Fair Trade Commission Disposal Directions (Policy Statements) on Bottled Liquefied Petroleum Gas (LPG) Manual Distribution Center Operations

Passed by the 473rd Commissioners' meeting on November 30, 2000
Promulgated by Order (90) Kung Er Tzu No. 00080 on January 10, 2001
Promulgated by Order Kung Er Tzu No. 0910001466 on February 18, 2002
Title amended by the 688th Commissioners' meeting on January 13, 2005
Promulgated by Order Kung Fa Tzu No. 0940001278 on February 24, 2005
Amended by the 1057th Commissioners' Meeting on February 08, 2012
Promulgated by Order Kung Zhi No. 10113601281 on March 05, 2012
  1. Background
    The establishment of bottled gas distribution centers can be attributed to promotion of the Veterans Affairs Commission of the Executive Yuan's Liquefied Petroleum Gas Supply Department, which predated the promulgation of the Fair Trade Law. Further, under the regulations provided by the Public Hazardous Materials and Flammable Pressurized Gases Establishment Standards and Safety Control Regulations recently formulated by the National Fire Administration, effective from 19 October 2001 over 3000 bottled gas distributors in the territory of Taiwan, Penghu, Kinmen and Matsu must place all liquefied Petroleum gas (LPG) canisters in a storage room consistent with regulations governing flammable pressurized gas containers, and that such container storage rooms must be located within the same municipality or county (city) as the place of sale, but that those transcending such jurisdiction may not exceed 20 kilometers. Under the restrictions of this law, the need for bottled gas businesses to operate under a "distribution center" model in the future exists.
    Recognizing that LPG operators must rely on manual labor to load and move gas canisters, and that gas canisters are bulky and heavy, a long-term shortage of manual laborers has emerged. In addition to diminishing service quality, the widespread perception among the public that LPG storage canisters are highly hazardous has made it difficult for LPG operators to find places for business operations or caused relatively high rental rates for shops. These factors have made it difficult for businesses to operate. Consequently, the implementation of the distribution center system concentrates delivery personnel together or utilizes central dispatching. This not only raises the efficiency and maximizes usage of manual labor, as well as saving operators labor costs, but also benefits consumers with rapid, convenient service. Also, given that after adopting this system most businesses pooled operations or reduced the number of business locations, operators could not only reduce costs and expenses for shops but also strengthen protection of social and public safety. Hence the adoption of manual distribution centers has clearly offered positive functions; however, since the implementation of the system members of the public have responded that manual distribution centers frequently precipitate uniform or consistently high pricing. Upon years of familiarization, the FTC has verified the existence of such concerted actions among distribution centers as uniform pricing, uniform surcharges for delivery to higher floors, and agreements not to permit the establishment of additional gas distribution outlets. To ensure that the multiple benefits of the manual distribution center system such as reducing operational cost, resolving manual labor shortages, raising gas canister delivery quality, and enhancing societal and public safety protections, while also preventing damage to the competitive functions and consumers' rights and privileges from improper administration of the LPG retail market, an executive meeting of the FTC resolved to take various corrective measures directed at LPG suppliers participating in the manual bottled gas distribution center system.
    In the effort to undertake these corrective measures, in addition to having enlisted scholars and experts to conduct studies, the FTC also invited trade associations including liquefied Petroleum gas fuel suppliers representing Taipei, Kaohsiung and Kinmen County, as well as representatives of government departments including the Bureau of Energy (MOEA) this year (2000) to participate in joint conferences and exchange broad views. In order to preserve the bottled gas retail market trading order and protect consumers' interests, and ensure a fair competition environment, the FTC compiled views and recommendations discussed at the symposium of 26 September 2000 for analysis of the current state of manual gas canister distribution centers and concerted actions, joint actions, abuse of monopolistic positions, intimidation, bribery or improper means, deceptive or obviously unfair conduct between bottled LPG operators and trade counterparts and possible related violations of the Fair Trade Law to formulate this Guide to Regulations as reference for business operators to follow and for the FTC to address related cases.
  2. Definition of Market Scope, Determination of Market Force
    For the purpose of these guideline regulations, the term "manual distribution center" shall refer to the formation of delivery service depots by Petroleum gas distributors and sellers, pooling labor resources to deliver gas canisters from concentrated nodes, and establish joint organizations for high volume liquefied petroleum gas (LPG) storage. In evaluating the impact of LPG distribution center operations on specific aspects of market competition it is first necessary to define such factors as the "relevant market," and from there the overall market force of such an organization, to analyze and gauge the tangible impact of such conduct on market competition.
    1. Definition of Relevant Market
      a) Distinctions between natural gas and bottled gas
      In terms of household energy demand, the main competing commodity to LPG is natural gas. Comparing the end purpose of each, both are similar in that each provides heat for residential and industrial use. However, in terms of their makeup, LPG and natural gas differ in chemical qualities. Moreover, in customary general commercial use, natural gas is delivered in pipes and charged monthly based on a meter reading, whilst LPG is sent directly to residences by a delivery person in a canister and payment made on the spot. Consequently, modes of trading between the two are substantially different. In addition, LPG and natural gas diverge greatly in production methods, suppliers' production volume, and possibility or degree of substitution, so that even if they can be mutually substituted for each other considerable time is necessary. Consequently, no direct competitive relationship exists between liquefied Petroleum gas and natural gas enterprises. In view of this, the FTC maintains its 1993 finding delineating specific monopoly enterprise markets, defining the pipe gas (natural gas) and household liquefied Petroleum gas (canister gas) markets as two independent markets.
      b) Geographical Factors
      Geographical dimensions largely define relevant market factors. The geographical dimensions of the market refer to the areas within which vendors engage in competition providing merchandise or services and customers may select and exchange trading counterparts freely without obstruction within this area. The FTC found that "delivery distance" is a key factor delineating bottled gas manual distribution center operation areas, as the three major factors of time (excessive delivery distance, resulting in personnel spending too much time to deliver), cost (excessive deliver distance, resulting in excessive cost to deliver), and manpower (excessive delivery distance, requiring greater manpower allocation) have the greatest impact on outcome. Hence bottled gas distribution centers generally operate within a five to 10 kilometer (about the area of a town or village) sphere; however, overlap from one area or municipality to another does exist among manual distribution centers. Further, given that most trade associations in which bottled gas distributors participate are organized by county or city units, the relevant market of a bottled gas distribution center is defined in principle by the county or city in which it is established. Nevertheless, the FTC shall define market scope on an individual basis.
    2. Determination of Bottled Gas Manual Distribution Centers Occupying Advantageous Market Position.
      Determination of bottled gas manual distribution centers occupying advantageous market position should be judged on overall consideration of such factors as the share a distribution center occupies in the market and its capacity for influencing pricing in a certain market.
  3. Types of Fair Trade Law Violations
    1. Concerted Actions
      When multiple bottled gas distributors and sellers establish a manual distribution center, whether or not some or all individual bottled gas merchants preserve their respective business licenses, any merchant that pools gas purchasing or gas canister delivery into a distribution center that fails to apply for and receive permission from the FTC for an exemption in accordance with the provisos of Article 14 of the Fair Trade Law, and that by means of contract, agreement, or any other form of mutual understanding with any other competing enterprise, to jointly determine bottled gas pricing, or restricts volume, technique, products, equipment, trading counterparts, or trading area, is suspected of violating the provisions of Article 14 of the Fair Trade Law.
    2. Mergers
      Bottled gas distribution merchants that retain only one bottled gas distributor's license, where other bottled gas merchants cancel their licenses and establish a bottled gas manual distribution center under the retained license, and each individual bottled gas sales outlet engages in collective gas purchasing and distribution operations under the central gas outlet, if conforming to the definition of "mergers' in Article 6 Paragraph 1 of the Fair Trade Law, and consistent with the conditions set forth in Article 11 Article 1 of the Fair Trade Law for filing, shall file to the FTC for permission prior to the occurrence of said merger. The enterprise may not engage in mergers within 30 days of the date on which the FTC receives a complete application; however, where the FTC deems it necessary, it may shorten or lengthen the term and notify the filing enterprise in writing.
      Article 6 Paragraph 1 of the Fair Trade Law states that mergers include: 1) where an enterprise and another enterprise are merged into one; 2) where an enterprise holds or acquires the shares or capital contributions of another enterprise to an extent of more than one-third of the total voting shares or total capital of such other enterprise; 3) where an enterprise is assigned by or leases from another enterprise the whole or the major part of the business or properties of such other enterprise; 4) where an enterprise operates jointly with another enterprise on a regular basis or is entrusted by another enterprise to operate the latter's business; or 5) where an enterprise directly or indirectly controls the business operation or the appointment or discharge of personnel of another enterprise.
      Article 11-1 of the Fair Trade Law states that the provisions of Paragraph 1 of Article 1 shall not apply to any of the following circumstances:
      a) Where any of the enterprises participating in a merger already holds no less than 50% of the voting shares or capital contribution of another enterprise in the merger and merges such other enterprise.
      b) Where enterprises of which 50% or more of the voting shares or capital contribution are held by the same enterprise merge.
      c) Where an enterprise assigns all or a principal part of its business or assets, or all or part of any part of its business that could be separately operated, to another enterprise newly established by the former enterprise solely.
      d) Where an enterprise, pursuant to the proviso of Article 167, Paragraph 1 of the Company Law or Article 28-2 of the Securities and Exchange Law, redeems its shares held by shareholders so that its original shareholders' shareholding falls within the circumstances provided for in Article 6, Paragraph 1, Subparagraph 2 herein.
    3. Abuse of monopoly position:
      A monopolistic enterprise may arise about as the result of fair competition, or due to specific attributes of economy of scale. Consequently, a monopoly enterprise is not necessarily unlawful; however, in cases where a monopoly enterprise abuses its market monopoly power, excluding other enterprises from participating in fair competition, this constitutes violation of the prohibitions given by the Fair Trade Law. An enterprise in the bottled gas manual distribution center market conforms to the definition of monopoly according to the Fair Trade Law if it: 1) directly or indirectly prevents any other enterprises from competing by unfair means; 2) improperly sets, maintains or changes the price for goods or the remuneration for services; makes a trading counterpart give preferential treatment without justification; or otherwise abuses its market power.
    4. Coercion, inducement, or other improper conduct:
      Any bottled gas distributor associated with a manual distribution center that causes another bottled gas distributor not belonging to the same manual distribution center to refrain from competing in price, or to take part in a merger or a concerted action by coercion, inducement with interest, or other improper means, is suspected of violating the terms of Article 19 Item 4 of the Fair Trade Law.
    5. Deceptive or Obviously Unfair Conduct
      Any bottled gas distributor associated with a manual distribution center that obstructs consumers' decisions to engage in free trade, and are sufficient to impact the market trading order using such methods as violating efficient competition or business ethics, is suspected of violating the terms of Article 24 of the Fair Trade Law.
  4. Fines and Legal Liability for Fair Trade Law Violations
    1. Any violator of the provisions of Article 10 concerning monopolistic enterprises and prohibited conduct set forth in Article 14 regarding concerted actions, pursuant to Article 35 Paragraph 1 of the Fair Trade Law, ordered by the FTC pursuant to Article 41 to cease, rectify conduct, or take necessary corrective action within the time prescribed in the order, and after the lapse of such period, shall such enterprise fail to cease therefrom, rectify such conduct, or take any necessary corrective action, or after its ceasing therefrom, shall such enterprise commit the same or similar violation again, the actor shall be punished by imprisonment for not more than three years or detention, or by a fine of not more than one hundred million New Taiwan Dollars, or by both.
    2. Any violator of Article 19 of the Fair Trade Law prohibiting restricting competition or impeding fair competition, in accordance with the provisions of Article 36 of the Law, pursuant to Article 41 of the Law the FTC may order such enterprise to cease, rectify its conduct, or take necessary corrective action within the time prescribed in the order, and after the lapse of such period, shall such enterprise fail to cease therefrom, rectify such conduct, or take necessary corrective action, or after its ceasing therefrom, shall such enterprise commit the same or similar violation again, the actor shall be punished by imprisonment for not more than two years or detention, or by a fine of not more than fifty million New Taiwan Dollars, or by both.
    3. Any enterprise in violation of Article 11 Paragraph 1, Paragraph 3 engaging in a merger, or who persists in a merger following denial of application for permission for a merger by the competent central agency, or that has failed to fulfill attached conditions pursuant to Article 12 paragraph 2 to ensure that the overall economic benefit of the merger outweighs the disadvantages resulted from competition restraint, pursuant to the provisions of Article 13 of the Fair Trade Law, the FTC may prohibit such merger, prescribe a period for such enterprise(s) to split, to dispose of all or a part of the shares, to transfer a part of the operations, or to remove certain persons from positions, or make any other necessary dispositions. In the case of any enterprise violating the disposition made by the central competent authority pursuant to the preceding paragraph, the central competent authority may order the dissolution of such enterprise(s), or the suspension or termination of their operations, and pursuant to the provisions of Article 40 of the Fair Trade Law may assess an administrative penalty of not less than one hundred thousand nor more than fifty million New Taiwan Dollars upon such enterprise(s). Any enterprise that proceeds with a merger under the circumstance set forth in Subparagraph 2 of the proviso of Article 11, Paragraph 5, may be assessed an administrative penalty of not less than fifty thousand nor more than five hundred thousand New Taiwan Dollars.
    4. Pursuant to the provisions of Article 41 of the Fair Trade Law, the FTC may order any enterprise that violates any of the provisions of the Fair Trade Law to cease therefrom, rectify its conduct or take necessary corrective action within the time prescribed in the order; in addition, it may assess upon such enterprise an administrative penalty of not less than fifty thousand nor more than twenty-five million New Taiwan Dollars. Shall such enterprise fails to cease therefrom, rectify the conduct or take any necessary corrective action after the lapse of the prescribed period, the Fair Trade Commission may continue to order such enterprise to cease therefrom, rectify the conduct or take any necessary corrective action within the time prescribed in the order, and each time may successively assess thereupon an administrative penalty of not less than one hundred thousand nor more than fifty million New Taiwan Dollars until its ceasing therefrom, rectifying its conduct or taking the necessary corrective action.The Central Competent Authority may impose an administrative fine up to 10% of the total sales income of an enterprise in the previous fiscal year without being subject to the limit of administrative fine set forth in the preceding paragraph if the enterprise is deemed by the Central Competent Authority as in serious violation of Articles 10 and 14. The Central Competent Authority shall enact the regulations with regard to the calculation of the total sales income of the previous fiscal year, definition of serious violations, and calculation of administrative fines.
    5. In addition to criminal and administrative liability, any enterprise that violates the provisions of the Fair Trade Law shall also be liable for civil damages under Chapter V of the Law.
  5. This Explanatory Note merely sets out examples and explanations of some common types of practices of bottled liquefied petroleum gas manual distribution centers that may violate the Fair Trade Law and is not intended to be an exhaustive treatment of the subject. The Fair Trade Commission will supplement and amend this document from time to time, and individual cases will be handled according to the specific facts of each case.