The new Thai Competition law, the Trade Competition Act B.E. 2560 (2017), came into force last month on 5 October 2017 (New TCA). The New TCA seeks to modernise the previous competition law in Thailand by introducing numerous significant changes, including in relation to: the composition of the Trade Competition Commission (TCC); merger control thresholds; anti-competitive agreements; exemptions; penalties; and the legal procedure for pursuing a claim.
Whilst in some instances, subsidiary legislation will need to be implemented for the changes to take full effect, and further clarifications are needed by way of guidelines from the TCC, the New TCA has certainly renewed focus on the competition landscape in Thailand.
Key changes to the Competition Law
Composition of the TCC
Under the New TCA, the TCC will be comprised of seven full time members with a chairperson to be appointed by the seven members. Whilst under the previous law, the Minister of Commerce sat as the chairperson, the New TCA specifically prohibits anyone who holds “a political position” from being a member. This seeks to ensure that the TCC will enjoy greater independence and transparency.
In addition, under the New TCA, members themselves will need to have work accomplishments or experience demonstrating that he/she has the requisite knowledge and expertise, or at least 10 years of experience, in sectors such as law, economics, finance or accounting, prior to being appointed.
Importantly, the TCC has been given additional power under the New TCA to render administrative fines for violation of certain provisions of the New TCA. Under the old regime, there were only criminal and civil sanctions. This is a significant development as it may give rise to an increase in enforcement actions by the TCC.
While the previous law stipulated that certain transactions must be filed prior to closing, this was never enforced because the necessary subsidiary legislation was never implemented.
The New TCA introduces a pre- and post-closing requirement depending on the type of transaction. Interestingly, a transaction that results in a significant reduction of competition in the market falls within the post-merger notification regime, and must be notified to the TCC within 7 days of closing.
If the transaction results in a monopoly or gives rise to a dominant business operator, it will fall within the pre-merger approval regime, and will require clearance from the TCC prior to closing.
The bases, procedures and conditions of the approval and notifications will be the subject of subsidiary legislation to be provided by the TCC within a year from the date of enforcement of the Act i.e. prior to 5 October 2018. Therefore, while the merger control provisions are not currently enforced, once introduced, they are likely to have a potential significant impact on businesses engaged in M&A transactions that impact Thailand.
Like other jurisdictions, including the EU, the New TCA makes a distinction between hard-core arrangements (such as price fixing, limiting the quantity of goods or services, bid-rigging and geographical limitations) and non-hard core arrangements (such as reduction in quality of goods or services, exclusivity appointments, and setting conditions or practices in relation to the buying or selling of goods or services). There is also a “catch all” provision that prohibits any “mutual agreement” which is to be further specified by the TCC.
There are some welcome changes in the New TCA that reflect business practice. For example, certain provisions will not apply to business operators who have relations with each other by way of policy or management powers (to be further clarified by the TCC). Further and again in line with other jurisdictions, the definition of “market dominant business operator” expressly specifies that the TCC will consider not only the company’s market share and annual turnover, but other “competition condition factors” such as the number of business operators in the market, the amount of money invested by the dominant business operator and the necessary structure for business operation. Such changes demonstrate a move towards bringing the New TCA in line with international standards.
The New TCA also expressly provides for an efficiency based exemption. For example, agreements where the objective is for development or promotion of technical progress, or where one party is the giver of rights to use goods or services, trademark or business operation method are exempt. The restrictions must, however, go no further than is absolutely necessary to achieve the efficiencies claimed. In addition, they must not create a monopoly or significantly restrict competition on the market.
Notably, the New TCA also includes a specific provision which prohibits a contract with an offshore business operator which causes a monopoly or unfair trade restriction that has a “serious impact to the economy and interest of the consumer as a whole.” It remains to be seen how this will be interpreted in practice by the TCC, but suggests that the New TCA may be interpreted as “effects based” – a point on which the previous law was silent.
The New TCA does not apply to government and state agencies in respect of activities performed in accordance with the laws or resolutions of the Cabinet, which are necessary to “maintain [the] State’s stability, public interests, common interests, or arrangement of public utilities”. This is narrower than the previous blanket exemptions of all state owned companies; however, again it remains to be seen how this provision would be interpreted by the TCC.
One of the main changes in respect of penalties under the New TCA is the introduction of administrative penalties and how these can be imposed by the TCC itself.
Criminal prosecution will now only apply to abuses of dominant positions and hard-core arrangements. The maximum criminal sanction is 2 years’ imprisonment and/or a fine of 10% of the annual income of the offender in the year that the offence is committed. If the offence is committed in the first year of business, the maximum criminal sanction is 2 years’ imprisonment and/or a fine of THB 1 million.
In respect of non-hard core violations, unfair trading practices, and contracts with offshore entities, administrative penalties may be imposed. The maximum penalty is a fine of 10% of the annual income of the offender in the year that the offence is committed and if the offence is committed in the first year of business, the fine would not exceed THB 1 million.
Both the criminal and administrative penalties may apply to both corporate and authorised directors of the company.
The New TCA has also changed the court in which the criminal and civil lawsuit must be filed to the Intellectual Property and International Trade Court (IPIT Court). The IPIT Court was established in 1997 and deals with cases involving intellectual property and international trade issues, including international cases (for example, it has exclusive jurisdiction on the enforcement of arbitral awards in intellectual property and international trade matters). This move towards the use of the IPIT Court (from the previous law which specified the Thai Court of Justice) also signals the recognition of anti-competitive matters as involving international and Thai companies.
Commentary and Takeaway
Although there are still uncertainties surrounding the broad wording of some of the provisions, and although it will still take some time to implement subsidiary legislation and new TCC guidelines, the much awaited TCA is a welcome change that promotes fair market practice in Thailand. It brings the Thai competition regime more in line with international competition regimes, and has drawn significant attention from the Thai government and the private sector.
It remains to be seen whether the New TCA will increase the number of enforcement cases by the TCC; however, it would be prudent for foreign businesses investing into Thailand or entering into agreements with Thai entities to familiarise themselves with the New TCA and consider the potential impact it may have on its business in Thailand.
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2020