LINES OF THOUGHT ACROSS SOUTHEAST ASIA

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The waiting game

Investors are expected to expand their operations across Southeast Asia as trade and investment are further liberalised. Yet at present, few Asean member-states have competition laws in place.  Effective regulation and promotion of competition provides a strong foundation for economic development. The positive benefits of fair competition for…

July 5, 2012

Investors are expected to expand their operations across Southeast Asia as trade and investment are further liberalised. Yet at present, few Asean member-states have competition laws in place. 

altEffective regulation and promotion of competition provides a strong foundation for economic development. The positive benefits of fair competition for consumers and businesses are well known. The adoption and implementation of clear, comprehensive and transparent national competition laws by each of the Asean member-states has the clear potential to assist Asean in achieving its economic and developmental objectives in a rapidly changing global economic environment.

However, the implementation of consistent national competition laws is certainly no easy challenge given the substantial variation in economic and political circumstances across Southeast Asia. While Asean member-states committed in 1997 to the implementation of nationwide competition policy and law by 2015, only four nation-states have to date implemented such laws, each of whom had introduced national laws prior to the 1997 commitment.

Given the global investment focus on Asia, and as Southeast Asia rapidly moves towards a more liberal trade and investment environment, companies will increasingly use mergers and acquisitions as a vehicle to expand their operations across Southeast Asia. The push for the remaining Asean member-states to follow suit and introduce competition laws will be greater than ever. But will they deliver?

Anti-competitive merger regimes

One of the key aspects of a successful national competition law is the effective regulation of mergers that may have a negative effect on competition. The Asean Regional Guidelines on Competition Policy (the Guidelines) identify the following components of a strong merger regime: (1) a prohibition on mergers that lead to a substantial lessening of competition or would significantly impede effective competition in the relevant market or in a substantial part of it, unless otherwise exempted; (2) the establishment of specific procedures by which a relevant competition regulatory body is tasked to assess mergers, following a notification by the merging undertakings, or otherwise following a complaint or by their own motion; and (3) the establishment of specific procedures by which the relevant competition regulatory body is tasked to stop the merger, or as part of the clearance, impose conditions on, or require commitments from, the merging enterprises to address any competition concerns arising from the merger.

Competition standards

As part of the 2015 Commitment, the Asean leaders agreed that the AEC Blueprint “will transform Asean into a single market and production base, a highly competitive economic region, a region of equitable economic development and a region fully integrated into the global economy.”

Challenges ahead

Given the above, three major questions remain: (1) Will nation-states for which merger regimes themselves are still in an early stage of development be ready by 2015 to introduce anti-competitive merger regulation? (2) Can such laws be implemented effectively? (3) Is a degree of uniformity across the region achievable?

Economic development

Merger regimes themselves are still in an early stage of development in some Asean countries, reflecting the stage of their economic development. The result is that in some circumstances it is not yet possible to merge companies, due to an absence of legal framework or necessary implementing regulations. Although a push from investors to consolidate the number of operators in certain sectors of the relevant economies is leading businesses to push governments to develop the general merger regime, in such countries it may be premature to implement a competition legal framework regulating mergers.

Effective implementation

While the Guidelines will assist member-states in drafting sufficient legislation, effective competition law requires due process, proper enforcement, clear rules and guidelines, and an independent commission or regulator with limited discretion. Responsibility for such elements will lie with each national government and will require significant investment and resources. Without such elements, competition law will serve little purpose. Arguably, the most significant factor in the effective implementation of competition law and merger regimes is whether sufficient demand exists from consumers or businesses in each country to push governments to devote the resources and effort required for the effective implementation of their national competition law. 

Another significant challenge arises from the fact that the introduction of competition law amongst some Asean member-states has arguably been a result of external pressure rather than national prioritisation of the issue, for example due to pressure from the International Monetary Fund, or as a result of commitments made in connection with accession to the World Trade Organisation, or under free trade agreements with significant trading partners. If a competition law was introduced in such circumstances, it may be understandable that a government subsequently continues to prioritise funding areas that it considers more significant to its national circumstances than development of the bodies and rules required to effectively implement the competition law.

Harmonisation

Uniformity and consistency across the laws of the region will undoubtedly foster greater intra-regional and foreign direct investment, supporting the economic development of the Asean member-states. However, while the Guidelines have provided member-states with a framework for implementing uniform and consistent laws, achieving such uniformity will be a difficult challenge in practice given the varying political, constitutional, legal, economic and social circumstances across Southeast Asia.

altMerger regulation is a good example. At present, there is little uniformity in merger regulation across Southeast Asia. In order to ensure uniformity across the relevant member-states, merger regulation or prohibition would need to be automatically triggered by certain market-share thresholds. In addition, the powers of governments or regulators to make exceptions to what would otherwise be considered a prohibited merger would have to be limited. However, the domestic circumstances of each member-state can result in governments preferring to adopt laws with wide government or regulator power and great variation in the thresholds that trigger the merger regime.

Conclusion

Through the 2015 commitment, Asean has undoubtedly taken significant steps in moving towards the goal of uniform and effectively administered competition law amongst the Asean member-states. However, the practical effectiveness of competition law in supporting economic development and investment in the region will ultimately be dependent on (1) whether each Asean member-state will be economically and politically ready by 2015 to introduce competition law; (2) if so, whether they will be able and willing to resource their relevant competition law frameworks in order to ensure proper administration and enforcement; and (3) whether sufficient incentive or pressure exists to prompt governments to ensure a certain degree of uniformity across the relevant legal frameworks.

Implementing and ensuring an effective competition regime in a region with such varied economies and political circumstances is certainly no easy task, but Asean can be commended for taking steps in the right direction.



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