Developing of Competition Policy in Thailand

by

Siripol Yodmuangcharoen

 

Free and fair trade is one of major economic policy adopted by Thai government for many regimes. Business practices are allowed to practice freely in domestic market. There have been some areas of business regulated by the government in the form of state-owned enterprises or government licensing. These regulated sectors of business are questioned about their abuse of market power by the public. Recently, in the latest amendment of the Constitution of the Kingdom of Thailand, there is a provision guiding economic policy for the government, "Section 87 The government must support an economic system under the free market mechanism. It has to regulate in order to have fairly competitive, consumer protection, and antimonopoly practices through direct and indirect means, including deregulate unnecessary rules and laws ...". With this guideline, the Thai government has initiated deregulation process and privatization state-owned enterprises in order to create competitive environment in the Thai economy.

 

1. Policies Towards Competition

It has been described by economists that competitive market force, through the Adam Smith's invisible hands, will result in economic efficiency and increased social welfare. Thailand has seen the benefit of efficient resource allocation of market force. To achieve this goal, the Thai government adopts policies to create competitive environment in domestic market. Many state-owned enterprises are under the process of privatization. Some of them are granted by laws to be monopolized. The public are in doubt of these state monopoly about their efficiency in production.

These state-owned enterprises are now under the process of privatization. Since these state-owned enterprises are set up by the law, the government proposes the Corporatization Act as a new law for transforming them to be public companies. Then shares of these companies will be sold to the public. These enterprises are the Telephone Organization of Thailand, the Communication Authority of Thailand, the Electricity Generation Authority of Thailand, Thai Airways International Company and Airports Authority of Thailand. Some state-owned enterprises that compete with private companies are terminated.

In addition, deregulation to liberalize regulated industries is adopted as a tool for stimulating competition policy. The Radio and Television Broadcasting Act has just passed the Parliament to deregulate radio and television frequency allocation from the regulation of Ministry of Transport and Communication.

It is well recognized that competitive environment could not be created without the free entry and exit of enterprises in the market. The government has just amended the Bankruptcy Act for easily exit of enterprises from the market.

 

2. Amendment of Competition Law

Business competition is currently under the regulation of the Price Fixing and Anti-Monopoly Act of 1979. This law authorizes a committee so called the Central Committee on Price Fixing and Anti-Monopoly, "Central Committee" in short, to monitor and regulate to protect consumer and prevent restrictive business practices

To enforce the law, the Central Committee has to initiate the case by requesting the Cabinet to put the products in question into the list of products under control of the committee. After the products are in the list, the committee can impose the necessary measures to resolve the problems related those products in question. Products in the list are mostly daily used products for consumers. The Central Committee has attempts to use this law carefully to minimize government market intervention. Once there was 120 products in the list of product under control. There are now only 22 products in the list. The measures adopted by the Central Committee are currently requires them to display selling price. Maximum selling price is imposed on retail price of sugar. It is considered to apply free float price scheme for sugar.

The law has been enforced for 20 years. It is used mainly for the benefit of consumer protection. After rapid economic expansion in the past decade, the Thai economic structure had changed. Businesses have been more focused on manufacturing, services, and export sectors. Business and manufacturers joining together, formally and informally, to create market power is observed widely in different areas of businesses. Recently, there have been parallel price increases among gypsum board producers and an abuse of concessionary market power in the cellular phone market, including abuse of monopoly power in instant coffee market. This has showed the unenforceable areas of the current law in regulating monopoly and restrictive business practices. At the same time, the government has a policy to reduce the role of state-monopoly. However, concessionary areas, in certain cases, are government projects under the Build-Operate-Transfer (BOT) scheme, which have been gaining market power.

The government has decided to improve the law to promote more business competition. Thailand learned from laws and experiences from various countries such as Germany, Japan, Australia, Republic of Korea and other countries, including by joining the UNTCAD international conference on restrictive business practices. Currently, the Business Competition Act replaces the Price Fixing and Anti-Monopoly Act of 1979.

The Objective of the Business Competition Act is to encourage and promote fair business practices by preventing abuse of market power, as well as creating opportunities for new entrants to have access to markets. According to the new Act, there is an enforcing agency called the "Committee on Business Competition." The committee is composed of 12-16 persons appointed by the Cabinet from public and private sectors. The Office of the Committee on Business Competition is located in the Department of Internal Trade. This committee is empowered to appoint sub-committees to act as expert bodies for giving advice and suggestion. It is also empowered to appoint investigative sub-committees for investigative procedures in anti-competitive cases. Under this new Act, there is an Appeals Committee for considering appeals of the order issued by the Committee on Business Competition. The Appeals Committee is set up to balance power of the Committee on Business Competition fairness in regulation.

The concept of the Act is emphasized on business conduct control. It lays down clearly the major conducts to protect competition as follows.

  1. It prohibits businesses with dominant positions and their ability to abuse their market power by

(1) setting unfair prices for goods and services as in resale price maintenance, predatory pricing and price discrimination,

(2) setting unfair trading conditions, directly or indirectly, to customers in order to restrict customers' normal business practices,

(3) limiting supply of goods and services to create a shortage of supply, and

(4) intervening into other businesses without proper reasons.

  1. Any mergers that may create monopolistic power or reduce competition is prohibited, unless those mergers are granted by the Committee on Business Competition.

  2. Entrepreneurs are prohibited from conspiring and colluding with other entrepreneurs in order to create monopolistic power, or reduce competition.

It could be seen that the Act mainly focuses on monitoring conducts of businesses with dominant position rather than normal businesses or small businesses. It does not allow businesses to abuse their market power through restrictive business practices. The Act has just been passed by the Parliament in mid February 1999. The Business Competition Act will be enforced on April 30, 1999.

 

3. Competition Law and Thai Business

It has been known that there is the Price Fixing and Anti-Monopoly Act of 1979 enforced for the benefit of consumer protection. There have been a lot of cases relating to unfair pricing of consumer products in retail market. Since the Act is composed of two parts: Consumer protection and Anti-Monopoly, only the part for consumer protection has been enforced effectively. The part relating to the Anti-Monopoly section have rarely been used. The business community does not recognize regulations on restrictive business practices. The Business sector has not taken business competition as seriously as competition in international trade. There are some complaints about the abuse of monopoly power, especially the questions of fairness in business practices. But there is no intention to resolve these problems seriously by the public. During the economic up trend, it seems like everyone could tolerate the abuse of market power by some monopolistic businesses.

After the economic crisis, there have been a lot of mergers and acquisitions, especially in banking and financial sectors. There exists nationwide credit crunch. Many corporations are in dire conditions. Some of them have to exit the market, especially small business depending on credit for their business activities. There have been complaints about the use of market power by dominant firms. Some firms with concessions caused some problems in using their privilege as the only producers or services providers. There are requests from small businesses in provincial areas to set up rules for fairness in business practices.

Some businessmen are against the passing of the Business Competition Act. They, however, are not against benefits from market competition. They feel that the Act will be a big obstruction of economic adjustment in the long term, especially during current economic crisis. There have been arguments that businesses are currently under free competition and no need for government regulation. There have been a lot of questions relating to the competition Act, especially, how the businesses should adjust to it. Moreover, some questions are related to the justification given for the government officers to interfere in business. Currently, the government tries to explain and disseminate information to business sector about the benefits of the Business Competition Act in creating a competitive environment in the Thai economy.

 

4. Conclusion

There is no objection that competition will be benefit the Thai economy. The Thai government has been trying to create competitive environments within the economy. To encourage competition in the market, plans for deregulation and privatization in various business areas of state-owned or state-monopoly enterprises are set up. Passing the Business Competition Act is one of earlier step to create competition environment in the economy. There have been a lot of questions needed to be answered about the implementation of competition law. There are a lot of things that both public and private sectors need to learn about implementing this new law. It is assured that competitive environment under the competition policy will create efficient economy in Thailand.