Thailand: Antitrust Reform In Thailand 2016

Last Updated: 11 December 2017
Article by Suparerk Auychai, Peter McDonald, François Renard and Nonnabhat Paiboon

The 1999 Thai Trade Competition Act will soon be amended. The amendments are significant and will create a new independent antitrust authority, expand the scope of the Act, adjust the types and level of sanctions, and introduce new mechanisms such as a leniency program. It is also expected that these amendments will lead to the formal entry into force of the merger control regime in Thailand. The overall changes are in line with international standards. Business operators need to prepare to ensure compliance with the new legislation.

For the past 17 years, the Thai Trade Competition Commission (the Commission) has not actively regulated and enforced the Trade Competition Act B.E. 2542 (1999) (the Act), with a minimal number of claims considered by the Commission, and, as far as we are aware, only one civil case is being prosecuted at court level and one criminal case being investigated by the Commission. The regulator is aware that competition law in Thailand is in many ways not sufficiently evolved, with a lack of underlying rules, regulations and guidelines, the Commission's limited independence and budget, inefficient enforcement proceedings and lack of judicial expertise. A long awaited draft amendment to the Act was proposed to the Cabinet and approved in principle on 2 February 2016 (the Draft Amendment). Although the current draft is not yet publicly available, we set out below what we understand the key changes to the Act are.

Where is the Draft Amendment now?

The Draft Amendment was approved in principle by the Cabinet on 2 February 2016 and is now being reviewed by the Council of State. After the Council of State has commented on the Draft Amendment, the draft will be proposed to the Cabinet for approval. The National Legislative Assembly will then consider and approve such draft, which will come into force 30 days after being published in the Government Gazette. The Office of the Trade Competition Commission (the OTCC) noted that the Draft Amendment is expected to come into force sometime in 2016. Although the exact timing for the entry into force of the amendments is unknown, it is understood that this initiative benefits from strong political support, which indicates that the amendments are imminent.

Application to state-owned enterprises

Thailand is currently one of the few countries where state-owned enterprises (SOEs) are wholly exempted from competition law. The Draft Amendment provides that the Act will, in the future, apply equally to private operators and all SOEs. The only exemption available to SOEs will be actions carried out pursuant to the law or state policy, which are necessary to ensure national security, promote the benefit of the public as a whole, or for provision of public utilities. This amendment is expected to substantially affect the way that SOEs do business in Thailand, although Thai SOEs with international operations should be acquainted with antitrust principles.

Extra-territorial jurisdiction

The Draft Amendment will also have extra-territorial jurisdiction whereby liability will be considered on an 'effects-based' basis. This means that when a foreign company engages in anti-competitive conduct outside Thailand but the conduct has an anti-competitive effect on the market in Thailand, such foreign company will be liable under the Draft Amendment and can be sanctioned in Thailand. This approach is aligned with the approach adopted by many other competition rules around the globe.

Changes to the Commission

Contrary to the current governmental body, the new Commission will have independence and extended scope of powers so that they can actively regulate the market and ensure transparency and efficiency. The Commission will become an independent administrative organisation, similar to the Securities Exchange Commission, with an annual budget derived from various sources, including 10% of commercial trade registration fees which is approximately THB 190 million per year (i.e., approx. USD 5.3 million), as opposed to the current THB 5-6 million (i.e., approx. USD 140,000-170,000 per year) and other administrative fees. An initial budget will be allocated from the government for the first year after the Draft Amendment becomes effective. Members of the Commission will hold a full-time position and will be appointed by a transparent nomination process.

Legal certainty – merger control and more

A deadline will be imposed on the Commission to issue all guidelines, notifications, rules and regulations in relation to the Draft Amendment within one year from the date the Act is published in the Government Gazette and these must be revised every five years. This would include the merger control thresholds which have been anticipated over the last few years.

There is now a high possibility that the Commission will deviate from the draft merger control threshold that was publically disclosed on 6 June 2013.  As a reminder, these thresholds were as follows (see also our alert of 10 November 2014):

  1. businesses having at least 30% market share (before or after the merger) and turnover of at least THB 2 billion (i.e., approx. USD 62 million) in the previous financial year; or
  2. an acquisition of at least 25% voting shares in a public company, or of at least 50% of voting shares in a limited company, and each party or both parties collectively having at least a 30% market share and turnover of at least THB 2 billion in the relevant product or service market.

The Draft Amendment contemplates a systematic pre-merger notification requirement (as is the case for instance in Europe or China), as opposed to an approval process, whereby only a merger or an acquisition that may substantially reduce competition within a certain product or service market (pursuant to the thresholds to be issued by the Commission) must be notified to the Commission. The Commission may issue an order or recommendations in respect of such merger. Failure to notify the Commission or comply with such order will result in a fine of up to 20% of the turnover from the year of the merger or non-compliance (as applicable). In addition, the Draft Amendment further requires business operators to submit financial statements for a period of three years following completion so that the Commission may follow the outcome of the merger.

The OTCC commented that the draft notification on merger control thresholds will likely be issued not long after the Draft Amendment comes into force.

There are other changes in the Draft Amendment which are in line with international principles, e.g. 'business operators' will be viewed as a group and clearly defined to include affiliated companies with the notion of both capital and management control.

Adjustments to criminal sanctions and introduction of administrative fines

One of the reasons the Act is difficult to enforce is because all current violations are criminal offences, which means that no sanctions can be imposed without the involvement of the public prosecutor and the imposition of sanctions by the Courts of Justice; these extra steps have meant in practice that very few actions have been taken and no criminal cases have been brought to the Courts of Justice. The Draft Amendment will provide a mix of criminal, civil and administrative sanctions which are adjusted and allocated to different offences as appropriate. This is expected to enable the Commission to have more flexibility in imposing sanctions against business operators.

The Draft Amendment also empowers the Commission to give administrative orders and, more importantly, introduces administrative fines of up to 20% of the business operator's turnover in the year of the offence, including for failing to file a reportable M&A transaction. Failure to pay such fines will result in a penalty of two times the amount of the initial fines together with a daily fine of up to 1% per day throughout the period of violation. If failure to pay persists, the Commission will have the power to bring a case to the Administrative Court requesting an order to seize assets of the business operator in order to obtain payment of fines from the proceeds by way of a public auction.

Director's liability

Quite uniquely, the managing director or any person with managing control in a legal entity will be equally liable for any offence under this Draft Amendment committed by the legal entity if the offence arose from the order or act (or an omission thereof) by such person, including failing to file a reportable M&A transaction. The new Draft Amendment has removed the exemption of liability of directors who were not aware of the offence being committed or it has taken action to prevent the offence from occurring.

Leniency programmes

A leniency programme will be introduced for offences relating to hard core cartels (e.g. price fixing, agreements to obtain market control and bid rigging). This will incentivise companies involved in cartels to be whistle-blowers and cooperate with the Commission to lower their own penalties or obtain full immunity. This programme is expected to play a crucial role in the enforcement against cartels in Thailand. Leniency programmes around the world have proved to be one of the most important tools for antitrust authorities to initiate and to conduct cartel investigations.

New routes for claimants and judicial expertise

To ensure appropriate judicial expertise, criminal cases and claims for damages arising under the Draft Amendment will be filed at the Intellectual Property and International Trade Court rather than the Courts of Justice. Moreover, claimants who incurred damage from a breach of competition law can still make a civil claim via the Consumer Protection Board without having to go through the Commission.

Next steps

Business operators of all sizes and in all industries will need to prepare for this reform by having a comprehensive compliance program in place and by ensuring that both the management and employees are well informed of how their current business conduct will need to change to comply with the new legislation. Furthermore, all reportable M&A transactions will require pre-closing notification. Businesses will need to be mindful of how it will affect the deal's timeline, transactional documents, and structure of the deal.

Originally published 30 May 2016

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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