On
February 10, 1999, the Thai Parliament adopted the “Trade Competition Act” with
the aim of creating fair competition among private enterprises in Thailand. (1)
The Trade Competition Act (the “Competition Act”) came into effect on April 30,
1999, thirty days after its publication in the Gov-ernment Gazette on March 31,
1999.
The
Competition Act applies to all enterprises and business activities in Thailand
with the exception of state enterprises, cooperatives, agricultural and cooperative
groups, government agencies, and certain enterprises exempted by the Act.
It replaces the old “1979 Price-Fixing and Anti-Monopoly Law” which did not provide
proper protection for consumers and small businesses, especially with the privatization
process presently being undertaken in Thailand.
The
reader must accept that the new Competition Act is vague and, in some instances,
ambiguous. This makes interpretation and compliance with the Competition Act something
of a guessing game. It will be left to Ministerial Regulations and the courts
to clarify the legal application of this new law.
Need
for Proper Competition Laws
History
has shown that competition laws are a necessity for all developed countries with
free market economies in order to ensure and encourage the development of fair
competition. Proper competi-tion laws normally protect consumers against
unfair trade practices such as monopolies and high resale price maintenance, while
ensuring fair treatment to businesses. Hence, fair competition is beneficial
to small and medium-sized enterprises, the development of which might otherwise
suffer and be compromised by the unfair practices of market-dominant competitors.
Nonetheless, when it works right, fair competition provides consumers with competitive
product prices.
By
enacting the Competition Act, the Parliament intended to put in place a set of
rules which will allow the Government to monitor and ensure the development of
fair private sector competition in Thailand. In this respect, a Trade Competition
Commission (the “Commission”) has been estab-lished with the authority to oversee
and ensure compliance with the Act as well as give recommendations to the Minister
in the issuance of Ministerial Regulations.
Main Provisions
of the Competition Act
Under
the Act, business operators are prohibited from banding together to conduct any
business or transaction that would create a monopoly or unfair competition.
“Business Operator” is defined as a distributor, manufacturer for distribution,
procurer or importer into the Kingdom for distribution, or buyer for manufacturing
or redistribution of goods, or provider of services in the business.
The
Competition Act is domestic in orientation, intended to apply to unfair competition
practices taking place within Thailand or affecting the Thai market. The
only provision having an element of extra-territoriality is Section 28, which
stipulates that customers or end-users must be given the opportunity to buy products
or services directly from a business operator outside Thailand.
While
some unfair practices covered by the Act are strictly prohibited, some may be
exempted by the Commission upon application (see Exemption and Notification Process).
Reproduced
below are the main provisions of the Competition Act, with our comments immediately
following each Section:
“Section
25. A Business Operator Having Power Over the Market is
prohibited from conduct-ing any of the following acts:
(1)
to unfairly fix or maintain the levels of sale or purchase
prices of goods or services;
(2) to set conditions
which, directly or indirectly, unfairly compel other business
operators who are customers of the Business Operator to limit
the provision of services, production, purchase or distribution
of goods, or their opportunity to choose to buy or sell goods,
ac-cept or provide services or obtain credit from other business
operators;
(3) to suspend, reduce
or limit services, production, purchase, distribution, delivery,
or im-portation into the Kingdom without reasonable grounds,
or to destroy or damage goods in order to reduce supply to
less than market demand; and
(4) to interfere with the business
operations of other people without reasonable grounds.”
Section
25 was adopted in order to address and reduce the risk of unfair practices by
market-dominant enterprises. A “Business Operator Having Power Over the
Market” is broadly defined under the Competition Act as follows:
“One or more business operators in any certain goods or service market whose market
share and total sales revenue exceed the level prescribed, with due consideration
to market competition, by the Commission […].”
In
the absence of a definition of “market share” and prescribed percentage of market
share and total sales volume necessary to qualify as a “Business Operator Having
Power Over the Market”, it is difficult at this stage to express any opinion as
to the scope of application of this provision. Section 30, however, states
that any “Business Operator Having Power Over the Market” whose market share exceeds
75% may be ordered by the Commission to suspend, stop or change its market share.
In view of Section 30, we think that any enterprise whose “market share” is at
least 75% and probably less as may be announced by the Commission in the near
future would be deemed a “Business Operator Having Power Over the Market”.
“Section
26. A Business Operator is prohibited from conducting
business mergers which may create a monopoly or unfair competition
as prescribed and announced by the Commission in the Government
Gazette, unless permission is obtained from the Commission.
The
announcement of prescript by the Commission as mentioned in
paragraph one must state that it shall apply to business mergers
that result in the acquisition of market share, total sales
reve-nue, amount of capital, amount of shares or amount of assets
of not less than a certain amount.
Business
mergers as mentioned in paragraph one shall include:
(1)
a merger between manufacturer and manufacturer, distributor
and dis-tribu-tor, manufac-turer and distributor, or service
provider and service provider, which results in the continued
existence of one business and the demise of another, or the
establishment of a new business;
(2) the purchase of assets,
whether in whole or in part, of another business to gain control
over business management policy, supervision or administration;
(3) the purchase of shares,
whether in whole or in part, of another business to gain control
over business management policy, supervision or administration.
An
application for permission under paragraph
one shall be filed by the Business Operator with the Commission
in accordance with Section 35.”
Through
Section 26, the Parliament provides for the possibility of prohibiting and/or
restricting monopolies or cartels which are the greatest threats to competition.
As drafted, this Section may have far-reaching consequences for actual dominant
enterprises, but it is for the Commission to define the term “monopoly” and to
announce the scope of application of this Section.
“Section
27. A Business Operator is prohibited from joining another
Business Operator to con-duct any act of monopolizing or reducing
competition or limiting competition in the market of any certain
goods or services in any of the following manners:
(1)
fixing the sales price of goods or services to be the same
or at an agreed price, or limiting the sales volume of goods
or services;
(2) fixing the purchase price of goods
or services to be the same or at an agreed price, or by limiting
the purchase volume of goods or services;
(3) entering into an agreement to take
over or control the market;
(4) fixing agreements or conditions in
a conniving manner to enable the other party to win a bid
or tender for the sale of goods or services or to prevent
the other party from competing in a bid or tender for the
sale of goods or services;
(5) allocating areas where each Business
Operator may distribute or reduce the distribution of goods
or services, or specifying customers to whom each Business
Operator may distribute goods or services without competition
from the other Business Operators;
(6) allocating areas where each Business
Operator may purchase goods or services or speci-fying customers
from whom the Business Operator may purchase goods or services;
(7)
fixing the volume of goods or services which each Business
Operator may manufacture, purchase, distribute or provide
in order to keep the volume less than the market demand;
(8) lowering the quality of goods or
services compared with the previous manufacture, distri-bution
or provision but maintaining or raising the price;
(9)
appointing or assigning a person as sole distributor or provider
of the same type or cate-gory of goods or services;
(10)
fixing conditions or methods of practice in the purchase or
distribution of goods or serv-ices to be of the same pattern
or as agreed.
In
case business reasons necessitate any act under (5), (6,) (7),
(8), (9) or (10) in any certain period, the Business Operator
shall file an application for permission with the Commission in
ac-cordance with Section 35.”
Section
27 is intended to prohibit any unfair practices by and between Business Operators.
To fall under this Section, three conditions must be fulfilled: (a) two or more
Business Operators must “join” together, i.e. enter into an agreement; (b) this
agreement must result in an act or practice of monopolizing or reducing or limiting
competition; and (c) the act or practice must fall under the enumerated practices,
i.e. (1) to (10). With this Section, Business Operators will have to diligently
analyze any agreements concluded, both horizontally (as in the case of an agreement
between two distributors or two manufacturers) and vertically (e.g., an agreement
between a distributor and a manufacturer).
“Section
28. A Business Operator having a business relationship,
whether by contract, policy, partnership, shareholding, or any
other relationship of like nature with a business operator outside
the Kingdom, is prohibited from performing any activity which
will restrict the freedom of a person in the Kingdom desirous
of purchasing goods or services for his/her own use, to purchase
the goods or services directly from the business operator outside
the Kingdom.”
Under
Section 28, customers and end-users must be given the opportunity to buy products
or serv-ices directly from a business operator outside Thailand. This may have
an impact on exclusive distributorship agreements executed between affiliated
companies. Indeed, the consumers’ right to buy directly from a manufacturer or
distributor located outside Thailand is protected to a certain extent, provided
that the purchase is for their own use. It should be noted, however, that
this Sec-tion does not address the problem consumers may face with regard to after-sales
services in Thailand for products acquired abroad. Therefore, it is still
advisable to inquire about the avail-ability of after-sales services in Thailand
before taking advantage of this Section.
“Section
29. A Business Operator is prohibited from performing
any act contrary to free and fair competition and which results
in the destruction, damage, obstruction, hindrance or restriction
of the operations of other business operators, in order to prevent
them from operating their business or cause the dissolution
of their business.”
Section
29 is aimed at restricting unfair practices by any Business Operator that would
adversely affect other business operators. At this stage, it is hoped that
any act performed in good faith by a Business Operator would not fall under this
Section but again, it is for the Commission to determine the scope of application
of this Section.
Exemption
and Notification Process
While
some unfair practices covered by the Act are strictly prohibited (Sections 25,
27[1-4], 28 and 29), some may be exempted by the Commission upon application (Sections
26 and 27 [5-10]).
Business
Operators who intend to enter into any agreement or perform any act which falls
under Sections 26 and 27(5-10), must apply for permission by filing an application
with the Commission.
The
Commission shall render its decision whether to grant permission or not in writing
within 90 days. Under the Act, the applicant is given the right to appeal any
such order of the Commission to the “Appeals Consideration Commission”, a body
established to review decisions of the Commission.
The
notification process also applies to agreements or practices falling under Section
27(5-10) which existed prior to the enactment of the Competition Act, thereby
giving the Act a retroactive effect.
Furthermore,
the Commission is given the authority to issue written orders to business operators
violating, in its opinion, Sections 25 to 29, requiring them to suspend, stop
or correct and alter unfair practices. While such orders must be grounded,
business operators are also given the op-portunity to appeal such decisions to
the “Appeals Consideration Commission”.
Penalties
Failure
to abide by the above provisions of the Competition Act could result in jail terms
of be-tween one to three years and/or fines ranging from two to six million baht.
Note that under the Competition Act, such penalties may be applied not only to
the enterprises but also to their manag-ing director, managing partner or person
in charge of operations unless the offense at stake was committed without his/her
knowledge or consent and/or reasonable measures were taken to prevent such offense.
Furthermore,
the Act also allows any person suffering damages attributable to violation of
Sections 25 to 29 to claim for damages by filing a lawsuit through the Consumer
Protection Commission.
Governing Body
As
stated above, the Commission has been given the authority to oversee and ensure
compliance with the Act and give recommendations to the Minister in the issuance
of Ministerial Regulations.
The
Competition Act has been criticized for the unlimited power given to those acting
on behalf of the Commission. Indeed, these individuals are vested with the
same authority as investigating offi-cers under the Criminal Procedure Code. In
performing their duties under the Competition Act, government officials are given
extraordinary powers, such as entering business premises under reasonable suspicion
of committing a violation without search warrants, and are vested with the same
authority as administrative officials and police under the Penal Code for arresting
violators.
Furthermore,
as stated above, the Commission has the authority to issue written orders to Business
Operators who, in its opinion, are in violation of Sections 25 to 29 and to any
“Business Operator Having Power Over the Market” whose market share exceeds 75%.
In issuing such orders, the Commission is again given a great deal of discretion
in prescribing rules, procedures, conditions and time frame for compliance.
Conclusion
The
Competition Act, while needed in the suite of modern business practices regulatory
enactments, unfortunately can be legitimately criticized for the ambiguities of
its terms, which give the Act a very broad application. In view of the uncertainty
concerning the scope of application of the Act, it is hoped that the Commission
will urgently recommend further legislation and that organic laws will be adopted
in the near future.
__________________
(1) The
Act was adopted together with “The Act on the Price of Goods
and Services” and the “Anti-Dumping and Counter-Subsidization
Act”, thereby giving Thailand a set of new laws the purpose
of which is to prevent unfair trade practices. “The Act on
the Price of Goods and Services” aims at preventing the fixing
of purchase and distribution prices and/or the setting of unfair
conditions and trade practices, while the “Anti-Dumping and
Counter-Subsidization Act” provides procedures and criteria
for dealing with anti-dumping and counter-subsidization cases.
For
further information, please contact Ms.
Pimvimol (June) Vipamaneerut,
Partner & Head of Transportation Group and Labor Group, Tilleke
& Gibbins (e-mail
pimvimol.v@tillekeandgibbins.com).
©1999
Tilleke & Gibbins, Bangkok, Thailand
