economic concentration transaction may be (i) prohibited; (ii) freely performed; or (iii) have to undergo the notification of economic concentration with the VCCA. After nearly four months of enforcement, it appears that the new decree has resulted in some difficulties to both Vietnamese enterprises and foreign entities.
Specifically, the criteria for merger notification under the previous Competition Law (Competition Law 2004) was solely based on combined market share in the market. However, with effect from 15 May 2020, criteria such as "total assets", "total turnover from sale costs", "total turnover from purchase", "transaction value" have been added. This meant that a series of economic concentration transactions that could have been freely performed previously, were now subject to merger notification to the VCCA, which might entail a long evaluation period.
As a result, enterprises have expressed concern and hesitation when deciding whether to conduct mergers, acquisitions and joint ventures, especially for enterprises which are looking to invest in new fields and industries but potentially meet the threshold of notification. It is also unclear whether the focus of assessment is on the original meaning of the notification which is aimed at the "market share" factor and whether the proposed transaction significantly increases the enterprise's market share after the transaction.
There have in fact been several companies which have faced difficulties in obtaining offers to purchase their equity from other big enterprises due to the need to obtain clearance for the merger transaction as the total revenue or total assets of "its affiliated entities" would have reached the threshold of VND 3,000 billion (approx. USD 130 million), even if the combined market shares of participating parties are significantly low (e.g., less than 1% in the relevant market) and the post-merger entity is unable to capture or manipulate the market.
