Thailand: The Trade Competition Act

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.

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.

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:

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".

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.

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.

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.

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).

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 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.

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 Commis-sion.

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".

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.

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.

1The 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.