Competition Developments During COVID

The Competition and Consumer Commission of Singapore (“CCCS”) was cognizant of the difficulties and gave businesses greater flexibility in cooperating and coordinating among competitors within certain limits as set out in a Guidance Note on Collaborations between Competitors in Response to the COVID-19 Pandemic. As COVID-19 disruptions become less prevalent and the business landscape has changed in response to these challenges, CCCS has resumed its review and public consultations on regulatory and enforcement matters. These include consultations on potential business collaborations after the expiry of the Guidance Note as well as consultations on block exemption orders for liner shipping agreements.

Acknowledging Benefits can arise from Business Collaborations

With the unprecedented business challenges caused by COVID-19, CCCS issued a Guidance Note to provide businesses with clarity on collaborations between competitors that would otherwise have been some form of collusion or coordination and infringed the Competition Act. For collaborations that were put in place from 1 February 2020 and expiring by 31 July 2021 that sustain or improve the supply of essential goods or services in Singapore, which are limited in scope and time and do not involve price-fixing, bid-rigging, market sharing or output limitation, CCCS would assume such collaborations would likely generate net economic benefits, and thus unlikely to infringe the Competition Act and not subject to investigation by CCCS.

In reviewing the prevailing market sentiment and rapidly changing business conditions, CCCS noted that businesses had to adapt rapidly and may desire to collaborate with one another on their own or through trade associations beyond the challenges presented by covid-19, and beyond the supply of essential goods or services. CCCS recognised there would be collaborations that would be pro-competitive or generate net economic benefits, and such collaborations should be encouraged. With the expiration of the Guidance Note, CCCS sought public comments on a proposed Business Collaboration Guidance Note that would clarify CCCS’ position on six common types of business collaborations and how CCCS would assess such collaborations for compliance with the Competition Act.

The six business collaborations include:

i) Information sharing – Exchange of both price and non-price information among businesses;
ii) Joint production – Collaboration to jointly produce a product or subcontract production out;
iii) Joint commercialisation – Collaboration in the selling, distribution or promotion of a product;
iv) Joint purchasing – Collaboration to jointly purchase from one or more suppliers;
v) Joint research & development – Collaboration on R&D, such as joint investment; and
vi) Standardisation – Setting of industry or technical standards by standard setting organisations as well as the usage of standard contractual terms.

This is a promising development and reflects at least an acknowledgement of changes in how businesses operate in the current economic climate.

Block Exemption Order for Liner Shipping Agreements

The Block Exemption Order for Liner Shipping Agreements (“BEO”) is the only block exemption order in force in Singapore. The BEO was first granted in 2006 and subsequently extended in 2010 and 2015. The BEO was due to expire on 31 December 2020 but was extended for a year to 31 December 2021 without consultation due to uncertainties brought about by COVID-19. From 14 July 2021 to 4 August 2021, the CCCS conducted a public consultation exercise to seek feedback on the proposed 3-year extension of the BEO from 1 January 2022. The public consultation has closed and a decision on the extension of the BEO is pending.

Following surveys with key industry stakeholders such as industry associations, industry players and public sector agencies, as well as market and international regulatory developments, CCCS formed the view that the liner shipping agreements covered by the BEO generate net economic benefits as recognised under the Competition Act. The liner shipping agreements covered by the BEO are:

i) Vessel sharing agreements for liner shipping services; and
ii) Price discussion agreements for feeder services.

Net Economic Benefits from Vessel Sharing Agreements for Liner Shipping Services

In reviewing vessel sharing agreements, CCCS formed the opinion that:

i) They improve the production of liner shipping services in Singapore, improving the connectivity of Singapore’s port and enhancing competition among liners;
ii) The restrictions under vessel sharing agreements are maintained at the narrowest necessary for the attainment of the economic benefits and are directly related to the operation of vessel sharing agreements, absence of such restrictions is expected to eliminate or greatly reduce the efficiencies that flow from the vessel sharing agreements;
iii) Individual private contracting is still common practice in the industry and a BEO for Vessel Sharing Agreements is unlikely to confer considerable market on any liner(s) or eliminate competition in a substantial part of liner shipping services.

Accordingly, CCCS formed the view that the conditions set out in the Act for a BEO for Vessel Sharing Agreements for liner shipping services are satisfied.

Net Economic Benefits from Price Discussion Agreements for Feeder Services.

CCCS reviewed price discussion agreements for feeder services and formed the opinion that:

i) Although main lines have largely withdrawn from price discussion agreements, such agreements still remain relevant to feeders;
ii) Feeders continue to attract and anchor main lines to Singapore, expanding Singapore’s shipping network, generating considerable benefits to Singapore directly and indirectly, including providing a higher degree of connectivity and service choice for Singapore’s importers and exporters;
iii) Price discussion agreements allow feeder services allow members to have individual confidential service arrangements with their customers and to withdraw from the agreement without penalty, and do not impose obligations on members to adhere to the agreed or recommended prices or disclose confidential information on their service arrangement;
iv) Individual private contracting remains a common practice in the industry and rates that are charged to main line customers are subject to bilateral negotiations between feeders and their main line customers. Anti-competitive effects from the use of such price discussion agreements appear to be limited as surcharges imposed by feeders are still subject to negotiation with main lines who are likely to possess bargaining power.

CCCS formed the view that the conditions set out in the Act for a BEO for Price Discussion Agreements for Feeder Services are met.

Block Exemption Orders in Singapore

The Minister is empowered under Section 36 of the Competition Act to make a block exemption order, following CCCS’s recommendation, to exempt certain categories of agreements from the section 34 prohibition. The categories of agreements must fulfil the net economic effect criteria set out in Section 41 of the Act; that they contribute to (i) improving production or distribution, or (ii) promoting technical or economic progress, without imposing undue restrictions, or possibly eliminating competition in respect of a substantial part of the goods or services in question.

For more information, please contact Sandra Seah, Chelsea Chan or Jonathan Kao

This article is produced by our Singapore office, Bird & Bird ATMD LLP, and does not constitute legal advice. It is intended to provide general information only. Please note that the information in this article is accurate as of 21 October 2021. Please contact our lawyers if you have any specific queries.