It is an often stated that over 100 countries have competition laws with a majority providing for merger control regimes. Thailand, despite having a comprehensive completion law since 1999 has still not implemented the merger control provisions of the Trade Competition Act (the “TCA”). In 2013, the Trade Competition Commission (the “TCC”) passed draft merger review thresholds and left an impression that this might change. However, the expected notification containing the thresholds was never published and they remain unimplemented. With the 2015 deadline approaching for each ASEAN Member Nation to enact its competition policy, the Thai government clearly feels some pressure to make its law more effective. For example, Deputy Commerce Minister Apiradi Tantraporn was recently quoted in the Bangkok Post as saying: “The [TCA] needs speedy amendments. More importantly, the [TCA], which has been in effect for 15 years, has never been used for a single successful prosecution.”
At a public hearing held on October 28, 2014 in Bangkok, the Office of the Trade Competition Commission (the “OTCC”) introduced a number of proposed amendments to the TCA. We understand that the amendments will be proposed to the government before the end of this year and then, once approved, published in the Royal Gazette for implementation. The 2013 draft merger review thresholds also appear to be under consideration as part of this process and, once finalized, it is anticipated that they will be approved by the new TCC and then enacted by ministerial regulation.
Limited details have been provided with respect to the proposed amendments and we were informed that a draft would not be made publicly available until they were enacted. While it will be important to know the specifics of the proposed amendments and thresholds before we can evaluate how effective they will be, the public hearing has been the most significant signal to date that Thailand intends to make the TCA an effective regulatory regime. Since we cannot accurately predict the final form of the enacted amendments and any relevant implementing regulations, we provide a brief overview of the issues below:
- The inclusion of certain state enterprises within the jurisdiction of the TCA. In a November 1, 2014 Bangkok Post article, Deputy Commerce Minister Apiradi Tantraporn clarifies the intent of this amendment is to enforce the TCA against state owned enterprises that operate businesses that compete with private enterprises. If the amendments are enacted on this basis, it will level the regulatory playing field in many important market sectors where government owned or controlled enterprises are major competitors such as Thai Airways, PTT and Krung Thai Bank.
- The OTCC, which is currently part of the Department of Internal Trade of the Ministry of Commerce, would be established as an independent agency. There were also references to increased powers being provided to the OTCC as part of these amendments. It will be important to determine the actual level of independence of the OTCC, the powers it will be granted and any checks or balances against the exercise of such powers (such as judicial or administrative review or appeal) in order to evaluate the effect of these amendments.
- Changes to the composition of the TCC. We do not have material information with respect to the proposed changes, but since the TCC already consists of a mixture of private sector and other experts in addition to political representatives, we assume that, as part of the greater independence of the TCC, these changes may make the method of selecting private sector experts more open and reduce the number of government representatives.
- Amending the definition of “Business Operator” under the TCA to include affiliates. It is not clear how this will be implemented as some jurisdictions within the region address the issue of affiliates in terms of their autonomy from the parent enterprise; whereas other jurisdictions simply focus on the issue of legal control or shareholding. Regardless of how this is implemented, inclusion of affiliates should remove intra-group agreements and conduct from prohibitions under the TCA.
- Establishing a leniency policy. Leniency policies have been cited in numerous jurisdictions and among international competition experts as a crucial tool in the control of cartels. A leniency policy normally provides full or partial relief from government sanctions for cartel participants who come forward and provide evidence to the regulator. In some jurisdictions, there are varying rewards for participants based on how quickly they come forward and whether the regulator was already aware of the cartel or not. Effectively, leniency policies create a prisoners’ dilemma among cartel participants with an incentive to rush in an be the first to given evidence of a cartel to a regulator. Without an effective leniency policy, commentators often question whether the regulators would be able to detect or gather sufficient evidence to prosecute, many cartels. Given the international proliferation of leniency policies and the potential for private actions against cartel participants in many jurisdictions, it will be particularly important for participants in international cartels to develop a strategy in their use of leniency policies and coordinate their applications in the relevant jurisdictions.
- Modifying the penalties for infringements of Sections 25 (abuse of dominant positions), 26 (mergers), 27(5)-(10) (anti-competitive agreements), and 29 (unfair competition practices). Currently, under Section 51, any person who contravenes these Sections may be subject to a term of imprisonment of not more than three years or a fine of not more than six million Baht (USD 183 thousand) or both, and, in the case of a repeat offence, the applicable penalty will be doubled. With respect to Sections 25, 26, and 27 (5)-(10), the current proposal is to remove the possibility of imprisonment and retain only a criminal fine as a penalty. With respect to Section 29, the proposal is to reduce the penalty to only an administrative fine on the basis that, according to a statement by Deputy Director-General of the Department of Internal Trade Santichai Santawanpas reported by the National News Bureau of Thailand, “the wrongdoings had affected only the parties involved, not the businesses as a whole.”
- Establishing thresholds for the merger control provisions under Section 26 of the TCA. To date, the merger provisions of the TCA have not been implemented due to lack of regulations establishing the relevant criteria by the TCC. On June 6, 2013, the TCC approved draft merger review thresholds setting out two basic thresholds for the pre-merger approval regime:
- Prior to or after the merger, the businesses have market shares equivalent to or exceeding 30% and total revenues in the previous year equal to or exceeding 2 Billion Baht (approximately USD 61 million) in any product or service; or
- With respect to an acquisition of voting shares; the above thresholds are met and:
- With respect to a public limited company, the acquisition reaches or exceeds 25% of all voting rights;
- With respect to a private limited company, the acquisition reaches or exceeds 50% of all voting rights.
At the time these draft thresholds were approved, we were informed that sub-committees of the TCC would be considering sector specific merger control thresholds; however we have not been provided any updates on these thresholds until the recent National News Bureau release.
At the public hearing, the OTCC discussed modifying the draft merger thresholds by potentially a) removing the market share thresholds and b) incorporating a size of transaction threshold. A difficulty that is often cited with market share thresholds is that it requires the merging parties to effectively anticipate the relevant market share definition that will be used by the TCC and be sufficiently familiar with the revenues of its competitors to determine their respective market shares. This can lead to merging parties incurring the costs of notification where it is not required or failing to notify and inadvertently contravening the TCA.
- Finally, according to the Bangkok Post, the most recent TCC meeting also approved changes to the thresholds for establishing market dominance. According to the Notification that took effect February 8, 2007, with an exemption for defined SMEs, a single business with market share in the previous year over 50% and at least 1 Billion Baht (USD 30.4 million) turnover is be considered dominant under the TCA.
As reported, the TCC has proposed to lower the relevant market share threshold to 30% and revenue threshold to 500 million Baht (USD 15.2 million) given the relatively small size of Thailand’s markets. The article cites the Deputy Commerce Minister as stating that factors such as number of competitors, relative position in the market, market concentration and barriers to entry would also be taken into account.
It will be interesting to note the relative weight that will be given to the non-market share factors and whether the TCC will be given the opportunity to conduct comprehensive market analysis as evaluation of conduct that may potentially infringe Section 25. If so, this would potentially limit the scope of Section 25 to cases where market power is potentially or actually abused as opposed to reliance on market power being deemed to exist simply when the relevant thresholds are exceeded.