Thailand’s Trade Competition Act

Thailand’s Trade Competition Act LECTURE II OCTOBER 26TH, 2009 Dr. C. Gastle & Murdoch Martyn

Trade Competition Act • Trade Competition Act enacted in 1999; • Almost no cases available interpreting the provisions; • Apart from statute, analysis based on secondary sources; • Offer a survey of the available information;

Trade Competition Act • Exemptions include: • 4:1 Central, provincial or local administration; • 4:2 State enterprises; • 4:3 Farmer’s groups, cooperatives; • 4:4 businesses prescribed by Ministerial regulation; • Suggested large Thai firms argued unfair for their conduct to be regulated but not STEs in natural monopolies;

Sec 25: Abuse of Dominant Position A business operator having market domination shall not; (1). Unreasonably fix or maintain prices; (2). Unreasonably fix conditions of sale, restrict services, production, purchase or distribution of goods/services or securing credit for business operators; (3). Suspend, reduce, restrict services, production, purchase, distribution or import “without justifiable reasons,” destroy or cause damage to reduce quality below lower demand; (4). Intervening in the operation of business of other persons without justifiable reasons.

Sec 25, Abuse of Dominant Position • Does not prevent a business from obtaining a dominant position or acquire a monopoly; • Only the abuse of market power associated with dominant position is actionable; • Issue: When achieve dominant position? • Issues was not dealt with until February 8th, 2007;

Sec 25, Abuse of Dominant Position • Complaint that Singha Beer was tied to whiskey products that enjoyed a monopoly position; • TCC established a sub-committee on tie-in sales and determined that the tie-in was illegal, but no definition of “dominant position” • TCC requested the Department of Internal to inform subagents that tying of whiskey and beer inappropriate and to cease the conduct;

Sec 25, Abuse of Dominant Position • Market definition: • Business operator with market share in the previous year over 50% and at least 1,000 million baht turnover; or • Top three business operators, with combined market share in the previous year over 75% and at least 1,000 million baht turnover. • Exception for a business operator with market share less than 10% of turnover less than 1,000 million baht in the previous year. • Section 25 criticized on basis that no guidelines for price discrimination, predatory pricing; • No definition as to what constitutes price discrimination or predatory pricing and what standards should be applied

Section 26, Mergers • A business operator shall not merge businesses, which may result in monopoly or unfair competition as prescribed … by the Commission unless the Commission's permission is obtained. • Commission shall specify merger thresholds relating to minimum shares, volume, capital, shares or assets • Thailand’s Merger threshold: None has been implemented.

Section 26: Mergers • Early case before TCC, merger of two cable television companies, holding 100% of market; • MCOT approved merger; • UBC sought permission to not offering certain packages to new, low income customers; • Complaint to TCC establishing a sub-committee finding UBC a monopoly protected by high barriers; • UBC limited new customers only the highest price package; • TCC referred dispute to MCOT, but Competition Secretariat to monitor; • Criticized on basis of following price increases, MCOT didn’t regulate, explanation was lack of profitability of company

Section 26, Mergers • Nikomborirak suggests that enforcement has been poor: • “Several mergers that led to more concentrated markets were allowed to proceed. These include a merger between two major movie theatres, pulp and paper manufacturers, and newspapers. The inability to control mergers and hence market concentration today will likely create competition problems down the road, as merged entities with market power may abuse their newly acquired market dominance to fend off competition from smaller competitors or new entrants.”

S.27 Horizontal & Vertical Restraints Any business operator shall not enter into an agreement with another business operator to do any act amounting to monopoly, reduction of competition or restriction of competition … in any of the following manners: 1). fixing selling prices of goods or services as single price or as agreed or restrict the sale volume of goods or services; 2). fixing buying prices of goods or services as single price or as agreed or restrict the purchase volume of goods or services; 3). entering into an agreement to have market domination or control; 4). fixing an agreement or condition in a collusive manner in order to enable one party to win a bid or tender … 5). fixing geographical areas for distribution or fix customers to exclusion of other businesses in competition;

S.27 Horizontal & Vertical Restraints 6). fixing geographical areas or fixing persons businesses may purchase from; 7). fixing the quantities which each business operator may manufacture, purchase, distribute, to restricting the quantity below market demand; 8). reducing quality below that of previous levels; 9). appointing a sole distributor; and 10). fixing conditions of sale to ensure the uniform or agreed practice. Permission can be obtained from TCC for (5) through (10) if “commercially necessary.” These are broad categories but there is no basket clause. Article 29 is a catchall.

Article 28, Unique to Thailand • “A business operator who has business relation, with business operators outside the Kingdom … shall not carry out any act in order that a person who is in the Kingdom and intends to purchase goods or services for personal consumption will have restricted opportunities to purchase goods or services directly from business operators outside the Kingdom.” • Thanitcul states provision is for a small portion of the elite wanted to buy automobiles from dealerships in Germany; • Included for the very specific purpose of forbidding Thai dealers from entering such contracts; • Argued that it applies to Abbott’s refusal to sell a number of drugs in Thailand in retaliation for the issuance of compulsory license.

Article 29: Unfair Trade Practices “A business operator shall not carry out any act which is not free and fair competition and has the effect of destroying, impairing, obstructing, impeding or restricting business operation of other business operators or preventing other persons from carrying out business or causing their cessation of business.” • Described as “catchall” provision, the term “free and fair competition;” • Guidelines for UTP in wholesale/retail business state: • “For the country’s retail/wholesale business, however, there have been attempts to set up a framework under the principles of fair trade practice that there shall be (1) no coercion (2) no discrimination (3) clear criteria (4) advanced agreement (5) no restriction and fair competition.” • Haven’t located any further explanation of the guidelines;

Article 29: Unfair Trade Practices • Complaint before the TCC regarding UTP in large retail stores: • Local suppliers against Tesco, Carrefour, and Casino; • Complaints that mandatory enrolment at price promotion schemes, preference for white label products; • TCC proposed to set sector market share of dominance at 25%; • Proposal withdrawn a month later, should have one across all industries;

Article 29: Unfair Trade Practices • Guidelines regarding unfair trade practices: • 1. Unfair low price … unless such a sale is reasonably necessary in the business; (e.g. expired, seasonal, or outdated); • 2. Unjust exercise of dominant bargaining power that may destroy, impair, impede or restrict or cause cessation of business, including: • 1. Coercion to purchase … or forcing them to use its own distribution service. • 4. Unjust coercion of its trading partners to sell goods or services up to a certain required quantity with no proper reason. • 5. Unjust fixing of business conditions ... such as fixing entrance fee, discounts, rebate;

Article 29: Unfair Trade Practices • 6. Fixing business conditions … that may restrict its trading partners’ business opportunity; (e.g., selling products to competitors) • 7. Require … resale price maintenance strategy unless the resale price is an unconditional suggested price. • 3. Discriminatory treatment by fixing different conditions or price or refusing to do business with no proper reason; • 4. Any conduct to acquire trading partners’ business information, business secret, or technology, [passing off]; • 5. Unjust coercing trading partners not to do business with its competitors [including tying].

Article 29: Unfair Trade Practices • Honda case before TCC; • Honda had 80% market share; • Exclusive dealing, can’t have other brands; • Found liability, and took action; • Nikomvborirak comments could come under S.25 (abuse of dominance) and further: • “[t]he fact that this case was handled differently from the whiskey and beer abuse of dominance case raised suspicions of selective enforcement of the competition law in favour of powerful local businesses and against foreign companies with little or no political connections.” • No finding of market dominance required and provides a substantial degree of discretion to interpret “free and fair competition”

Trade Competition Commission • TCA Chapter I creates Trade Competition Commission which includes 8-12 “qualified persons with knowledge and experience in law, economics, commerce, business administration or public administration.” • to issue Notifications prescribing market domination; • to consider complaints; • to issue Notifications prescribing the market share etc., in mergers; • to give instructions for the suspension, correction of business activities; • to consider merger applications or “jointly reduce or restrict competition;” • to consider criminal proceedings

Trade Competition Commission • Powers of the TCC: • Section 30: Power to issue a written order to business operator with market domination,(over 75%), to suspend, cease or vary the market share. • Section 31. Where considers business violates sections 25-29, the power to issue order to suspend, cease or vary such act. • Appeal: S. 31& 37 provide right to appeal to Appellate Committee, composed of seven qualified persons having knowledge and experience in law, economics, business administration”. • S 44: must decide appeal within 90 days and final, suggesting no right of judicial review (which is unclear, given general law)

Public Access • File a complaint with the Trade Competition Commission; • Private right of action created under Section 40 of the statute as follows: • “The person suffering injury as a consequence of the violation of section 25, section 26, section 27, section 28 or section 29 may initiate an action for claiming compensation from the violator.” • “In initiating an action for claiming compensation under paragraph one, the Consumer Protection Commission or an association under the law on consumer protection has the power to initiate an action for claiming compensation on behalf of consumers or members of the association, as the case may be.”

Criminal Prosecution • If TCC determines breach of Ss. 25 through 31, may refer the matter to the District Attorney to determine whether it should be placed before the criminal courts. • Penalties provided in ss. 49 to 56 including up to three years in jail or a fine not exceeding six million baht. • In the case of corporations, the “managing director, managing partner, or person responsible for the operation of the juristic person in that particular matter shall also be liable to the penalty provided for such offence unless he can prove that such act was committed without his knowledge of consent or that he already took appropriate precaution in preventing such offence”

Criticisms & Proposals for Reform • In terms of an overall assessment, Deunden Nikomborirak stated in 2006 that: • “In sum, competition law in Thailand played almost no role in enhancing the competitive environment in the domestic market during the past six years. Its implementation has been opaque, selective and arbitrary. Authorities do not investigate complaints properly and they make decisions without supporting evidence or reasoning. The 1999 Trade Competition Act has had a negligible impact on the trade practices of local enterprises and on the overall competition in the domestic market.”

Criticisms & Proposals for Reform • Reasons given for this assessment: • Strong political intervention; • Lack of ‘due process’ in administering the law; • Absence of interest/support of NGOs, academics, media; • Regarding political intervention, problem is one of enforcement: • “The performance of the [Trade Competition Commission] has been dismal, especially after the January 2001 instalment of the new government dominated by large businesses. The committee met only nine times in six years, four of which took place during the inaugural year. The latest meeting took place on May 14th, 2004.”

Criticisms & Proposals for Reform • Office of the TCC indicates that by 2008, 74 complaints received, including: • 15 abuse of dominant position; • 17 restrictive agreements and • 42 complaints regarding unfair trade practices. • Nikomborirak argues that TCC transparency reduced, due to removal from website of details of the complaints filed;

Criticisms & Proposals for Reform • Lack of experience in enforcing a competition law regime; • broad discretionary authority is given to the TCC without clear implementing rules or guidelines; • Example of a group of local retailers accusing new foreign retailers of predatory pricing; • Suggestion is that clear guidelines for PP necessary; • Lack of guidelines identified as a hurdle in the effective enforcement of the statute by creating a risk of abuse.

Criticisms & Proposals for Reform • Criticisms regarding TCC: • too many members of the FTC; many “are not qualified competition law experts;” • members work only on a part-time basis, and convene few meetings with no apparent rules of conduct; • members earn an extremely low level of compensation; • there is a “vast overrepresentation of the private sector; • the FTC has weak administrative and secretarial support; • lack of protection of confidential information and the identity of the informant/complainant;[

Criticisms & Proposals for Reform • The written decisions are said not to provide “finding of fact reports or rationale on which the decisions are based; • The views of each commissioner are not available and there is no record of who is attending these meetings; • There are apparently no rules concerning communication between the commissioners and the parties involved in the proceeding; • This leaves the process open to lobbying;

Criticisms & Proposals for Reform • Alleged that membership of the TCC gives rise to conflict of interest problems; • Poapongsakorn states that the TCC is not independent; • This is the result of the requirement that at least half of the expert members of the Commission are from private industry; • Reported that business lobbying had a significant impact on the administration of the statute; • Reflected in the delay of the definition of market dominance; • Another problem has been the lack of public awareness;

Conclusion • Thailand has a comprehensive competition code; • Goes beyond traditional competition law with: • Section 29 dealing with free and fair competition; • Section 28 permitting purchase of goods abroad; • A substantial degree of discretion provided to the TCC; • Lack of guidelines to help channel it; • A number of due process concerns: • Structural: composition, funding; • Transparency: lack of publication, procedures; • Independence: Too close to Thai industry, vulnerability to lobbying; • Lack of awareness/involvement of civil society.

Thailand’s Trade Competition Act