Tougher competition legislation will enter into force in Thailand on October 5.
Important features of the Trade Competition Act include a dual merger approval system, the ability for the Competition Commission to impose criminal sanctions and an expansion of the scope of businesses covered, including state-owned enterprises. Though a competition law has been in place for the past 18 years, the authorities have never used it to prosecute anyone. The ineffectiveness of the existing law has prompted them to strengthen regulations.
Targets of new law
The new law will cover four main areas:
- Abuse of market dominance
- Merger control
- Collusion and other collective practices that restrain competition in the market
- Unfair trade practices
Penalties for breach of the law range from imprisonment for one to three years and/or fines ranging from $3,000 to $30,000. The Commission has the power to issue orders for a business to stop or change its anti-competitive conduct. Under the existing law, no businesses have been criminally sanctioned because the Commission needs the public prosecutor’s approval to consider prosecution.
The scope of the new law covers all businesses, including state owned enterprises. However, it will not cover industries that already have their own sector-specific competition legislation, including telecommunications, insurance and energy.
To improve enforcement, the Competition Commission will be restructured to be made up of seven commissioners and the Office of the Trade Competition Commission (OTCC), a state entity that will serve as the administrative office. Under the existing law, the OTCC is within the Department of Internal Trade of the Ministry of Commerce. “It is not independent and may be influenced by capitalists who support political parties,” said Archaree Suppakrucha, senior associate at ZICOLaw. “Under the new law, the OTCC will be an independent government entity separated from other official divisions.”
Athistha Chitranukroh, Of Counsel at Tilleke & Gibbins, agreed and said that “theoretically, political parties could interfere in the OTCC’s work”. He added that under the existing law, OTCC members do not serve full time and do not meet to conduct work frequently, with less than 10 meetings throughout 2016.
Suppakrucha pointed out that the new law sets out a time-frame for the issuance of implementing rules and regulations, which will help with enforcement. Administrative fines and criminal sanctions will also increase enforcement efficiency.
Litigation that arises under the new Competition Act will be dealt with by the Central International Trade and Intellectual Property Court. “The likely intention of this change is to appoint a court with the expertise to understand the Trade Competition Act restrictions and rationale that must be considered alongside economic principles and market conditions,” said Chitranukroh.
The new law expands the criteria in the existing law that define dominance to include not only market share and turnover, but also the number of competitors, distribution channels available and amount of capital.
“The new Act will adopt the concept of a “single economic unit” where a group of companies will be considered as one business operator, not individual companies,” said Chitranukroh. “If a member of such a group abuses its market dominance, the penalty is 10% of the total revenue, but it is unclear whether the total revenue is calculated from the entire group of companies, which could be a massive amount.”
“Since the new criteria on market dominant business operators will be issued and reviewed at least every three years, business operators are advised to consider their dominant position regularly,” said Suppakrucha.
Unfair trade practices
While the Act provides a list of unfair trade practices, the scope is still broad and further clarification will be needed. The practices include:
- unfair obstruction of business operations
- abuse of superior market or bargaining power
- imposing unfair trading conditions
The new law introduces a dual merger control system for pre-merger and post-merger notification. The Commission must issue its approval for any merger or acquisition that may result in a monopoly or create dominance. It has 90 days to do so, with a possible extension of 15 days, from the date of submission. Businesses and their advisers still need clarification on the extent of this provision on the size of businesses covered. For post-merger notification, any consolidation that may materially reduce competition should be notified to the Commission within seven days of the transaction’s completion. Businesses should allocate sufficient time for the extra time needed for approvals and notifications.
Subordinated regulations, which the OTCC expects to issue within a year from the effective date of the new Act, should provide more clarity on the new law. Businesses would do well to assess their competition compliance policies and programmes and the potential implications of the new law on their mergers and acquisitions.