SPECIFIC QUESTIONS & ANSWERS

CONCERTED ACTION

 

Chinese Taipei

23. Could an enterprise with a low market share engaging in concerted action violate the Fair Trade Law?
A23: Article 7(2) of the Fair Trade Law provide that, ˇ§Concerted action under Article 7 of this Law is limited to horizontal one among enterprises at the same stage of production and/or marketing, through which the market functions of production, trade in goods, or supply and demand of services are capable of being affected.ˇ¨ In other words, if companies engaged in concerted action collectively have a market share capable of affecting market supply and demand, such concerted action may violate this Law. Market share is one of the factors that have to be considered in determining capability to affect market supply and demand.

Relevant article of law: Fair Trade Law, Article 7
24. Since small companies sometimes follow large companies price decisions in an oligopoly market will this constitute a concerted action even though they didn't plan to coordinate their activities?
A24: The term ˇ§concerted actionˇ¨ as referred to in Article 7 of this Law refers to an act to mutually restrict the activities of enterprises, such as an act by an enterprise that enters into a contract, agreement, or other forms of mutual understanding with other enterprises with whom it competes to jointly determine the prices of goods or services, or to restrict quantities, technology, products, equipment, trading counterparts, or trading territories. The other forms of mutual understanding include written or verbal, as well as expressed or implied agreements. In an oligopoly market, small companies sometimes follow the selling price of large companies. This could be considered as an act of uniformity caused by the market structure. In case of an absence of mutual understanding, such an act shall not be deemed as a kind of concerted action. Competition law authorities around the world tend in practice to treat such acts as concerted actions where there exists relevant indirect evidence sufficient to determine that they are deliberate parallel acts. In practice, the Commission has gradually moved toward the position that concerted action is also constituted where enterprises knowingly and deliberately reach a non-binding consensus or understanding regarding their future market actions through a communication of intent.

Relevant article of law: Fair Trade Law, Article 7

25. Are standard prices set by the trade association for reference viewed as concerted action?
A25:

The concerted actions subject to regulation by this Law are to prevent competing enterprises from mutually restricting each others business activities. In accordance with Article 2 of this Law, the term enterprise also include trade associations. Therefore, when a trade association sets a uniform price standard for reference only, despite being non-compulsory or merely suggestive, it often becomes an obstacle for other enterprises to adjust their individual pricing structure. Such action is considered as a concerted action.

Relevant article of law: Fair Trade Law, Articles 2, 7
26. Do the production and sales analyses and forecasting (including projected rises and falls in price and amounts thereof) currently made by trade associations violate the Fair Trade Law's provisions on concerted action?
A26: Under the provisions of the Trade Association Law and Commercial Association Law, trade and commercial associations are charged with the missions of researching, compiling, and publishing statistics in the areas of production and sales and commerce. In general, therefore, as long as the statistical material researched and compiled by trade associations and the related analyses of future production and sales trends are pure projections, they do not in principle violate this Law. However, analysis and projections that include specific rises and falls in price and are intended to manipulate market prices could easily impair market mechanisms and restrict market competition, and could therefore constitute a violation of this Law. Whether such a violation has occurred must be judged on a case-by-case basis in light of actual circumstances.

Relevant article of law: Fair Trade Law, Articles 2, 7
27. What practices of trade associations are likely to contravene provisions of the Fair Trade Law?
A27:

To help trade associations better familiarize themselves with the relevant provisions of this Law, the Commission has studied comparative laws in the United States, Japan, Germany, and Korea, and has held numerous symposia to solicit input from experts and scholars, trade association representatives, and other agencies, and has compiled a list of practices likely to contravene the Law. The practices include the following:

  1. Restricting entry by enterprises into particular markets.
  2. Restricting competition in particular markets by the following acts where market functioning would be harmed:
    1. Placing limitations on kinds, specifications, or models of goods or services, for example:
      (1) Dividing goods manufacturing or service provision among members by kind or specification to cause members to cooperate in setting the specifications of the goods manufactured or services provided.
      (2) By means of denying permission, restricting shipment of new goods or placing time limits on periods during which new goods may be sold.
    2. Restricting the expansion of goods production capacity or scale of services: Trade associations may restrict goods production capacity by restricting equipment replacement and expansion or machinery installation by their members. They may also control expansion of goods production capacity and scale of services by restricting advertising, technology transfer, research and development, or operating locations, thereby impeding the functioning of market competition.
    3. Restricting goods manufacture, shipment, or sales and restricting provision of services. Such restrictions may be achieved through quantity controls such as quotas, production and sales volume ceilings, inventory ceilings, production time limits, or materials purchasing controls. Quality controls may also be used, for example, controls may be placed on quality levels in goods manufacture and sale or service provision. Trade associations may orchestrate collective decreases in output by their members, or restrict goods deliveries, or establish cooperative associations for unified purchasing.
    4. Agreeing on, drawing up, announcing, maintaining, or changing prices charged by members for goods or services.
    5. Restricting trading areas or trading counterparts for goods and services.
      (1) Restricting member trading areas or trading counterparts by divvying or agreement.
      (2) Imposing restrictions on members' acceptance of orders or eligibility to participate in bidding.
      (3) Restricting trading counterparts by separating members through a class or grade system not based on concrete or reasonable standards.
    6. Jointly setting conditions on sales of goods or services or on trading or payment methods. For example, trade associations that draw up uniform contract clauses or whose members mutually restrain each other in terms of methods of payment accepted, types of service, payment periods, terms and conditions of payment, delivery sites and methods, after-sales service periods, content, and methods may be in violation of the Law.
  3. Entering into international agreements or contracts containing improper restraints on trade or unfair means of trade.
  4. Causing members to engage in discriminatory treatment or other unfair trading practices.
  5. Otherwise restricting business competition in particular markets by improper joint action.
28. Do trade associations that sign self-disciplinary codes to maintain competitive order within their industry need to apply to the Fair Trade Commission for approval of such codes?
A28:

If the self-disciplinary codes signed by trade associations are for the purpose of establishing standards to avoid excessive gifts or prizes, false or misleading advertising, counterfeiting or unfair competitive practices, but may also involve restrictions of competition among members, it is advisable for the associations to seek a prior interpretation by the Commission in order to avoid a possible decision that such a code involves concerted action in violation of this Law.
29. How are "small or medium-sized enterprises" determined under Article 14(7) of the Fair Trade Law?
A29: Article 14(1) of the Law provides that enterprises shall not engage in any concerted actions except under certain exceptional circumstances where beneficial to the economy as a whole and in the public interest and where approved by the central competent authority, the Fair Trade Commission. Article 14(1)(vii) specifies one such circumstance as ˇ§joint acts for the purpose of improving operational efficiency or strengthening the competitiveness of small or medium-sized enterprises.ˇ¨ To determine qualification as a small or medium-sized enterprise, an enterprise can file an application for approval of concerted actions under the above stated provision. According to Article 22 of the Enforcement Rules to the Fair Trade Law, the identification of a small or medium-sized business as referred to in Article 14(1)(vii) of the Law shall be made in accordance with the criteria set forth in the Statute for the Development of Small and Medium-Sized Enterprises. Under the current standards adopted by the Small and Medium-Sized Enterprise Department of the Ministry of Economic Affairs, the determination criteria vary with industry, capitalization, and number of employees, and the factors considered are too numerous to list in detail here.
Relevant articles of law: Fair Trade Law, Article 14; Enforcement Rules to the Fair Trade Law, Article 22; Statute for the Development of Small and Medium-Sized Enterprises
30. What are the relevant factors considered in determining the approval or rejection of a concerted action?
A30:
  1. In accordance with the provisions of this Law, when granting special approval to the application of concerted actions, the Commission should take into account the positive contributions to the overall economy and public interest after the concerted action has been taken, as well as the adverse impact on the restriction of market competition. Only when the advantages outweighs the disadvantages, can such concerted actions be approved.
  2. The considerations to the overall economy and public interest as mentioned in the preceding paragraph include the following: the degree by which the overall level of industrial technology may be increased after the concerted action has been approved; the amount of change in the prices of goods or services; and the increase in user' convenience, as well as public interests such as safety, sanitation, and environmental protection.
  3. The considerations on the impact of the restriction of market competition include the following: obstruction against enterprises that are not part of the concerted action; the effect on market competition or on up-stream and down-stream industries; the risk of relevant enterprises to abuse their market position; and the risk of infringing upon the interests of the consumers and other related enterprises.

Relevant article of law: Fair Trade Law, Article 14
31. Do any provisions exist for the central competent authority, the Fair Trade commission, to supervise and manage specially approved concerted actions?
A31: Article 15 of the Fair Trade Law provides that the Fair Trade Commission may impose conditions or require undertakings when granting special approval for a concerted action, and shall specify a time limit not exceeding three years. The enterprises involved may, if they have legitimate reasons, file a written application for an extension thereof with the central competent authority within three months prior to the expiration of such period; provided, the term of each extension shall not exceed three years.
However, to respond to sudden changes in the economy and to facilitate supervision and management, Articles 16 and 17 of the Law provide that after a concerted action has been approved, the Commission may revoke the approval, alter the contents of the approval, or order the enterprises involved to cease or rectify their conduct if the cause for approval no longer exists, economic conditions change, or the enterprises engage in any conduct beyond the scope of the approval. In the interest of good faith and reliability, Article 17 of this Law further provides that the details of special approvals shall be recorded in a registry and published in the Commission's Gazette.
Relevant articles of law: Fair Trade Law, Articles 15, 16, 17
32. The actors in a concerted action should refer to those enterprises that actually engage in the restriction of each other's business activities. Is it appropriate then for Article 7(4) of the Fair Trade Law and Article 5 of the Enforcement Rules to provide, as they do, that a trade association may be a subject of concerted action and that a representative of a trade association may be deemed the actor in such a concerted action?
A32: Under Article 7(4) of the Fair Trade Law, it is deemed horizontal concerted action for a trade association ˇ§by means of its charter, a resolution of a general meeting of members or a board meeting of directors or supervisors, or any other means, to restrict activities of enterprises.ˇ¨ Article 5 of the Enforcement Rules to the Fair Trade Law further provides that ˇ§the responsible person of a trade association may be deemed as the actor in concerted action as under Article 7 of the Law.ˇ¨ The primary reasons for the adoption of these provisions are as follows:
  1. Trade associations are composed of homogeneous members among whom there exists a relationship of competition. If trade associations place mutual restrictions on the business activities of members through their charters or resolutions of member meetings or directors' or supervisors' meetings, the result is no different than if individual enterprises were to engage in concerted action. Therefore, although trade associations themselves are not entities obtaining revenues or engaging in economic activity, they have customarily and historically played a leading role in concerted action or as a forum by which enterprises arrive at mutual understandings to engage in concerted actions such as production and sales negotiations, unified pricing, market delineation, or product standardization. To prevent trade associations from leading competing enterprises into concerted actions and to prevent companies, sole proprietorships, and partnerships from using trade associations as a ˇ§loopholeˇ¨ or cover under which to engage in concerted actions, and to avoid resultant restraints on competition and harm to consumer interests, as well as with an eye to correcting the longstanding and unsound customary practice of concerted action by trade associations, the Legislative Yuan specifically defined ˇ§trade associationsˇ¨ as one kind of enterprise in Article 2(1)(iii) of this Law, thereby identifying them as being subject to the provisions of the Law.
  2. A concerted action by a trade association can only viewed as a violation where it is actually put into practice by the member enterprises. If a trade association representative sends letters to members asking them to observe mutual restrictions on business activities pursuant to the trade association's charter or a resolution of a board of directors' or supervisors' meetings, then the representative is the person who precipitated the performance of the concerted action. Hence the provision in Article 5 of the Enforcement Rules to the Fair Trade Law, in line with Article 2 of the Law, that a trade association representative may be considered as an actor in a concerted action. This provision is intended to ensure that directors of trade associations pay attention to the restrictions set forth in the Law.
  3. Article 35 of the Law adopts the principle that when dealing with enterprises engaging in concerted actions in violation of Article 14 of the Law, administrative measures should be adopted first before turning to judicial measures as the last resort. Cases may only be referred to the judicial authorities for criminal prosecution if the enterprises have first been ordered by the central competent authority under Article 41 to cease or rectify the offending conduct or take necessary corrective action within a certain time limit and have failed to do so or, after ceasing, have committed the same or a similar violation again. In keeping with the principal of legality, the judicial authorities determine the actors in concerted action cases on a case-by-case basis after looking at which persons actually engaged in mutual restraint of business activities.
  4. Trade associations are often the mechanism by which members effect unlawful concerted actions. Hence, in corresponding laws in other countries, trade associations are consistently taken as subjects of concerted action provisions. Article 2(1)(iii) of the Law follows the lead of such comparative laws. In practice, it has always been the trade association representative who is referred for prosecution. Article 5(3) of the Enforcement Rules to the Fair Trade Law therefore serves a positive purpose by impelling (reminding) representatives to be alert to and avoid such violations.

Relevant articles of law: Fair Trade Law, Articles 2, 14, 35, 41; Enforcement Rules to the Fair Trade Law, Article 5

[General Provision] [Monopoly] [Combination] [Concerted Action] [Resale Price Maintenance]
[Other Restrictive Trade Practices] [Misleading Representations] [False or Misleading Advertising]
[Damage to Business Reputation] [Multi-Level Selling] [Other Deceptive or Obviously Unfair Conduct]
[Enforcement and Remedies] [Penalties] [International Applications] [Supplementary Provisions]