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Competition Commission Issues Draft Guidelines for Public Consultation - International Law Office

International Law Office

Competition & Antitrust - Singapore

Competition Commission Issues Draft Guidelines for Public Consultation

May 19 2005

The Section 34 Prohibition
The Section 47 Prohibition
Market Definition

On March 31 2005 the Competition Commission of Singapore issued a first set of draft guidelines for public consultation. The consultation period closed on May 13 2005. The guidelines indicate how the commission will interpret some of the provisions of the Competition Act 2004, the main provisions of which come into force on January 1 2006. Some of the salient draft guidelines are discussed below.

The Section 34 Prohibition

The Section 34 prohibition prohibits agreements, decisions and concerted practices that prevent, restrict or distort competition in Singapore. The draft guidelines set out the circumstances that the commission will consider in determining whether agreements are anti-competitive.

The draft guidelines make it clear that the commission will focus principally on anti-competitive activities that have an appreciable adverse effect on markets in Singapore, except where there is a net economic benefit.

The draft guidelines provide that an agreement will generally have no appreciable adverse effect on competition as follows:

  • if the aggregate market share of the parties to the agreement does not exceed 20% of any of the relevant markets affected by the agreement (where the agreement is made between competing undertakings);
  • if the market share of each party to the agreement does not exceed 25% of any of the relevant markets affected by the agreement (where the agreement is made between non-competing undertakings); or
  • in the case of an agreement between undertakings, where each undertaking is a small to medium-sized enterprise (SME).

However, in cases where the market shares of the parties to an agreement are below the aforementioned threshold levels, the Section 34 prohibition will still apply if the agreement involves price fixing, bid rigging, market sharing or output limitations. SMEs will also be subject to the Section 34 prohibition in these circumstances.

The guidelines are not conclusive, and the fact that the market shares of the parties to an agreement exceed threshold levels does not mean that the effect of that agreement on competition is appreciable. The commission will take other factors into account in its determination, including the market power of the parties to the agreement and the structure of the markets affected by the agreement.

The relevant market share will be the combined market share not only of the parties to the agreement, but also of other undertakings belonging to the same group of undertakings as those parties.

The draft guidelines include a list of 11 examples of anti-competitive agreements, which the commission emphasizes is not exhaustive. They are:

  • direct or indirect price fixing;
  • bid rigging (collusive tendering);
  • market sharing;
  • limiting or controlling production or investment;
  • fixing trading conditions;
  • joint purchasing or selling;
  • sharing information;
  • exchanging price information;
  • exchanging non-price information;
  • restricting advertising; and
  • setting technical or design standards.

The Section 47 Prohibition

Section 47 prohibits any conduct on the part of one or more undertakings that constitutes an abuse of a dominant position in any market in Singapore. A two-part test is used to assess whether the Section 47 prohibition applies. The commission first determines whether an undertaking is dominant in a dominant market (either in Singapore or elsewhere), and if so, second, whether it is abusing that position in a market in Singapore.

The draft guidelines provide that in assessing whether an undertaking is dominant, the extent to which there are constraints on the undertaking's ability profitably to sustain prices above competitive levels will be considered. Such constraints include existing competitors, potential competitors and other factors such as the existence of powerful buyers and economic regulations.

The draft guidelines state that there are no market share thresholds for defining dominance under the Section 47 prohibition, as an undertaking's share - while an important factor in assessing dominance - does not by itself determine dominance. However, they provide that in general, dominance may be presumed if an undertaking has a market share above 60%.

The draft guidelines state that an SME is rarely capable of conduct that has an appreciable adverse effect on competition, but the commission nevertheless reserves the right to investigate the anti-competitive conduct of an SME.

Once it is established that an undertaking is dominant in the relevant market, the second part of the test is to assess whether the undertaking's behaviour might be regarded as an abuse of its dominant position. In this regard, the guidelines make clear that where a dominant position is achieved through conduct arising from efficiencies, such conduct will not be regarded as an abuse.

While there is no provision for exemptions under the Section 47 prohibition, the commission will adopt an approach known as objective justification. The commission will take into account both the anti-competitive effects and any countervailing benefits when assessing the effects of a particular conduct. Where the dominant undertaking can show that the conduct leads to improvements in economic efficiency and that the benefits could not be achieved without producing such anti-competitive effects, the commission will not find abuse.

Similarly, the commission will consider if there may be legitimate justification for conduct (eg, refusal to supply may be justified by poor creditworthiness). However, it will still be necessary for a dominant undertaking to show that its conduct is proportionate.

The guidelines also provide that a Section 47 prohibition may apply where an undertaking that is dominant in one market commits an abuse in a different but closely associated market.

The provision for block exemption does not apply to conduct that is an abuse of dominance. Conduct that does not infringe the Section 34 prohibition, or that infringes the Section 34 prohibition but which is exempted under a block exemption order, may nonetheless be regarded as conduct amounting to an abuse of a dominant position under the Section 47 prohibition.

Market Definition

The draft guidelines adopt the hypothetical monopolist test in defining markets.

For further information on this topic please contact Sophia Leong Khum Way at WongPartnership by telephone (+65 6416 8000) or by fax (+65 6532 5722) or by email (sophia.leong@wongpartnership.com.sg).

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