Hung Yuan Rice Company and several other enterprises affected the market function of supply and demand for domestic glutinous rice by conferring on the tender amount and tender quantity and by lending food dealer permits in violation of Article 14(1) and Article 24 of the Fair Trade Law

Chinese Taipei

Case:

Hung Yuan Rice Company and several other enterprises affected the market function of supply and demand for domestic glutinous rice by conferring on the tender amount and tender quantity and by lending food dealer permits in violation of Article 14(1) and Article 24 of the Fair Trade Law

Key Words:

glutinous rice, tariff-rate quota for rice, Lien Mi, Hung Yuan

Reference:

Fair Trade Commission Decision of March 9, 2005 (the 696th Commissioners’ Meeting); Disposition Kung Chu Tzu No. 094023 and Disposition Kung Chu Tzu No. 094024

Industry:

Wholesale of Grains (4411)

Relevant Laws:

Article 14 (1) and Article 24 of the Fair Trade Law

Summary:

1. The case originated from a report filed by the public by phone to the service center of this Commission stating that Hung Yuan Rice Company and several other enterprises controlled the domestic source of glutinous rice and kept raising the prices of glutinous rice during May 2004 in possible violation of the Fair Trade Law. The public requested that this Commission initiate an investigation.
   
2. Upon the investigation, this Commission found that: Hung Yuan Rice Company, Wen Hung Rice Company, Hung Sung Yuan Trade Co., Ltd., Lien Mi Co., Ltd., Fang Lung Rice Husking Factory, Hsin Feng Rice Husking Factory, and Yu Feng Chan Rice Husking Factory had the same bids of NT$ 12,513 per metric ton at the 933rd tender for the right of tariff-rate import quota for rice held by the Central Trust of China on April 14, 2004. It was found that Hung Yuan Rice Company and Lien Mi Co., Ltd. conferred on the tender amount and quantity before the tender was held. After Hung Yuan Rice Company and its family enterprises, Wen Hung Rice Company and Hung Sung Yuan Trade Co., Ltd, calculated the costs, the responsible person of Wen Hung Rice Company, Liang Ming Sung, represented the entire family enterprises to confer with the responsible person of Lien Mi Co., Ltd., Liu Te Lung on the tender amount and tender quantity of said tender. Later on, both parties participated in the tender as conferred. The tender quantity of Hung Yuan Rice Company, Wen Hung Rice Company, and Hung Sung Yuan Trade Co., Ltd. was respectively 800 metric tons and the tender amount was uniformly NT$ 12,513 per metric ton. Each company acquired the tariff-rate import quota for rice of 654.678 metric tons. The total quantity was 1964 metric tons. In addition to the three companies owned by Liu Te Lung, Lien Mi Co., Ltd., Fang Lung Rice Company, and Fang Lung Rice Husking Factory, Liu also obtained the consent of the responsible persons of Hsin Feng Rice Husking Factory and Yu Feng Chan Rice Husking Factory, Lin Ching Fen and Hung Kuo Chin, to participate in the tender in the name of the five aforesaid enterprises. The tender quantity was 4,000 metric tons for each enterprise. The tender amount was also NT$ 12,513 per metric ton. Each enterprise acquired the tariff-rate import quota for rice of 3,273.392 metric tons. The total quantity of the five enterprises was 16,367 metric tons. The aforementioned eight enterprises acquired total 18,331 metric tons at the tender for the tariff-rate import quota for rice in 2004, which was 92% of the total quantity of said tender.
   
3. Grounds for dispositions and resolution:

   (1) The nature of tenders is to make individual enterprise obtain a fair chance of participation through autonomy on the tender amount and tender quantity and to allow the tender holder to acquire the offer with the best commercial terms. Since Wen Hung Rice Company, Lien Mi Co., Ltd, and the rest six enterprises are in the situation of horizontal competition, they are supposed to compete with each other through deciding on the tender amount and tender quantity by themselves to acquire the right of tariff-rate import quota for rice and to furthermore obtain the opportunity to import rice for domestic sale. However, in order to avoid the competition regarding the royalty and to reduce sales risks of rice import in the future, the responsible person of Wen Hung Rice Company, Liang Ming Sung and the actual responsible person of Lien Mi Co., Ltd., Liu Te Lung, conferred on the tender amount and tender quantity regarding the 3rd tender for the tariff-rate import quota for rice held by the Central Trust of China on April 14, 2004. The tender quantity of Hung Yuan Rice Company, Wen Hung Rice Company, and Hung Sung Yuan Trade Co., Ltd. was respectively 800 metric tons, and that of Lien Mi Co., Ltd., Fang Lung Rice Husking Factory, and Fang Lung Rice Company was respectively 4,000 metric tons. The tender amount was identically NT$ 12,513. After opening the tender, the aforesaid enterprises obtained the right of tariff-rate import quota for rice of total 18,331 metric tons, which was 92% of the total quantity of said tender. The behavior where the aforesaid enterprises restricted each other’s business activities through conferring on each other’s tender amount and tender quantity in advance falls under the “concerted action” set forth in Article 7 (1) of the Fair Trade Law. It was found that the final quantity acquired by the aforementioned enterprises was 92% of the total quantity of the tender. Lien Mi Co., Ltd. itself actually obtained 83% of the total quantity of the tender, which was far beyond the maximum limit stipulated by the tender holder. Under the circumstances where the number of winning bidders of tariff-rate import quota decreases and the market centralization largely increases, the result of the tender will inevitably reduce the overall competitiveness of the imported rice market in Chinese Taipei and affect the supply and demand function of the domestic glutinous rice market. The fair competition will be substantially restrained. Moreover, during the time when said tender was held (April 2 to 13, 2004), the domestic glutinous rice market was short on supply and the price was largely raised. Till the first batch of new glutinous rice became available in the market in 2004, imported glutinous rice was urgently needed for the insufficiency of the domestic supply. The stocks of domestically produced glutinous rice controlled by Hung Yuan Rice Company was more than half of the total stocks of the major domestic suppliers. Since Hung Yuan Rice Company controlled the majority of stocks of domestically produced glutinous rice and Lien Mi Co., Ltd. controlled the majority right of tariff-rate import quota for rice, the rest of the suppliers were unable to obtain the sources of goods. Under such circumstances, the competition of the domestic glutinous rice market was indeed reduced. Therefore, the aforementioned actions of said enterprises were sufficient to affect the domestic market function of supply and demand for glutinous rice and constituted the provisions of Article 14 (1) of the Fair Trade Law.

   (2) As for the fact that Yu Feng Chan Rice Husking Factory and Hsin Feng Rice Husking Factory lent the food dealer permits and relevant licenses to Lien Mi Co., Ltd. for the participation in the 3rd tender for the right of tariff-rate import quota for rice held by the Central Trust of China on April 14, 2004, after considering their knowledge of the aforesaid tender and the degree of their participation, it was difficult to determine that their behavior constituted the description of the concerted action prescribed under Article 7 of the Fair Trade Law. However, the behavior of lending the licenses caused the tender holder to promote the competition through the tender and also restrained other enterprises from obtaining a fair chance of participation. Such a behavior already directly reduced the winning chance of other bidders and also dishonored a fair competition that is based on the competing nature in terms of quality, price, and service. Such a behavior shall be criticized for the violation of business ethics and therefore in violation of Article 24 of the Fair Trade Law.

   (3) In conclusion, Hung Yuan Rice Company, Wen Hung Rice Company, Hung Sung Yuan Trade Co., Ltd., Lien Mi Co., Ltd., Fang Lung Rice Husking Factory, Fang Lung Rice Company affected the supply and demand function of the domestic glutinous rice market through jointly deciding on the tender amount and tender quantity in advance, which fell under the description of the concerted action set forth in the Fair Trade Law in violation of Article 14 (1) of the Fair Trade Law. In addition, the behavior that Yu Feng Chan Rice Husking Factory and Hsin Feng Rice Husking Factory lent the licenses to Lien Mi Co., Ltd. for participating in the tender was an obviously unfair action sufficient to affect trading order in violation of Article 24 of the Fair Trade Law. After considering the motivation and purpose of the unlawful acts in issue, the degree of the harm to trading order, market position of the enterprises, and their attitude of cooperation in the investigation, this Commission, in accordance with the fore part of Article 41 of the Fair Trade Law, imposed an administrative fine of NT$ 600,000 on Lien Mi Co., Ltd., NT$ 200,000 respectively on Hung Yuan Rice Company and Wen Hung Rice Company, NT$ 100,000 respectively on Hung Sung Yuan Trade Co., Ltd., Fang Lung Rice Company, and Fang Lung Rice Husking Factory, and NT$ 50,000 respectively on Yu Feng Chan Rice Husking Factory and Hsin Feng Rice Husking Factory.

Appendix:

Lien Mi Co., Ltd.’s Uniform Invoice Number: 86213452

Hung Yuan Rice Company’s Uniform Invoice Number: 08349284

Wen Hung Rice Company’s Uniform Invoice Number: 05700848

Hung Sung Yuan Trade Co., Ltd’s Uniform Invoice Number: 89928170

Fang Lung Rice Company’s Uniform Invoice Number: 08353580

Fang Lung Rice Husking Factory’s Uniform Invoice Number: 65364209

Yu Feng Rice Husking Factory’s Uniform Invoice Number: 59110377

Hsin Feng Rice Husking Factory’s Uniform Invoice Number: 91882039