The Cambodia Competition Commission (CCC) – the governing body in charge of enforcing the recently enacted Cambodia’s Law on Competition – has yet to be formed but discussions are already taking place concerning the potential impact of the law.
Businesses may not need to worry just yet, according to a panel of experts who offered their insights at a discussion hosted by EuroCham Monday, but uncertainty surrounds exactly how violations of the law will be handled.
One of the biggest challenges, according to regional legal expert David Fruitman, is how the yet-to-be-formed CCC will define a dominant market position, something prohibited in the law in certain circumstances.
The law reads: “Dominant market position means a situation in which a person has the power to act in a market significantly without any effective constraint from other competitors.”
Fruitman said looking at market share to establish a definition of market dominance is only a small piece of the pie.
“You could have a monopoly or 80 percent [share of the market] where there are low barriers to entry… If someone tries to exercise market power, more competition would enter. Determining whether market power exists is not just a question of market share. There’s a market analysis that has to be done.”
Fruitman said healthy business competition — which the law is attempting to achieve — rewards consumers because businesses know they have to compete by keeping quality high and costs reasonable. If a company can act without these market restraints, anti-competition punishments could be levied.
Concerning Cambodia Law on Competition, it is unknown where the line will be drawn when considering whether a business acted in an anti-competitive manner or not.
The Four Dont’s of the new Cambodia Law on Competition
In addition to abuse of dominant market positions, horizontal agreements, vertical agreements, and certain business combinations are also banned.
Horizontal agreement violations occur when companies on the same level of distribution collude to control prices or manipulate the development or availability of goods.
According to Virakoudom Penn, the deputy director of the Competition Department at the Consumer Protection Competition and Fraud Repression Directorate-General (CCF), this also includes dividing customer bases geographically, allocating customers between competitors, or favoring certain bidders in contracts.
Vertical agreement violations occur when a company manipulates the sales of goods to purchasers and resellers. Violations include forcing purchasers to resell goods only in certain areas, forcing purchasers to buy additional goods without reason, or preventing sellers from selling to certain purchasers.
Business combinations, or mergers, are prohibited if they significantly affect the healthy competition between businesses in a given sector.
Per se vs. Rule of Reason Offences
Fruitman made a distinction between “per se” offenses, when an act in itself is considered illegal, and “rule of reason” offenses, where an in-depth analysis must occur to gauge intention, cause, and effect.
All horizontal agreements are considered illegal. Setting minimum resale prices is another per se offense, while vertical agreements and abuses of dominance fall under the rule of reason.
As far as market dominance, Fruitman said a company may have an idea if it is dominant or not but would need to internally analyze its operations and look at the market to assess whether it was engaged in anti-competitive acts.
Selling goods at a lower price than they cost to produce is one potential indicator of abuse of market dominance and Matthew Tippetts, EuroCham’s ICT Committee chairman, said this practice exists in certain sectors in the Kingdom.
“We can look at a lot of financial services or mobile e-commerce delivery companies who are all losing a lot of money, and where these markets have very large players with a lot of smaller players competing against them,” he said.
“You could imagine that this law will help have a fairer competition across those players especially when it comes to selling below cost.”
He added that selling products under cost would only be a problem if market dominance was established.
“The key is really whether there is market dominance and that will be the difficult part. It’s easy to be under cost when you sell for free, it’s whether you are dominant, in which case then there could be abuse,” he said.
Distribution companies also figure to be especially impacted by this law, as they are inherently involved in vertical and horizontal agreements with other companies.
Etienne Chenevier, the partner and director of CityStar Private Equity Asia, said he has not witnessed potential violations of the new law in Cambodia, but that distribution companies in the Kingdom will have to be careful in the future regarding their contracts.
Tackling the technical aspects of Cambodia’s Law on Competition
Reflecting international standards, agreements need not be signed contracts under this new law, and can include almost any coordinated activity between two companies, Fruitman said.
If there’s coordinated activity or any type of communication, these actions could be legally prosecuted. As an example, Fruitman said one company might publicly announce a price increase on a product with the knowledge that competitors will do the same, possibly creating a violation.
“Cambodia has wisely chosen to accept that there are areas of business practice where there may not be a formal agreement but which may have a detrimental effect on competition and this is something that businesses have to be concerned about,” he said.
The technical aspects and regulatory implications of the new law are issues that will need to be worked out over time, the panel agreed.
As EuroCham advocacy manager Noë Schellinck mentioned, countries in Europe have had competition laws in place for decades but consultants are still needed to sift through them.
“Competition laws have evolved over the last 50 to 60 years there and still we are training companies on what you can and cannot do under the competition law. It’s an area which is heavily dominated — especially the vertical side — by lawyers because it is particularly technical,” he said.
His Excellency Phan Oun, the deputy director-general at the Ministry of Commerce, said Cambodia would take cues from international standards, consultants, and industry players to develop and constantly improve its policies as it proceeds with implementing the law.
He added that a forthcoming set of decrees and prakas will begin to shed more light on how the law would be enforced.
Penn, the CCF deputy director, said work is already underway, including the preparation of enforcement tools with the support of German development agency GIZ. A national advocacy program planned for 2022 will help raise awareness of the new law as well, he added.
Cambodia was the last of the 10 ASEAN states to enact a competition law, which it did on October 5, 2021.