10 July, 2017
On 21 June 2017, the Malaysia Competition Commission (MyCC) granted an extension of the block exemption (BEO) for certain liner shipping agreements, namely:
i. vessel-sharing agreements between liner operators in which the parties agree on the operational arrangements relating to the provision of liner shipping services; and
ii. voluntary discussion agreements between liner operators in which parties exchange and review commercial issues relating to market data, supply and demand forecasts, international trade flows and industry trends, and voluntary and non-binding guidelines within Malaysia, which are entered into in Malaysia or have an effect on liner shipping services in Malaysia.
The extension of the BEO is subject to the condition that the agreements do not contain any element of price-fixing, price recommendation or tariff imposition by any person on transport users. The BEO will commence on 7 July 2017 and operate for a period of 2 years, unless earlier withdrawn by the MyCC.
The MyCC had in 2014 granted a three-year block exemption for liner shipping agreements which is due to expire on 6 July 2017. MyCC's decision to extend the BEO follows an application for the renewal of the block exemption by the Malaysia Shipowners Association and the Shipping Association of Malaysia and public consultation with industry stakeholders and relevant government ministries.
The MyCC's power to grant the BEO is conferred by subsection 8(1) of the Competition Act 2010 (Act) which provides that a block exemption can be granted subject to the cumulative satisfaction of the following conditions:
i. there are significant identifiable efficiency benefits arising from the liner shipping agreements;
ii. the benefits could not reasonably have been provided by the parties to the liner shipping agreement without the agreement having the effect of preventing, restricting or distorting competition;
iii. the detrimental effect of the liner shipping agreements on competition is proportionate to the benefits provided; and
iv. the liner shipping agreement does not allow liner operators to eliminate competition completely in respect of a substantial part of the liner shipping services.
The liner shipping industry remains the first and only industry in Malaysia to receive a formal block exemption under the Act since it came into force in 2012. The grant of the BEO by MyCC to the liner shipping industry is consistent with the approach by other regulators in a number of jurisdictions including Singapore and the European Union.
The extension of the BEO will provide legal certainty to Malaysian liner shipping companies as regards the compatibility of their agreements with Malaysian competition rules. While MyCC's decision to extend the CEO is one that is welcomed by market players, there are still other compliance risks which market players should be mindful of. In particular, the BEO does not exempt or provide immunity in respect of any abuse of a dominant position under the Section 10 of the Act.
MyCC is also expected to closely monitor market developments and conduct of the liner shipping companies to ensure compliance with the conditions under the BEO and remain vigilant as regards any competition law risks which may arise from the implementation of the BEO.
For further information, please contact:
Andre Gan, Partner, Wong & Partners
andre.gan@bakermckenzie.com
