Singapore’s Competition Law
Singapore’s political and economic system is based on the premise of well-functioning competitive markets. The country recognizes the need to ensure that its markets operate in a fair and transparent manner. It has therefore enshrined strong laws to mandate that market participants do not engage in anti-competitive behavior that can hurt consumers or other firms. This article provides an overview of the Singapore Competition Law that is designed to keep the markets competitive by penalizing anti-competition behavior. Any business professional planning to operate in the Singapore market should be familiar with this topic.
For any company or person aspiring to do business in Singapore, it is crucial to understand the Competition Law that governs all non-state businesses and economic activities in the nation. Officially known as The Competition Act 2004, the law has been effective since July 1, 2007 and promotes efficient markets at home. The Act prevents unfair trade practices and restricts the formation of cartels and monopoly activity in trade. Modelled after the UK Competition Act 1998, the law is administered and enforced by Competition Commission of Singapore (CCS), a statutory body that investigates and adjudicates instances of violations of the Act by market participants. CCS also has powers to impose sanctions that include (a) financial penalties, (b) enforcing errant companies to make structural changes, (c) requiring termination of any agreement or conduct that CCS deems will harm competition.
This article draws heavily on two sources for its information given their depth of knowledge and credibility in the market. The majority of information is sourced from the website of market watchdog Competition Commission of Singapore; additional data has been obtained from the Singapore Law portal www.SingaporeLaw.sg.
Who is Covered by the Law
The Competition Act 2004 addresses private market players, broadly identified as undertakings that include self-employed professionals, corporate bodies, unincorporated body of persons or any other entity capable of carrying commercial or economic activities in any of the markets of the nation. It defines market as a broad network of buyers and sellers trading a range of goods and services via physical, telephonic and electronic platforms in the geographical area of Singapore.
The act provides three key provisions to ban anti-competitive activities:
- Section 34: Prohibition acts against prevention, restriction and distortion of competition in Singapore market,
- Section 47: Prohibition deals with abuse of dominant position by major undertakings operating in Singapore and
- Section 54: Prohibition works to prevent mergers and acquisitions that could result in sizable reduction of competition in any market in Singapore.
Each of these provisions are discussed below in detail.
Section 34 Prohibition
No market collusion
The section prohibits anti-competition activities in Singapore in the form of formal and informal agreements between two or more undertakings with the objective of harming competition in any market. The prohibited activities include:
- Cartels: Attending a cartel meeting irrespective of agreement on the outcome.
- Price Fixing: Agreements that “directly or indirectly fix purchase or selling price or any other trading conditions”.
- Preferential Treatment: Agreements that aid “putting limits or controls on production, technical development, investment or sources of supply, application of dissimilar conditions to equivalent transactions with other trading parties, thereby, putting them at disadvantage, and making conclusion of contracts conditional on acceptance by other parties of the supplementary obligations which by their nature or according to commercial usage, have no connection to the subject of such contracts.”
- Collusion: Concerted practices wherein economic operators with common interests form a grouping to influence a competitor’s conduct or disclose their (the association’s) conduct to a competitor.
For additional details, see this document from the CCS.
IDENTIFICATION AND PENALTY FOR WRONGDOERS
CCS bans agreements between undertakings whose cumulative share exceeds 20% of the concerned industry market and who indulge in “price-fixing, bid-rigging, market sharing or output limitations” that adversely impact the market.
An undertaking if found guilty can be imposed a financial penalty of up to 10% of its total business turnover for each year of infringement, up to a maximum period of three years. In addition, business rivals who have suffered losses due to anti-competition action of that company can sue it for damages.
However, these penalties can be enforced only after CCS has ruled that a violation has occured and the defendant’s right to appeal has been exhausted.
EXCEPTIONS TO THE RULE
- Restrictions do not apply on agreements between the parent company and its subsidiaries that collectively form one economic unit.
- Agreements between entities that are not actual or potential rivals and where their aggregate market share is within 25% of the affected markets are exempt from prohibitions. So are agreements made by the groupings of Small and Medium Enterprises (SMEs) in manufacturing and services sectors.
- Activities listed under the Third Schedule of the Act or by the Block Exemption Orders issued by the government to fulfill its international obligations or aid net economic growth are also immune to Section 34 Prohibition. This exclusion is designed for government organizations that provide essential services to the public such as rail, portable water, etc.
Section 47 Prohibition
Restrictions on dominant market participants
This section provides a check on abuse of dominant position by large companies operating in one or more markets in Singapore. Section 47 Prohibition does not prevent undertakings from having a dominant position or striving to achieve it by offering cheaper or more innovative products. However, conduct that protects, enhances or perpetuates a firm’s dominant position in ways unrelated to competitive merit is prohibited. A dominant market participant can be penalized if found guilty of “predatory behavior towards competitors, limiting production, markets or technical developments to the prejudice of consumers, applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at competitive disadvantage, and making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage have no connection with the subject of the contracts.”
The prohibition applies even when the undertaking abusing its dominant position in Singapore markets is based outside the country. This includes single economic units, comprising of company holdings and wholly-owned subsidiaries. Restrictions also apply on economically independent firms who collude to adopt common policies to create a collective dominant position, so as to exploit the market.
Additional information about section 47 prohibitions is available in this document published by the CCS.
IDENTIFICATION AND PENALTY FOR WRONGDOERS
An undertaking is considered to be enjoying a dominant position in the market if it’s individual market share exceeds 60 per cent of the total market, and if it possesses the ability to profitably sustain prices, eliminate or weaken competition, countervail buyer’s power and create barriers to entry of new market players.
Once CCS has established dominance of an economic player and their engagement in anti-competition behavior, it is for the accused entity to justify its actions and prove that it has not been abusing its position.
The law holds that it is sufficient for prosecution to make a case against dominant player by merely showing the likely damage caused by their actions on market competition. An undertaking if found guilty of abusing its dominant position can be imposed a financial penalty of up to 10 % of its total business turnover for each year of offense, up to the maximum period of three years.
In addition, business rivals who have suffered losses as a result of infringement can also claim damages by initiating civil proceedings against the undertaking. However, this can be done only subsequent to CCS having ruled infringement and the exhaustion of the appeal process by the defendant.
EXCEPTIONS TO THE RULE
Section 47 prohibitions do not apply in certain circumstances and to certain organizations as specified in the Third Schedule of the Act. These circumstance are:
- An organization that provides essential services of general economic interest.
- Conduct that is required by legal requirements.
- Conduct necessary to avoid conflict with Singapore’s international obligations.
- Conduct necessary for compelling public policy reasons and is subject to an order by the government.
- Public utilities for postage, potable water, wastewater management, bus service, rail service, cargo terminal, bank automated clearing house, etc.
Section 54 Prohibition
Restrictions on mergers that reduce competition
Section 54 Prohibition bars mergers between undertakings if such a merger can result in significant reduction of competition in Singapore irrespective of their occurrence at home or abroad.
Mergers is deemed to occur when two or more independent undertakings merge into one economic unit, or when one undertaking directly or indirectly takes control over whole or part of another undertaking, or when the concerned undertaking acquires substantial part or assets of another undertaking with effect that the former can replace the latter in its business. A merger also occurs if there is a formation of a permanent joint venture between two entities to discharge functions of an autonomous economic entity.
IDENTIFICATION AND PENALTY FOR WRONGDOERS
A firm is considered to exert control over another firm if it can significantly influence the latter’s activities by right of its ownership, or by the right to use the latter’s assets or by virtue of agreements which enable it to exert significant influence over composition, voting and decision-making function of the latter.
According to the CCS, a company is deemed to exert a decisive influence over another if it claims ownership of more than 50 % rights of the other undertaking. When assessing if a merger poses significant risk to the market competition, the regulator looks for changes in market structure and concentration brought about by the merger.
CCS may prevent a merger from occurring or may impose some structural or behavioral directives if it suspects a specific merger activity will harm the competition significantly. It can also impose a financial penalty of up to 10 % of the annual turnover of the guilty firm for each year of infringement, up to a maximum of three years. Further, the concerned undertaking can be sued for damages by rivals affected by the merger.
EXCEPTIONS TO THE RULE
- It allows undertakings to merge so long as their individual market share is less than 40% and post- merger their combined share stays within a range of 20-40% in the market. In case of a merger between more than two undertakings, the outcome should be such that a real or hypothetical combination of three largest players in the market yields to a cumulative stake less than 70% of the total market.
- Yet, the act holds that threshold limits are merely indicative of potential competition risks and may not necessarily harm competition in the absence of countervailing factors. Similarly, mergers whose market shares and concentration ratios are well below threshold level may still raise concerns if there are indications of competition being harmed.
- Mergers that aid competition or are neutral in terms of their impact on competition are exempted. So are consolidations that boost net economic efficiency in terms of real time gains that outweigh any harm to the competition caused by the merger.
- Mergers between SMEs, those listed in the Third and the Fourth Schedule of the Act, and mergers approved by the government are also exempt from prohibition.
Singapore ensures competitive markets within its economic sphere through assertive use of its Competition Act. CCS encourages pro-market mergers that create product alternatives for buyers by creating rivals to an incumbent vendor, and neutral mergers that have little impact on market. It also approves company consolidations where the economic efficiency gains surpass any harm to competition. Also exempted from prohibitions of the Competition Act are mergers between SMEs, the entities listed under the Fourth Schedule of the Act and the mergers related to activities specified in the Third Schedule.
Business investors and companies will benefit from building a compliance program in their business model that educates their staff and management about the competition related laws to reduce the risks of potential business infringement. An effective compliance program will also protect them against anti-competition activities of their rivals by raising awareness and alertness to such activities. Finally, genuine and demonstrated adherence to competition in the market enhances a business’ public profile and credibility in the market.