Lao PDR Lays Foundation for Competition Regime

On 14 July 2015, the National Assembly of Lao People’s Democratic Republic (“Laos”) passed the Law on Business Competition (No. 60/NA) (“Competition Law”), which states that it will come into force on issue by the President of the National Assembly of the Promulgating Decree and 15 days after publication in the Government Gazette.

On 14 July 2015, the National Assembly of Lao People’s Democratic Republic (“Laos”) passed the Law on Business Competition (No. 60/NA) (“Competition Law”), which states that it will come into force on issue by the President of the National Assembly of the Promulgating Decree and 15 days after publication in the Government Gazette.  It is our understanding that, as the Competition Law was published in the Government Gazette on 24 November 2015, it is currently effective, although no promulgating decree has been issued. This is a somewhat confusing situation for businesses and furthermore the regulator has not been appointed. While the enactment of the Competition Law lays a foundation on which to develop and eventually enforce Laos’ competition policy, considerable additional guidance is required, including determinations, regulations and additional legislation, before the Competition Law is fully implemented.

The Competition Law establishes the outlines of the Laos’ regulatory regime.  It divides powers and responsibilities among various institutions and allocates primary responsibility for investigation and enforcement of substantive competition violations to the Business Competition Control Commission (“Commission”) and its secretariat (“BCC Secretariat”). From a substantive perspective, the Competition Law addresses unfair trade practices (“UTP”) as well as agreements that restrain competition, abuse of market power and mergers.

After setting out the some of the background context within which Laos enacted its Competition Law, this article outlines key provisions of the Competition Law and identifies some of the issues which are expected to require additional clarification in order to effectively implement Laos’ competition policy.

LEGISLATIVE BACKGROUND

Laos issued the Decree on Trade Competition (No. 15 /PMO) (“Competition Decree”) on 4 February 2004 which was nominally effective as of 1 August 2004.  The Competition Decree was somewhat sparse in details and left substantial issues for later interpretation. However, at least to some degree, it addressed anticompetitive mergers, cartels and behavior.  The regulatory body responsible for implementing the Competition Decree, the Trade Competition Commission, was never appointed and therefore, from a practical perspective, the Competition Decree was never implemented.  We are unaware of any cases having been brought under the Competition Decree.

ASEAN BACKGROUND

Under Laos’ 5 Year Plan for establishment and amendment of laws of the National Assembly VII Legislature (2011-2015) (No. 05/NA dated 24 June 2011), Laos was to enact a Trade Competition Law by 2015. The context for this 5 Year Plan and the Competition Law itself are best understood from a larger ASEAN perspective.

Pursuant to Article 41 of the ASEAN Economic Community Blueprint (“AEC Blueprint”), the ASEAN Member Countries (“AMCs”) agreed to, among other things, endeavor to introduce competition policy by 2015.   While the term “competition policy” is not defined in the AEC Blueprint, the ASEAN Experts Group on Competition’s website states:

“Competition policy can be broadly defined as a governmental policy that promotes or maintains the level of competition in markets, and includes governmental measures that directly affect the behaviour of enterprises and the structure of industry and markets. Competition policy basically covers:

 a. Set of policies that promote competition in local and national markets, such as introducing an enhanced trade policy, eliminating restrictive trade practices, favouring market entry and exit, reducing unnecessary governmental interventions and putting greater reliance on market forces; and

 b. Competition law which comprises of legislation, judicial decisions and regulations aimed at preventing anti-competitive business practices, abuse of dominance and anti-competitive mergers.

Competition policy helps to promote and protect the competitive process and provides a level-playing field for all market players. Fair and effective competition contributes to improvements in economic efficiency, economic growth and development, and consumer welfare. Competition policy complements other government policies such as trade policy, industrial policy and regulatory reform, and accommodates other economic and social objectives such as the promotion of technological advancement, promotion of industrial diversification and job creation.”

In this context, by the end of 2015, nine AMCs had enacted a comprehensive competition law as part of their respective compliance with Article 41 although, as of this writing, not all these competition laws are fully implemented or effective.

WHAT THE LAO COMPETITION LAW DOES

The Competition Law addresses four main substantive areas:

1. UTP;
2. Anti-Competitive Agreements;
3. Abuse of Market Power and Monopolization; and
4. Anti-Competitive Mergers.

In addition, the Competition Law sets out its aims and general principles, lays the foundation for the Commission and BCC Secretariat, and allocates powers relating to business competition management and investigation to pre-existing government agencies. On the enforcement side, the Competition Law sets out the basic framework for investigating and adjudicating potential infringing conduct, establishes a merger review regime, a creates a private cause of action and provides the basis for a leniency policy.  However, while the basic framework of a competition regime is provided, as elaborated on below, significant details are left to forthcoming legislation, regulation and determinations. While some of the issues identified below may arise from the act of translating a law from its native language and context, it appears that significant guidance is required on numerous aspects of the Competition Law.

THE SCOPE OF THE COMPETITION LAW

The Competition Law states that it applies to domestic and foreign individuals, legal entities and organizations that operate businesses in Laos.  A broad approach to the type of entity governed under the Competition Law is welcome as it appears that this may include foreign entities and State Owned Enterprises (“SOEs”).  In the case of the latter, it will be interesting to see whether SOEs receive any preferential treatment as compared to private enterprises given that one of the Competition Law’s stated objectives is to protect the rights and interests of the State and that one of the stated guiding principles for competition is to “ensure the rights and interests of the State, business operators and consumers”.

From a geographic perspective, the terminology suggests that the Competition Law does not rely on an effects based analysis for jurisdiction, but instead focuses on whether a relevant entity operates a business in Laos.  In order to assess whether conduct or parties are within the jurisdiction of the Competition Law, clarification will be required as what, if any, level of legal presence, asset ownership or operations will be deemed sufficient to satisfy this threshold test.  In contrast to this approach, the scope of the competition laws of each of Malaysia and Singapore expressly incorporate conduct that may take place outside of their respective countries where there such actions have an effect within the relevant country. This latter approach alleviates the risk that conduct that would otherwise be considered infringing due to its effect on competition in Laos is not immune from enforcement simply because the relevant parties do not have sufficient legal presence in the jurisdiction.

THE RELEVANT MARKE
T

The Competition Law contains a few relevant definitions with respect to the relevant market in Article 3 as set out below:

“Market means scope of business operations that purchasers, sellers and service providers interact, agree to buy and sell goods and provide services between each other directly or indirectly;

Market Share means the ratio of the goods trading and services value of any enterprise in the relevant market;

Relevant Market means the goods market, services and geographical market:

Goods market and services is the scope of the trading of goods and services that can be substituted in terms of characteristics, purpose of use and price,

Geographical market means any specific geographical scope that goods and services can be exchanged or substituted”

It is promising that the Competition Law expressly identifies both the product and geographic aspect to the relevant market. Additional guidance will hopefully be forthcoming with respect to the principles and methodology by which the Market, Market Share and Relevant Market will be determined as the Competition Law does not address how these essential concepts will be applied.

THE PROMINENCE OF UTP

Perhaps following on Vietnam’s example of successful UTP enforcement, the substantive portions of the Competition Law begin in Part II with the provisions dealing with UTP.1 Article 8 defines UTP as any of the following conduct engaged in by one or more enterprises (the translated terms have been paraphrased for ease of reference):

1. Misleading behavior;
2. Breach of business confidentiality;
3. Coercion;
4. Defamation;
5. Obstructing another business;
6. False advertising;
7. Unfair sales promotions;
8. Discrimination by associations; and
9. Other [unfair] behaviors as provided in relevant laws and regulations.

There are significant similarities between these identified forms of UTP and the analogous lists provided in the competition laws of Vietnam and Myanmar.  One potentially important distinction is item (i.) above, which may permit the inclusion of UTP under the Competition Law, which are themselves provided for in non-competition related legislation and regulations.  In contrast, in Myanmar, additional forms of UTP are to be prescribed by the regulatory authority and in Vietnam the Government may stipulate additional forms of UTP only in accordance with the criteria set out in its competition law.

Similar to the approach taken in the Vietnam and Myanmar legislation, the Competition Law elaborates on the defined forms of UTP in Articles 10-17.   Unfortunately, the language used is somewhat unclear and, at times, overly broad in scope and it is hoped that further guidance will be provided on the relevant infringing conduct.

In addition, given the language of the UTP provisions and those dealing with limitations of business competition (described below), it appears that certain forms of infringing conduct may be addressed in multiple provisions of the Competition Law.  Guidance will be welcome as to how the Commission will determine which provisions of the Competition Law will be applied where more than one substantive prohibition may potentially be applicable.  Such clarification may be particularly important if only certain prohibitions are considered to fall within the scope of the criminal provisions of the Competition Law.

LIMITATION OF BUSINESS COMPETITION

Limitations of business competition are addressed in Part III of the Competition Law and are defined as activities of one or more enterprises in the stated forms that are aimed at reducing, distorting or obstructing competition.  The defined forms are anti-competitive agreements, abuse of market power and anti-competitive mergers2 which are addressed individually in later Articles.

ANTI-COMPETITIVE AGREEMENTS

Article 20 of the Competition Law defines agreements to limit business competition as agreements between businesses with the aim of reducing, distorting and/or obstructing competition.   This definition suggests that the Competition Law may not apply to those agreements without demonstrably anti-competitive purposes or where such purposes are not the sole or primary motivation of the agreement.  This distinction is further complicated in that many of the definitions of prohibited conduct do not clearly distinguish between the acts and the purposes thereof.

Article 21 deems the following forms of behavior as anti-competitive agreements (the translated terms have been paraphrased for ease of reference):

1. Price fixing of goods or services;
2. Allocating market share;
3. Allocating manufacturing volume;
4. Limiting technological development or quality of goods and services;
5. Determining contract conditions;
6. Obstructing market access by other businesses;
7. Forcing other businesses from the market;
8. Bid-Rigging; and
9. Other behaviors provided in relevant laws and regulations.

While these terms are defined further in Articles 22-29, in many cases, the Articles incorporate terms that are not clear or require consideration of purposes or effects that may complicate their enforcement.  Additionally, the Competition Law’s approach of providing an exhaustive list of prohibited forms of anticompetitive agreements may raise enforcement concerns going forward; whereas the inclusion of prohibited conduct identified in other relevant laws and regulations may dilute the provisions’ focus on competition issues.  One means of potentially expanding the scope of prohibited conduct to ensure that anticompetitive agreements that are not expressly contemplated within the Competition Law are not immune from regulation may be to introduce some form of umbrella language in the relevant law or regulation to capture such forms of anti-competitive agreements not otherwise enumerated in the applicable laws.

Some of the noted concerns include:

• Article 22 includes “other forms of fixing to monopolize” as part of the definition of fixing prices without clarifying how this will be interpreted;
• Article 23 appears to restrict market allocation agreements to those which force other businesses from the market or limit or obstruct other businesses from distributing goods or providing services in the relevant market.  This may prove to be a difficult threshold for effective enforcement if interpreted to require proof that a market allocation agreement affects competitors who are not parties to the agreement;
• Article 25 appears to restrict agreements to limit technological development, quality of goods and services only to those cases where such agreements increase the costs of manufacturing or providing the service.

An interesting aspect to Article 29 (bid rigging) is the inclusion in the definition of agreements between businesses and relevant officials to win bids; thus preventing technical arguments that a bid rigging agreement would not be captured within the scope of these provisions solely on the basis that not all parties to the agreement are businesses.

Exemptions for agreements that would otherwise be considered anti-competitive under items (a)-(f) above are available under Article 45, where such agreements promote technological and academic progress, improve the quality of goods and services or enhance the competitiveness of small and medium size enterprises (“SMEs”).  The Commission is to consider such exemptions, but details on the procedures and application of such exemptions are not provided.  Further, while it is arguable that no exemptions should be available for bid-rigging and forcing market exit, it is not clear why exemptions should not be available to conduct proscribed by other laws and regulations.

Finally, it is not clear whether Article 21 is meant to apply only to horizontal agreements or whether, based on the statutory language, it also applies to vertical agreements.

MONOPOLIZATION UNDER THE COMPETION LAW

Market control and monopolization are both defined in Article 30.  The former is considered as unilateral or joint market share exceeding the thresholds established by the Commission; whereas the latter is considered to include both single or groups of companies that solely supply a market.  While leaving market power thresholds for later determination by the Commission is an approach utilized in other jurisdictions, this can lead to enforcement concerns, as evidenced in Thailand.

The defined forms of conduct that constitute illegal market control or monopolization are set out in Article 31 as follows (the translated terms have been paraphrased for ease of reference):

1. Unfair price fixing on sales and purchases;
2. Selling below cost and selling low quality goods;
3. Refusal to deal to consumers;
4. Unreasonable contract conditions;
5. Price discrimination; and
6. Other behavior provided in relevant laws and regulations.

Similar to the approach taken with respect to UTP and anti-competitive agreements, the listed conduct are further described in Articles 32 through 36.   However, given the numerous potential forms by which market power may be abused, the lack of an umbrella clause to incorporate conduct not expressly cited in the Competition Law may be particularly problematic for effective enforcement against misuse of market power.

As discussed in previous sections, significant additional guidance and clarification on the definitions is required; particularly, where there is apparent inclusion of effects based criteria.  For example, Article 32 seems to restrict unfair price fixing to situations where consumers are being taken advantage of whereas Article 33 seems to restrict below cost pricing to situations where other businesses are unable to compete with the intent to control or monopolize the market alone.  Further guidance would also be welcome with respect to issues such as the implications of regulating low quality goods under the abuse provisions, how the cost of goods will be determined and whether different prices and conditions are permitted for sales of different volumes or quality.

Article 35, which defines infringing conduct as fixing conditions on other businesses through contract or by forcing performance of non-contractual obligations, is in particular need of clarification. Without some unreasonableness or anti-competitiveness qualification, this potentially deems any contract entered into by a business with market power as infringing the Competition Law.

An exemption for listed abuses of market power that are determined to benefit the national economic development or for strategic and national security reasons is potentially available under Article 46.  The exemptions are to be granted on a case by case basis by the Government. The process for applying for such an exemption (including who makes the decision) is not provided in the Competition Law nor is the means by which the relevant criteria will be determined and applied.  It is interesting that the exemption granted may potentially be quite onerous to the relevant businesses as Article 46 goes on to state that the recipient of such exemption would thereafter be subject to the management and regulations of the State as follows:

1. Management of goods pricing and service charges; 
2. Management of volumes, scope of market of goods and services; and 
3. Management of manufacturing plans and sales of goods and services. 

MERGER CONTROL

The Competition Law provides for a merger regime although the market share threshold has been left for later determination.   Article 37 defines a business merger to include:

1. Enterprise Mergers;
2. Business Acquisitions; and
3. Joint Ventures.

In Article 2, these terms are defined as follows:

• Enterprise Merger means the agreement by two or more enterprises to the transfer of all legitimate assets, rights, obligations and interests into a merger to become an existing or new enterprise;
• Business Acquisition means the agreement of any enterprise to purchase part or the total assets of another enterprise thereby assuming  ownership and management of those assets; 
• Joint Venture means the joint investment as a shareholding between two or more enterprises jointly contributing any lawful assets, rights, obligations and interests in order to incorporate a new enterprise.

Anti-competitive mergers are then defined in Article 38 as business mergers that result in:

1. a market share over the determined level;
2. an effect on access to the market or that limit technological development; and
3. an effect on consumers, other businesses and the development of national socio-economy.

Guidance will hopefully be provided in relation to the nature or scope of any effect under items (b) and (c), whether it is the Commission that will determine the relevant market share ratio and whether all three of the listed conditions must be met in order for a merger to be considered anti-competitive.  Additionally, as observed in Thailand, leaving the market share threshold for later determination can negatively impact the efficacy of the merger regime.

An additional concern is that the proposed merger regime requires all businesses to file a pre-merger notification to the Commission unless the businesses are SMEs.  Mergers between SMEs are subject to an obligation to notify post-closing.  The pre-merger notification must include the standard application form, the relevant Enterprise Registration Certificates, audited and certified financial statements and the merger agreement.

Within seven days of receipt, the Commission must notify the parties in writing whether the application is complete and provide a decision on the merger within 30 days of receipt of the completed application.  The decision period may be extended by up to 30 days with approval of the Minister of Industry and Commerce (“Minister”).  Written reasons must be provided if applications are denied.

Article 43 contemplates the Commission obtaining additional information or documentation, but it is not clear how this will affect the decision deadlines if the application has already been deemed complete.

Unless further guidance provides otherwise, it appears that the merger regime contemplates notification of all potential mergers under a fairly tight review period which would be expected to unduly strain the resources of the Commission depending on the number of mergers submitted for review.  Limiting the merger notification regime based on some established threshold may address this potential concern.  While such a system is used in a number of other jurisdictions, it will be necessary to clarify that the Commission retains power to address anti-competitive mergers regardless of whether they are notified.  Therefore, while the merger notification regime may already be in force and applicable to all mergers in Laos, substantive enforcement will be difficult give that the market share threshold has not yet been determined and the notification forms are not yet available.

A potential exemption for mergers that would otherwise exceed the market share threshold may be available where one or more of the parties is bankrupt or if the merger would expand exports or promote technological or academic progress.  The Competition Law does not describe the application process or how these criteria will be evaluated or applied.

PROHIBITIONS UNDER THE COMPETITION LAW

While a number of prohibitions are set out in relation to individuals, businesses, the Commission and relevant officials, from a substantive perspective, Article 56 prohibits businesses from any of the conduct identified in Articles 9 (UTP), 21 (Anti-Competitive Agreements) and 31 (Abuse of Dominance).  Given the merger regime set forth in the Competition Law, it is somewhat surprising that non-SMEs are not expressly prohibited from completing mergers prior to approval.

On
e potentially troubling prohibition relates to individuals, legal entities and organizations providing assistance and protecting violators of the Competition Law.  While this may be interpreted as simply a prohibition against forms of obstruction or harboring, guidance would be welcome as the prohibition against providing assistance may be interpreted far more broadly.

THE PENALTIES

The Competition Law contemplates violations being either administrative or criminal in nature although there is currently no guidance as to how the nature of a particular violation will be determined. Pending clarification, this determination is expected to be informed by Article 6 of the Penal Law which broadly defines criminal offences to include “acts or omissions deemed dangerous to the economic, political or social system [of the country], the property of the state, collective or individual, to life, health, integrity, rights or freedoms of individuals or national security or public order…”.

Generally, pursuant to Article 87 of the Competition Law, individuals, legal entities and organizations that violate the Competition Law may be educated, warned, disciplined, fined, be liable for civil damages or prosecuted.  Where a violation relating to competition is considered to be non-serious, non-criminal and a first time offence, Article 89 provides that the violator shall be educated and warned.  Otherwise, non-criminal violations are subject to fines which are to be set out in separate regulations.  In contrast, criminal violations are to be punished in accordance with the Penal Code or other relevant laws.   Unless specific remedies are provided, such punishment is presumed to be undertaken in accordance with Article 28 of the Penal Code which lists potential penalties, including public criticism, re-education without deprivation of liberty, deprivation of liberty, death penalty, fines, confiscation of property connected to the offence, confiscation of any other property, deprivation of the right to vote and house arrest. Finally, violators may be subject to additional punishments such as suspension or withdrawal of their Enterprise Registration Certificates.

PRINCIPAL REGULATORY AUTHORITY ESTABLISHED UNDER THE COMPETITION LAW

The Commission is established as an independent Government secretariat level entity. It is to be appointed by the Prime Minister based on recommendations of the Minister.  While most of the members of the Commission represent Ministries (including the BCC Secretariat), additional representatives are to be drawn from the legal, economic and business communities.

The rights and duties of the Commission are set out in Article 50 as follows:

1. Consider and approve plans, programs and projects relating to competition proposed by the BCC Secretariat;
2. Study and propose competition related legislation;
3. Consider business mergers;
4. Apply administrative measures against violators (this power appears not to apply to organizations);
5. Issue instructions, inspection decisions and apply measures against violators in accordance with the Law on Criminal Procedure;
6. Compile case files and deliver them to the Public Prosecutor;
7. Contact and cooperate with foreign countries in relation to competition issues;
8. Report on its operations to the Minister; and
9. Exercise other rights and perform other duties provided in laws and regulations.

The BCC Secretariat is to be established pursuant to separate regulations, but is to be equivalent to a department within the Ministry of Industry and Commerce (“MOIC”). Inspection officers of the BCC Secretariat are to be appointed by the Minister with the power to hear complaints, conduct investigations and provide reports among others.

Once the Commission receives an investigation report from the BCC Secretariat, its options include requesting further investigations or issuing a decision to cease proceedings where a) there is insufficient evidence of the violation b) an agreement is reached with the violator to compensate damages and relevant affected parties agree to the cessation or c) an agreement is reached with the violator to compensate for any damages and to comply with a Commission order.   It is noteworthy that this power to cease proceedings by reaching deals with the violator is only effective after the BCC Secretariat’s report is received and therefore the Commission should possess information sufficient to properly evaluate potential damages and appropriate measures for a Commission order.   Guidance on the nature and scope of Commission Orders and when they will be considered appropriate would be useful; particularly given what some violators might be prepared to accept under a Commission order, given a potential alternative of criminal prosecution.

When the Commission feels that sufficient evidence has been provided to demonstrate a violation that is administrative in nature, the Commission may apply administrative measures within 15 days of receiving the BCC Secretariat’s report.   Where a violation is of a criminal nature and supported by sufficient evidence, the Commission is to compile the case documents and evidence for delivery to the relevant Public Prosecutor.   Article 2 of the Penal Code requires that that criminal liability can only be established if the requisite fault (intention or negligence) is proven which, as noted above with the descriptions of infringing conduct, may prove complicated without further guidance.

OTHER REGULATORY AUTHORITY ESTABLISHED UNDER THE COMPETITION LAW

While allocating primary responsibility to investigate and address substantive violations of the Competition Law to the Commission and BCC Secretariat, the Competition Law also allocates various responsibilities among the MOIC, Provincial and City Industry and Commerce Divisions and District and Municipal Industry and Commerce Offices.  While these responsibilities primarily relate to promotion of competition, education and policy, there appears to be a number that potentially overlap with the Commission which therefore require clarification including:

• Reviewing and proposing legislation;
• Issuing decisions and guidelines in relation to competition;
• Activities relating to plans, programs and projects;
• Cooperating internationally in relation to competition activities; and
• Receiving reports and proposals from the public on competition issues.

PRIVATE ENFORCEMENT

The Competition Law expressly provides that violators shall be liable for damages caused to others and that the damaged parties have the right to petition courts for civil compensation.  There does not appear to be any right for private enforcement contemplated under the Competition Law and it is not clear whether the relevant violation must be established by the Commission or the criminal courts as a pre-condition to the right to sue for civil damages.

LENIENCY AND OTHER INCENTIVES IN THE COMPETITON LAW

A form of leniency appears to be contemplated under Article 62 which provides that voluntary self-reporting of violations to the BCC Secretariat shall result in a reduction in “legal regulatory responsibilities”.  It is not clear how this will be implemented and additional guidance is required to effectively implement a leniency policy.

While leniency policies potentially reward violators who come forward to confess their infringements, the Competition Law provides an interesting approach to promoting enforcement by providing that entities that implement the law well, including reporting on violations (one assumes in reference to violations by other entities) will receive commendation and other incentives pursuant to regulations.   Further guidance on this is anticipated and one wonders whether some form of bounty system will be introduced for reporting of violations.

RIGHTS OF APPEAL

It is not clear whether any rights to appeal decisions of the Commission will be provided although there are provi
sions under the criminal law to appeal decisions of the courts in relation to criminal prosecutions.

WHAT DO YOU HAVE TO KNOW

• The Competition Law appears to be currently effective, but not fully as there are a number of important elements subject to determination or to be set out in regulations;
• The Competition Law prohibits certain UTP, anti-competitive agreements and abuses of market power and regulates mergers;
• There is a significant amount of detail and guidance required from the forthcoming regulations and the Commission to ensure that the Competition Law is fully and effectively implemented and that its provisions are properly understood;
• Given the current uncertainty, it is difficult to determine how the Competition Law will immediately affect businesses operating in Laos. Businesses should contact a qualified local advisor and start early to audit their conduct to determine potentially prohibited activities so that they are ready when the Competition Law becomes fully effective and enforced;
• A leniency policy and a potential reward mechanism, when implemented, change the risk dynamics of participating in anti-competitive agreements and other anti-competitive behavior. Businesses will have to take this into consideration before entering into or continuing to participate in any such conduct;
• The Competition Law will have teeth – there are strong penalties that are potentially applicable.

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