Levelling the playing field

Exemptions from competitive laws are a bad idea simply because they prolong the inefficiency of industry

THERE was a time when cigarette manufacturers sat down together and set prices. And because there were so few of them, that was quite easy to do. The announcements came on cue the following day after the national Budget, the usual forum where higher duties on tobacco are announced.

The price increases did not, generally speaking, just involve an exact adjustment for the increase in tobacco duties but most times included an adjustment to increase the profit margins of the manufacturers.

That may or may not be justified but what would probably no longer be acceptable under the Competition Act is that the companies agree jointly on a price increase for cigarettes, which also includes an element for increase in profit margins.

The introduction of the Competition Act has serious ramifications for companies in Malaysia and many may not realise the full impact of their actions in the light of the Act, which aims to provide a proper competitive framework for Malaysia, level the playing field and ensure that the benefits of competition filter down to the customers.

Cigarette companies won't be the only ones affected and the Competition Commission is likely to pore through details to see that competition prevails here. There are many newcomers with cheaper products, which have resulted in a move to maintain a minimum price for cigarettes.

But that may be wrong from a competitive point of view because it stops consumers from getting cheaper cigarettes. If the intention is to discourage people from smoking, then apply a tax to the prices of all cigarettes uniformly and let some be more competitive than others in terms of pricing.

It's a tough role that the Competitive Commission has because most Malaysian companies are not used to doing business the competitive way. Instead they have been used to cooperating to fix prices and rates, cartel-like, while some of them have become so big that they are a near monopoly.

Even so-called alliances are going to be closely scrutinised under the laws to see if they are anti-competitive. That includes the widely reported alliance between Malaysia Airlines and AirAsia where momentum seems to be gathering for a relook at the deal to unwind it to reduce complications, competition or the lack of it being one of them.

It is not surprising that some companies and groupings are already asking for exemption from competitive laws. But the Commission should stand its ground and not give in as the longer it allows laws to be broken the longer it will take for the economy to move towards greater competition.

According to a report in StarBiz on Thursday, four parties have applied to the Competitive Commission to seek exemption from the Competitive Act. Three are block applications and one is an individual applicant.

The three block applications are from the Life Insurance Association of Malaysia, the Association of Malaysian Hauliers and a joint application by the Malaysia Shipowners Association, Shipping Association of Malaysia and the Federation of Malaysian Port Operators Council. The sole individual application is from food giant Nestle Products Sdn Bhd.

At this stage, it is not known why the applications have been made and the Competitive Commission has declined to reveal details. But it looks like the reasons may be the desire to collude to set prices and/or being in a monopoly situation.

The problems may not be straightforward to solve but the first thing that the Competitive Commission must ensure is transparency. It's good that it has disclosed the names of those asking for exemption but it is important that it discloses the reasons why the exemptions are being asked for.

The exemption fees meantime are rather paltry and are going to be hardly a deterrent if exemptions are given. There is a RM50,000 fee for an application for exemption while exemption will cause merely RM10,000 per year for an individual exemption and RM20,000 for a block exemption. That may not even amount to one day's revenue for some of these enterprises.

If an exemption is given, then there must be clear explanation given as to why it is necessary and when the exemption will be removed. As a general rule, exemptions must not be given but if they are, the time must be specified and there should be no further extension after that.

If the four who have applied for exemption succeed, there are going to be scores of others who will follow for the rewards of not being competitive and profiteering at the expense of the general public can be quite lucrative.

There is a reason why competition laws have been put in place. They are to ensure that all industries are not monopolised by a few players and that there are sufficient participants to ensure that competition results in the most efficient production of goods and services at the lowest prices.

It is a key part of our efforts to make industries more competitive so that they can compete with the best not just within Malaysia but in the world and it is crucially necessary to satisfy the goal by 2020 of becoming a high-income, developed nation.

We can't do that by continuing to protect all manner of industries, give them a dominant market place where they can fix prices at will and continue to take advantage of Malaysian consumers who often have to depend on local products for many of their needs.

The next logical step in making us more competitive will simply be to start unrolling import taxes on goods coming into Malaysia so that Malaysians have a choice of buying products from anywhere and local industries have to compete for them.

It's really not as difficult as it sounds and we hope cry-baby local producers don't go begging to the Government for continued help because they already have competitive advantage by being here and knowing the terrain well.

·Independent consultant and writer P Gunasegaram (t.p.guna@gmail.com) says it's one thing having laws and another enforcing them. We have many good laws which are not being enforced.

Read More @ Source

More » Bonology.com | Pakatan Rakyat (PR) | Sociopolitics Plus | 大马社会政治