A) Role of the CCS
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| What is the mission of the CCS? |
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The mission of the CCS is Championing Competition for Growth and Choice.
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| Why is competition important? |
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Competition spurs businesses to be more efficient, innovative and responsive to consumer needs. This means more effective use of resources and greater productivity gains for the economy. The benefits are, in turn, cascaded to consumers, who will enjoy more choices, lower prices and better products and services.
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| What does the CCS do in administering Singapore’s competition law? |
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| The CCS conducts investigations where there may be a breach of one of the prohibitions of the Competition Act. It makes decisions, and gives guidance on whether the prohibitions on anti-competitive agreements and abuse of a dominant position have been breached.
The CCS also advocates pro-competition policies within Government, providing advice to Ministries, Statutory Boards and other public bodies on request. In addition, as part of its outreach activities and advocacy work, it explains the provisions of the Act to organizations, companies and other interested groups.
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| Does the CCS give legal advice? |
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The CCS does not give legal advice.
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| Who should I approach if I am not sure whether my issue falls under a particular regulator or the CCS? |
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Cross-sectoral competition cases are expected to be the exception rather than the norm. As a rule of thumb, you should first check with the respective sector-specific regulator.
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| If an issue involves more than one sector, how will the CCS work with other regulatory agencies in resolving it? |
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Cross-sectoral matters will be dealt with by the CCS in consultation with the sector-specific regulators. The CCS and the sector-specific regulators will cooperate and coordinate closely to address any administrative or regulatory issues. The lead will be taken by the agency best placed in terms of the ability to investigate the alleged anti-competitive conduct and impose any necessary remedies.
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| What sort of activities will the CCS focus on as part of its enforcement strategy? |
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For a start, the CCS will pay greater attention to hardcore offences that are blatantly anti-competitive. This includes cartels that engage in price-fixing, market-sharing and bid-rigging. Such behaviours run counter to the spirit of competition and should not be condoned.
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B) Scope of the Competition Act
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| I have heard that certain activities and sectors are excluded from the Competition Act. Can you tell me more? |
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Other than certain activities that are excluded under the Third Schedule, the Act applies to commercial and economic activities carried out by private sector entities in all sectors, regardless of whether the business is owned by a foreign entity, a Singapore entity, the Government or a statutory board.
As the intent of the Competition Act is to regulate the conduct of market players, it does not apply to any activity, agreement or conduct undertaken by the Government, a statutory board or any person acting on their behalf.
The activities that have been excluded under the Third Schedule include those:
- relating to services of general economic interest;
- necessary to comply with legal requirements or to avoid conflict with Singapore’s international obligations;
- arising from exceptional or compelling reasons of public policy;
- relating to vertical agreements;
- goods and services regulated by other competition law;
- mergers approved under any other law or competition codes; and
- agreements with net economic benefit (such agreements will only enjoy exclusion from the s.34 prohibition)
Specifically, the following activities are excluded: the supply of ordinary letter and postcard services; piped potable water; wastewater management services; scheduled bus services; rail services; cargo terminal operations; and clearing house activities by specified persons.
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| Why are these sectors or activities not covered by the Competition Act? |
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The exclusion of some of these sectors is based on public interest considerations such as national security, defence and other strategic interests. The other exclusions are for sectors or activities which already have sectoral competition frameworks. These sectors are in transition from a previously monopolistic situation to a more competitive environment today. Under such circumstances, more active market regulation and intervention is needed. Moreover, there are various technical matters affecting competition in these areas. Hence, the sector-specific regulators, with their industry knowledge and expertise, are in a better position to handle such issues.
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| The Third Schedule says that vertical agreements are excluded from the section 34 prohibition. What are vertical agreements and why have they been excluded? |
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Vertical agreements are arrangements between businesses at different levels of the production or distribution chain, for example, agreements between a manufacturer and a retailer, or between a dealer and a retailer. There is broad agreement among economists that most vertical agreements have pro-competitive effects, which more than outweigh the potential anti-competitive effects.
The CCS will conduct periodic reviews on the scope of the exclusion and may recommend changes if it should find that any particular type of vertical agreement gives cause for concern. The Minister may, by order, bring such a type of agreement under the provisions of section 34 of the Act.
The exclusion for vertical agreements does not apply to agreements whose primary object is related to intellectual property rights. Other IPR agreements, such as IP licensing agreements, will be assessed according to the framework set out in the CCS Guidelines on the Treatment of Intellectual Property Rights.
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| How are the Consumer Protection (Fair Trading) Act (CPFTA) and the Competition Act different? |
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The Competition Act deals with the conduct of businesses which has the effect of appreciably preventing, restricting or distorting competition in ways, which are not related to merit or efficiency. Examples include price fixing, bid-rigging and market sharing amongst competitors. The aim is to promote healthy competitive markets.
The CPFTA deals with unfair trade practices that result in a consumer being deceived or misled, or which take advantage of a consumer who is not in a position to protect his own interests. Examples of unfair trade practices include misrepresentation, use of small print to conceal a material fact from the consumer, exerting undue pressure on the consumer to enter into a transaction etc.
Both the CPFTA and Competition Act bring benefits to consumers, but in different ways. With the Competition Act, consumers benefit from more choices, lower prices and better products and services when businesses compete on merit. The CCS focuses on the market conduct of businesses, with the aim of promoting healthy competition. The CPFTA protects consumers from misleading or deceptive tactics that some businesses use when consumers enter into transactions with them. Complaints relating to CPFTA issues should be sent to CASE.
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C) CCS Guidelines 2005
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A CCS guideline is a published document which indicates how the CCS will interpret and give effect to the Competition Act. It provides a conceptual and analytical framework for the CCS in its analysis and evaluation of cases. It also provides transparency and greater clarity to businesses on how the CCS will interpret and implement the competition law regime. The application of the guideline will depend on the specific facts and circumstances of a particular case. It is also not binding on the CCS and does not set a limit on the investigation and enforcement activities of the CCS.
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| Does a guideline have the effect of law? |
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The guideline is indicative only, and does not have the effect of law. Guidelines are not a substitute for the Act and may be revised should the need arise. You should consider the facts and circumstances of each case when applying a guideline and may wish to seek legal advice if in doubt about how you may be affected by the Act.
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| How many guidelines has the CCS issued? |
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The CCS has issued 12 guidelines in June 2007. The guidelines are:
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| Can the CCS issue a guideline for my industry? |
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The existing guidelines indicate the types of activity or conduct across industries, which are affected by the Competition Act. Businesses should be able to apply the guidelines to their own sectors. Should a person be in doubt as to how his business may be affected by the Act, he may wish to seek legal advice or notify his conduct/agreement to the CCS for guidance/decision. The CCS is also open to requests to give presentations to industry associations to help them better understand the guidelines.
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| Where can I find the guidelines? |
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You can find the guidelines on the CCS website under the section ‘CCS Guidelines’. The CCS has also printed a compendium of the guidelines issued. They can be purchased for S$25.00 per copy for local orders (inclusive of GST and local postage). For overseas orders, the price is $25.00 per copy plus the prevailing rate of air postage from Singapore to the overseas destination.
To purchase copies of ‘The CCS Guidelines 2005’, please refer to the following contact and details:
Pagesetters Services Pte Ltd
Block 2 Pasir Panjang Road
#11-01 Alexandra Distripark
Singapore 118481
Tel: (65) 6270 6521
Fax: (65) 6273 3342
Email: info@pagesetters.com.sg
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| Is there some sort of summary for the guidelines? |
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| The CCS Guideline On The Major Provisions contains a summary of all the guidelines that the CCS has issued. You can find it on the CCS website under the section ‘CCS Guidelines’.
A short introductory guide – the Practical Guide – which is designed for those needing a quick overview, is also available on the CCS website for browsing in both English and Chinese.
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D) Defining the market
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| What is market definition? |
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| Market definition is a process, usually conducted by qualified economists, to define the boundaries of the market within which competition law analysis is to be performed.
A market consists of both buyers and sellers of a product in a certain geographical area. Market definition identifies all the products on the demand side that buyers regard as reasonable substitutes for the product in question, and all the sellers (both current and potential) who may supply the product and its substitutes. The geographical reach of the market will also have to be considered and it may extend beyond the area in which the product in question is sold.
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| What types of markets are there? |
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The CCS typically considers two main types of markets in market definition. The product market consists of all the products which are regarded as interchangeable or substitutable by the buyers, by reason of the products’ characteristics, price and intended use. The geographic market refers to the area over which the supply-side and the demand-side substitution takes place. More information on defining the market can be found in the CCS Guidelines on Market Definition.
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| Why is market definition important? |
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Market definition allows us to better understand whether agreements have an appreciable adverse effect on competition and whether individual undertakings possess market power. Once the market has been defined, the market share(s) of the undertaking(s) in question may be measured. Where an agreement involves undertakings whose combined share of the relevant market is low, the agreement is unlikely to raise competition concerns relating to the section 34 prohibition unless it contains, for example, price fixing, bid rigging, market sharing, or output limitations. An undertaking with low market share will usually not possess market power. Therefore, an investigation relating to the section 47 prohibition of an individual undertaking whose market share is low can normally be closed at an early stage, unless other relevant factors provide strong evidence of dominance.
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| How do you go about defining the market? |
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| The hypothetical monopolist test is a conceptual approach used to define markets. The test tries to identify all the products that buyers regard as reasonably substitutable for the product in question. Once those substitute products are identified, all those undertakings that could potentially supply this product and substitutes can be identified. These are the competitors that actually constrain the exercise of market power.
To define the product market, we first consider the product being investigated and consider the effect of a 10% increase in price above competitive levels. If a significant number of buyers switch to substitute products following the price increase, we will include the substitute products in the definition of the product market. The exercise is repeated and the market widened until the price increase does not lead to switching. That is the product market.
The geographic market can be defined using the same framework, but this time with the focus on the geographic areas where the substitution is taking place.
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| My company is based in Singapore, but we sell all over the world. Isn’t that the relevant market for calculating market shares? |
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| Not necessarily. A market is commonly understood to consist of both buyers and sellers of a product in a certain geographical area. However, the term ‘market’ has a specific meaning for competition law purposes. The essential task in market definition is to define all the products on the demand side that buyers regard as reasonable substitutes for the product under investigation (‘focal product’), and then to identify all the sellers who supply the focal and substitute products, or who could potentially supply them – this is the relevant market. This exercise of market definition includes defining the geographical reach of the relevant market, which may extend beyond the area under investigation and in which the focal product is sold (‘focal area’).
More information on defining the market can be found in the CCS Guidelines on Market Definition.
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E) Agreements between Undertakings
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| What does the section 34 prohibition cover? |
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Section 34 of the Act prohibits agreements between undertakings, decisions by associations of undertakings or concerted practices, which have as their object or effect, the prevention, restriction or distortion of competition in Singapore.
Price-fixing, bid-rigging, sharing markets and limiting or controlling production or investment will almost always infringe the Act as they are, by their very nature, regarded as restrictive of competition to an appreciable extent.
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| If an agreement only involves parties that have a small share of the market, does that raise competition concerns? |
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An agreement will generally not raise competition concerns unless it has an appreciable adverse effect on competition. Certain cartel agreements with competitors, such as price-fixing, bid rigging and sharing of markets, will always be held to have an appreciable effect on competition. If companies with very small market shares do not engage in such agreements with competitors, they have nothing to fear from the Act.
CCS generally considers that an agreement will have no appreciable adverse effect on competition if:
- in a case where the agreement is made between competing businesses, the aggregate market share of the parties to the agreement does not exceed 20% in any of the relevant markets affected by the agreement.
- in a case where the agreement is made between non-competing businesses, the market share of each of the parties to the agreement does not exceed 25% in any of the relevant markets affected by the agreement.
However, it must be emphasized that these market share thresholds are indicative. There may be an appreciable adverse effect on competition even if the total market share of the businesses involved is below the indicated thresholds. Similarly, agreements between businesses with market shares above these thresholds do not necessarily have an appreciable effect on competition. What matters is not the numerical value of the share, but the ability to distort competition by exercising market power. Market power is usually correlated with market share, but this is not always the case.
More information can be found at the CCS Guidelines on the Section 34 Prohibition.
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| The CCS seems to pay particular attention to appreciable adverse effect in its analyses. How is appreciable adverse effect determined? |
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In assessing if an activity or conduct has an appreciable anti-competitive effect, the CCS will consider the facts and circumstances of each case – for example, the nature of the conduct under investigation, the relevant market share of the business, the nature and structure of the market or industry etc. It is recognized that there are differences between industries, including the way in which businesses in a particular industry compete, and the relative importance of economies of scale and innovation.
In some cases, although an arrangement may seem to be anti-competitive under section 34 as it involves competitors coming to collaborate or work together, the particular arrangement may have net economic benefits and hence will not be found to be anti-competitive.
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| Why are agreements between SMEs generally considered as not having an appreciable effect on competition? |
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| SMEs are characterized by their relatively smaller scale of operations. In most cases, the total market share of SME parties to an agreement is not likely to be significant enough to create an appreciable adverse effect on competition in a market. By the same reasoning, it is unlikely that an SME will have a dominant position in a market. However the CCS reserves the right to investigate alleged anti-competitive conduct on the part of an SME if it is warranted.
If SMEs are involved in agreements involving price-fixing, rigging of tender bids, market sharing or limitation of output, which are, by their very nature regarded as restrictive of competition to an appreciable extent, the onus is on the SMEs to demonstrate net economic benefit, so that their agreement will not be regarded as an infringement of the section 34 prohibition.
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| What do you mean when you refer to net economic benefit? |
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| Net economic benefit refers to a situation where an agreement improves production or distribution, or promotes technical or economic progress. The agreement should only include restrictions that are absolutely necessary to achieving these benefits and should not substantially eliminate competition.
These could include cases where competitors agree to work together, for example, to produce or distribute a product or service or to conduct research, and the arrangement has the effect of improving production or distribution, or promoting technical or economic progress.
Such arrangements generate longer term efficiencies and productivity. As their economic benefits outweigh the negative effects of competitors coming together, these arrangements will not run foul of the Competition Act, if the terms of the arrangement are not unduly restrictive and there is no substantial limitation of competition.
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| Why does the CCS regard agreements involving price-fixing, rigging of tender bids, market sharing and limitation of output as being by their very nature, restrictive of competition to an appreciable extent and hence will almost invariably infringe the provisions of section 34 of the Act? |
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Price-fixing agreements ensure a certain level of profits for participants by eliminating price competition between them. This distorts competition and reduces choice for those who are buying the goods or services concerned. Rigging of tender bids undermines the fundamental basis of a competitive tenders system aimed at securing the best possible price for a job. Market sharing agreements are essentially ‘turf’ arrangements to limit and reduce competition in certain aspects or areas to benefit participants. Agreements to limit output or production are ‘disguised’ price-fixing mechanisms to reduce supply and thereby enhance participants’ ability to raise prices.
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F) Block Exemptions
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| What is a block exemption? |
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A block exemption is the exemption of a category of agreements from the section 34 prohibition. The CCS may make a recommendation to the Minister (Trade and Industry) on the agreements that qualify for a block exemption and the Minister may issue an order to bring the block exemption into effect.
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| What criteria must a category of agreements meet in order to qualify for block exemption? |
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Agreements should meet the criteria stipulated in section 41 of the Competition Act, namely:
- The improvement of production or distribution; or
- The promotion of technical or economic progress,
while not:
- Imposing on the undertakings concerned restrictions not indispensable to the attainment of those objectives; or
- Affording the undertakings concerned the possibility of eliminating competition in a substantial part of the goods or services in question.
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| I think my agreement should qualify for a block exemption. How do I request for a block exemption? |
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| There is no application process for undertakings seeking a block exemption. The Minister will decide whether to issue a ministerial order to block exempt a category of agreements from the section 34 prohibition based on the CCS’ recommendation.
The CCS will take into consideration the criteria listed in section 41 of the Act when it makes its recommendation. Before making its final recommendation, the CCS will publish details of its recommendation for consideration and consider any representations from interested parties regarding its proposed recommendation.
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| What can I do if my agreement does not qualify for block exemption? |
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If your agreement meets the criteria for net economic benefit in paragraph 9 of the Third Schedule, it will be excluded from the section 34 prohibition by virtue of section 35 of the Act. Undertakings can undertake their own assessment and make a case for net economic benefit.
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| Are there block exemptions for the section 47 prohibition? |
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The block exemption applies only to the section 34 prohibition. There are no block exemptions for the section 47 prohibition.
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G) Trade Associations
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| Do actions of associations fall within the ambit of the Act? |
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| Actions of associations on matters which relate to the commercial activities of their members may fall within the scope of the Act.
The Act is concerned with agreements, decisions by associations of undertakings or concerted practices, which have an appreciable adverse effect on competition in Singapore. Decisions by associations of undertakings, including trade or other associations, can fall within the ambit of the section 34 prohibition, if they have the object or effect of influencing the conduct or co-ordinating the activity of the members in some commercial matter. Decisions of an association can include its constitution, rules and recommendations. Resolutions passed in general meetings, binding decisions of the management or executive committee of the association, or rulings of its chief executive, are also considered ‘decisions’ of the association. Such decisions will generally fall within the scope of the section 34 prohibition, even if they are not binding on members, and may not have been fully complied with.
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| What are the types of activities associations can, or cannot engage in, to avoid contravening the Act? |
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| Trade and other associations generally carry out legitimate functions intended to promote the competitiveness of their industry sectors. However, where the association acts as a vehicle for facilitating collusion or the co-ordination of the actions of member undertakings, this could constitute an infringement of the section 34 prohibition.
You may refer to Annex A of the CCS Guidelines on the Section 34 Prohibition for some examples of decisions, rules, recommendations or other activities of associations of undertakings that may, or may not, appreciably prevent, restrict or distort competition. This table can also be found in Annex A of the CCS Guideline On The Section 34 Prohibition.
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| Can a financial penalty be imposed on an association even if it does not benefit from the anti-competitive activities on the part of its members? |
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| Each case will need to be assessed on its own facts and circumstances. Where there has been an infringement of the section 34 prohibition, the individual members (undertakings) of the association may be subject to a financial penalty if membership coincides with participation in the agreement. Further, it is also the case that where there has been a decision by the association, the association may itself be subject to a financial penalty. The CCS will consider representations before setting financial penalties.
Where the infringement by an association of undertakings relates to the activities of its members, the penalty shall not exceed 10 per cent of the sum of the turnover of business of each member of the association of undertakings in Singapore active on the market affected by the infringement, for each year of infringement, up to a maximum of 3 years.
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| Are price recommendations by trade or other associations considered anti-competitive under the Act? |
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The CCS will be concerned with a price recommendation by trade or other associations if the price recommendation influences or co-ordinates the pricing behaviour of the members such that it removes their ability to independently set price. Whether a price recommendation restricts this independence and amounts to price-fixing will depend on, amongst other things, the nature of the recommendation, the context, and the effects of that recommendation. Much depends on the facts of each case.
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| Where can associations get further information and advice? |
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The CCS Guideline On The Section 34 Prohibition explains the general approach the CCS will take in determining whether agreements, decisions by associations of undertakings or concerted practices, are anti-competitive. Associations may also wish to seek legal advice if they are unsure how they will be affected by the new law.
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H) Dominant Undertakings
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| What is the section 47 prohibition about? |
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Section 47 of the Act prohibits firms with dominant market power (whether in Singapore or elsewhere) from abusing such power in ways that are anti-competitive and work against long term economic efficiency. One example is the use of predatory pricing to prevent a new, more efficient competitor from competing on the merits of its goods and services.
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| What does ‘dominant position’ mean? |
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A dominant position exists when an undertaking has substantial market power. In general, a market share of 60% or above is likely to indicate a dominant position. The determination in a particular case will depend on its facts and circumstances. High market shares alone may not mean that a business has market power as there may be other factors, which act as a constraint. These factors include low entry barriers for the industry, which will enable other businesses to easily enter the market, and the ability of buyers to switch to other products or sources of supply.
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| Will my company breach the Competition Act if it is dominant? |
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Competition law does not prohibit firms from seeking to increase market share by competing on their own merits or having a high degree of market power in the first instance. Competition law only seeks to prohibit firms with dominant market power from abusing such power in ways that are anti-competitive and which work against long-term economic efficiency. Whether a particular conduct amounts to an abuse of dominance will depend on the facts and circumstances of each case.
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| What types of behaviour may be considered an abuse of dominance? |
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The Act gives examples of conduct that may constitute the abuse of a dominant position. They include:
- predatory behaviour towards competitors;
- limiting production, markets, or technical development to the prejudice of consumers;
- applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
- making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of the contracts.
This list is not exhaustive and is for illustration only. It is not necessary for the dominant position, the abuse and the effect of the abuse to be in the same market. More detailed examples of conduct which may be considered to be an abuse of a dominant position are given in the CCS Guidelines on the Section 47 Prohibition .
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