Unfair Business Practices in ASEAN

1. Unfair Business Practices in ASEAN Deunden Nikomborirak Thailand Development Research Institute (TDRI) December 19, 2012 Jakarta , Indonesia

2. Outline of the Presentation • Legal framework for UTPs. • A Survey of UTPs in ASEAN. • A Survey of Perception of UTPs and its regulation. • Conclusion

3. 1. Current Legal Framework on UTPs

4. Types of Practices considered “unfair” Unethical or fraudulent behaviour • Infringement of business secrets • Defamation • etc

5. Types of Laws used to address UTPs

6. Trade Competition Act • Six ASEAN countries have Competition Law. • Only some have UTPs the competition law. Thailand Section 29 of the law broadly deals with “unfair trade practices” that cause damage to other businesses while Vietnam is codified • Indonesia and Vietnam codify trade practices that are considered “unfair” such as in the case of Indonesia: fidelity rebates, discriminatory pricing and tied selling and Vietnam: infringement of business secrets, coercion, defamtion etc. • Malaysia and Singapore have no such provision.

7. Consumer Protection Act • Every country has legal provisions dealing with false or deceptive advertisements under the Consumer Protection Law. • In most countries consumer protection authority is separate from that of competition, which means the work concentrates on B2C not B2B • In some country “consumer” does not include “business” such that SMEs do not benefit from laws protecting consumers such as unfair contract or deceptive advertisement (franchise) • In the Philippines, legal remedy for B2B UTPs can be imposed if damage to consumer is proven.

8. 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.

9. Sector Specific Laws • Many ASEAN countries still lack suis generis laws that address specific unfair trade practices in specific businesses such as • Deceptive advertisement and abuse of IPR in FRANCHISE industry • Abuse of Bargaining Power of large RETAIL markets • Abuse of IPR by patent or trademark holders • Unfair contracts in the AGRICULTUTRE sector (contract farming) and in the FRANCHISE industry • Fraudulent marketing scheme in the MULTILEVEL or PYRAMID marketing scheme

10. 2. UTPs in ASEAN

11. 2.1 UTP in ASEAN(Asymmetric Informtion) • Widespread false and deceptive advertisement in food and drugs, cosmetics AND • Rising concerns of deceptive advertisement in the telecommunications industry (broadband internet speed) • Rising concerns of deceptive marketing practices in modern marketing media such as SMS, telephone and the internet.

12. 2.2 Asymmetric Bargaining power • Retail market • Discriminatory practices between house brands and other brands. • Compulsory discount • Mandatory refund of unsold products • Franchise • Unrealistic revenue and profit projections • Unfair conditionality imposed on franchisee (purchase of unrelated products, intervention in the management) • Unfair contracts (Contract Farming) • Abuse of IPR?

13. There is no clear definition of what constitutes “abuse of bargaining power”. This is subject to each competition law/authority interpretation. For example, is redeeming a competitor’ discount coupon constitute an unfair marketing tactic?

14. 2.3 Unethical Trade Practices • Which trade practices are to be considered “unethical” is quite arbitrary, depending on the customs, philosophy and moral perception of the law makers or enforcers • Most fraudulent practices are covered by the criminal code or tort laws.

15. 3. Perception Survey

16. Information about the Survey • No of samples: over 40 • Samples consist of businesses, consumers and government officials.

17. 3.1 Perception about UTPs What practices are perceived to be “unfair” • For B2C: Private sector and consumer groups perceive false & misleading advertisement to be unfair, but not so much by the trade officials, • For B2B: All groups tend not to perceive practices fidelity rebates, retail price maintenance, margin squeeze to be “unfair” • All groups perceive unfair and predatory prices to be UTPs • Trade Associations tend to perceive many trade practices to be UTPs than do individual businesses.

18. 3.2 Perception about the occurrence of UTPs • All sectors perceived misleading advertisement, tied selling and unfairly high prices to be most prevalent form of UTPs.

19. 3.3 Willingness to help combat UTPs • Consumers are most willing to cooperate with officials to combat UTPs, follow by government officials. Businesses are somewhat reluctant due to fear of repercussions.

20. 4. Conclusion 4.1 UTPs regulations are embedded in many suis generis laws. The legal structure and availability of these laws are still very much diverse in ASEAN. Harmonization seems impossible. 4.2 Many ASEAN countries still lack laws required to address specific UTPs in particular those that concern the abuse of IPR (patents and trade marks) and unfair contract terms (franchise, contract farming)

21. 4. Conclusion (2) 4.3 Public Perception about UTPs and its regulation. • Most consumers are not aware of UTPs affecting the business sector. Hence, awareness building on competition law will have to focus on UTPs that directly affect consumers such as discriminatory pricing, price fixing or monopoly pricing. 4.4 Business associations appear to be well informed about UTPs. Hence, advocacy may focus of such group.

22. THANK YOU