CUTS Conference on

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Session1 Unfair Trade Practice
Conceptualization, Significance and Regional
Perspective

• CUTS Conference on Gathering Evidence on Unfair
  Trade Practice in ASEAN Challenges and Impacts
• March 11 2011
• Hanoi, Vietnam
• Deunden Nikomborirak
• Thailand Development Research Institute

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Outline of the Presentation

1. What constitutes unfair trade practice? How is
   it different from anti-competitive practices?
2. Why some countries have unfair trade practice
   provision while others do not?
3. How is the unfair trade practice provision
   implemented?
4. Does enforcement of unfair trade practice impose
   negative impact on consumers?
5. Do ASEAN countries need an unfair trade
   practice provision?

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1. What constitutes unfair trade practice? How
is it different from anti-competitive practices?

• Unfair trade practice usually concerns the
  discrepancy in the bargaining power of two
  parties, often in a vertical supply chain.
• Different bargaining power leads to difference
  allocation of rents with larger portion of
  rents going to the party with greater bargaining
  power.
• Should the state get involved in how rents are
  distributed between two businesses? For example,
  if large retailers the like of Tesco squeezes the
  margin of small suppliers down to zero, should
  the government intervene?
• Theoretically, the answer is no. But the reality
  of having an unfair trade practice is not so
  simple.

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2. Why some countries have unfair trade
practice provision while others do not?

• The role of competition law is not limited to
  protect fair competition in the market, but
  also ensure fair competition between two
  undertakings.
• Certain trade practices are simply undesirable
  (bordering fraud/bad governance) and should be
  banned altogether. (fidelity rebates, reciprocal
  dealings, discriminatory treatment, etc)
• Competition Authority wants to maintain some
  flexibility in enforcing competition law.
  Unfair trade practice requires no proof of market
  dominance, which can be technically complicated.
  (Japan)
• Unfair trade practice can be seen as a catch
  all provision that will allow competition
  authority to deal with unanticipated forms of
  restrictive or unfair trade practices or those
  beyond the reach of conventional competition
  provisions. (Many countries)

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Description of Unfair Trade Practices in
Different Laws
Coutry Unfair Trade Practice
South Korea refusing to deal or discriminating without reason Engaging in activities aimed directly at harming competitor(s) Forcing customers or competitors to conduct business with itself without reason Misleading advertisement Specifying conditions in a contract that cause harm to other businesses
Germany lobbying other business or group of business to refuse to deal with a business or a group of business. Threaten or provide incentives to another business in exchange for favor unrelated to the business stipulated in the contract. Threaten or pressure other businesses or group of businesses to engage in practices that restrict competition in the market. harm businesses that have decided to comply with the suggestion of the competition authority Abuse of Intellectual Property Rights (including franchising)
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Description of Unfair Trade Practices in
Different Laws (cont)
Coutnry Unfair Trade Practice
Canada discriminatory practices Predatory pricing Engagement in activities aimed at preventing price competition. Refusal to supply a product on the basis that the retail price set by the retailer is too low. Engagement in business with another entity under the agreement of refusal to supply to a third party.
United States Price discrimination between customers Granting of special privileges to selected customers Price discrimination between locations without reason. Engagement in business with another entity under the agreement of refusal to supply to a third party.
Japan Discriminatory practices without reason Unfair pricing Coercion of other businesses to engage in business with itself. Stipulating conditions in doing business that restrict business options of other entities. Unfair exploitation of bargaining power Intervention in other undertakings affairs so that shareholders or staff engaged in activities that are against the interest of the particular undertaking.
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A Few Observations

• Unfair trade practice provision appear to be
  catch all provision designed to deal with
  country specific trade practices that may
  potentially harm competition but are beyond the
  reach of the law in the specific country.
• Many of the prohibited practices are often
  addressed in other laws such as consumer
  protection law (misleading advertisement),
  Franchise Law, Tort Law, Unfair contract Law,
  etc.
• One important unfair trade practice that needs to
  be addressed is Abuse of Intellectual Property
  Rights.
• To conclude, unfair trade practices provisions
  may be necessary for countries where other laws
  supporting fair market competition are still
  missing .

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3. How is the unfair trade practice provision
implemented?

• Certain countries specify types of behaviour that
  is considered to be unfair per se. For
  example, discriminatory practices, retail price
  maintenance, predatory pricing and obstruction
  to price competition are considered to be unfair
  trade practices in Canada.
• Other state, such as Taiwan, require (1) motive
  and (2)economic reason
• While there is international benchmark in
  assessing harm to market competition, such does
  not exist for harm to other business. Much is
  left to the discretion of the Competition
  Authority.

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4. Does enforcement of unfair trade practice
impose negative impact on consumers?

• Depends on the nature of the practice and the
  nature of the remedy.
• For example, in the case of large retail stores,
  if the problem is considered to be predatory
  pricing such that daily discount of selected
  product is prohibited, then consumers will need
  to pay higher prices. But if the problem is
  considered to be discriminatory treatment
  between house-brand and other products, then fair
  competition (benefitting consumers choice) can
  be had.

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5. Do ASEAN countries need an unfair trade
practice provision?

• Reasons that may support a need for such a
  provision
• Small enterprises in developing countries are
  less informed about their rights that do their
  counterparts in developed countries and so are
  easily taken advantage of.
• Supporting laws and regulations to ensure fair
  dealing are still missing (fair contract law,
  franchise law, anti-bribery law, etc.)
• Large companies in developing countries tend to
  be not only large but powerful, exacerbating the
  imbalanced bargaining power, and expanding the
  scope of potentially unfair trade practices
  beyond the conventional horizon.
• So, there is a need for a provision that is
  flexible to deal with all sorts of undesirable
  trade practices. However, clear implementing
  regulations will be necessary to ensure the
  transparency and predictability of the
  enforcement.

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Thank You