A Study on Unfair Trade Practices in Thailand

1. A Study on Unfair Trade Practices in Thailand Deunden Nikomborirak Kittipong Ruenthip Thailand Development Research Institute (TDRI) September 12, 2012 Ho Chi Minh City , Vietnam

2. Outline of the Presentation • A Brief Overview of the Nature of the Market Competition in the Thai Economy. • Current legal and institutional framework for UTPs in Thailand. • A Survey of UTPs in Thailand. • A Survey of Perception of UTPs and its regulation. • Conclusion

3. 1. Nature of Market Competition • Tradable sector – competitive Non-tradable sector (services) – concentrated • High market concentration in network industries such as gas distribution, telecommunications, electricity generation can be contributed to (1) lack of effective foreign competition (2) lack of pro-competition regulations such as third party access (3) vested interests

4. Remaining Monopolistic Markets in Thailand

5. 2. Current Legal and Constitutional Framework on UTPs 2.1 Current Laws and Regulations 2.2 The Institutions 2.3 Law Enforcement

6. 2.1 Current Laws and Regulations

7. Trade Competition Act 1999 • Section 29 of the law deals with unfair trade practices. • It prohibits any act contrary to free and fair competition that obstructs, damages, or restricts other business operations. • Violation of this section does not require the proof of dominance, but requires the proof of damage. • The scope of application of this section is unclear because it is overly broad and vaguely worded. It is designed to be a ‘catch-all’ provision.

8. Consumer Protection Act 1979 Section 22 of the law states that an advertisement may not contain a statement which is unfair to consumers or which may cause adverse effect to the society as a whole, which includes statement which is false or exaggerated and statement which will cause misunderstanding in the essential elements concerning goods or services.

9. Food and Drugs Act • Section 88 of the Drugs Act 1967 stipulates that an advertisement for the sale of a drug shall not falsely or exaggeratedly show its therapeutic properties or overstate the quantity of themain component. Section 88 requires that any advertisement to sell drugs through any media channel must receive permission from the relevant authority. • Section 40 of the Food Act 1979 stipulates that false or deceptive advertising of the quality, usefulness or indication of a food is prohibited. Section 41 requires that anyone wishing to advertise the qualities, usefulness or indication of a food through any media must submit the advertisement for prior approval. Such a requirement is relatively stringent as most countries do not prescribe pre-screening of food advertisement.

10. Unfair Contract Terms Act 1997 • the terms in a contract between the consumer and the business which render the business an unreasonable advantage over the other party shall be regarded as unfair contract terms, and shall only be enforceable to the extent that they are fair and reasonable according to the circumstances. • terms that may be considered “unfair” includes • Exclusion of restriction liability arising from breach of contract; • Imposition of liability or burden than that prescribed by law; • Contract termination without justifiable ground • Granting of the right not to comply with any clause of the contract without a reasonable ground; • Granting of the right to a party to compel the other party to bear more burden than originally specified when the contract was signed • terms in a contract of sale with right of redemption whereby the buyer fixes the redeemed price higher than the selling price plus rate of interest exceeding fifteen percent per year • The Unfair Contract Terms Act applies only to final consumers.

11. 2.2 The Institutional Design

12. 2.3 Enforcement 2.3.1 Trade Competition Act • Not a single case has been subject to legal sanction. Number of complaint has fallen to 1 case a year. 2.3.2 Office of Consumer Protection Board • “functional” but “passive”. Each year, the Office take legal actions on behalf of consumers 280 cases. • Limited coverage – no branches/offices in the provinces • Strict interpretation of “consumer” as “final consumer” only. 2.3.3 Food and Drug Administration handle 1,035 cases involving misleading or false advertisement for food, drugs and cosmetics.

13. 3. Survey of Unfair Trade Practices inThailand 3.1 A) Asymmetric Information – False and misleading advertisement in • Food (Genu Food) and Drink Business (Carabao Dang) • Unfair Franchise business B) Asymmetric Bargaining Power • Unfair franchise contract term • Retail business (Superstores) • Abuse of IPR

14. 3.1 A) False and misleading advertisement • Occurs mainly in food and cosmetics products, health related products such as air condition and water filter, fortune telling (related to lottery), and services at bauety clinics • Genu food advertised that the drinking product can cure many diseases. • CarabaoDaeng, an energy drink, advertised that the product contains vitamin B12, which it did not. • Whitening cosmetic products often overstate the ability to lighten complexion. About 90% of the cases involve on-line advertisement. • Beauty Clinics often exaggerates the ability of modern equipment to fix beauty problems.

15. Misleading/Unfair Franchise Contract • Misleading of false advertisement – i.e., overstatement of revenue potentials • Unfair Contract • Unnecessary procurement conditionality • Prohibition of engagement in unrelated businesses (Pizza Hut and Pepsi) • Other requirements unrelated to the fulfillment of the franchise business such as intervention in the management of the franchisee’s business. (Pepsi)

16. 3.1 B) Asymmetric Bargaining • Abuse of IPR • Abbott and the withdrawal of drug registration (refusalto supply) in retaliation to Thailand’s compulsory licensing order in 2006. • Unfair Business Terms • Large retail stores (Tesco and Big C) were accused of charging excessive entrance and shelf fees, forced discounts, discriminatory terms, etc. Are these practices “unfair” or normal business practice ?

17. 3.2 Law Enforcement False Advertisement in case of Food & Drug : Most pleaded negligence and comply. However, some seek to delay the decision and thus, compliance. False Advertisement in case of Franchise: Not clear which government body is responsible in the absence of a Franchise Act. Unfair Franchise Contract: Business to business contracts appear to be in “no man’s land”. For international franchise, the case goes to international arbitration. Abuse of IPR in the Pharmaceutical Case: The Trade Competition found no infraction. (Needs to revise how the revenue threshold of dominance should be calculated for MNCs) Unfair business terms in the Retail Market: The Trade Competition passed a Retail trade Guideline on Fair Competition, which is broad and vague. Most of complaint cases have been terminated from lack of evidence while a few are still under investigation after over a decade.

18. 3.3 Gaps • No implementing regulation required to deal effectively with “unfair trade practices” in particular, the abuse of IPR and Unfair contract terms between “businesses”. • Criminal sanctions which require “proof beyond reasonable doubt” makes legal cases against UTP unlikely to succeed. • Administrative fines are too low such that persistent contravention may yield positive financial returns. • Affected parties are unwilling to report UTP in fear of negative repercussions. • Lack of human and financial resources and technical capacity on the part of the regulator.

19. 4. Perception Survey

20. 4.1 Perception about UTPs What practices are perceived to be “unfair” • Private sector and consumer groups perceive false & misleading advertisement to be unfair, but not so much by trade competition officials, • Consumers do not perceive practices that may be considered to be unfair between businesses to be “unfair” such as fidelity rebates, retail price maintenance, margin squeeze. • All groups perceive unfair and predatory prices are perceived to be most prevalent.

21. 4.2 Perception about the occurrence of UTPs • Private sector is most pessimistic about the spread of UTPs. They believe that UTPs are widespread and severe. • All groups believe that sectors most affected by UTPs are retail, telecom and energy. • Government and private sector indicate that construction and agriculture are also affected by UTPs.

22. 4.3 Comprehension about competition law & its implementation • 70 % of respondents from business and consumer groups believe UTPs problems are not resolved, compared with 45 % for competition officials. • Consumers believe that lack of effective enforcement is responsible for the persistence of UTPs. Competition officials and businesses believe that several factors are responsible including discrepancy in bargaining power, asymmetric information, monopoly and the absence of laws and enforcement.

23. 4.3 Comprehension about competition law & its implementation (cont.) • All groups believe that the existing rules and regulations do not protect the competitive process in the markets as well as SMEs and consumers. Question: Do you think that the existing rules, regulations or laws do a sufficient job to protect the competitive process in our country, as well as the small business and the consumer?

24. 4.4 Willingness to help combat UTPs • Consumers are most willing to cooperate with officials to combat UTPs, some businesses are somewhat reluctant. Question: Will you be willing to sign investigation reports as third parties or testify for the State agency dealing with unfair trade practices/the court if necessary or requested by them?

25. 5. Conclusion 5.1 UTPs in Thailand • Besides false and misleading advertisement, other types of UTPs in Thailand are not properly regulated due to lack of relevant laws and regulations such as the Franchise Act, Retail Act, Abuse of IPR clause in the Patent Act, etc. or Implementing Regulation of section 29 governing UTPs in the Trade Competition Act. • But passing required laws and regulations will not help if the regulator is not willing to enforce the law in the absence of a political will.

26. 5. Conclusion (2) 5.1 UTPs in Thailand • It is necessary to build public pressure to effectively enforce the law and make the Trade Competition Office an Independent Body, redefining the composition of the Trade Competition Commission. 5.2 Public Perception about UTPs and its regulation. • Most consumers are not aware of UTPs affecting the business sector. Hence, awareness building will have to focus on UTPs that directly affect consumers such as price fixing or monopoly pricing.

27. 5. Conclusion (3) 5.2 Public Perception about UTPs and its regulation. • Most consumers are not aware of UTPs affecting the business sector. Hence, awareness building will have to focus on UTPs that directly affect consumers such as price fixing or monopoly pricing. • Businesses perceive the problem to be widespread and serious. • Both businesses and consumers are of the belief that the current regime is not protecting them • However, they hold reservations when asked about willingness to help with the investigation.

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