Second Reading Speech for Competition (Amendment) Bill - MOS Lee Yi Shyan

COMPETITION (Amendment) Bill Second Reading Speech by Mr. LEE YI SHYAN Minister of state, ministry of Trade and Industry

Mr Speaker, Sir, I beg to move: “That the Bill be now read a second time.”

Overview of the Competition Act

The Competition Act aims to promote the efficient functioning of Singapore’s markets and strengthen our economy. The Act prohibits activities that unduly prevent, restrict or distort competition.

When the Competition Bill was passed in Parliament in October 2004, it was announced that the Act would be implemented in phases. We have followed the plan and made good progress since. Allow me to highlight the key milestones.

The Competition Commission of Singapore (“CCS”) was established on 1 January 2005. A year later, on 1 January 2006, the first two key prohibitions of the Competition Act came into effect. They are: Section 34 – the prohibition against anti-competitive agreements, decisions and practices, and Section 47 – the prohibition against the abuse of dominance.

So far, the CCS has received three notifications for decision, seven notifications for guidance and 14 complaints. The majority of the complaints relate to anti-competitive agreements under Section 34. They involve practices such as co-operation agreements between competitors, standard contract terms, exclusive contracts, bid-rigging and the bundling of products. The CCS has closed out about half of these cases, while the rest are still under investigation. The CCS has also actively carried out outreach and education programmes to gain public support for and foster understanding of our competition law.

The third and final prohibition of the Competition Act: Section 54 – the prohibition against mergers that substantially lessen competition, is the main subject of today’s Bill.

Overview of the Merger Regime

Singapore is a small and open economy. Some degree of rationalization and consolidation is inevitable to achieve economies of scale and in some instances, minimum operating scale. Hence, it is proposed that only mergers that substantially lessen competition and which do not have offsetting efficiencies will infringe the Act.

In preparing for the merger regime, like the other prohibitions, the CCS studied international best practices. The study showed that changes to the proposed merger regime were needed to better align it with international best practices. Industry and lawyers had also provided feedback to the CCS on areas for improvement. As these changes would have a wide-ranging impact on mergers that affect Singapore markets, the CCS conducted a public consultation from October to November last year, on the amendments as well as its proposed guidelines. The feedback gathered was carefully considered and, where appropriate, included into this Bill or the CCS’ guidelines. I would like to thank all the individuals and professional bodies that had provided useful feedback.

The Act currently provides for a voluntary merger notification system. This means that merger parties will self-assess if their merger would lead to a substantial lessening of competition. If they are of the view that there could be competition concerns, they can apply to the Commission for a definitive decision. As most mergers are unlikely to raise competition concerns, we will retain the voluntary notification system. A system requiring mandatory notification of mergers would be more onerous on businesses and impose unnecessary costs. The Commission will publish guidelines shortly to help businesses assess whether to notify their mergers and outline its procedures and method for assessing mergers.

Specific amendments and rationale

Let me now outline the main amendments in the Bill.

Clause 8 introduces the key amendments to the merger regime.

Notification of anticipated mergers that have not been completed

First, the Act will be amended to allow merger parties to notify the CCS for a decision on their anticipated mergers that are no longer confidential. The Act currently allows businesses to obtain CCS’ assessment of a merger only after it has been completed. This is not ideal, because merger parties will face significant costs if they are required to unwind a completed merger found by the CCS to be anti-competitive. Businesses can, however, still decide to opt to notify the Commission after a merger has been completed.

Removal of provision of confidential guidance by the CCS

Second, the provisions allowing merger parties to apply to the CCS for confidential guidance on a merger will be removed. Experience in the UK and Australia has shown that such guidance is of minimal value to businesses as the competition authority would not be able to get market feedback or issue a definitive decision, i.e. the guidance may be reopened if there are further complaints. The removal of this provision will also streamline the merger notification process. To assist merger parties, the CCS will hold informal, confidential pre-notification discussions with the merger parties on how to file notifications and where possible, highlight potential areas of concern.

Power to take pre-emptive action

Third, the Act will be amended to give the CCS power to take pre-emptive action. I had earlier mentioned that merger parties are expected to self-assess and decide if they should notify a merger to CCS for a decision. Similarly, parties will be allowed, at their own risk, to proceed with an anticipated merger or to further integrate a merger, while a notification or investigation is pending CCS’ decision. The amendments will empower CCS to prevent parties from taking actions that would prejudice the consideration of the merger or to impose directions or remedies to address the competitive harm. This is on the basis that the CCS has reasonable grounds to suspect that a merger is anti-competitive. As a matter of urgency, the Commission will also be allowed to take action to prevent serious irreversible damage or protect the public interest, thereby obviating significant costs of unraveling a merger. The CCS already has the power to do so with respect to the Sections 34 and 47 prohibitions.

Power to accept and vary commitments

Fourth, the CCS will be able to accept commitments. Commitments are undertakings given by merging parties binding them to act in a specific way to address competition concerns arising from a merger. They are given in exchange for clearance of the merger, and are widely used overseas to clear a merger speedily. The use of commitments will save both merger parties and the Commission valuable resources and time.

Let me use an example to illustrate how pre-emptive action and commitments may be used. The UK competition authority recently examined the merger of two waste management companies. In doing so, it sought undertakings from the two companies to, amongst others, not further integrate the two companies before a decision was issued. Such interim directions serve to prevent the companies from taking any action that may prejudice the authority’s consideration of the merger. Subsequently, when it was assessed that the merger would result in a substantial lessening of competition, the UK authority allowed the merger to proceed provided the two companies agreed to undertake specific actions or commitments to address competition concerns, such as the divestment of certain assets.

Exclusions from the Act

Clause 24 amends the Fourth Schedule to clarify the types of mergers that are excluded from the Act. These fall into two categories.

First, mergers are excluded if the written law requires them to be approved by a Minister or a regulatory authority. This exclusion, however, does not extend to mergers approved only by the court or by the shareholders of a company, without any sectoral regulatory oversight. The amendment also clarifies that mergers under the purview of the Monetary Authority of Singapore, including mergers covered under instruments such as directives, notices and licensing conditions, are excluded.

Second, mergers are excluded if the economic efficiencies to Singapore resulting from the merger outweigh any substantial lessening of competition caused by the merger. Such mergers may lead to greater innovation or choice, higher quality and lower costs. They are of overall benefit to Singapore, and should be allowed to proceed. Other competition authorities also take a similar approach. For instance, the Australian Competition and Consumer Commission allowed the only two glass container manufacturers in Australia to merge in 1991 on grounds of public benefits. In arriving at its decision, the Australian authority considered, amongst others, the merger’s positive impact in terms of wider consumer choice, greater economies of scale, and the improved quality and safety of goods.

The Bill also contains ancillary amendments that clarify matters such as the interpretation of control, definitions such as what constitutes a joint venture merger, the powers of the District Court in enforcing directions, and the inter-relationship of the sections 34 and 47 prohibitions vis-à-vis the merger regime.

Other non-merger related amendments

In addition, the Bill introduces amendments that fine-tune the Act and enable the CCS to better carry out its functions.

Power to require documents or information that is not in the public domain for market inquiries and notifications

Clause 9 empowers the CCS to require documents or information that is not in the public domain for market inquiries and notifications. Currently, industry players or third parties can refuse to provide the CCS with information even if the CCS has reasonable grounds to suspect a market competition distortion or an infringement. This information can play a critical role in helping the Commission to understand the intricacies of market practices and their competitive impact, thereby leading to sounder and more robust decisions. The amendment will allow the CCS to require any person to furnish information and documents when it is assessing notifications for decisions or conducting market inquiries. It may only invoke this power when it has reasonable grounds to suspect that the Act has been infringed, or that competition in a particular market is restricted.

Ability to prescribe decisions that can be appealed

Clause 17 gives the Minister the power to prescribe the types of CCS decisions that can be appealed. This power, which currently resides with the CCS, is more appropriately vested in the Minister.

Ability to augment resources

Amendments are also made to enable CCS to deploy temporary external staff to assist in investigations.

Conclusion

In summary, the amendments will reinforce the ability of the CCS to enhance the efficiency of Singapore’s markets and strengthen our economic competitiveness. Mergers and acquisitions are part and parcel of business activity. The amendments will ensure that they do not harm Singapore’s overall competitiveness while maintaining the smooth functioning of the economy. They will also help to better empower the CCS to achieve this goal.

Sir, I beg to move.