Transcript Deunden Nikomborirak_ A Study on Unfair Trade Practices in

Deunden Nikomborirak
Kittipong Ruenthip
Thailand Development Research Institute (TDRI)
September 12, 2012
Ho Chi Minh City , Vietnam
1.
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5.
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
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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 procompetition regulations such as third party
access (3) vested interests
MONOPOLIES
Cable Television in Bangkok (private)
United Broadcasting Corporation (UBC)
Rail transport (state)
State Railway of Thailand.
Satellite (private)
Shinsat
Sales and Purchase of electricity (state)
Electricity Generating Authority of Thailand
(EGAT)
Electricity transmission (state)
EGAT
Electricity distribution in metropolitan area
Metropolitan Electricity Authority ( M.E.A.)
(state)
Electricity distribution in rural area (state)
(Provincial Electricity Authority (P.E.A.)
Natural Gas purchase and sales (state)
PTT PCL
Natural Gas transportation and distribution
PTTPCL
(state)
Import of Liquified Natural Gas (state)
PTT PCL
Gas separation (state)
PTTPCL
Water production and distribution in
Metropolitan Electricity Authority (M.W.A.)
metropolitan area (state)
Water production and distribution in rural areas
Provincial Electricity Authority (P.W.A.)
(state)
DOMINANT MARKET
Petroleum Refinery (state)
PTT PCL and subsidiaries control roughly 83
% of production capacity.
Electricity Generation (state)
EGAT and subsidiaries control roughly 80%
production capacity
CONCESSIONS
Metropolitan Bus Transport (state)
Bangkok Metropolitan Mass Transit (BMA)
Provincial Bus Transport (state)
The Transport Company
Telecommunications (state)
TOT PCL and CAT Telecom
2.1 Current Laws and Regulations
2.2 The Institutions
2.3 Law Enforcement
Unfair Trade Practice
Asymmetric Bargaining
Power
-
Unfair contract (Unfair Contract Terms Act 1997,
Trade Competition Act 1999)
- Discriminatory practice (Trade Competition Act)
- Abuse of IntellectuaL Property Rights (Trade
Competition Act 1999)
Asymmetric
Information
- False and Deceptive advertisement
( The Consumer Protection Act 1997
The Drugs Act 1967
The Food Act 1979)
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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.
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.
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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 the main 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.
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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.
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Unfair Trade
Practice
Asymmetric
Bargaining Power
-
Unfair contract (Office of
Consumer Protection Board, PM
Office)
- Discriminatory practice (Trade
Competition Office)
- Abuse of Intellectual Property
Rights (Trade Competition Office)
Asymmetric
Information
- False and Deceptive advertisement
( Office of Consumer Protection
Board &
Office of Food and Drug
Administration )
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.
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
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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.
◦ Carabao Daeng, 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.
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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)
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Abuse of IPR
◦ Abbott and the withdrawal of drug registration
(refusalto supply) in retaliation to Thailand’s
compulsory licensing order in 2006.
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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 ?
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.
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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.
Category 1:
Category 2:
Category 3:
Government officials in relevant department
Representatives of business chambers
Representatives of consumer organizations and/or
other consumer-related advocacy groups
Total
No. of
Respondents
20
7
10
37
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.
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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.
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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.
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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?
120
100
80
Don't know
60
No
40
Yes
20
0
Government
Private
Consumer
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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?
120
100
Depends on
80
circumstances
60
No
40
Yes
20
0
Government
Private
Consumer
5.1 UTPs in Thailand
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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.
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.

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.
THANK YOU
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