The Surewell supermarket and other Ilan enterprises violated the provisions of Fair Trade Law for their concerted actions

Chinese Taipei

Case:

The Surewell supermarket and other Ilan enterprises violated the provisions of Fair Trade Law for their concerted actions

Key Words:

concerted action, consumer cooperatives, supermarkets

Reference:

Fair Trade Commission Decision of November 17, 1999 ( the 419th Commissioners' Meeting ); Disposition (88) Kung Ch'u Tzu No. 148.

Industry:

Retailing (4020)

Relevant Laws:

Articles 14 of the Fair Trade Law

Summary:

  1. A complaint was filed against a number of supermarkets in Ilan County, including the Surewell and Nung Min supermarkets, alleging that they had engaged in concerted action to monopolize the supermarket retail industry in the Ilan area and to boycott new entrants. The Commission dispatched personnel to carry out an on-the-spot investigation. The complaint's allegations are as follows:

    (1) When the Lo Fu Lien Market, a privately owned cooperatives, opened in Lotung Chen, Ilan, in 1998, a number of conventional supermarkets including the Surewell, Nung Min, and Wan K'e Lai supermarket chains, got together and established the Ilan County Supermarket Alliance. The Alliance demanded that all suppliers and dealers cease supplying the new cooperative by threatening to boycott them should the demand be rejected. The complainant in this case was also affected by the threat in the sense that the supply of its required goods was interrupted.

    (2) When a number of local consumer cooperatives began opening in Tungshan County, Chiaohsi County, Ilan City, and the vicinity in February 1999, the responsible persons of the Surewell Supermarket and Nung Min Supermarket chains held a succession of meetings with the suppliers at the Li Ang ("Lyon") Coffee Shop in Lotung Chen on February 11, 1999, and threatened them with boycott if they were to supply the new consumer cooperatives.

    (3) The Surewell Supermarket is currently the largest supermarket chain in Ilan, followed by the Nung Min and Wan K'e Lai chains. Those three supermarket chains enjoy a combined market share of more than 60% of the Ilan County market.

    (4) In addition to consumer cooperatives and associations operated by students or employees of various schools and government agencies in Ilan, and their branches in Lotung, Ilan County also has numerous local consumer cooperatives organized by members of the general public, including the Suao Chen Consumer Cooperative the Tungshan Hsiang Consumer Cooperative, the Chiaohsi Hsiang Consumer Cooperative, and the Ilan City Consumer Cooperative.

  2. Findings and analysis:

    (1) Regarding the allegations that the responsible persons of the Surewell and Nung Min Supermarket chains had engaged in boycotting actions in violation of Article 19(i) of the Fair Trade Law by holding the meetings described above, it is the finding after the investigation that:
    (i) Five supplier representatives did in fact attend the alleged meetings: Ch'iu Ying-chun, Tseng Chun-sheng, You Chin-ts'ai, Lin K'un-hsin, and Lin Te-ch'ing. However, since it was not that unusual for them to invite one another and to get together for a cup of tea, Mr. Tseng and the others asserted that they had no recollection whatsoever about the topics discussed on that day. Three supplier representatives, Liao Fang-chun, Liao Tse-sheng, and Wu Shui-liu, could not remember for certain whether they had attended the meetings. Another, Tseng Chen-hsing, flatly denied having been invited to attend any meeting.
    (ii)The nine supplier representatives above said they had not been under boycott pressure from any supermarket in the past two years. Apart from Wu Shui-liu, the other eight supplier representatives said they all currently do business with the Suao Chen and Tungshan Hsiang Consumer Cooperatives and none had stopped supplying the complainant. Wu Shui-liu cited the following reasons for ceasing to do business with the complainant:
    1. During the period when they have business relationship, the Suao Chen Consumer Cooperative often made arbitrary deductions from its credit payments, and failed to cease such practices despite being repeatedly requested to do so. Currently, it still has outstanding overdue loans for the months of January and February of 1999.
    2. It was reported by the newspapers in January and February 1999, alleging that the Suao Chen Consumer Cooperative had violated regulations in a number of its business practices, and its creditworthiness was called into question.
    3. The manager of Tungshan Hsiang Consumer Cooperative and the Suao Chen Consumer Cooperative are the same, so are the ways both cooperatives are managed identical. Thus, Wu Shui-liu's business chose not to deal with it either.
    (iii) The Surewell, Nung Min, and other supermarket chains all denied attending the meetings on the day in question, and denied engaging in a boycott against other any other enterprise.
    (iv) In sum, there is no concrete evidence to support a determination that the Surewell and Nung Min supermarket chains had violated Article 19(1)(i) of the Fair Trade Law.

    (2) Regarding the allegations that the Surewell and Nung Min supermarket chains had violated Article 14 of the Fair Trade Law regarding concerted actions by rallying other supermarkets to establish an Ilan County Supermarket Alliance and demanding that suppliers cease supplying the complainant, the findings from the investigation are as follows:
    (i) The concluding paragraph of a photocopied "Joint Letter From the Ilan County Supermarket Alliance to Nestle Taiwan Ltd." furnished by the complainant read as follows:
    We have unanimously resolved that if your company fails to cut off or terminate the delivery of goods to the aforesaid phony cooperative, this alliance will express its protest by categorically and immediately taking action, simultaneously and in unison, to pull all your goods from our shelves, cease their sale, and return them to you within three days.
    This letter raised concerns that enterprises had agreed to act in concert to boycott another enterprise. The FTC therefore dispatched personnel to Nestle Taiwan Ltd. to conduct an investigation. The findings from the investigation are as follows:

    1. a. Formerly, Nestle Taiwan considered local consumer cooperatives such as Suao Chen, Ilan, as different in nature from ordinary consumer cooperatives run by government agencies and schools, therefore, it never supplied commissary goods for sale by such cooperatives (which sell the goods at a special discount). Accordingly, no supply cutoff could ever occur.

    2. b. As of September 1, 1999, however, Nestle adopted a new policy of supplying commissary goods for sale by local consumer cooperatives if the cooperatives were legally established and run, and had faithfully implemented the verification procedures.

    (ii) The various written and oral statements presented to the Commission by the representatives of the enterprises involved in the case are summarized as follows:
    1. The origins of the joint letter: In May 1998, the Chin Fu Shih hypermarket changed its name to the "Lo Fu Lien Consumer Cooperative," and, thus deceivingly positioned itself as a cooperative and began receiving supply of commissary goods from delivery agents for resale. This seriously affected the operations and threatened the survival of all legal supermarkets in Ilan County. Lacking any other recourse at the time, the supermarkets and distributors allied themselves in an expression of protest to suppliers such as Nestle Taiwan and with the hope that they might thereby take the matter seriously and could take actions to maintain the original trading order under which the goods supply system was divided into two channels: delivery agencies (for discount commissary goods) and distributors (for ordinary consumer goods).

    2. All of the Wan K'e Lai supermarkets recognized the occurrence of the signing of the joint letter and admitted being a party to the signed letter.

    3. The Surewell supermarket chain stated that the signing of the joint letter was simply an impulsive expression of the supermarkets' collective indignation and discontent at phony consumer cooperatives. No concrete action had ever ensued thereafter. Nor did Surewell participate in any such concerted action.

    4. In an oral statement before the Commission, the responsible person of the Nung Min Supermarket denied involvement in the present case, and declined to elaborate on related circumstances or evidence, claiming that his memory failed him.

    (iii) In sum, the Wan K'e Lai chain and the other individual supermarket operators involved in this case all admitted to participating in the signing of the joint letter and the concerted boycott action. They also alleged that the Surewell and Nung Min chains had taken part in the resolution to sign the joint letter, despite their refusal to admit it.
    (iv) The above enterprises encompass nearly all the major competing supermarkets in Ilan County. Their acts in May and June 1998 that demanded the suppliers cease supplying phony cooperatives through a jointly signed letter constitutes a concerted action defined in Article 7 of the Fair Trade Law. Based on the following reasons, the alleged concerted action was deemed sufficient to disrupt market function in the supermarket retailing industry at Ilan County, and therefore had violated Article 14 of the Fair Trade Law:

    1. In 1998, the supermarkets and chains involved in the case ranked in the following order in terms of their respective business volumes: Surewell, Wan K'e Lai, Nung Min, other (individual) supermarkets. Their combined business volume was NT$1.94 billion, accounting for somewhat more than a 60% market share.

    2. Ilan County is located in the northeastern Chinese Taipei. It is geographically isolated, and no large national supermarket chain has yet entered the market. Supermarkets and convenience stores are the main retailing channels in the Ilan market, aside from traditional family-operated stores. As was estimated on the basis of 1998 national retail business volume and 1996 national census statistics, Ilan County's overall supermarket business volume in 1998 would have been NT$4.65 billion. That means the enterprises involved in this case would have hold a 41.7% market share at Ilan County, an economic power sufficient enough to affect the market function there.

  3. The joint resolution and signing by the supermarkets in 1998 of a letter concertedly demanding that suppliers cease supplying phony cooperatives was sufficient to disrupt the market function in the supermarket retailing industry in Ilan County, and had constituted a violation of Article 14 of the Fair Trade Law. Since the act at issue occurred before the partially amended Fair Trade Law taking effect on February 5, 1999, it should be disposed under the fore part of Article 41 in effect at the time of the act, and the respondents were ordered to cease the offending actions.

Summarized by Lin Chin-lang
Supervised by Hung Te-ch'ang

Appendix:
Surewell Wholesale Co., Ltd.'s Uniform Invoice Number: 9299934106
Nestle Taiwan Ltd.'s Uniform Invoice Number: 20683002

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