Date: 16/5/2023
Authors: Nicole Leong and Heng Jia
Introduction
Of late, the war cry against monopolies in Malaysia, led by the newly
minted Pakatan Harapan administration in line with their election manifesto,
has been resounding.
On 24 March 2023, Malaysia’s new Prime Minister, Datuk Seri Anwar
Ibrahim, announced that the government is reviewing all existing monopolies to
ensure that the public enjoy fair and better service[1]. All ministries were asked to study existing
monopolies under their purview in the spirit of promoting transparent economic
development and fair competition.
This was trailed by a slew of announcements, such as the government’s
decision to end Puspakom Sdn Bhd’s monopoly on vehicle inspections[2],
and to allow a second entity other than the state-owned Digital Nasional Berhad
to own the full 5G spectrum[3],
with various carriers using the infrastructure to provide mobile services.
The government’s move to review existing monopolies is a much welcomed
one, amid rising dissent over alleged poor services and high prices to
consumers, allegedly attributed to the lack of competition to expressway toll
concessionaire, Touch ‘n Go[4].
Key takeaways
Under Malaysian competition law, a limited exclusion from the
Competition Act 2010 applies in respect of enterprises entrusted with the
operation of services of general economic interest or having the
character of a revenue-producing monopoly. This limited exclusion is provided
under limb (c), Second Schedule of the Competition Act 2010.
To fall within said limited exclusion under limb (c), Second Schedule of
the Competition Act 2010, the following cumulative requirements should be
satisfied:
(a)
It must
be an enterprise;
(b)
The
enterprise must have been entrusted with the operation of services of general
economic interest (meaning, services which should be provided in all cases,
regardless of whether there is an incentive for the private sector to do so) or
having the character of a revenue-producing monopoly (meaning, having principal
objective of raising revenue for the state through exclusive right to provide a
particular service);
(c)
The
prohibition under Chapter 1 and Chapter 2 of Part II would obstruct the
performance (in law or in fact) of the tasks assigned to that enterprise; and
(d)
The
restriction of competition must satisfy the principle of proportionality and
should be confined to what is necessary to enable the enterprise in question to
carry out the task assigned to it.
Legal Position in Malaysia
Competition law jurisprudence recognise that certain enterprises can be
created or maintained to pursue public policy objectives and achieving public policy
objectives will in certain circumstances require exceptions to competition. It
is noted that in Malaysia, the prohibitions under the Malaysian competition
act, Competition Act 2010 do not apply to “an enterprise entrusted with
the operation of services of general economic interest or having
the character of a revenue-producing monopoly in so far as the prohibition
under Chapter 1 and Chapter 2 of Part II would obstruct the performance, in law
or in fact, of the particular tasks assigned to that enterprise”.[5]
It is also noted that the expressions of an enterprise “entrusted with the
operation of a service of general economic interest” and “having the
character of a revenue-producing monopoly” are not defined under
Competition Act 2010.
Legal Development in Malaysia
To date, there are few competition cases in Malaysia dealing with such
exclusion. One of such cases is the Dagang Net[6]
case, a case involving imposition of an exclusivity clause by Dagang Net,
the government’s sole concessionaire for customs duty declaration on its
software producers. Dagang Net was found by MyCC to have infringed the
prohibition against abuse of dominant position under Section 10(1) of the
Competition Act 2010.
In that case, Dagang Net argued that it is a “revenue-producing
monopoly” under Section 13(1) read together with limb (c) of the Second
Schedule to the Competition Act 2010, and that it fulfilled the conditions laid
down in the guidelines issued by the United Kingdom (“UK”)’s Office of
Fair Trading (“OFT”) (currently adopted by the Competition and Markets
Authority), – Guidelines on Services of General Economic Interest Exclusion (“OFT
Guidelines”)[7].
Dagang Net reasoned that it is an enterprise that has the principal objective
of raising revenue for the Government, as the services provided by it enables
the Royal Malaysia Customs Department (“RMCD”) to collect duty payments
on behalf of the Government. It claimed that its obligation to run and manage
the customs duties declaration system is essentially to collect customs duties
on behalf of the RMCD and if its exclusivity clause is found abusive, this
would obstruct its performance as concessionaire as it is unable to prevent the
security and technical risks present in the system.
In the OFT Guidelines, which is similar to the European Union (“EU”)
jurisprudence discussed below, it is stated that in order to invoke the
exclusion of an entity having the character of a revenue-producing
monopoly, said entity must fulfil the following: (a) the said entity
must be an undertaking; (b) the undertaking must have its principal objective
of raising revenue for the state through the provision of a particular service;
(c) the undertaking is granted with exclusive rights to provide the service and
hence be the monopoly provider of that service; and (d) the undertaking must
show that the application of the prohibitions of the competition laws would
obstruct the performance in law or in fact, of the particular task assigned to
it.
In its infringement decision against Dagang Net, the Malaysia
Competition Commission (“MyCC”) highlighted Article 106(2) of the TFEU,
and also referred to the OFT Guidelines’ requirements of a “revenue-producing
monopoly”
On the facts of the case, MyCC found that Dagang Net did not have as in
its principal objective, the raising of revenue for the Government. Instead,
its function was to facilitate customs declarations and fund transfers for
payment of duties to the RMCD and it was paid by the government for its
services.
MyCC further held that it is not enough in itself that the enterprise
performs that service; it must have been entrusted with that performance, which
will mean that it is under certain obligations.
It also relied on the “principle of proportionality” expounded in
Air Inter v Commission[8] and NAVAWE-ANSEAU[9]
and held that when there is a choice between several appropriate measures, the
least onerous measure should be adopted. MyCC decided that the exclusivity
clause imposed by Dagang Net went beyond what is necessary to fulfil Dagang
Net’s obligations under the Concession Agreement.
Thus, Dagang Net does not satisfy the criteria of an enterprise “having
the character of a revenue-producing monopoly”.
Having looked at the development in Malaysia, it is apt to look into the
jurisprudence in the EU and UK. It appears that the position taken by MyCC on “revenue-producing
monopoly” is largely consistent with the position under EU (and the UK).
Limited exemption for Certain Undertakings under Article 106 (2) in EU
and exclusion under paragraph 4, Schedule 3 of the UK Competition Act 1998
In the EU, the Treaty of the Functioning of the European Union (“TFEU”)
contains provisions that governs state or public monopolies. Under Article 106
(2) of TFEU, a limited exemption from competition rules apply to undertakings
entrusted with the operation of services of general economic interest (“SGEI”)
or having the character of a revenue-producing monopoly[10] if
they meet certain conditions.
Article 106(2) of the TFEU reads: “Undertakings entrusted with
the operation of services of general economic interest or having the
character of a revenue-producing monopoly shall be subject to the
rules contained in this Treaty, in particular to the rules on competition, insofar
as the application of such rules does not obstruct the performance, in law
or in fact, of the particular tasks assigned to them.”
The UK’s Competition Act 1998 on the other hand contains certain
exclusions, one of which reads similarly to the limited exclusion under our
Competition Act 2010. Said exclusion under UK’s Competition Act 1998 reads: “Neither
the Chapter I prohibition nor the Chapter II prohibition applies to an
undertaking entrusted with the operation of services of general economic
interest or having the character of a revenue-producing monopoly in
so far as the prohibition would obstruct the performance, in law or in fact, of
the particular tasks assigned to that undertaking.”[11]
SGEI
SGEI refers to economic activities which deliver outcomes in the overall
public good that would not be supplied (or would be supplied under different
conditions in terms of quality, safety, affordability, equal treatment or
universal access) by the market without public intervention. These public
service obligations are imposed on the service provider by way of an
entrustment and on the basis of a general interest criterion which ensures that
the service is provided under conditions allowing it to fulfil its mission.[12]
Generally, in the EU, public authorities consider SGEI as services which
should be provided in all cases, regardless of whether there is an incentive
for the private sector to do so.[13]
A similar approach is adopted in the UK.[14]
Examples of common SGEIs include postal services, transportation and
energy sectors.
An undertaking seeking to benefit from the exemption for services of
general economic interest must be able to demonstrate that it has been
entrusted with the service in question by a public authority.
An act of entrustment may be by way of legislative measures or
regulation[15],
grant of a concession[16], licence governed by public law[17],
or through an act of a public authority[18].
The obligation imposed on said undertaking must be linked to the subject matter
of the service of general economic interest in question and contribute directly
to that interest to fall within the scope of tasks entrusted to it.[19]
Revenue-producing monopoly
In order to benefit from said exemption as a revenue-producing monopoly,
an undertaking must have as its principal objective the raising of revenue for
the state through the provision of a particular service. A similar position is
adopted in the UK.[20]
Further, in the UK as well as the EU, it must have been granted an
exclusive right to provide the service, i.e.: be the monopoly provider of that
service.[21]
As few monopolies are established with the principal objective of
raising revenue for the state, case law on revenue-producing monopolies is not
common. For example, in respect of a French match monopoly in 1962,[22]
the Commission of the European Economic Community considered that matches in
France, which are the subject of a national monopoly of a commercial nature,
gave rise to discrimination in the conditions of outlets to the detriment of
suppliers from other Member States and rejected the application of said
exemption in its recommendation.
Obstruction of Performance
To rely on this exemption, the undertaking must show that the
application of the prohibitions under the competition laws under the EU and the
UK would obstruct the performance in law or in fact, of the particular task
assigned to it.[23]
Proportionality
Moreover, it should be noted that under EU and UK jurisprudence, such
exemption will only apply if the restriction to competition is proportionate,
i.e.: where the restriction on competition is necessary for an undertaking to
perform the service of general economic interest under economically acceptable
conditions.[24]
In British Telecommunications, said defence was rejected as it
failed to show that its refusal to allow private message-forwarding agencies
from using its network to forward messages from other Member States endangered
the performance of its tasks.[25]
Notwithstanding the expression of “enterprise entrusted with the
operation of services of general economic interest” was not tested in the
Dagang Net case, the EU and UK positions in that regard is highly likely
regarded as persuasive authority in Malaysia given that MyCC referred to their
positions in interpreting the expression of an enterprise “having the
character of a revenue-producing monopoly” in the Dagang Net case. Reading
the Dagang Net case and the principles discussed above in the EU and UK in
tandem, the following principles can be distilled – to fall within said limited
exclusion under limb (c), Second Schedule of the Competition Act 2010, the
enterprise in question must satisfy the following cumulative requirements:
(a) It must
be an enterprise;
(b) The
enterprise must have been entrusted with the operation of services of general
economic interest (meaning, services which should be provided in all cases,
regardless of whether there is an incentive for the private sector to do so) or
having the character of a revenue-producing monopoly (meaning, having principal
objective of raising revenue for the state through exclusive right to provide a
particular service)[26];
(c) The
prohibition under Chapter 1 and Chapter 2 of Part II would obstruct the
performance (in law or in fact) of the tasks assigned to that enterprise; and
(d) The
restriction of competition must satisfy the principle of proportionality and
should be confined to what is necessary to enable the enterprise in question to
carry out the task assigned to it.
Concluding Remarks
With Pakatan Harapan’s colossal pledge to dismantle unnecessary
monopolies[27]
and eliminate cartels[28]
still fresh in the minds of the rakyat (Malay for: ordinary people), it
will be interesting to see what measures the government will deploy in its
conduct of review against government or state monopolies and to what extent the
exclusion available under the Competition Act 2010 can be argued successfully
in support of these monopolies.
This article is authored by our Principal, Ms. Nicole Leong and
Senior Associate, Ms. Heng Jia. The views and opinions expressed in this
article are those of the authors’ alone and do not constitute any legal advice.
For further information or advice on Competition Law and Antitrust, kindly
contact Ms. Nicole Leong.
[1] News report by The
Edge dated 25 March 2023 titled “Govt reviewing all monopolies to provide
better service – Anwar”, retrieved from: https://www.theedgemarkets.com/node/660711 on 5 May 2023
[2] News report by The
Star dated 25 March 2023 titled “No more Puspakom monopoly”, retrieved
from: https://www.thestar.com.my/news/nation/2023/03/25/no-more-puspakom-monopoly on 5 May 2023
[3] News report by
Reuters dated 4 May 2023 titled “Malaysia to end 5G monopoly, allow second
network from next year”, retrieved from: https://www.reuters.com/technology/malaysia-says-will-move-dual-network-model-5g-after-80-coverage-2023-05-03/ on 5 May 2023
[4] News report by FMT
dated 27 January 2023 titled “Fomca slams MyCC as complaints mount against
Touch ‘n Go”, retrieved from: https://www.freemalaysiatoday.com/category/nation/2023/01/27/fomca-slams-mycc-as-complaints-mount-against-touch-n-go/ on 5 May 2023
[5] Section 13 read
together with limb (c), Second Schedule of Competition Act 2010
[6] Case No.
700‒2/2/003/2015 MyCC’s infringement decision against Dagang Net Technologies
Sdn. Bhd for infringement of Section 10(1) of Competition Act 2010
[7] OFT 421: the
Guidelines issued by the United Kingdom’s OFT (now the Competition and Markets
Authority) on Services of General Economic Interest Exclusion published on 1
December 2004
[8] Case T-260/94 Air
Inter v Commission
[9] Commission
Decision (IV/29.995 — NAVEWA-ANSEAU)
[10] Article 106(2) of
TFEU
[11] Paragraph 4,
Schedule 3 of UK Competition Act 1998
[12] Communication From
The European Commission, A Quality Framework for Services of General Interest
in Europe, European Commission, 20 December 2011, COM(2011) 900
[13] Communication From
The European Commission, Services of General Interest In Europe, European
Commission, 19 January 2001, OJ 2001 C17/4
[14] OFT 421: the
Guidelines issued by the United Kingdom’s OFT (now the Competition and Markets
Authority) on Services of General Economic Interest Exclusion published on 1
December 2004
[15] British
Telecommunications OJ 1983 L360/36
[16] Case C-159/94 and
C160/94 EC Commission v the French Republic
[17] Case C-393/92
Municipality of Almelo and Others v NV Energiebedrijf IJsselmij
[18] Commission
Decision (IV/32.732 – IJselcentrale and others)
[19] Case C-159/94
Commission v France (French Gas and Electricity Monopolies)
[20] OECD Policy
Roundtable 2009: State Owned Enterprises and the Principle of Competitive
Neutrality dated 20 September 2010 DAF/COMP(2009)37. See also OFT 421: the
Guidelines issued by the United Kingdom’s OFT (now the Competition and Markets
Authority) on Services of General Economic Interest Exclusion published on 1
December 2004
[21] Ibid.
[22] Recommandation de
la Commission a la République française au sujet de l’amenagement du monopole
des allumettes; not available in English [1962] JO 48/1502
[23] OECD Policy
Roundtable 2009: State Owned Enterprises and the Principle of Competitive
Neutrality dated 20 September 2010 DAF/COMP(2009)37. See also OFT 421: the
Guidelines issued by the United Kingdom’s OFT (now the Competition and Markets
Authority) on Services of General Economic Interest Exclusion published on 1
December 2004
[24] OECD Policy
Roundtable 2009: State Owned Enterprises and the Principle of Competitive
Neutrality dated 20 September 2010 DAF/COMP(2009)37. See also OFT 421: the
Guidelines issued by the United Kingdom’s OFT (now the Competition and Markets
Authority) on Services of General Economic Interest Exclusion published on 1
December 2004. For example Case C-157/94 Commission v Netherlands, Case C158/94
Commission v Italy [1997] and Case C159/94 Commission v France[1997] ECR I5815,
ECR 1-5699, 5789, 581
[25] OJ [1982] L
360/36, [1983] 1 CMLR 457
[26] OECD Policy
Roundtable 2009: State Owned Enterprises and the Principle of Competitive
Neutrality dated 20 September 2010 DAF/COMP(2009)37. See also OFT 421: the
Guidelines issued by the United Kingdom’s OFT (now the Competition and Markets
Authority) on Services of General Economic Interest Exclusion published on 1
December 2004
[27] Pakatan Harapan’s
Election Manifesto titled “Buku Harapan – Rebuilding Our Nation Fulfilling
Our Hopes” dated 8 March 2018
[28] Pakatan Harapan’s
GE15 Action Plan titled “Kita Boleh!” dated October 2022