TRUSTEES (AMENDMENT) BILL

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TRUSTEES (AMENDMENT) BILL: Order for Second Reading read.

The Deputy Prime Minister and Minister for Law (Prof. S Jayakumar): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

Sir, the present Bill is the result of an extensive review to update and modernise our Trustees Act. The review is part of our broader objective to enhance Singapore's position as a leading financial and wealth management centre.

The present Trustees Act, when first enacted, was to provide essentially a legislative framework for domestic trusts. However, if we are to succeed in enhancing Singapore's position as a leading financial and wealth management centre, it is essential that we modernise our Trustees Act to be in tune with current developments in trust law and the application of trusts in financial and business transactions in the commercial world. It will enable our banks to provide a full range of banking products and services using trust concepts to sophisticated high net worth individuals from around the world. A vibrant onshore private banking market will enhance Singapore's reputation as a wealth management centre, anchor foreign private banking operations here, and broaden and deepen our financial and capital markets.

In the review leading to this Bill, the Ministry of Law and the Monetary Authority of Singapore conducted extensive consultations. We received feedback and suggestions from investment advisers and managers in the trust industry, the Law Reform Committee of the Academy of Law, the Law Society of Singapore, experts from the NUS Law Faculty, and relevant Government agencies.

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Sir, trust law can have wider application and be more versatile than commonly appreciated. Trusts are not confined just to wills and family settlements. They also have considerable and increasing relevance to global investments and to the management of private capital and savings. Trusts are able to separate ownership from management and create different levels of beneficial ownership of assets that provide the desired flexibility in the management, control and ultimate distribution of private wealth. They can also provide a degree of confidentiality that is desirable for the preservation and protection of private wealth. High net worth individuals favour private trusts for a variety of uses, for example, to provide for incapacitated persons, to protect family and property from spendthrifts, and to manage the centralisation and coordination of worldwide assets. Indeed, a recent Business Times' article reported that more Singaporeans, and not just high net worth individuals, are considering putting their assets into trusts.

Our legislation on the law of trusts has not kept pace with the developments in other countries that have seen an increasing use of the trust institution to manage private wealth, especially in the area of trustees' powers and duties. Trustees' powers are normally provided for in the trust instrument, but equally important are the default powers provided by statute. Under the present law, these default powers are geared to the management of traditional domestic trusts rather than "international trusts" that deal with worldwide assets. They are too conservative and do not provide for the sophistication and flexibility that are required for modern and international trusts. This is especially so in the global investment and financial markets of today, where conditions change rapidly, and it is not possible for a trustee to possess all the required expertise and

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experience to effectively perform all the functions personally.

Sir, let me explain some of the main changes.

One major change that this Bill seeks to introduce is the expansion of the discretionary powers of trustees, to enable them to manage trust assets in the most effective way, for the benefit of the trust. This will be achieved through various reforms, including the conferment of a general power of investment, and the power to appoint agents, nominees and custodians.

Sir, under the current Trustees Act, a trustee can only invest in accordance with a list of authorised investments set out in the Act, unless the trust instrument expressly provides otherwise. While this approach may have assisted trustees in the past, it unduly restricts them from optimising investment opportunities, especially in today's financial market where conditions change rapidly. It could also result in a false sense of security and lower the standard of care in the determination of suitable investments for the purposes of the trust. We should leave investment decisions to suitably advised trustees. This Bill therefore repeals the list of authorised investments and a trustee can now invest as he would his own funds.

At the same time, there will be safeguards to ensure that trustees adhere to certain minimum prudential standards when they exercise their trustee powers. A duty of care will be defined for trustees when they carry out specified duties or acts. In certain circumstances, for example, in making investment decisions, they will be required to obtain proper advice.

On other changes, most of the amendments sought to be made by the Bill are highly technical in nature and I do not intend to dwell on each of them at

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length. But let me highlight some of the other more significant changes to the Act.

First, the validity of certain trusts. Clause 21 inserts a new section 90 which seeks to provide certainty on the validity of dispositions of movable property by a foreign person into a Singapore trust, ie, a trust subject to Singapore law. This is a desirable feature to give certainty to the settlor's intentions as the validity of such dispositions by a foreign settlor may otherwise be governed by the law of his domicile which may have given a different outcome to that he had intended when setting up the Singapore trust. This section will provide certainty by specifying statutory rules to determine the capacity of the foreign person to create the trust or transfer the property to be held on trust.

For example, some civil law countries have rules that restrict an individual's freedom to dispose of his assets during his lifetime. In pursuing their own policies, these countries may apply these rules even when the assets in question are validly transferred under the law of the country that the assets are situated. Section 90 will provide certainty as to the validity of such transfers into Singapore trusts. This is achieved by recognising the individual as having the required capacity to transfer the property if the transfer is valid under Singapore law, his own personal law, or the law governing the transfer. Sir, this is not an unusual provision for even non-civil law jurisdictions have a similar provision such as that found in the Labuan Offshore Trusts Act of 1996, a Malaysian legislation.

Next, on accumulation of income and fixed perpetuity period, clause 24 will make significant changes to our laws on the accumulation of trust income and the perpetuity period. These changes are

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effected under the Civil Law Act as the rules are not confined to trusts. These amendments will simplify the law in this area and, at the same time, bring certainty to the periods of time within which income from trusts may be accumulated and future trusts may be validated.

Let me say that in the context of the Trustees Act, trustees of new trusts will be able to accumulate trust income for the duration of the trust. This is currently not allowed and trust income may only be accumulated for prescribed periods. Sir, the principle against the excessive accumulation of income dates back to the 1800 UK Accumulations Act and it has been heavily criticised as having no relevance today. Many states in Australia, Canada and the United States have abolished this archaic rule. In the UK, the Law Commission has also recommended the abolition of this rule.

Next, the Bill will reform a complicated common law rule that requires future interests in property to vest within a "perpetuity period", if they vest at all. The period is measured by reference to "lives in being" plus 21 years at the relevant time. There are complicated rules for determining the relevant lives. Sir, not only is this rule complicated for lawyers and judges, it can frustrate the intention of the person creating the trust. For example, a gift is void if it might vest outside the relevant period of time, and a party other than the intended beneficiary may then become entitled to the property.

In our consultations, there was overwhelming support for the replacement of the common law perpetuity period with a fixed period. This Bill therefore will replace the common law way of determining perpetuity period with a maximum fixed perpetuity period of 100 years for new trusts.

Sir, with expanded investment powers for trustees, and the repeal of the

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authorised investment list, there is no longer a need for unit trust schemes to be authorised under the Trustees Act. The Bill therefore abolishes the existing authorised unit trust scheme and any order that was made declaring a scheme to be an authorised unit trust scheme shall cease to have any effect. But let me stress and clarify that the revocation of the "authorised" status under the Act does not in any way diminish the investment value of these unit trusts.

Let me now touch on clause 25 which will make related and consequential amendments to the investment powers of more than 50 statutory bodies. Currently, Sir, the investment powers of statutory bodies may vary, depending on when they were established. Older provisions are more conservative, and tend to be linked to the Trustees Act, which means that the statutory bodies have to invest according to the list of authorised investments under the Act. With the expansion of the trustee's investment powers, and the abolition of such a list, we have reviewed the position. The Bill now generally seeks to align the investment powers of statutory bodies with a standard provision that gives them sufficient flexibility and autonomy to make their own investment decisions under the oversight of their supervising Ministers.

In conclusion, Sir, let me say that my Ministry was greatly assisted by the very constructive and useful comments given by those who responded to the consultation exercises that we conducted. These changes through this Bill will strengthen our legal framework for trusts, and help to further enhance our attractiveness as a financial centre for wealth management.

Sir, I beg to move.

Question proposed.

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Mrs Fang Ai Lian (Nominated Member): Mr Speaker, Sir, I would like to support the Trustees (Amendment) Bill. I would just like to make a few comments.

About three years ago, the Economic Review Committee identified wealth management as an area of potential growth for Singapore in terms of our financial services industry. And it also recommended that the legislation be updated because it is really quite old, going back to the 1920s, and it has not been significantly revised since that time. So the Trustees (Amendment) Bill is quite welcome by the financial services industry. It is a very important industry, it is vibrant. It is constantly innovating and evolving and also it is getting more complex by the day. So the law is always having to catch up with it, so to speak. But that said, we cannot avoid the pace of change and, indeed, we got to respond with changes because it will send a very important signal to the financial services community that we are serious to develop Singapore as an important centre for wealth management and other services.

More importantly, as DPM has said, we are serious about our efforts in developing a modern trust jurisdiction. But messages do take time to filter through and we have just got to constantly keep at it, and indeed the Trustees (Amendment) Bill is just the second in a series of measures taken to develop Singapore as a jurisdiction for asset management. In the 1990s, we introduced tax exemption for foreign trust on approved basis, and in 2002 we improved this tax treatment by taking away the pre-approval requirement. This is a very important policy shift and it shows that a favourable tax treatment is a very important consideration for settlors of trust in deciding where to locate their trust management. But, here I would like to say there is a certain bias against trusts which are set up for Singapore citizens

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and residents because the favourable tax exemption is not accorded to these trusts and I wonder whether this bias could be removed because it does not make sense that we should be taking charge of other people's assets when we are not doing so for our own.

Another important consideration for settlors of trust is that of the quality of legislation and DPM has touched on it. This has got to be constantly updated so that it is in sync with the best practices in terms of asset management, and indeed the Trustees (Amendment) Bill has removed all the constraints relating to investments, except that there is no longer a list of the sort of investments you ought to make and this really frees up the trustees in terms of creativity and professionalism. Now they could fully follow the best practices in terms of portfolio management.

I would like to commend this special new section, which is about the duty of care on the part of trustee, because now "professionalism" is mandated. I also like to commend all these changes made, the clarifications made in terms of custodians, agents and so on and also remunerations of trustees and reimbursements of expenses. The rule change in terms of accumulations is also welcomed. The trustees could now either fully accumulate or partially accumulate over the life of the asset of the trust. The perpetuity period is great in terms of modernising our language. Very few people understand what is life in existence plus 21 years and also the removal of reference to King George V and VI. The bottom-line is that it has removed a lot of uncertainties and I think it is very welcomed. But I think there is still work-in-progress in terms of the Trust Companies Act. Here again, the financial services industry is waiting for that to be reviewed too.

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As I said earlier on, this industry is fast evolving and there remain quite a few issues which need to be addressed. Firstly, it is the area of the single purpose trust. This is a new innovation and could be very useful in terms of asset securitisation, in terms of company ownership. I think this would partially address the whole issue of trustee liability and also in terms of non-charitable trust relating to sports and also employees. But, having said that, there are limits and also risks associated with this purpose trust which are now not fully understood and really my comment here is for the Ministry to continue to monitor the utility of these concepts and have these quickly implemented when they are more fully understood.

Another area which is receiving the attention internationally is that this whole area of reservation of powers of settlors pertaining to investments has been addressed, but there are other powers of settlors, such as the validity of trusts when you have a structure which might be construed as a nominee arrangement, that need also to be addressed. My comment here is that the dialogue with trustees and practitioners should be continued so that they could be fully reviewed and implemented at a suitable time.

So I would like to close by saying that it is important that the dialogue continues and DPM has said that extensive consultation has been done because this is important to move the industry forward and openness of ideas and input from those who are responsible for the development of this industry would send a strong signal to the international fiduciary community that we want a respectable and reputable centre for wealth management.

I support the Bill.

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Prof. Jayakumar: I would like to thank the Member, Mrs Fang Ai Lian, for her strong support of the Bill. I agree with her that this is an area that is constantly changing and evolving and would like to assure her that we would continue to monitor and, wherever necessary, come to Parliament with further changes and modifications to our laws.

She touched on some specific issues. First was her point about exemption of income tax on foreign trusts. She felt there was some bias which works to the disadvantage of Singapore citizens. Of course, this is really outside the scope of the Bill that I took through just now, but I have taken note of it and I will discuss it with my colleague, the Minister for Finance, so that he can consider it. But, having said that, let me also say that from what I understand, the objective of the tax exemption scheme for foreign trusts was to encourage the trust companies and banks to offer international trust administration services from Singapore. My understanding is that the foreign trust probably would not have been administered from Singapore if not for the tax exemption. The scheme was, therefore, focused on the administration of foreign trusts rather than administration of trusts set up by Singapore citizens or resident individuals. But, nevertheless, let me assure her that the Government would constantly monitor developments in the trust industry and would review policies to ensure that Singapore retains our competitive edge as a financial centre. I believe that the Ministry of Finance would also be reviewing the tax treatment of trusts set up by Singapore citizens or resident individuals.

She also mentioned the Trust Companies Act. She is right in that this is work-in-progress. I understand that the MAS and the Ministry of Finance are currently creating a new regulatory framework for trust companies, including a new Trust Companies Act, to increase

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legal clarity and guidance for trust companies in Singapore. MAS, which released the draft Trust Companies Bill for public consultation in July this year, would also take over the administration of trust companies from the Accounting and Corporate Regulatory Authority. Policy positions, I believe, are now being finalised and I understand that the updated legislation is scheduled for First Reading in Parliament sometime in January 2005.

She also touched on single purpose trusts and also non-charitable purpose trusts and the reservation powers of settlors. Let me say that in our review, we did consider the specific areas that she mentioned, but many issues that arise, especially from non-charitable purpose trusts and settlors' reserve powers, are matters which require careful study and we also need to see how other jurisdictions handle them and what has been their experience. We thought that this is a matter that we would not put in this Bill now and make a determination much later after we have had the opportunity to study the experiences of other countries. Having said that, let me point out that we have accepted recommendations to make it clear in this Bill that if a settlor reserves to himself powers of investment of asset management, then that in itself would not invalidate the trust. This is reflected in clause 21 under a new section 90(5).

Finally, let me assure again the MP that this Bill is not the end of the review process and we would continue to monitor and study the best international practices and developments as we take into account future changes to our law.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Prof. S Jayakumar].

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Bill considered in Committee; reported without amendment; read a Third time and passed.

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COMPETITION BILL: Order for Second Reading read.

The Senior Minister of State for Trade and Industry (Dr Vivian Balakrishnan): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

Sir, competition is a key tenet of Singapore's economic strategy. Market competition spurs firms to be more efficient, innovative, and responsive to consumer needs. Consumers would enjoy more choices, lower prices, and better products and services. The economy as a whole benefits from greater productivity gains and more efficient resource allocation. Therefore, wherever appropriate, Singapore has opened up sectors of the economy to market competition.

In February 2003, the Economic Review Committee (ERC) noted that whilst we have rules against anti-competitive behaviours in specific sectors like energy and telecommunications, there is no generic competition law that covers all sectors. It thus recommended that a generic competition law be enacted to create a level playing field for businesses, big and small, to compete on an equal footing. This will make for a more conducive business environment.

The Government accepted the ERC's recommendation, as competition law will help to reinforce our pro-enterprise and pro-competition policies, enhance the efficiency of our markets, and strengthen our economic competitiveness.

MTI subsequently studied the competition legislation of various jurisdictions, including the UK, Australia, Ireland, the United States and Canada. It also held two rounds of public

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consultations on a draft Competition Bill in April and July this year, and conducted several briefings for businesses through the Singapore Business Federation.

The Bill before the House is largely modelled on the UK's Competition Act 1998. The Bill adopts international best practices, and yet takes into account our specific economic characteristics and requirements, in particular, the fact that we are a small open economy. It also incorporated relevant feedback and suggestions from the public consultation exercises. I would like to thank everyone who provided feedback during these exercises.

Sir, the objective of the Bill is to promote the efficient functioning of our markets and hence enhance the competitiveness of our economy. The Bill seeks to prohibit anti-competitive activities that unduly prevent, restrict or distort competition. We recognise that any regulatory intervention in the market may impose costs.

Therefore, we need to balance regulatory and business compliance costs against the benefits from effective competition. Instead of attempting to catch all forms of anti-competitive activities, our principal focus will be on those that have an appreciable adverse effect on competition in Singapore or that do not have any net economic benefit. In assessing whether an action is anti-competitive, we will also give due consideration to whether it promotes innovation, productivity or longer-term economic efficiency. This approach will ensure that we do not inadvertently constrain innovative and enterprising endeavours.

Establishment of a new statutory body and prohibited activities

Parts I and II of the Bill establish a new statutory body, the Competition

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Commission of Singapore. This Commission will administer and enforce the competition law. Part III sets out the three main prohibited activities under the Bill.

First, anti-competitive agreements, decisions and practices. Clause 34 of the Bill prohibits agreements, decisions and practices which prevent, restrict or distort competition in Singapore. These include agreements between competing firms to fix prices, reduce the quantity of the goods and services sold, or to share markets. The provisions of any agreement or any decision that infringes this prohibition will be rendered void on or after the date the section 34 prohibition comes into force to the extent of the infringement.

Clause 36 empowers the Minister to make an order, following the recommendation of the Commission, to exempt certain categories of agreements from this prohibition. This is provided that they improve production or distribution, or promote technical or economic progress, without imposing undue restrictions or substantially eliminating competition.

Second, abuse of a dominant position. The Bill does not prohibit dominance or substantial market power per se - firms can continue to increase market power through offering cheaper or more innovative products. However, clause 47 prohibits firms from abusing market power in ways that are anti-competitive and which work against the long-term economic efficiency, eg, predatory behaviour towards competitors.

Third, mergers and acquisitions which substantially lessen competition. Sir, not all mergers and acquisitions (M&As) have anti-competitive effects. Being a small

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open economy, highly-concentrated markets are sometimes inevitable in Singapore. Thus, only M&As which substantially lessen competition and have no offsetting efficiencies are prohibited under clause 54. Firms are not mandated to seek approval or to notify the Commission of any merger, but those that wish to seek the Commission's guidance or decision can do so on a voluntary basis under clauses 57 and 58.

For mergers involving public interest considerations, clause 58 provides that the Minister will decide whether such matters may be exempted from this prohibition. The Minister's decision is final.

Clause 61 provides that the Commission may publish guidelines on how it will interpret and give effect to the provisions of Part III of the Bill. The Commission will set out its analytical framework and implementation approach in its guidelines, which will enhance transparency and give businesses greater certainty. As a practice, the Commission will conduct public consultation before finalising its guidelines.

Let me move on to the scope of application. The Bill will apply to commercial and economic activities carried on by private sector entities in all sectors, regardless of whether the undertaking is owned by a foreign entity, a Singapore entity, the Government or a statutory body. However, as the intent of competition law is to regulate the conduct of market players, it will not apply to the Government, statutory bodies or any person acting on their behalf.

As a small open economy, we are vulnerable to anti-competitive activities from entities operating overseas. Consequently, clause 33 thus provides for the extra-territorial effect of this competition law.

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Clauses 35, 48 and 55 exclude matters or mergers specified in the Third and Fourth Schedules from the prohibitions of the Bill.

Some of these are based on public interest considerations such as national security, defence and other strategic interests. The other exclusions are for sectors or activities which already have sectoral competition frameworks. These sectors are in transition from a previously monopolistic situation to a more competitive environment today. And in such circumstances, more active market regulation and intervention is needed. Moreover, there are considerable technical matters affecting competition in these areas. Hence, the sectoral regulators, with their industry knowledge and expertise, are in a better position to handle such issues. However, cross-sectoral competition issues will be dealt with by the Commission, in consultation with the sectoral regulators.

The sectoral exclusions listed in the Third and Fourth Schedules are not intended to be permanent. After the competition law has been in force for some time, we will review the need for such sectoral exclusions, taking into account market developments at that point in time.

Powers to investigate, adjudicate and sanction; and rights of private action

The Commission will have powers to investigate and adjudicate anti-competitive activities, as set out in clauses 62 to 68. Clause 69 empowers the Commission to impose sanctions, such as requiring the offender to modify or terminate the agreement or conduct, pay a financial penalty, and carry out structural remedies. Structural remedies will be calibrated based on the redress

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needed to stop the anti-competitive activity in question.

Besides financial penalties, violators of the competition law are liable to be sued by parties who suffered loss or damage directly as a result of the infringement. Clause 86 provides for such rights of private action, after the Commission has made its determination and the appeal process exhausted. This will serve as an additional deterrent.

Appeal process

Part IV of the Bill covers the appeal process. A Competition Appeal Board will be established to hear appeals against the decisions of the Commission. The Board will be an independent body comprising members appointed by the Minister. Only parties which the Commission has made a decision against may appeal to the Board. They may make further appeals against the decisions of the Board to the High Court, and thereafter to the Court of Appeal, but only on points of law and the amount of the financial penalty.

Phased implementation approach

Sir, we will implement the competition law in phases. The phased approach will allow time for the Commission and for businesses to prepare for the implementation of the law. In the first phase which will commence on 1st January 2005, only the provisions establishing the Commission will come into force. There will then be a 12-month transition period before the provisions on anti-competitive agreements, decisions and practices; abuse of dominance; enforcement; appeals processes; and the other miscellaneous areas which will take effect on 1st January 2006. This would be the second phase. In the third phase, which is likely to be 12 months thereafter, the remaining provisions relating to mergers and acquisitions, which are more complex and technical, will come into

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force. During the transitional period, the Commission will carry out more outreach programmes to raise the level of awareness and understanding of the law.

Sir, our economic strategy over the years has been founded on a strong adherence to free market principles and international best practices adapted to our local conditions. With the enactment of the Competition Bill, we will create an even more conducive environment for businesses, foster greater dynamic competition, and promote more efficient and innovative markets. This will benefit both enterprises and consumers, as well as ultimately strengthen Singapore's overall economic competitiveness.

Sir, I beg to move.

Question proposed.

Mr Leong Horn Kee (Bishan-Toa Payoh): Mr Speaker, Sir, the Competition Bill is one of the key recommendations of the Economic Review Committee. This Bill gives teeth to the Government's announced policy of curbing any predatory practices of dominant industry players and encouraging more open competition, which forces companies to be innovative and responsive to market pressures and demands. As a result, consumers will benefit from lower prices, more variety and choices and better services,. The economy as a whole will gain. Sir, therefore, I wish to express my firm support for this Competition Bill. In fact, it is long in coming. Nevertheless, it is heartening that Singapore is finally going to have a competition law.

Being a new initiative, there are many aspects of this Bill which are not clear and may need some fine-tuning over time. I would like to take this opportunity to raise a few queries on this Bill.

The Competition Bill exempts various sectors that have their own regulatory

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authorities and laws. This can create uneven standards on competition policy between this Competition Bill and the regulators of the exempted sectors. Moreover, these other regulators may be motivated and governed more by their sectoral interests and controls, and not focused on ensuring competition.

Let me cite an example. Recently, there was an announcement on the proposed merger of SPH and MediaCorp. I read that the governing media body has approved the merger. But is the approval accorded based on the financial benefits accruing to the two entities to be merged or based on the potential benefits to customers and the industry?

I notice that when there are two existing competing media providers, the consumers get more variety of TV channels, newspapers and more innovation in terms of service level and product variety. Once the media merger is implemented, we naturally expect to see the closing of some newspapers and TV channels. Would the merger therefore be good for competition and provide more services and variety to consumers? Perhaps not.

This media merger could well be the first test case for our Competition Commission. Should the Competition Commission intervene to object to the merger of SPH and MediaCorp?

There is a provision in clause 87 of the Bill which enables the Competition Commission to enter into cooperation agreement and mutual consultation with the exempted regulatory bodies. However, I feel that such cooperation or mutual consultation may not be sufficient. In some instances, the regulatory bodies of the exempted sector may decide to ignore the advice or the views of the Competition Commission. I would like to suggest that the Bill should enable the Competition Commission to have an

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"over-arching authority" on matters concerning the promotion of competition and the avoidance of the creation of a dominant or monopolistic player. Hence, in the event that there are differing stances with regard to competition, the Competition Bill should prevail. I would like to ask the Minister whether this is possible or advisable.

My second comment on this Bill is with regard to what is deemed as "abuse of dominant position" of a major player. It is hard to police and define. A major player can decide to drop prices because it is more efficient, cost-effective and innovative. This tactic is ultimately beneficial to consumers. Therefore, why should the Competition Commission rule it as an abuse of dominant position? And why should the Authority disallow it? A weaker competitor can use this competition law to complain against the pricing tactics of a dominant player but, in actual fact, it could be that it is the weaker competitor who is not price-competitive. In such instances, how could the Competition Commission or the court decide and define what are the "losses" suffered by this minor player?

In fact, on the converse, it is the consumers who will gain arising from the lower prices that they have to pay.

Sir, I would like to seek clarification from the Minister on another point. Why is it that the proposed Bill proposed to form a new statutory board called the Competition Commission of Singapore? As the Minister has said earlier, the stated principle is to incur low regulatory cost, which means to be very cost-efficient. But the creation of a new statutory board means that there is a need for higher expenses in relation to new offices, a new CEO with his staffing needs and expenses relating to formation of a statutory board. Did the Ministry consider constituting the Competition Commission as a department

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or a section within the Ministry of Trade and Industry? The Commission can be serviced by a secretariat. This approach could be equally effective without incurring higher costs.

Sir, finally, I wish to express my strong support for this Competition Bill. I am pleased to note that the Bill will guard against predatory behaviour towards competitors and the abuse of dominant position. I am sure this Bill would be helpful to our local start-ups and the small and medium enterprises (SMEs), as they seek to find a footing when competing in Singapore. I am, therefore, pleased that the Bill will be applicable to all companies operating in Singapore, including GLCs and MNCs. This Bill will ensure that there will be a certain degree of level playing field which promotes fair competition for all.

Sir, I support the Bill.

Mr Speaker: Order. I propose to take the break now. I suspend the Sitting and will take the Chair again at 4.25 pm.

_Sitting accordingly suspended
at 4.02 pm until 4.25 pm. _

Sitting resumed at 4.25 pm

[Mr Speaker in the Chair]

COMPETITION BILL: Debate resumed.

Mr S Iswaran (West Coast): Mr Speaker, Sir, thank you for allowing me to join in this debate.

Sir, this Bill is worthy of support from this House. I say that because I think its objectives are laudable. It seeks to protect and promote the competitiveness of the Singapore economy as a whole. This will ensure efficient allocation of resources, productivity and ultimately

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higher economic growth for Singapore. At the same time, through this process, it will also accrue benefits to the consumers and businesses in Singapore.

At the outset, Sir, I think we need to be clear. Competitiveness does not equate with competition. The key element here is in facilitating a competitive economy, the critical ingredient is what some have called "contestability". In other words, whether there is one, a few or many players in a given market, it is the potential and actual competition. In other words, the competition from the existing players in the market and also the potential for new entrants to come in and lead really ensure a competitive framework. And it is important that, in that regard, when we look at any market-related issues and competition, this be borne in mind. Ultimately, the objective is fair competition and it is not to protect individual players or competitors in the market.

Therefore, Sir, I support the Bill both in spirit and in principle. However, it is important to ensure that such a Bill, with all its good intentions, does not increase uncertainty and costs to businesses. The Minister has made this point. I wish to elaborate on it.

The fact of the matter is the establishment of a Competition Commission, which will administer the Competition Act if this Bill is passed, will create a new regulatory hurdle for all businesses. The Competition Commission will administer the Act, and it is important that its rulings and decisions are precise, unambiguous and timely, because all this has an impact on the way businesses are run and the costs and uncertainties they have to bear. Otherwise, the very objective of promoting Singapore as an attractive place to do business will be frustrated.

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From that perspective, Sir, of needing to ensure that businesses have greater certainty, and this Bill does not impose undue costs, I would like to comment on a few aspects of this Bill. The first pertains to the scope of the Bill.

Clause 5 of the Third Schedule excludes sectors which are covered by any other written law, or code of practice related to competition and which gives another regulatory authority jurisdiction in the matter. There is a similar provision in the Fourth Schedule. The Schedule, in particular clause 5, does not explicitly state which sectors are, in fact, excluded. But I presume, and I think it can be reasonably inferred, that it applies to sectors such as telecommunications where competition is governed by, I think, the Telecommunications Code (the short form) which IDA administers; electricity and gas where you have the Electricity Act and Gas Act administered by EMA, if I am not mistaken; then the media industry where there is a code which MDA administers, and so on.

Sir, the question, in principle, is: should there be exclusions from the Competition Act for any sector? The competition law that we are promulgating here is a generic law. It has principles which are generic in application and these are principles that should apply to all sectors and be applied with consistency. That being the case, if we allow for exclusions of sectors which will have their own bodies administering, their own interpretation of what is fair competition, albeit in the context of

technical areas, the scope for inconsistency and differential interpretations is quite significant, and that is going to lead to potential conflicts. Allow me to illustrate just by giving a couple of examples where the Competition Bill and the Telecommunications Code differ. One is in the area of just penalties. The maximum financial penalty of up to 10% of the infringing party's annual turnover in

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Singapore is what is provided for under the Competition Bill. So if you are found to have fallen afoul of the Act, then that is the maximum penalty. In the Telecommunications Code, the maximum financial penalty is S$1 million per contravention. So the scope for disparity is great. And, naturally, the applicant or the plaintiff might feel aggrieved if the party against whom he is making a claim gets off with a lighter penalty.

Similarly, the right or process of appeal differs as well. In the case of the Telecommunications Code, the appeals are to IDA and then to the Minister. In the case of the Competition Bill, the decision of the Commission can be appealed to the Competition Appeal Board. So there is again a different process. So the greyness of the scope is compounded by the fact that certain parts of the Bill appear to suggest that the Competition Bill will still apply to excluded sectors, and I will give you a couple of examples of that.

Clause 33(2) suggests that portions of the Bill will apply to industries and sectors which nevertheless have specific competition laws regulating them. And clause 61(3) suggests that the Competition Commission can prescribe guidelines applicable to specific regulated industries and sectors. So I think we need greater clarity on this matter. The first question is a question of principle. Should these sectors be excluded in the first place? My own view is that we should not, and the reason is what I have articulated earlier, which is these are common principles, they should hold true regardless of the sector, and they should be applied with consistency across all groups of industries. Given that we have gone for the second best solution, which is that we have existing bodies and we are trying to manage it, then the question is: if they are to be excluded, we should

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state very clearly which sectors are being excluded and for how long, and what would be the threshold conditions which would compel the Ministry and, subsequently, perhaps Parliament to review these exclusions?

Also, given that the Ministry has opted for this intermediate approach where there will be some sectors that are excluded and the rest administered under the Competition Act, I think there must be certain very clear arrangements in place in the interim. These include, one, a harmonisation of the provisions in the sectoral codes vis-a-vis the Competition Act. This is to ensure that there is no gaming in the system and things are clearly established, and it will pave the way towards eventual integration. The second is coordination between the Competition Commission and the sectoral bodies. Why? This is to ensure that businesses do not have to go to two different parties to undertake two parallel processes which might have quite different outcomes. So it is important that, when an appeal is lodged, whether it is to the sectoral body or to the Competition Commission, they are brought together and processed as one appeal and given one outcome. And, thirdly, I would urge the Ministry to review this exclusion and perhaps bring it forward even at a faster pace. I think the Ministry of Trade and Industry has said 18 months or so, and it has given some indication.

Sir, I think we are not alone in this, lest I would be interpreted as being too critical. The UK also has got sectoral regulators having concurrent powers with the UK Competition Act, the Director-General of Fair Trading, and they work together and there are arrangements in place to make sure that they are closely coordinated. So it is not without precedent. I think the key element here is execution so that businesses have certainty.

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Sir, another point I want to raise is the issue of lack of clarity in the meanings and definitions of key terms that are used in the context of this Bill. Sir, the Bill prohibits anti-competitive behaviour and agreements, abuse of dominant positions, M&As that substantially lessen competition, etc. But the key terms need elaboration and definition. For example, dominant position. How is dominant position calibrated? Is it by market share or market power? Are there thresholds? All of these obviously have problems and, clearly, there is an element of subjective outcome and decision-making. And this will reside primarily in the hands of the CEO or Director-General of the Competition Commission. But the players in the market must know when they are approaching the boundaries that are likely to test the limits of what the Competition Commission considers to be acceptable. What constitutes abuse? As Mr Leong Horn Kee mentioned earlier, what constitutes abuse of dominant position? If a key player in the market leads by price reductions, is that abuse? Or is that beneficial practice which will bring benefits to all consumers? And also, there is a question of substantially lessening competition. Again, it begs the question: what is the test of reducing competition?

Sir, if I could give an example. If there is an exclusive business arrangement between a Singapore company and a product service provider from overseas covering Singapore's territory, is that an activity that will be prohibited under the Bill? And I think the test is, as the Minister alluded to, this concept of appreciable adverse effect on competition of the Singapore market. And, again, I have to say that the Bill itself does not use the term

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"appreciable adverse effect" in any part of it. I believe there is a passing reference to it in the Explanatory Statement. But the crux of the matter is, I think, most of us are none the wiser as to what actually would constitute "appreciable adverse effect". The Bill is general. It leaves much to the discretion of the Competition Commission, and I presume that it is intended to be the case. But the converse impact is that businesses are in the dark. The UK Competition Act also does not say much about these terms, to be fair. But in mitigation, first, soon after the Act was passed in 1998, I believe, the UK Office of Fair Trading developed rules, statutory guidance and advice to businesses. So they were better informed as to how this new Act would affect their business decisions. Equally, the UK also could resort to case law from the European Commission and that serves as another point of reference.

In our case, we do not have this reference to any case law. Because the Ministry has said that the Commission will issue guidelines on this matter, and I hope this can be done. And in doing so, may I make three specific requests. First, I would appreciate it if the Commission works on this fast, and not allow it to take 12 months or 18 months, but the sooner the better. Second, the process of formulating such guidelines should meaningfully include the business sector, because definitions of what constitute competition, anti-competitive behaviour, etc, are fundamental to the way many of these businesses are going to be run. And, thirdly, guidelines ultimately are non-binding. In other words, today, if a guideline is enacted, the Commission may choose to abide by it, but it may review it from time to time and that, indeed, is I think the intent. However, certain core principles that will underpin these guidelines should be embedded in the Bill. If we feel that today, we do not have enough experience in case laws to do so, I would urge the Ministry to revisit this over the space of the next two to three years to make sure that we do come back and amend this Act to embed certain key principles so that these are not open to interpretation.

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Another aspect, Sir, is the retrospective effect that this Bill has on businesses. Clause 34(5) says that prohibition of these activities would apply to agreements entered into before, on or after the appointed day. "Appointed day" means in relation to a particular provision, the date of commencement of that particular provision. So this seems unfair or inequitable, because what it means is that the Bill would apply to agreements entered into in good faith even before this Bill was contemplated by the Government. So the question is: why are we having such an all-inclusive retrospective provision in this Bill? And this was not just a conceptual point as it means, first, businesses would incur substantial costs, because the moment the Act comes into force or certain provisions come into force, businesses would have to review all their agreements to see if they are in compliance and, if not, how they need to be readjusted. Similarly, it is going to create uncertainty for the businesses in case they are challenged or wondering whether they are going to be challenged. So the question I have is: why not restrict applicability to agreements that are signed after this Bill has been passed, or when this Bill was first tabled for public consultation which, I believe, was in April this year? At least, the market had first wind of what is happening and any action thereafter could be deemed to have been done with this knowledge.

The key point I want to make here is that we must restrict it in some manner and not let this retrospective application be extended without any end point. And I think if the Ministry is concerned that there may be some historical agreements that are blatantly unfair or anti-competitive, then those egregious cases could still be brought up on appeal or when a complaint is raised, the Competition Commission and the Ministry can decide whether it is worthy of

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attention. But, in principle, it should not be a blanket application.

Finally, Sir, one specific comment is on the availability of safeguards to prevent frivolous or vexatious claims. Sir, it is quite well-known that, in some instances in business, they use anti-trust or such competition Acts and the processes and appeal methods available to them through these Acts as a business tactic to appeal so as to stall the business agreements that they feel would be against their best interests or to possibly even frustrate and stump it altogether. The question is: should there not be provisions in this Bill to protect against frivolous or vexatious claims? The provisions could be in the form of a compensation to be paid to the party against whom a complaint is lodged, if it turns out that the complaint was frivolous and vexatious. I know there is a policy concern that we do not want to deter bona fide complaints. But perhaps the way to deal with this is to ensure that such costs are only payable if it is assessed by the Commission that the complaint has, in fact, been frivolous or vexatious.

Sir, I hope the Minister would consider these points because this is an important Bill. It is going to change the complexion of the way we do business in Singapore. And I think it will certainly set the standard, in terms of what we are looking to achieve, but at the same time, we must make sure that, at the micro level, businesses are not disadvantaged and the outcomes run contrary to our very intent in passing this Bill.

Mr Chiam See Tong (Potong Pasir): Sir, as I listen to the speakers, many of them spoke with certain background of the business world. But my speech is purely from the reading of the Bill itself. Sir, I support the Bill in principle, but I cannot support the

Bill as it stands because of the wide powers given to the Minister for

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allowing him not to accept relevant provisions in the Bill. The relevant provisions in the Bill are contained in clause 34 which disallows agreements preventing, restricting and distorting competition; clause 47 which prohibits any practice of abuse of a dominant position in any market in Singapore; and clause 54 which prevents mergers which may result in the lessening of competition.

I cannot agree with the provisions in the Third Schedule of the Bill. They are far too wide and too pervasive. The Third Schedule, to my mind, is wide enough to annul the intent and purpose of this Bill itself. Let us look at paragraph 1 of the Third Schedule:

"Neither the section 34 prohibition nor the section 47 prohibition shall apply to any undertaking entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly in so far as the prohibition would obstruct the performance, in law or in fact, of the particular tasks assigned to that undertaking."

This clause is so wide-ranging that it can cover the activities of any Government entity, Government-linked company, or any company which the Government has an interest in, or activities of a statutory body or Government-owned company.

Paragraph 2 of the Third Schedule is equally wide-ranging in taking away the effects of sections 34 and 47 prohibitions as long as an agreement complies with a legal requirement. And, as we all know, really, all Government-owned entities are the creatures of statute. Therefore, they are not caught by this competition law.

Sir, the economic development of Singapore is a recent history. We all know that Singapore was first built up as a socialist state. The early political philosophy of the PAP was democratic socialism. Therefore, the infant capitalist

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system was not encouraged, but the public sector, by policy, was cultivated and built up. We see the Government controlled by one dominant political party and had a free hand in accumulating massive capital. The Government in Singapore, the richest sector in the economy, was soon the biggest landowner in Singapore. The Singapore Government now finds itself in an awkward position in a wholly-changed world from the 1960s and 1970s. Now we are in an era of fierce competition from the other so-called emergent nations, in particular, the People's Republic of China and the other neighbouring states. Singapore's strategy or way out of this changed situation is to enter into Free Trade Agreements with other countries, some of which are mature capitalist countries where the early infant vibrant competition in their markets has turned some of their companies into monopolies, which are anathema to the capitalist system.

We have read of Bill Gates of Microsoft having to pay millions of dollars in fines when its company abused its dominant position in the software business. So competition laws are necessary in America and other mature capitalist countries to break up the monopolies that are being formed there. We in Singapore started by not encouraging private enterprise but concentrated on growing the public sector. The public sector now dominates the whole of Singapore's economy. This is Singapore's dilemma. Now, we need to enact this competition law to unravel that dilemma and meet with other international obligations.

One important question comes to mind. I would like to ask the Minister whether exclusions contained in the Third Schedule are a permanent feature or whether there is a time-frame to remove them, including other provisions in the Bill

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giving the Minister power to avoid the prohibitions and against monopolies as well as the above dominant positions and mergers as contained in clauses 34, 47 and 59 of the Bill.

Sir, as regards the Bill itself, I would only like to have a clarification on one point from the Minister. I notice that the District Court shall have the jurisdiction to try any offence under the Act and shall have power to impose full penalties or punishment in respect of the offence. As regards punishment, clause 83 imposes a fine not exceeding $10,000 or imprisonment for a term not exceeding 12 months. I have no quarrel with this punishment or penalty because they are within the jurisdiction of a District Court. But we see that under clause 69(4) of the Bill, the Commission can impose a financial penalty up to 10% of the turnover of the defaulting business. Nowadays, some businesses in Singapore have a yearly turnover of hundreds of millions of dollars, and a financial penalty of 10% of its turnover can easily exceed the quantum allowed under the jurisdiction of the District Court which, I believe, is to be only about $250,000. I stand corrected. If that is so, then the District Court has no jurisdiction to impose such a large financial penalty under the said clause 69(4). The Minister might like to comment on this provision of the Bill.

Mr Inderjit Singh: Mr Speaker, Sir, I would like to express my appreciation to the Ministry of Trade and Industry for finally presenting this Competition Bill for passage through Parliament. I have a personal interest in this Bill, because it was first proposed by the sub-committee which I chaired, ie, the Government in Business Sub-Committee, which was part of Minister Raymond Lim's Committee on Entrepreneurship and Internationalisation.

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When my committee studied the role of Government and its companies in encouraging or stifling entrepreneurship, it was obvious that what Singapore lacked was a generic competition law which would, in an indirect way, encourage the emergence of entrepreneurial companies in Singapore. When the committee looked at this, our vision of the competition law envisioned these few things.

(1) We needed to create a level-playing field so that no one company has an undue advantage, particularly the Government-owned companies;

(2) Anti-competitive business practices needed to be eliminated or banned, and these include practices like collusion, bid-rigging, price fixing, which involved coordinated action by direct competitors;

(3) The abuse of dominance needs to be eliminated. Abuse of dominance includes action by any single dominant player. Monopolies will not be banned, but abuse of market dominance should be. For example, the use of predatory pricing to exclude new entrants; and

(4) Companies intending to do mergers and acquisitions should pre-notify the competition authorities for transactions above a certain market value, eg, one-quarter for each company or one-third for a merged entity, with certain turnover thresholds. The competition authorities may approve the M&A deal with certain conditions attached.

Some other issues that we wanted the competition law to address include:

(1) There must be a serious attempt to prohibit exclusive deals between the Government or its agencies and any of the GLCs;

(2) We did realise that certain exemptions might have to be included,

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especially in sensitive areas of the economy, but the number of exclusions needed to be limited;

(3) All companies will have equal access to the national infrastructures, and these should not be given on a silver platter to any Government-linked companies;

(4) Whatever law is enacted should not add to the costs and, hence, compliance costs should be minimised for these companies; and

(5) An independent competition authority should be set up to formulate the policies and rules and to rule on cases violating the law.

So, how has the Ministry fared against the expectations of the committee on this competition law? I would like to say that they have scored seven out of 10, and I am very happy with the outcome. Seven out of 10, coming from me, is actually a big compliment!

Let me say that in targetting large companies, especially GLCs, the intent was not to dismantle the dominant positions that these companies have, but to restrict them from using their dominant position to stifle competition. So, we were mindful that we should not destroy the value of big and well-run companies, but to prevent them from allowing other companies from also competing successfully with them. As an example, if a large company uses predatory pricing to eliminate smaller players, this should not be allowed. Similarly, should a large company set rules of business together with the Government by giving feedback where only they will benefit and smaller companies find it difficult to comply, this is also an uncompetitive behaviour.

Sir, I have a few specific points on this Bill to discuss.

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First, the exclusions, and many Members have raised these. By virtue of the Third Schedule and the many clauses in the Bill which exempt certain sectors from inclusion in the competition law, we have in fact excluded many of the sectors of our economy which were originally intended to be governed by a competition law. It is a pity that so many sectors have been protected under the law. I see no reason to, for example, protect the telecommunication, postal, media and transport industries and specified parts of the banking industry. In fact, we could also have been more aggressive in including even certain parts of the energy industry in this competition law. An argument made by the Ministry is that there are already laws regulating these industries. I feel that the competition law should have been a senior law, ahead of all other sectoral regulations.

Presently, the Bill enables many sectors that already have these regulatory commissions to oversee competition within their relevant sectors. In effect, this law becomes a secondary law for these sectors, only to be enacted if the industry players cross over into a non-regulated sector. This has the potential to cause a bit of confusion, in my opinion. With this, each commission will have to have its own definition of dominant position, predatory pricing, undertakings and what constitutes anti-competitive behaviour.

By making the competition law a higher authority in Singapore, it will help unify and streamline definitions and guidelines. The different regulatory commissions will fall under this law, but provisions can be accorded to provide the relevant authorities to exercise flexibility to regulate and allow sectors to be more competitive. An added benefit of this would be to have an avenue for companies within their respective sectors to have a higher avenue of appeal in cases of dispute with their regulatory authorities.

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A case in point is our FTA with the USA, which provides for judicial review of regulatory decisions. Article 9.11(3) of the USSFTA provides for the right of judicial review of a regulatory decision. It clearly sets forth that any aggrieved party in the telecommunications industry in particular must have the opportunity to have this review of a decision by a regulatory body. As it stands, the Code of Practice for Competition in the Provision of Telecommunications Services by the IDA does not allow this to happen. So, therefore, we do not fully meet the obligations of this bilateral agreement.

I also note that in its submissions to the Ministry of Trade and Industry, Temasek Holdings encourages these sectors to be also included without any excessive protection, stating that "Companies should be allowed to grow and thrive on sound commercial principles, unfettered by bureaucratic impositions or non-commercial Government directions." If Temasek, which has a vested interest in and owns most of the companies in the excluded sectors, feels that these companies should compete unfettered by any protection, there is, in my opinion, no need for the Government to provide these companies any further protection.

Sir, the second issue is one of establishment of the Competition Commission of Singapore. It is important that the competition law must operate in a fair and transparent manner. Concern should arise from parties involved in commercial disputes about the objectivity and independence of this Commission.

MTI has a number of statutory boards, some of whose senior executives sit on the Boards of Directors of corporate entities, particularly the Government-linked companies. Additionally, some of these statutory boards also have

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ownership and interest in GLCs that would be subject to the Competition Act. I hope that the Minister would help keep the integrity of the Commission clean by not having too many civil servants, whether directly or indirectly, who have connections with the GLCs being regulated under this law to sit in this Commission. Otherwise, it will defeat the purpose and it will make implementation of the law ineffective and people will lose confidence. Strict independence and clear goals of encouraging competition without vested interests to protect certain Government-owned companies should be the order of the day with this law and with the Commission.

Sir, the third issue is on the scope of the Bill. In general, an effective competition regulatory regime will aim for a consistent and broad application. The application of competition law to all business entities, regardless of ownership, industry or function, is important in establishing a culture of competition within any economy. But it is noted that the Bill has wide extra-territorial applications. For example, clause 47(3) defines a dominant position to include a dominant position within Singapore and also elsewhere. However, it is not clear why the Bill should be concerned about a firm's dominant position in some market outside Singapore if it does not also have a dominant position within Singapore. In other words, if a firm does not have a market power in Singapore or in a

geographic market that includes Singapore, it is not clear how it could use that market power to harm its competition in the Singapore market. I would like to recommend that this section be revised to make it clear that the Bill covers foreign firms with a dominant position in Singapore but not firms with a dominant position in overseas market, but not in the Singapore market.

I also note that in clause 33 of the Bill, it provides that as long as an "agreement,

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abuse of dominant position ... or merger infringes or has infringed [or likely to infringe] any prohibitions in this Part [III]", it does not matter whether the agreement has been entered into outside Singapore or the abuse of dominant position is outside Singapore. This means that agreements made entirely between foreign undertakings and decisions by associations of foreign undertakings or concerted parties will be caught by the Act as long as it can be shown that its effect is to prevent, restrict or distort competition within our shores.

Sir, the UK Competition Act, in contrast, provides that the Chapter I prohibition against agreements applies only if the agreement, decision or practice is implemented in the United Kingdom.

Such broad extra-territorial application will put unnecessary strain, in my opinion, on the Competition Commission, as it would have to help to assess the impact of this abuse or violation in the various economies that may not necessarily be in Singapore. I think this is not a necessary thing.

Sir, in conclusion, let me once again say that the real intent of a competition law should be to create a level playing field, to eliminate, if possible, or, at least, to drastically reduce practices which stifle competition in Singapore. While historically the Government favoured certain companies, making them dominant players in our economy, this historical reality should not result in these big Government-owned companies or even private-owned companies abusing their position of dominance. The Government has already done enough for them in the past and now they should no longer be in a position to unfairly benefit from the old favours that they may have got.

What we would like to see accomplished is a healthy environment where

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there is a true form of competition, and where a large number of our enterprises and industries are highly competitive. If it is an important part of our overall plan to make SMEs a dominant force of our economic growth and, indeed, to turn our economy from being one where we attract only large companies to one of an entrepreneurial one, a decision needs to be made to soften the perception. We should not be half-hearted about this. As our large companies will only benefit and not lose from this new landscape of less protection and more competition as they try to compete globally, they would also welcome this new law. And with this prevailing chasm on the restructuring efforts, it must be noted that, depending on the approach that we take on this competition law, we have the potential of this being a keystone in Singapore's economic restructuring initiative.

Sir, I am very happy to support the Bill. It is something that we have been waiting for a very long time.