Exemptions Under the Competition Act 2010

Faizah Jamaludin and Petrina Tan provide an outline on applications for block exemptions and individual exemptions

 

The Malaysian Competition Act (“Act”) came into force on 1 January 2012. The Act is adapted from competition law in the European Community (“EC”), with provisions corresponding to Articles 101 (covering anti-competitive agreements) and 102 (covering abuse of dominance) of the Treaty of the Functioning of the European Union.

Section 4 of the Act prohibits anti-competitive agreements between enterprises, namely agreements which have the object or effect of significantly preventing, restricting or distorting competition in any market for goods or services (“Chapter 1 Prohibition”) whereas section 10 of the Act prohibits any abuse of an enterprise’s dominant position in any market (“Chapter 2 Prohibition”).

Similar to the other EC-based competition laws, the Act provides for avenues of relief against anti-competitive agreements. The Malaysian Competition Commission (“MyCC”), the body created by the Malaysian Competition Commission Act 2010, is empowered to implement and enforce the Act.  The MyCC’s Guidelines on Chapter 1 Prohibition (“Chapter 1 Guidelines”) states that this relief can be granted independently through:

  1. Individual exemption under Section 6 of the Act; or
  2. Block exemption under Section 8 of the Act; or
  3. Invoking Section 5 of the Act.

This article will discuss the requirements and qualifications for individual and block exemptions from infringement of the Chapter 1 Prohibition and the procedure for applying for such exemptions to the MyCC. It should be noted that there is no provision for exemptions from the Chapter 2 Prohibition against abuse of dominance.


APPLYING FOR EXEMPTION UNDER THE ACT

Section 6 of the Act empowers the MyCC to grant an individual exemption for an individual agreement and Section 8 of the Act empowers the MyCC to grant an exemption to a particular category of agreements which, in the opinion of the MyCC, satisfy the criteria set out in Section 5 of the Act. Both the individual exemption and block exemptions are granted by the MyCC by way of an order published in the Gazette.  

To apply for either the individual exemption or block exemption, the applicant must first prove that the agreement meets all the criteria set out in Section 5 of the Act, namely that:

(a)     there are significant identifiable technological, efficiency or social benefits directly arising from the agreement;

(b)     the benefits could not reasonably have been provided by the parties to the agreement without the agreement having the effect of preventing, restricting or distorting competition;

(c)     the detrimental effect of the agreement on competition is proportionate to the benefits provided; and

(d)     the agreement does not allow the enterprise concerned to eliminate competition completely in respect of a substantial part of the goods or services.

 

The Chapter 1 Guidelines further require the applicant to prove that the significant social or technological benefits that accrue from the exemption will be passed to the consumers.

The Act does not limit applicants to single enterprises and allows trade bodies or associations representing such enterprises to apply for a block exemption for categories of agreements entered into by the members of the association. It has been reported that the MyCC has received one application for individual exemption and three applications for block exemptions filed by trade associations on behalf of their members (The Star, 26 April 2012).

Any enterprise that seeks to apply for an individual exemption or a block exemption under the Act must submit a written application together with a fee of RM50,000 to the MyCC for each application. The enterprises granted block exemptions must also pay an annual fee of RM20,000 for every year that the block exemption is in effect while an enterprise that has been granted an individual exemption must pay an annual fee of RM10,000 for each year that the individual exemption remains in effect. According to the Chief Executive Officer of the MyCC, the fees are to cover manpower costs to be incurred by the MyCC “to study and review the applications, while also acting as an incentive for companies and industries to conduct their own assessments instead of leaving the task to MyCC” (The Star, 26 April 2012). 

In considering any application for a block exemption, the MyCC may request for all documents and information that it deems necessary. Section 9 of the Act requires the MyCC to publish details of a proposed block exemption and to give members of the public at least 30 days from the date of publication to make submissions in relation to the proposed exemption. The MyCC is required to give due consideration to any such submission made in deciding whether or not to grant the block exemption.


APPROVAL OF APPLICATIONS

The MyCC may subject any individual exemption or block exemption to any condition or obligation as it deems fit and the exemption can be given for a limited period. Both individual and block exemptions may be given retroactively. The MyCC also has the inherent power to grant an interim exemption pending its final decision on the application for exemption.

For individual exemptions, where there has been a material change of circumstance or a breach of an obligation imposed, the MyCC may (i) cancel the individual exemption; (ii) vary or remove any condition or obligation; or (iii) impose additional conditions or obligations. Such cancellation, variation or removal or imposition of new conditions or obligations will take effect on the date the order is made.

The MyCC may also cancel the individual exemption where the information provided to the MyCC on which it based its decision to grant the exemption is false or misleading or where there has been a breach of any condition to the exemption. Where the individual exemption is cancelled by reason of false or misleading information, the individual exemption shall be void ab initio. Where it is cancelled because of a breach of condition, the cancellation takes effect from the date on which the condition is breached.

For block exemptions, if an enterprise which has been granted the exemption breaches a condition or fails to comply with an obligation imposed by the block exemption, the MyCC may cancel the exemption in respect of the agreement from the date of the breach. The Act also gives the MyCC the discretion to cancel the block exemption in respect of a particular agreement where it considers that the criteria set out in Section 5 of the Act does not apply to the agreement. The Act states that a cancellation for a breach of condition takes effect from the date of the breach. However, it is silent as to when a cancellation for a breach of obligation will take effect. With regards to the cancellation of a block exemption to an agreement which does not to meet the Section 5 criteria, the cancellation will take effect on a date specified by the MyCC.


CONCLUSION

Like other EC-based competition laws, the Act was drafted on a “broad-brush” approach. It did not cater for or take into account the specific nature and requirements of the various markets and industries that form the Malaysian economy. For example, the economic, social and technical factors relating to the financial services industry are different from that of the wholesale flower market.

Again, similar to other competition laws, relief through individual and block exemptions are provided by the Act to cater for the specific requirements and factors of a particular market or industry.  Agreements between parties in the market, either horizontal or vertical, may on the face of it be anti-competitive in order to achieve the necessary social benefits and efficiencies. As discussed in this article, where there are such social benefits or efficiencies arising from an agreement or category of agreements, the parties to the agreement (or agreements) can apply for either an individual or block exemption under the Act if they can show that the anti-competitive effect of the agreement is proportionate to the benefits provided by the agreement (or agreements) and that competition is not eliminated completely in respect of a substantial part of the goods or services in the relevant market.

Will the substantial application fee and annual fee set by MyCC act as a deterrent to potential applicants and accordingly, defeat the purpose of the provision for individual and block exemptions under the Act? Only time will tell.

 

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