Competition Law in Singapore

R Ian McEwin1

I. INTRODUCTION

In August 2002 a small unit was set up within the Ministry of Trade and Industry

(MTI) to look at the possible introduction of a competition law in Singapore – the

location of the unit within an economic ministry rather than a legal one indicates the

stress that Singapore placed on economics in its implementation. In February 2003, the

Economic Review Committee recommended that Singapore enact a competition law.

MTI conducted public consultations on the draft competition bill in July and October

2004. Subsequently, the Parliament of Singapore passed the Act in 2004.

The Singapore Competition Act2 (“the Act”) is based on the United Kingdom’s

Competition Act 1998 but with some differences reflecting the fact that Singapore is a

small but open economy. For example, the Section 47 prohibition dealing with abuse of

dominance explicitly says undertakings that are dominant anywhere in the world can

breach the section if their conduct has an anticompetitive effect in Singapore. Vertical

agreements are also excluded from the Section 34 Prohibition Act (as long as a dominant

firm is not involved), reflecting the view that vertical restrictions are normally pro-

competitive, and those that are not are often limited by international competition or are

difficult and costly to evaluate—an important factor in a small country with limited

administrative resources.

Singapore has adopted a total welfare approach under which anticompetitive

conduct can be excused if there is Net Economic Benefit (“NEB”). A notification system

1
Former Chief Economist, Competition Commission of Singapore, Professor of Law, National University
of Singapore. The views expressed here are solely those of the author and do not necessarily represent
those of the Competition Commission of Singapore.
2
Cap 50B, 2006 Rev Ed.

1
has been introduced for NEB to allow companies to enjoy the certainty of a decision by

the Competition Commission of Singapore (“CCS”), something considered important in a

new competition regime. Accordingly, businesses and their lawyers have greater certainty

in dealing with a new and unfamiliar area of law. At the same time, as is currently the

situation in Europe, NEB can be argued as a defense so there is no need to notify ex ante.

As a result, unlike in Europe, the CCS has not been inundated with notifications.3

One other important difference from the United Kingdom and other European

nations is the deletion in the abuse of dominance provision of the subsection dealing with

“imposing unfair purchase or selling prices or unfair trading conditions” replaced with

“predatory behavior towards competitors.” This makes it clear that abuse is confined to

exclusionary conduct and not price regulation or consumer protection, which makes the

prohibition different from most competition laws in Asia that prohibit unfair conduct.

One of the difficulties with a new competition law regime is making sure both businesses

and the general public understand what competition law is all about, as some confuse

competition law with consumer protection law and see competition law as being

primarily concerned with high prices, product misrepresentation, etc. However,

Singapore has made a clear division between consumer protection and competition law.

To administer and enforce competition law in Singapore, a new statutory board,

the Competition Commission of Singapore (“CCS”) was set up on January 1, 2005 under

3
As Hawk commented in 1995 on the EU approach to vertical restraints: “It was evident as early as the
1960s that DG IV lacked the resources to deal with notifications seeking individual exemptions. This
should not be surprising. No competition authority in the world has the resources to examine the vast
number of vertical agreements (and licences) whose enforceability has been called into question by the
overbroad application of 85(1).” Barry E. Hawk, System Failure: Vertical Restraints and EC Competition
Law, 35 COMMON MKT. L. REV. 973, 982 (1995).

2
the Ministry of Trade and Industry. In a press release, the Minister for Trade and Industry

said:

The functions and duties of the CCS shall be to:

• Remove or limit practices that have an adverse effect on competition in

Singapore

• Maintain and enhance efficient market conduct and promote competition

in markets in Singapore

• Act internationally as the national body representative of Singapore in

respect of competition matters

• Advise the Government or other public authority on national needs and

policies in respect of competition matters generally.4

The substantive provisions were implemented in phases:

1. Phase 1: On January 1, 2005, the provisions establishing the CCS came

into effect.

2. Phase 2: On January 1, 2006, the provisions on anticompetitive

agreements, decisions and practices, abuse of dominance, enforcement,

appeal processes, and other miscellaneous areas came into force.

3. Phase 3: On July 1, 2007, the remaining provisions relating to mergers and

acquisitions came into force.

In addition to the exclusion of vertical agreements and those that have NEB, the

Third Schedule of the Act provides for a number of exclusions for the Sections 34 and 47

4
Ministry of Trade and Industry (MTI), Press Release, “Ministry of Trade and Industry Launches
Competition Commission” (December 30, 2004, available on the MTI Web site at
<http://app.mti.gov.sg/default.asp?id=123&cat=1&intCategory=4>. These functions were incorporated into
s 6 of the Act.

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prohibitions. These include agreements or conduct engaged in to comply with a legal

requirement or to avoid conflict with international obligations, and to a number of

services, including ordinary letter and postcard services, the supply of potable water and

wastewater management services, bus services, rail services and cargo terminal

operations, and clearing house services. Contrary to a widespread perception,

government-linked corporations engaging in economic activity are covered by the Act

II. COMPETITION LAW GOALS IN SMALL, OPEN ECONOMIES

An important policy question is whether small, open economies really need a

competition law given that open markets place considerable competitive pressures on

domestic markets. Switzerland introduced a competition law in 1995 in recognition that

large Swiss companies were moving production offshore due to the higher costs of

domestic products caused by lack of competition.5 As with Switzerland, Singapore is

likely to benefit from more competition in non-traded domestic industries such as

services. Not only will consumers benefit from lower prices, but businesses in Singapore

will enjoy lower input prices that will make them more competitive overseas and in

meeting import competition.

Singapore recognized that its competition law should be appropriate for its own

circumstances. Singapore’s goals are unambiguously economic. In the Second Reading

Speech of the Competition Bill, Dr. Vivian Balakrishnan, the Senior Minister of State for

Trade and Industry, said:

Sir, the objective of the Bill is to promote the efficient functioning of our markets

and hence enhance the competitiveness of our economy. The Bill seeks to prohibit

5
See Roger Zach, Competition Law as Comparative Advantage, Towards WTO Competition Rules: Key
Issues and Comments on the WTO Report (1998) on Trade and Competition (proceedings of the seminar,
Zurich University, July 8–10, 1999) (Kluwer Law International, 1999) at 395 and 402–403.

4
 anti-competitive activities that unduly prevent, restrict or distort competition. We

recognize that any regulatory intervention in the market may impose costs.

Therefore, we need to balance regulatory and business compliance costs against

the benefits from effective competition. Instead of attempting to catch all forms of

anticompetitive activities, our principal focus will be on those that have an

appreciable adverse effect on competition in Singapore or that do not have any

net economic benefit. In assessing whether an action is anticompetitive, we will

also give due consideration to whether it promotes innovation, productivity or

longer-term economic efficiency. This approach will ensure that we do not

inadvertently constrain innovative and enterprising endeavors.6 [emphasis added]

6
Singapore Parliamentary Debates, Official Report (Oct. 19, 2004), vol 78,
cols 863–890, available on the Parliament website at <http://www.parliament.gov.sg/
parlweb/hansard_search_latest.jsp> (last visited Sept. 4, 2006) (Dr. Vivian Balakrishnan, Senior Minister
of State for Trade and Industry).

5
 As is pointed out in the Second Reading Speech, the enforcement focus is on

conduct that has an appreciable adverse effect on competition in Singapore or that does

not have any net economic benefit. The use of the term appreciability in this speech (but

not in the Act itself) signifies the regulatory focus is on the practices that cause the most

harm—and that can be justified after the costs of regulatory intervention are taken into

account. The notion of appreciability comes from EU competition law jurisprudence that

was imported into U.K. law via s 60(1) of the U.K. Act to ensure uniformity between EU

and U.K. law. As there is no equivalent of s 60 in the Act, its application in Singapore

depends on the intention of Parliament as reflected in the Second Reading Speech.

The CCS Guidelines 2005 provide guidance on how appreciability will be

assessed.7 Rather than looking at the impact of the agreement, etc., the CCS will focus on

other factors including the market shares of parties to the agreement. For example, there

will generally be no appreciable adverse effect on competition if the aggregate market

share of the parties to the agreement does not exceed 20 percent or where all the

undertakings are small or medium enterprises (for manufacturing enterprises this means

having fixed assets investment of less than $15 million, and for service enterprises having

fewer than 200 workers).

While restrictions on competition generally reduce output, product quality, and

consumer choice, some agreements that reduce competition may also promote economic

efficiency. For example, agreements may lower costs of production, improve product

quality, or create a new product. When efficiencies outweigh the detriment to competition

via reduced costs and better products, society is better off. The criteria to be used in

7
See Competition Commission of Singapore, Guideline on the Section 34 Prohibition (Dec. 2005),
available on the CCS website at <http://www.ccs.
gov.sg/Guidelines/index.html> (last visited Sept. 4, 2006) at para 2.19.

6
assessing NEB are set out in s 41of the Act, which is similar to Art 81(3) in the European

Union – except that there is no requirement that the parties must show that consumers

will get a ‘fair share of the resulting benefit’ . An agreement can have a NEB if it

contributes to improving production or distribution or promotes technical or economic

progress if it is done in the least restrictive way and does not eliminate competition in a

substantial part of the market. In addition, as pointed out in the introduction, Singapore

has retained a notification system to allow for greater business certainty in the early

stages of the Act’s implementation, but also allows for self-assessment in that NEB can

be claimed as a defense where conduct would otherwise breach the Act.

III. ENFORCEMENT

Section 62 of the Singapore Competition Act provides that the CCS may conduct

an investigation if there are reasonable grounds for suspecting that the Section 34 or

Section 47 prohibition has been infringed. The formal powers of investigation can be

used only when this requirement is met.

Under the Act, the CCS has the power to:

1. Require the production of specified documents or specified information

2. Enter premises without a warrant

3. Enter and search premises with a warrant.

The CCS may also obtain information about undertakings, agreements, practices,

and markets through informal enquiries, either before or during the course of an

investigation (such as at a meeting, in writing, or by telephone). The CCS can require any

person to produce documents or information that it considers relates to an investigation.

Once the CCS has reasonable grounds for suspecting that the Section 34 or Section 47

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prohibition has been infringed, it may conduct an investigation. It has the power to enter

into any premises to carry out inspections, either with or without a warrant, and to gain

access to documents relevant to an investigation. (Premises generally refers to business

premises; it does not include domestic premises unless they are used for business.)

While there are no criminal penalties for breach of the Section 34 or Section 47

prohibitions, there are criminal penalties for obstructing the CCS. For example, it is an

offense to fail to provide required documents or information; obstruct by refusing to give

access, assaulting, or delaying the CCS; intentionally or recklessly destroy documents; or

provide false or misleading information.

The CCS has the power to give directions to bring an infringement to an end,

give directions on interim measures during an investigation, and impose financial

penalties on undertakings for infringing the Act. The amount of the penalty imposed may

be up to 10 percent of the turnover of the business of the undertaking in Singapore for

each year of infringement, up to a maximum of three years.

IV. DAMAGES

While parties do not have rights of private action with respect to breaches of the

Act, parties suffering loss or damage arising directly from an infringement of the

Section 34 and/or Section 47 prohibitions are entitled to commence a civil action for

damages against the infringing undertaking. This right of private action only arises after

the CCS has determined infringement has occurred and any appeals have been exhausted.

There is a two-year limit for the taking of such private actions from the time that the CCS

makes its decision or from the determination of the appeal, whichever is the later. The

court will be bound in such proceedings by the relevant infringement decisions.

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V. ECONOMICS AND COMPETITION LAW IN A NEW COMPETITION

REGIME

In a new competition regime, there is unlikely to be many economists or lawyers

familiar with competition law. In Singapore, most economists are macroeconomists.

Even in such a sophisticated economy data and economic studies of sectors are limited as

are studies of particular markets. Unlike bigger economies, only limited data is publicly

available to properly determine the likely impact of market conduct.

Competition law enforcement is made even more difficult in a small economy

where levels of concentration are likely to be high and in which established practices

have reached a balance between interest groups over time. In particular, current

collaborations between competitors could be the result of informal government

intervention in the past. For example, some trade association price guidelines may have

come about by consumer pressure to limit price increases in the past—and there may be a

general consensus that guidelines are beneficial to consumers because they appear to

serve a consumer protection function.

Singapore has essentially adopted an effects-based law in which it is less

concerned with examining the form of the conduct as with assessing its impact. However,

conduct assessments take time. There seems to be little point in specifying bright-line

rules from other jurisdictions that give clear guidance to an industry when those adopted

rules do not necessarily unambiguously improve welfare. Without established case law,

lawyers will tend to look to overseas jurisdictions for guidance on the principles to be

used in particular fact situations, but care needs to be taken that rules not be adopted

9
unquestioningly if there is a possibility of different outcomes. All in all, new competition

regimes need to tread carefully.

In a small, open economy, some economic issues may be assumed away in bigger,

more self-contained economies. For example:

• Geographic markets: should a presumption be made that geographic markets are

Singapore itself, or should normal geographic market approaches be used so that

relevant markets may be wider than Singapore? The first is easier to articulate for

public consumption, as here outside constraints on anticompetitive conduct within

Singapore are considered via imports and potential entry. However, a broader

geographic market may be justified particularly where products are differentiated,

with some may not even being produced in Singapore. Therefore, it is better to

make these decisions on a case-by-case basis.

• Anticompetitive effects: the Act has wide extraterritoriality coverage in that

essentially any conduct overseas is proscribed if it has an anticompetitive impact

in Singapore. However, obtaining the necessary evidence to prove anticompetitive

conduct may be difficult even if the effect in Singapore can be identified.

• Regulatory arbitrage: what should be done if stopping anticompetitive conduct in

Singapore leads to firms deciding to relocate to an adjoining country that does not

have a competition law? The effect could be to limit competition in Singapore.

For example, prohibiting anticompetitive agreements between air or shipping

companies could lead to fewer airlines or shipping companies using Singapore.

These issues are examined under the total welfare test of the NEB.

VI. THE WORK SO FAR

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A. Infringement Decisions

Since the Sections 34 and 47 prohibitions came into force on January 1, 2006 up

until February 2008 there have been 4 leniency applications, 29 complaints, 9

Notifications for Guidance, and 3 Notifications for Decision. The merger provisions

came into force on July 1, 2007, and by February 2008 there had been 5 Notifications for

Decision (all but one asked for a prenotification meeting).

The CCS issued its first infringement decision in January 2008 against some pest

removal companies for bid rigging. The companies involved colluded to submit

quotations to termite treatment projects. In each of the projects, one of the companies was

already providing pest control services or had recommended the use of a termite

treatment chemical to the customer. The first company would then inform some or all of

the other companies of the project via e-mail, phone, or short message service (“SMS”) to

request them, in effect, to submit bids at prices higher than its own bid. The first

company would also let them know the price of its bid or the prices they should quote.

The CCS started investigations in October 2006 and issued proposed infringement

decision to the parties in October 2007. The January 2008 decision found infringement

and imposed financial penalties amounting to S $262,760.

Three Notifications for Decision have been lodged. The first in January

2006 was by Visa International in which the applicants requested a decision from

the CCS that the multilateral interchange fee (“MIF”) system does not infringe the

Section 34 prohibition, or in the alternative, that it meets the NEB exclusion criteria

set out under the Third Schedule to the Act. This is a difficult issue for a new

competition authority to deal with. Apart from dealing with the issues relating to

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changes in economic theory (traditional versus two-sided markets theory), the CCS

has to rigorously evaluate the claimed benefits to Singapore.

Two other Notifications for Decision relating to aviation were received in April

2006. In the first Notification, Qantas and British Airways were parties to a joint services

agreement that had been in operation since 1995. This agreement allowed Qantas, British

Airways, and their subsidiaries to coordinate scheduling, capacity, prices, yields, and

marketing on all routes, including between Australia and Europe, Australia and Asia, and

Asia and Europe. In Asia, Singapore is the primary hub through which the applicants

operated a large number of their services

The applicants claimed that the agreement met the NEB exclusion criteria set out

under the Third Schedule to the Act as there are positive economic effects to Singapore

and its consumers, with no indispensable restrictions or elimination of competition. The

services involved passenger air (the principal focus of the application), air freight, and

sale of air travel services, but the applicants argued there were no appreciable effects in

those markets.

The Commission concluded that the agreement was likely to have the effect of

appreciably preventing, restricting, or distorting competition in the provision of

scheduled air passenger transport, but was excluded from the Act because there were

NEBs. The Commission also concluded the agreement did not and was unlikely to have

an appreciable effect on competition in the provision of services relating to air freight and

sale of air travel services.

The other Notification related to the Qantas–Orangestar Cooperation Agreement.

Besides being Australia’s largest domestic and international airline, Qantas is the holding

12
company for a number of subsidiaries including Jetstar Airways Pty Limited (“Jetstar”)

that conducts Australian domestic and international airline operations. Orangestar is the

holding company of two Singapore value-based airline subsidiaries, Jetstar Asia and

Valuair. Qantas owns approximately 44.5 percent of Orangestar with the other major

shareholder being Temasek Holdings (Private) Limited.

Qantas and Orangestar entered into a cooperation agreement in April 2006 to

better coordinate their activities and the activities of their subsidiaries, including network

and scheduling decisions, sales and marketing initiatives, and pricing and inventory

decisions. The applicants argued that they and their subsidiaries were part of a single

economic entity and that the cooperation agreement resulted in significant NEBs to

Singapore. As such, the applicants argued the cooperation agreement did not infringe on

the Section 34 prohibition.

The Commission concluded that the applicants did not form a single economic

entity.8 However, although the agreement between the applicants fell within the ambit of

the Section 34 prohibition of the Act, the Commission was of the view that it did bring an

NEB to Singapore. Therefore, the agreement was excluded from the Act.

B. Mergers

Although there is no requirement for merger parties to provide notice of their

mergers to the CCS, they may nevertheless do so and apply for a decision as to whether

the Section 54 prohibition has been or will be infringed. Parties can seek pre-notification

discussions with the CCS, which gives parties intending to file a notification the

opportunity to have informal discussions to help identify the information to be

8
See the article by Burton Ong “Competition Law Takes off in Singapore: An Analysis of Two Recent
Decisions” 3(2) Global Policy International Autumn 2007, pp 101-131.

13
submitted with the notification. These discussions are confidential and enable the

CCS to more quickly deal with a subsequent notification.

Up until March 2008, there had been six notifications. They were the joint venture

among Intel Corporation, STMicroelectronics N.V., and Francisco Partners LLP; the

merger between Flextronics International Ltd and Solectron Corporation; the merger

between Kraft Foods Global, Inc. and Groupe Danone S.A.; the merger between

Thomson Corporation and Reuters Group PLC; the merger between Dubai Drydocks

World LLC and Labroy Marine Ltd; and the merger between Chartered Semiconductor

Manufacturing Ltd and Hitachi Semiconductor Singapore Pte Ltd.

VII. BLOCK EXEMPTION

Following a recommendation from the CCS, in July 2006 the Minister for Trade

and Industry issued a block exemption order (“BEO”) to exempt from Section 34 of the

Competition Act liner shipping agreements relating to liner shipping services provided

they fulfilled certain conditions and obligations, such as allowing member liner operators

to offer their own service arrangements on a confidential basis.

As set forth in Section 41, the criteria for block exemptions are the same as for

NEB: an agreement must contribute to improving production or distribution, or to

promoting technical or economic progress, without imposing on the undertakings

concerned restrictions that are not indispensable to the attainment of those objectives or

that afford the undertakings concerned the possibility of eliminating competition in

respect to a substantial part of the goods or services in question.

Use of the BEO by the CCS would broadly align Singapore’s regulatory

environment with that of major jurisdictions. It would also help to maintain Singapore’s

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position as a premier international maritime center and ensure that businesses in

Singapore would continue to have access to reliable and competitively priced liner

shipping services of adequate frequency.

The BEO took effect retrospectively from January 1, 2006 (when Section 34 of

the Act came into effect). It will last for five years.

However, when the members of a liner shipping agreement collectively hold

more than 50 percent market share in any market operated under the agreement, they are

required to fulfill additional obligations relating to the filing and publication of

information for the agreement to be exempted. An exemption may be cancelled in a

particular case in which, for example, a liner shipping agreement produces effects that do

not satisfy the NEB criteria as set out in Section 41.

VIII. FUTURE STRATEGIC DIRECTIONS

Being a new authority, CCS has taken its first three years to put in place the basic

regulatory and organizational foundations, including drawing up the CCS Guidelines,

developing staff capabilities, and setting up work processes and systems. In the future the

CCS will need to concentrate on:

• Revising sectoral regulation: currently, some sectors with their own competition

codes (e.g., telecoms, media, and energy) are exempted from the Competition

Act. A review of these exemptions is scheduled in 2009.

• Strengthening the CCS’s role as an effective enforcer. So far the number of

complaints and notifications has been only modest, but steady. The CCS should

be more proactive in identifying markets with competition concerns. As part of

this process, the CCS will be more concerned with ensuring the public is aware of

15
 competition law. This includes making certain that the public appreciates that

competition law is not the same as consumer protection law and deals with a

different kind of market failure.

• Expanding competition advocacy, particularly in industries currently exempted

under the Competition Act (e.g., where the government or its agent is involved as

an industry player or sometimes as a regulator).

• Expanding capabilities. As a relatively young organization, the CCS needs more

experience in both competition policy issues and case management. This is a

continual process that is more important for new competition authorities given the

high demand from the private sector for people with competition law skills. Apart

from developing core economic skills, case management is particularly important

in areas such as evidence gathering, interviews, investigation, economic analysis,

case building, and appeal fighting. So far the main emphasis has been on

developing economic and legal capacity.

IX. INTERNATIONAL

The CCS is also playing a more active international role, for example, at the

ASEAN and the Asia-Pacific Economic Cooperation (“APEC”) level. The CCS hosted an

APEC training course August 2007 under the auspices of the APEC Competition Policy

and Deregulation Group. The CCS has also assumed chairmanship of the ASEAN

Consultative Forum for Competition (“ACFC”).9

X. CONCLUSION

Singapore has introduced a competition law that is strongly economics-focused,

and in which considerable care has been taken to ensure that the policy goals and
9
See Economics 101: The Competition Commission of Singapore Annual Report 07/08 for more details.

16
enforcement approach clearly improve economic efficiency in the country. The

Competition Commission has been staffed with highly qualified economic and legal

professionals who have received considerable training. While staff retention is a problem,

as elsewhere, those leaving the Commission have mostly gone to competition law

positions in private enterprise, thereby improving the overall competition law culture in

Singapore. It is too early to tell the extent to which competition law will actually improve

economic welfare in Singapore, but it seems any positive impact is likely to be greater

there than in many other countries that have recently introduced competition law.

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