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The Necessity of Competition Law in ASEAN an Idea

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									                        The Necessity of ASEAN Competition Law:
                                                An Idea
                                                   By
                                          M. Udin Silalahi1


Globalization and liberalization of economics can not be stopped. We can’t avoid them
any more. We must use their advantages and its chance, to improve our own economic
national. Association of Southeast Asian Nations (ASEAN) countries are one of the
communities in the world which want to furnish their economic integration. ASEAN
have come to a decision to integrate its economy. To support that, ASEAN has
established ASEAN Free Trade Area (AFTA) which had been in force since January
2003. By free trade there is no protection from government any more. The government
endeavors to determine a fair competition. ASEAN have planed an economic unity in
2015, moving earlier as scheduling in 2020. In this context, whether a competition law is
necessary in supporting the economic unity of ASEAN. The question is not easy to
answer, because the understanding of ASEAN Countries for the necessity of competition
law is not same. ASEAN Conference on Fair Trade Competition Law and Policy in The
ASEAN Free Trade Area (AFTA), in Tanah Lot Bali 5-7 March, 2003 and 2nd ASEAN
Conference on Competition Policy and Law, Bali 14-16 June 2006 concluded that there is
no binding conclusion. Furthermore ASEAN countries have the same conception that the
competition law and Antimonopoly Authority are urgent. It means that we should think
seriously about ASEAN competition law. Because the competition law sooner or later in
ASEAN is needed. This paper will elaborate why ASEAN countries need a competition
law.




1
 Bachelor of Law (Atma Jaya University Yogyakarta), LL.M & Dr. jur. (Friedrich-Alexander University,
Erlangen-Nuremberg, Germany), Researcher Department of Economics CSIS Jakarta


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ASEAN Economic Integration


ASEAN is established on August 8, 19672 with the objective to create peace and security
of community in the region. In the course of time is the cooperation of ASEAN countries
not only in the field of politics and security but also in the field of economy. We can feel
it since the end of 1989 and the market has been own segmentation. Moreover, it happens
the basic changing of world trade namely through signing of General Agreement on
Tariffs and Trade/GATT which is known as an Uruguay round and later will be called
with the new name, World Trade Organization (WTO). Since that in the part of the
world was established community of economy as European Economic Community in
West Europe and North American Free Trade Area (NAFTA) in North America which
consist of United State of America, Canada und Mexico.


This pointed out that the trend of economics integration is rising. And for ASEAN
countries, there is no other choice to build such instrument, through this, the economic
integration can be established. That is why at the ASEAN Conference IV on 27 – 28
January 1992 in Singapore was agreed Free Trade Are in ASEAN3 which was assented
by Brunei Darussalam, Indonesia, Malaysia, Philippine, Singapore and Thailand and its
settings up was planed in year 2008.
And in the beginning of January 1993 was established ASEAN Free Trade Area by the
Leaders of ASEAN countries. The establishment of AFTA is earlier than its planning.
The establishment of European Economic Community (EEC) in 1992 and NAFTA in
1994 have influenced the acceleration of the establishment of AFTA. AFTA agreement
was agreed in the scheme of Common Effective Preferential Tariff (CEPT) which is valid
since January 1994. The pillar of AFTA is Common Effective Preferential Tariff which is
goal to reduce the tariff from 0-5% product of group in 5 -7 years, the rest in 10 - 15
years. Through the scheme of CEPT, the import tariff will be reduced to 5% till to the
early of 2008. But this was already implemented at the beginning of January 2003 base

2
  The founding members of ASEAN in 1967, namely Indonesia, Malaysia, the Philippines, Singapore and
Thailand, together with Brunei which joined tha Association in 1984, constitute “original” members of
ASEAN
3
  ASEAN Leaders sought to create a closely integrated market in which multinational corporations and
domestic firms could minimize transactions costs.


                                                                                                        2
on the agreement of the chief of ASEAN countries in 1996 unless Vietnam valid year
2004, Laos and Myanmar year 2006 and Cambodia year 2008, because these countries
entered ASEAN later.
The establishment of AFTA is an obligation of ASEAN countries as an effort to establish
economic integration which is the vision of ASEAN countries in 2020. This was
determined by the Leader of ASEAN countries at ASEAN Meeting in Bali on October,
2003 which has been laid down the requirements of ASEAN economic integration in
2020. The objective is to implement ASEAN Economic Community (AEC) in 2020
which will be implemented in 2015, five years earlier than the schedule.4 It shows that
the AEC is one of the instruments to increase the ASEAN competitiveness and to take
part in the global economy.
The Bali Declaration 2003 to AEC contain as follows:5
    -   AEC is the realization of the end-goal of economic integration as outlined in the
        ASEAN Vision 2020 (forward to 2015), to create a stable, prosperous and highly
        competitive ASEAN economic region in which there is a free flow of goods,
        services, investment and a freer flow of capital, equitable economic development
        and reduced poverty and socio-economic disparities in year 20020 (forward to
        2015);
    -   AEC shall establish ASEAN as a single market and production base, turning the
        diversity that characterises the region into opportunities for business
        complementation making the ASEAN a more dynamic and stronger segment of
        the global supply chain;
    -   ASEAN’s strategy shall consist of the integration of ASEAN and enhancing
        ASEAN’s economic competitiveness.
    -   In moving towards the AEC, ASEAN shall, inter alia, institute new mechanisms
        and measures to strengthen the implementation of its existing economic initiatives
        including the ASEAN Free Trade Area(AFTA), ASEAN Framework Agreement
        on Services (AFAS) und ASEAN Investment Area (AIA);

4
  According to Cebu Declaration on the Acceleration of the Establishment of an ASEAN Community by
2015 consist of the ASEAN Security Community, ASEAN Economic Community and ASEAN Socio-
Cultural Community, Cebu, Philippines, on 13 January, 2007.
5
  More details see Bali Declaration 2003 in http://www.aseansec.org/



                                                                                                    3
    -   Accelerate regional integration in the priority sectors;
    -   Facilitate movement of business persons, skilled labour and talents; and
    -   Strengthen the institutional mechanisms of ASEAN, including the improvement
        of the existing ASEAN Dispute Settlement Mechanism to ensure expeditious and
        legally binding resolution of any economic disputes.
The purpose of this agreement policy is:
    -   to unite the ASEAN economic power and achieve its advantages in the region;
    -   to raise the investment within ASEAN;
    -   awarding of incentives for manufacture activity ASEAN region;
    -   to give the investment priority of raw material in within ASEAN; and
    -   to develop the incentives of the goods and services “made in ASEAN”
Base on this Bali Declaration, the improvement and the establishment of commercial law
in ASEAN is important, if ASEAN want to set a fair and effective competition. One of
the outline conditions of a fair and effective competition is the existing of the competition
law which rules a fair competition and the establishment of Antimonopoly agency which
supervises the competition in the ASEAN region. The competition law is compatible with
“open regionalism” because it is basically neutral and non-discriminatory.6 However, the
question is, why does ASEAN needs a competition law? ASEAN needs a competition
law:7
    1. since ASEAN aims to strengthen economic integration in the region, it needs laws
        and institutions to support the implementation and elaboration of trade and
        investment liberalization within ASEAN market.
    2. in an emerging ASEAN free market economy, monopolies and restrictive
        business practices are viewed as undesirable because they are likely to distort
        prices and the efficient allocation of resources.
    3. the competition law and policy enables small and medium sized enterprises to
        enter the market, therefore it can be implemented as an alternative to industrial
        policy based on strategic policy, which has been regarded as non-neutral
        government intervention.

6
  Lawan, Competition Law and Economic Integration in ASEAN,
http://www.thailawforum.com/articles/lawancomp2.html
7
  More details see Lawan, p.3-4


                                                                                           4
Market economy system


We know that most of the ASEAN countries, the economy system is based on the market
economy system. Even Vietnam, Laos, Cambodia und Myanmar lead their economy base
on market economy system, even though they have a communist ideology. It was proved
that the market economy system is a system which can adopt the development of the
economy in all the time. And it was proved that the country which has the concentration
market system which could not give the solution to the economy problem. That was the
reason why Soviet Union was collapsed through the perestroika and Glasnot. The
collapse of the economy of East European countries brought their market economy
system from concentration system to the market economy system.


To support the market economy system in the developed countries e.g. in United State of
America and European Union, the law system is needed which rule a fair competition and
an antimonopoly agency to supervise the implementation of the competition law. ASEAN
countries also need to develop the effective legal systems for encouraging and overseeing
increasingly competitive business activity in the ASEAN region.                  In the market
integration, like AFTA needs especially a competition law which rules the horizontal and
vertical agreement, dominant position and the abuse of dominant position and as well as
merger control in the ASEAN region.
Then, ASEAN needs a competition law and antimonopoly agency. Some of the
participant of Bali Conference 2004 said this because a fair and effective competition
should be ruled. But the ASEAN member states have different opinion about the
necessity of competition law in ASEAN for each country has its own idea and conception
how to implement a competition law in a regional market. This sundry opinion will be
influenced by the conditions of each country. For instance, Chadwick, market analyst the
trade and industry ministry of Singapore, has written in his paper that „competition law
may be necessary if deregulation policies do not bring about expected efficiencies due to
collusion or exclusionary conduct by an incumbent with considerable market power“.8


8
 Chadwick, Teo, Competition Policy and Economic Growth, Paper for the ASEAN Conference on Fair
Competition Law and Policy in the ASEAN Free Trade Area in Bali, 4-8 March, 2003.


                                                                                                 5
From his opinion we can find out that he believes that economy efficiency can be
achieved through deregulation of trade and economy, especially for the improvement of
economic growth. While Myanmar was more optimistic which was represented by Khin
Ohn Thant and he said that a competition law and policy should be adopted in ASEAN.
In the beginning of his paper is written that ASEAN „needs a Competition Policy to be
relevance in the world economy. So if we do not start now, then when?“.9 The
representative of Myanmar is so optimistic because he can distinguish that the economy
development of his country was better after the implementation of economy market
system. After Myanmar has opened its economy to external world, its economy was
growing 7,5 per cent per a year from 1992 to 1995. From this experience, Myanmar has
determined that the necessity of a competition law and policy is essential in ASEAN to
provide security for a fair and effective competition.
Then, Bali conference was held not to unite the opinion unity of the necessity of
competition law but to give first ASEAN Countries the chance to introduce their own
competition law and policy. The conclusion of the 2nd ASEAN Conference on
Competition Policy and Law in Bali on 14-16 June, 2006 has acknowledged that at the
present, there is no single uniform model of competition to be applied at the regional
level.10 It means indirectly, we need a competition law at the regional level, even every
ASEAN country has different level of competition laws and policies development.
Even though there are sundry opinion among ASEAN member countries about the
necessity of a competition law, the competition law and antimonopoly agency sooner or
later in ASEAN is needed, because
    1. a competition law and policy rule the behavior of the business player in the
        region. The competition law rules the activity of the business player both
        horizontal and vertical agreement, dominant position and the abuse of dominant
        position and also determine how to implement merger and acquisition.
    2. a competition law rules the role of the states as a regulator and facilitator. The
        state is not a business player any more, but as a regulator, facilitator and controller


9
  Khin Ohn Thant, Competition Policy and Economic Growth in ASEAN Countries: a Myanmar’s
Perspective
10
   The 2nd ASEAN Conference on Competition Policy & Law: Accelerate Growth and Competitiveness
through Competition Policy and Law, Bali, 14-16 June, 2006, p. 14.


                                                                                                 6
       which control the behavior of business player. That is why, the ASEAN countries
       are willing to give the antimonopoly agency to control the competition in ASEAN
       region.
   3. through the existing of competition law, it will be       more fair and effective
       competition in ASEAN region.


The competition stimulates the economy, leads the business player to the efficiency and
procures the innovation by producing goods and providing services. All of those are for
the benefit of consumers. The consumer will have an alternative to purchase goods and
services. If ASEAN countries have a fair and effective competition law, the investor will
do an investment in ASEAN region..




Competition law for the benefit of ASEAN


In principal, monopoly and economics protection are against market economy system.
The monopoly practices and awarding of economics protection in the trade hinder a fair
competition. Under the globalization and liberalization of economy, ASEAN must
improve and enact its economic law so that ASEAN market has more competitiveness,
especially on the schedule time of ASEAN Economic Community in 2015, the ASEAN
competition law should be already enacted and implemented.
What is the contribution of the competition law for the economic development in
ASEAN? It can support the economic reform, ensure legal certainty and provide a fair
competition for all business actors. To make ASEAN attractive, ASEAN needs an
effective law namely cartel law which rule cartel prohibition, dominant position, the
abuse of dominant position, merger control etc.


The competition law will ensure the legal certainty to the economic participant and
through it the interest of ASEAN and foreigner investor will increase. Therefore, the
ASEAN competition law plays a multifunctional role, e.g. to encourage the free flow of
trade and investment, to monitor the behaviour of firms, and to evaluate the economic



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role or potential dominance of extra-ASEAN TNCs in the region11 and as well as to
control merger and acquisition.
The question is whether ASEAN countries have knowledge to establish ASEAN
competition law and Antimonopoly agency? The answer is yes. Now, it depends on the
political will of the Leader of ASEAN Countries. Actually the leader of ASEAN
countries and the scholar have acknowledged the necessity of competition law and
antimonopoly agency.
ASEAN countries have pay attention to understand the competition law, especially since
European Union at the WTO Conference on January 1997 in Singapore that suggested: 1)
to establish a working group on exploratory; 2) all states should enact their own
competition law, in establishing the structure for the execution and to enable the
information interchange among antimonopoly agency.


This suggestion was supported by industrial country. It was taken up to the declaration of
Singapore Ministry Conference and agreed that a working group will establish and study
the relationship between trade, competition provision and the practices against the
competition. Since that, ASEAN countries make an effort how to provide a fair and
effective competition in their own country. In the beginning ASEAN countries accepted
the assistance of the competition course from the developed countries like United State of
America, European Union, Germany, Japan, Australia and from international institution
like UNCTAD, OECD, WTO and World Bank. This course was given more intensive
after the economic crisis in the mid of 1997 in ASEAN. For instance, Malaysia had an
assistance from Australia. Thailand und Philippine have an assistance from European
Union and America while Indonesia from Germany and America. As a result, Indonesia
and Thailand have enacted their own competition law. Singapore and Vietnam have also
enacted their competition law in 2004 and has become effective since July 2005.
Even though some of ASEAN countries do not have competition law, but actually they
have planned to establish their own competition law. Laos has prepared to establish its
own competition law. That is why for the establishment of the ASEAN competition law



11
     Lawan, loc cit, p. 2.


                                                                                        8
can be started by the leader of ASEAN countries as a principle of market efficiency and
welfare of consumer.
Then, one of the ASEAN member countries should take the initiative together with
ASEAN secretariat to make a draft of ASEAN competition law. Indonesia can take this
opportunity, because it has more experience in establishing its Antimonopoly Law and
Antimonopoly agency. It has enacted its Antimonopoly Law on March 5, 1999 and up to
now the Commission for the Supervision of Business Competition (KPPU) has 7 years
experience in implementing its competition law. KPPU has handled 81 cases from year
2000 to 2006 and 49 cases decided.12


Conclusion


Economic integration in ASEAN has been driven by globalizing market forces rather
than government direction. To establish an ASEAN economic community (AEC) does
not need only infrastructure for the economic development but also legal infrastructure
which provides legal certainty to the business actors. If ASEAN countries are willing to
realize the ASEAN Economic Community in 2015, they should sit together to make the
draft of business laws e.g. the ASEAN competition law, or to make an agreement on
principal of competition to private sectors, and technical assistance cooperation, There is
no end without start. Starting is the beginning of success. The ASEAN countries should
start sitting together to plan and discuss whether they need an ASEAN competition law or
not. If they do not start now, so when?, as Khin Ohn Thant said.




References


ASEAN       Secretariat    (1997)     ASEAN       Economic      Co-operation:      Transition     &
            Transformation, Institute of Southeast Asian Studies (ISEAS), Pasir Panjang,
            Singapore


12
 Pudyastuti, Ani, Recent Development of Indonesian Competition Law & Policy, Paper presented on
Roundtable Discussion on Competition Law & Policy, Hotel Sahid Jaya, Jakarta, 25 April 2007.


                                                                                                  9
Chadwick, Teo, Competition Policy and Economic Growth, Paper for the ASEAN
          Conference on Fair Competition Law and Policy in the ASEAN Free Trade
          Area in Bali, 4-8 March 2003
Chia, Siow Yue, ASEAN-China Economic Competition and Free Trade Area, Asian
          Economic Papers, Vol. 4 Number 1/2006, p. 109-147
Khin Ohn Thant, ASEAN Conference on Fair Competition Law and Policy in the
          ASEAN Free Trade Area Competition Policy and Economic Growth in
          ASEAN Countries: A Myanmar’s Perspectives, Paper for the ASEAN
          Conference on Fair Competition Law and Policy in the ASEAN Free Trade
          Area in Bali, 4-8 March 2003
Menon, Jayant (1996) Adjusting towards AFTA: The Dynamics of Trade in       ASEAN,
          ISEAS, Pasir Panjang, Singapore
Pudyastuti, Ani, Recent Development of Indonesian Competition Law & Policy, Paper
          presented on Roundtable Discussion on Competition Law & Policy, Hotel
          Sahid Jaya, Jakarta, 25 April 2007.
Soesastro, Hadi (2002) The ASEAN Free Trade Area: A Critical Assessment, The
          Journal of East Asian Affairs Vol. XVI, No. 1 Spring/Summer 2002, p. 20-53
Stubb, Richard (2004) ASEAN in 2003: Adversity and Response, in Southeast Asian
          Affairs 2004, ISEAS Singapore, p. 3 – 17
Thanadsillapakul, Lawan, Competition Laws and Economic Integration in ASEAN,
          http://www.thailawforum.com/articles/lawancomp2.html
Thanadsillapakul, Lawan, The Harmonization of ASEAN Competition Laws and Policy
          and Economic Integration, Rev. dr. unif. 2004-3
The 2nd ASEAN Conference on Competition Policy and Law: Accelerate Growth and
          Competitiveness through Competition Policy and Law, Bali, 14-16 June 2006,
          held by ASEAN Secretariat, Commission for Supervision of Business
          Competition (KPPU) and ASEAN Consultative Forum on Competition.




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