Competition Policy in Singapore: Opportunities and
Challenges Ahead
Abstract
The role of competition policy and law (CPL) in any society is essentially a political
question sensitive to the dynamic needs and aspirations of that society. It is upon the
understanding of the political dimension of CPL that the academic, legal and
economic arguments and rhetoric can be properly contextualised, the ascendency
of the present arrangements and the present assumptions explained in such a way
that dissociates explaining them from vindicating their necessity or authority and the
truly imperative and imaginative question asked of what should be the role of CPL
within the context of Singapore's stage of social and economic development, its
trade dependent open economy and relatively small domestic market.
It is a step in the wrong direction to conflate competition policy and law with
economics such that questions about the role of CPL become reduced to technical
economic objectives such as efficiency, welfare maximisation. The insight that we
can be imaginative and ambitious with CPL to structure society and the economy
that best serves our interests must never be lost on us.
Given the contest of Singapore’s trade dependent open economy and relatively
small domestic market, it is suggested that the role of CPL could be broaden to take
on the role of enhancing trade.
In addition, the maxim that competition law and policy itself should not be anticompetitive should continue to guide future development. Key to developing an
efficient and effective competition law regime is an understanding of the challenge of
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the false positive and negative. One simple way to deal with the challenge of false
positives and negatives is to eschew a formalistic approach in examining anticompetitive behaviour as this opens up way for a pragmatic approach that can keep
better pace with the ever evolving affairs of the commercial world.
Introduction
To draw on and adapt the words of Roberto Mangabeira Unger, “To understand your
country you must love it. To love it you must, in a sense, accept it. To accept it as it
is, however, is to betray it. To accept your country without betraying it, you must love
it for that in which it shows what it might become. Singapore - this monument to the
genius of ordinary men and women, this place where hope becomes capacity, this
long, halting turn of adversity into the progress - needs citizens who love it enough to
imagine and re-imagine it to make and remake it.”[1].
Let us bear no illusions that the role of competition policy and law (CPL) in any
society is essentially a political question sensitive to the dynamic needs and
aspirations of that society. This was undoubtedly observed upon a brief survey into
the economic histories of the great American and European competition traditions
which revealed the evolution of CPL to serve a whole array of objectives that varied
with progress of society[2].
It is upon the understanding of the political dimension of CPL that the academic,
legal and economic arguments and rhetoric can be properly contextualised, the
ascendency of the present arrangements and the present assumptions explained in
such a way that dissociates explaining them from vindicating their necessity or
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authority[3] and the truly imperative and imaginative question asked of what should
be the role of CPL within the context of Singapore's stage of social and economic
development, its trade dependent open economy and relatively small domestic
market.
Essentially a Political Question
Considerable scholarly attention in the West has been devoted to critiquing the
reluctance of competition regimes and courts to endorse an effects-based approach
to competition law enforcement, or of their lack of openness to the most modern
analytical approaches to the discipline.[4] Inherent in such discussion seems to be the
concern that the decoupling of law with economic analysis or economic theory will be
to the detriment of markets, the economy, law as an institution and society in
general. While it is relatively uncontroversial to accept the assertion that CPL that
exist can be better explained with neo-classic economic principles and profit is made
when these principles are considered as one of the bases of reform, it is perhaps a
step in the wrong direction if we were to conflate competition policy and law with
economics such that questions about the role of CPL become reduced to technical
economic objectives such as efficiency, welfare maximisation or GNP growth.
Though from a normative perspective economics provides a theoretical justification
for competition law, the insight that we can be imaginative and ambitious with CPL to
structure society and the economy that best serves our interests must never be lost
on us.
3
The Opportunity of Enhancing Trade by Reconceptualising Competition Law
The role that CPL currently plays in Singapore is best fleshed out and encapsulated
by the Competition Commission of Singapore’s (CCS) competition philosophy. The
CCS states that the aim of CPL is to ensure that markets are, and remain,
competitive by protecting the competitive process. There is the recognition that the
competitive process is not protected as an end in itself but as a means to benefit
consumers and society. In general four benefits of competition are recognised in the
CCS’s competition philosophy: greater production and consumption, efficiency and
productivity, innovation and the restructuring of weak, uncompetitive sectors.[5]
While this is undisputed and indeed a very desirable role for CPL in Singapore to
continue to pursue, given the context of Singapore’s trade dependent open economy
and relatively small domestic market, it is suggested that the role of CPL could be
broadened to take on the role of enhancing trade. This would helpfully complement
Singapore’s current policy objective of liberalising trade. This objective is stated by
the Ministry of Trade and Development as one which Singapore places the highest
priority.
With Singapore’s trade to GDP ratio at a staggering 400.2 (the world’s highest) [6 ,
the benefits of smooth and fair trade overseen by CPL would be substantial. What is
remarkable is that nothing substantial legislatively needs to be changed in order to
bring trade practices undertaken by private undertakings under the purview of CPL
as the Competition Act is wide enough to incorporate such an objective. All that
needs to be done is a rethink about the scope of investigation and enforcement by
the Commission and the acceptance by the Courts. For example, agreements that
contain a direct or indirect export ban aimed at prohibiting or limiting parallel trade
can be considered restrictive of competition by object under section 34 of the
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Singapore Competition Act 2004 and selective price cutting by dominant
undertakings in ports or countries where it faces stiff competition can be considered
as an abuse of dominant position under section 47 of the Singapore Competition Act.
These two practices can be considered anti-competitive as they apply dissimilar
conditions to equivalent transactions with other trading parties, thereby placing them
at a competitive disadvantage. Thankfully such an understanding of anti-competitive
is already found in s34(2)(d) and s47(2)(c) of the Singapore Competition Act and
therefore no legislative change, fanciful interpretation or judicial acrobatics is
required to prohibit such conduct; just a simple deliberated rethink of administrative
priorities and scope suffices.
Intuitively it might seem irrational for any commercial undertaking to seek an export
ban or selectively cut prices as these would adversely affect their market share and
revenues; however, put in context of complex commercial arrangements, the
detriment to production and consumption, efficiency and productivity can be easily
revealed.
In Europe, the practice of export bans could be observed in an European Court of
Justice (ECJ) case[7] where a large pharmaceutical company price discriminated
among the various member states of the EU due to the differing purchasing power of
member states and arguably as some member states exercised price controls over
certain pharmaceutical drugs. In order to ensure that its strategy of price
discrimination worked, leakage of the same pharmaceutical products sold at a
cheaper price to certain member states had to be prevented from being re-exported
to member states where the prices were higher. Thus, agreements with local
distributers were made such that the cheaper pharmaceutical products would only be
sold to them if they agreed to a dual-price mechanism, whereby prices proposed to
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them changed depending on whether the product was intended to be sold in the
member state or elsewhere through parallel trade. As a result of such agreements,
consumers suffered in the form of higher prices and it is arguable that efficient local
distributers were prevented from expanding into neighbouring markets. It should be
note that such restrictions to parallel trade might come in other forms such as a
refusal to supply more than necessary to meet the demand of the country and
printing on the packaging stating that the product is only intended for a certain
member state.
In Ireland, selective price cuts were observed in an ECJ case[8] where there was a
dominant firm that controlled 95 percent of sugar production in Ireland. The firm
sought to restrict competition both from imports of sugar from other Member States
by selectively lowering prices to customers of an importer and offering selective
"border" rebates to customers located close to the Northern Irish border. Though the
sustainability of such a practice might be questioned, the result was that the
dominant firm was able to maintain a significantly higher price level for packaged
retail sugar in Ireland compared with that in other Member States and had been able
to keep its ex-factory prices, particularly for bulk sugar for "domestic" Irish
consumption, amongst the highest in the European Community, to the detriment of
both industrial and final consumers in Ireland. Even if it is argued that such a practice
was ultimately unsustainable, the restructuring of the market to a more efficient form
was arguably delayed.
Therefore the benefits of utilising CPL as a tool to enhance trade in the contest of
Singapore’s trade dependent open economy and relatively small domestic market
shows lots of potential. In addition, it complements the current system of enhancing
trade and dealing with trade disputes. As a member of the WTO, where a trade
6
dispute arises with another WTO member, Singapore has access to the WTO’s
multilateral framework of rules and an avenue for recourse. The dispute resolution
mechanism offered by the WTO however deals primarily with disputes that member
states have with each other such as being deprived of a benefit under a covered
agreement in relation to subsidies, tariffs, rules of origin, safeguards and so on.
Private disputes between undertakings are not directly covered. Here, CPL brilliantly
complements the existing system by allowing private individuals and firms under
section 86 of the Competition Act to bring an action against a trade practice that they
might feel is anti-competitive and would affect them. Private corporations and
individuals should not be able to recreate by means of agreements or conduct the
very same barriers on trade that Singapore seeks to abolish. It is suggested that the
adoption of CPL to monitor trade practices provides an efficient and effective
deterrence to the setting up of private barriers to trade as monitoring is
decentralised. The reconceptualisation of CPL to deal with trade issues should be
conceived as the natural next stage of development in our regulatory framework in
dealing with trade barriers.
7
The Challenge of the False Positive and Negative – the Danger of having an
Anti-competitive Competition Regime
A decade on after Singapore enacted its first generic competition law, Singapore can
stand proud of the headway it has made developing a robust competition regime that
helps realise the vision of a vibrant Singapore economy with competitive markets
and innovative businesses. Highlights of such headway include a business-friendly
and competent Competition Commission that has been fairly active in national and
international cartel and merger investigations, the incorporation of important
competition sections in major international free trade agreements and the
participation in ASEAN Expert Group on Competition to develop sound competition
policies and best practices for ASEAN.
In light and despite of all these positive progress, the maxim that competition law and
policy itself should not be anti-competitive should continue to guide future
development. Key to developing an efficient and effective competition law regime is
an understanding of the challenge of the false positive and negative. A false positive
occurs where pro-competitive conduct is wrongly held to have infringed CPL and a
false negative occurs where anti-competitive conduct escapes detection. Though
efforts must always be made to minimise both errors, a point will inevitably be
reached where a political choice has to be made to minimise either the false
positives or the false negatives, understanding that any further improvement comes
at a trade-off.
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For example, a fast-tracked
tracked path to establish infringement, unfavourable
interpretations of exclusions and high levels of investigations
investigations could be a solution to
false negatives though this might entail some false positives. Vice versa, a
deliberated path to establish infringement, favourable interpretations of exclusions
and low levels of investigations could be a solution to fals
false
e positives though this
might likewise entail some false negatives.
One simple way to deal with the challenge of false positives and negatives in order
to bring it as close to the efficient curve shown in the graph above is to eschew a
formalistic approach
h in examining anti-competitive
anti competitive behaviour, convenient as it may
be. This is as commercial transactions today are increasingly complex and what
might been seen as anti-competitive
competitive may in fact have pro-competitive
pro competitive justifications
and what might seem as innocuous
innocu
might actually be anticompetitive.
This means that unlike the ‘per se/rule of reason’ approach taken by the US which
tends to pigeon-hole anti-competitive
competitive conduct by reducing it to formal categories and
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based on the categorisation ban the conduct in and of itself regardless of context or
allow a justification under the ‘rule of reason’ doctrine, we must always be sensitive
to the context where the perceived anti-competitive conduct occurs and not its form.
The dire consequence of a formalistic approach can be observed in the US where
the competition law itself was arguably undesirably anti-competitive with respect to
retail price maintenance from 1911 to 2007.
The Supreme Court in 1911 established that a retail price maintenance clause
whereby a manufacturer obliges a retailer to sell above a minimum price is per se
illegal[9]. It was only almost a century later in 2007 that the Supreme Court overruled
the 1911 decision, stating that vertical price restraints are to be judged according to
the rule of reason[10]. The Supreme Court in it 2007 landmark decision finally
recognised that there could be many pro-competitive benefits resulting from vertical
price restraints such as stimulating inter-brand competition, encouraging retailers to
invest in tangible and intangible services or promotion efforts, giving consumers
more options to choose brands that are low price-low service or high price-high
service or in between, facilitating market entry for new firms and brands, encourage
retailer services that would not be provided even absent free riding and so on. This
decision however did not mean that all vertical price restrictions were to be
considered lawful as the decision also recognised that such restrictions could also
have anti-competitive effects such as facilitating a manufacturer cartel, organising a
retailer cartel, forestalling innovation in distribution that decreases costs, giving
retailers an incentive not to sell products of rival or new entrants and so on. It merely
stated that vertical price restrictions should not be banned per se. As a consequence
of almost a century of insensitive law, it is regrettable to think not only of the amount
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of the false positives enforced but also of the possibly inefficient way businesses had
to structure themselves to avoid the prohibition.
Likewise, despite elegant Chicago scholarship[11] asserting a predatory pricing
impossibility theorem, to avoid unnecessarily false negatives, it would be wise to
recognise that such practices might be present and have anti-competitive effects in
certain contexts as recognised by the EU Commission guidance paper on abusive
exclusionary conduct by dominant undertakings.
The significance of eschewing a formalistic approach is that it opens up way for a
pragmatic approach that can keep better pace with the ever evolving affairs of the
commercial world. In addition it constantly challenges authorities to rethink certain
given assumptions such as the undesirability of hardcore cartels. For example the
American airline industry in the past was essentially a government-enforced cartel.
Although prices were kept high, competition between the airline companies devolved
into non-price competition. Planes were a lot less crowded, there was more leg
room, the food was better and there were many ancillary perks such as piano bars
etc[12].
Conclusion
Therefore, it is the author’s hope that the CPL in Singapore would seize the
opportunity to become a guardian of trade and rise to the challenge of the false
positive and negative with an intellectual vigour that eschews formalism.
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[8] - Irish Sugar plc v Commission of the European Communities (Case T-228/97)
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[10] - Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007)
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