Throwing a Competition Law Spanner in The Automobile Industry
As if ‘open season’ has been declared in recent months, competition regulators around
the world have been busy imposing fines and penalties against manufacturers and
suppliers in the automobile sector. Least to say, 2014 has not been a good year
for the industry thus far.
Price fixing cartel and abuse of dominant position
In August 2014, the National Development and Reform Commission
(“NDRC”) - the Chinese competition law watchdog - has fined twelve Japanese
businesses[1] approximately 1.24 billion yuan (around US$201 million) for price
fixing and engaging in anti-competitive conducts in the markets for the
manufacturing and supply of car parts and automotive bearings. The NDRC’s
investigation into the car parts industry unearthed an illegal alliance or
cartel that operated in breached of China’s Anti-Monopoly Law by exchanging
information on prices and customer quotations at a number of bilateral and
multilateral meetings over a ten-year period.
Barely 2 weeks after the
NDRC’s press release, the Competition Commission of India slapped a combined
fine of 2,500 crore (approximately US$420 million), or equivalent to 2% of the
carmakers’ three-year average turnover in India, on fourteen carmakers[2]. This
decision was made following their investigation into complaints that the genuine
automobile spare parts manufactured by the car manufacturers are not made
available to all workshops in the open market. The repair, maintenance and
servicing of automobiles could only be carried out at the designated workshop or
service stations of the authorised dealers. These concerted practices
effectively created a monopoly over the supply of genuine spare parts and
repair/maintenance services. Consequently, it would have the effect of
indirectly determining the prices of the spare parts, repair and maintenance
services. In delivering the decision, the Competition Commission of India
expressly cautioned that the decision was aimed at providing “more freedom to
Original Equipment Suppliers in sale of spare parts, and more choice to
consumers and independent repairers.”
International cartel and cross border regulators enforcements
Apart from the Chinese and Indian examples
above, there are several on-going and completed investigations and cases
involving car parts manufacturers spanning across the European Union, Japan and
the United States in which automobile cartels and anti-competition activities
are slowly being brought to light. In Singapore, the Competition Commission of
Singapore (“CCS”) in May 2014 has issued an infringement decision against the
same Japanese manufacturers[3] found to have violated the Chinese Anti-Monopoly
Law (and their respective Singapore subsidiaries) for engaging in
anti-competitive agreements and unlawful exchange of information in respect of
the price and sale of ball and roller bearings sold to aftermarket customers in
Singapore.
Business behavioural change – a solution?
In light of anti-competition concerns, Coca Cola Singapore Beverages in Singapore has taken
pro-active measures to voluntarily amend its supply agreements to remove any
potentially restrictive provisions in the agreements with on-premise retailers,
such as exclusivity conditions and conditional rebates after the CCS commenced
its investigation. In exchange for Coca Cola Singapore Beverages’s undertaking,
the CCS has ceased the investigation.
On the verge of being exposed and
with the competition authority close on their heels, some of these cartelists
would naturally choose to co-operate with the authorities by not only admitting
to the misconduct but also volunteering information on the operations of the
cartel in question in exchange for leniency in the form of reduced penalties.
However, there are times where voluntary change of business behavior or
cooperation would not attract sympathy from the regulator. NDRC’s investigators
raided a Mercedes-Benz office - a unit of German auto giant Daimler - in
Shanghai, questioned their employees and inspected their computers for price
manipulation despite of Daimler’s effort to pacify the NDRC by reducing prices
on their spare parts prior to the raid.
Competition Act 2010
In the local front, price fixing cartel and abuse of dominant position are similarly
prohibited under sections 4 and 10 of the Malaysian Competition Act 2010 (“CA
2010”).
While competition law is still in its infancy in Malaysia, there
is still very much a cause for concern for the automobile players in Malaysia
because competition authorities can undertake various forms of cooperation at
regional or international level in investigation and enforcement activities.
Under section 39 of the CA 2010, the Minister of Domestic Trade, Cooperative and
Consumerism may direct the Malaysia Competition Commission (“MyCC”) regarding
interworking arrangements between the MyCC and any other authorities in a
foreign jurisdiction or any international organisation. Section 21(2)(e) of the
CA 2010 allows MyCC to disclose confidential information to any competition
authority of another country in connection with a request by that country’s
competition authority for assistance.
Concluding remarks
The international crackdown on anti-competition conducts in the automobile industry
should be a wake-up call for companies in Malaysia to disassociate themselves
from any form of anti-competitive behaviour, particularly those in the markets
highlighted by the competition authorities as under scrutiny. For businesses
with presence in multiple jurisdictions, compliance becomes challenging when
each jurisdiction has its own set of competition law. Assessment exercise and
reconciliation effort are especially required when in one jurisdiction it is not
a contravention but in another jurisdiction it is.
Nicole Leong
Senior Associate
+603 2050 1918
This email address is being protected from spambots. You need JavaScript enabled to view it.
[1] Mitsubishi
Electric, Mistuba, Aisan, Sumitomo, Yazaki, Furukawa, Denso, Hitachi, JTEKT,
NTN, NSK and Nachi-Fujikoshi Corp. Hitachi and Nachi-Fujikoshi Corp. benefited
from the immunity regime as they the first company to have reported the conduct
to the NDRC. [2] Honda Siel Cars India Ltd., Volkswagen India Pvt Ltd., Fiat
India Automobiles Ltd., BMW India Pvt. Ltd., Ford India Pvt. Ltd., General
Motors India Pvt. Ltd., Hindustan Motors Ltd., Mahindra & Mahindra Ltd., Maruti
Suzuki India Ltd., Mercedes-Benz India Pvt. Ltd., Nissan Motor India Pvt. Ltd.,
Skoda Auto India Pvt. Ltd., Tata Motors Ltd. And Toyota Kirloskar Motor Pvt.
Ltd. [3] JTEKT, NTN, NSK and Nachi-Fujikoshi Corp