Cartels redefined

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PETALING JAYA: The decision by the Competition Appeal Tribunal (CAT) in redefining price-fixing agreements or cartels could potentially have a far-reaching impact across various industries.

The tribunal had found that the setting of minimum hourly labour rates and trade discounts on automotive part prices, as in the arrangement between Persatuan Insurans Am Malaysia (PIAM) and the Federation of Automobile Workshops Owners’ Association of Malaysia (FAWOAM), does not tantamount to price-fixing.

PIAM had argued that the arrangement was put in place to resolve the protracted dispute between insurers and repairers over spare parts trade discounts and labour rates, which had adversely affected consumers.

A source said the decision on Sept 2 provided clarity on section four of the Competition Act 2010.

“The decision shows that not all types of arrangements are to be considered as price-fixing or cartel formation.

“The decision also shows that section four must be interpreted purposively, rather than literally as was done by the Malaysia Competition Commission (MyCC).

“The legal development will definitely have an impact on other industries, especially in cases similar to PIAM’s arrangement with the workshop federation,” the source said.Section four refers to anti-competitive agreements formed by the industries.

According to the section, “a horizontal or vertical agreement between enterprises is prohibited insofar as the agreement has the object or effect of significantly preventing, restricting or distorting competition in any market for goods or services”.

“MyCC took a very literal view of section four, and even Bank Negara had said previously that it regretted MyCC’s decision.

“The arrangement between PIAM and FAWOAM was facilitated by Bank Negara,” the source said.

The source further added that the CAT’s decision would provide more leeway for pro-competitive arrangements in the industries, moving forward.

Two years ago, the MyCC had found that PIAM and 22 general insurers had infringed section four of the Competition Act 2010, following the arrangement on the minimum hourly labour rates and spare part prices for six commonly used vehicles, namely Proton, Perodua, Naza, Nissan, Toyota and Honda.However, on Sept 2, the CAT had unanimously set aside the decision by the MyCC.

The three-member tribunal found that MyCC had committed a “fundamental error” in its findings on law and facts.

In its grounds of decision, the CAT questioned how the agreement between PIAM and FAWOAM would significantly prevent, restrict or distort competition in the market for labour costs.

“If the insurers are viewed as the consumer (the parties paying for the spare parts), why would the consumers want to set a minimum payment of RM30 per hour for the labour costs? The insurers are saying we guarantee paying you a minimum of RM30 for every hour of labour costs, or even more.

“This tribunal could not see how the fixing of the minimum labour rate would significantly prevent or restrict or distort competition in the market for labour costs,” it wrote.

Following the tribunal’s decision, the financial penalties imposed on the insurers in all amounting to an aggregate quantum of penalty of RM173.66mil was consequently set aside. The aggregate quantum of penalty excludes a 25% reduction in light of the unprecedented Covid-19 pandemic.

PIAM was represented by Khoo Guan Huat of Skrine and Shanthi Kandiah of SK Chambers.

PIAM is the national trade association of licensed direct and reinsurance companies for general insurance in Malaysia.

PIAM has 25 member companies.