A complaint against a particular corporation for indiscriminate issuance of membership certificates as a covert form of retail activity, in violation of the Fair Trade Law.
Case:
A complaint against a particular corporation for indiscriminate issuance of membership certificates as a covert form of retail activity, in violation of the Fair Trade Law.
Key Words:
Industrial zone, warehouse wholesaler, membership card, improper card issuance and verification
Reference:
Fair Trade Commission Decision of July 27, 2000 (the 455th Commissioners' Meeting); Letter (89) Kung Yi Tzu No.8809381-016
Industry:
Volume retailing (5314)
Relevant Laws:
Article 24 of the Fair Trade Law
Summary:
1. This case began with a citizen's letter of complaint alleging that a particular wholesale warehousing operator was engaging in retail activities in violation of Article 24 of the Fair Trade Law. 2. When Fair Trade Commission (the Commission) personnel visited the Neihu branch of the company for an on-site investigation, they found that the company issued two types of membership cards, one for businesses and a "gold-star" membership card for individuals, with photo IDs made on the spot. Verification of membership required matching the card with the individual cardholder. The company provided a written explanation and invited US marketing experts and economists to speak before the Commission. They held that the company was in fact engaging in wholesale, not retail operations. Their testimony was submitted by letter along with an explanation of the application of the fair trade laws of various other countries with respect to this issue. Upon consultation with the competent authorities, it was found that the Neihu outlet of the company was not established according to the "Main Points for Approval of Financial and Operating Plans for Distribution Centers, Wholesale Warehouses and Software Produ cers", which required the filing of application for approval to the Ministry of Economic Affairs (MOEA). It was located in the Taipei Chi Lung River Urban Planning Industrial Zone, which was reserved for wholesale warehousing, not retail operations, purposes. Investigation showed that the company operated in the same pattern in other countries. The company also presented relevant precedents dealing with the same issue to support its assertions that in England and the US, its mode of operation was also considered to be wholesaling. Further, none of the authorities overseeing competition matters in the US, England, Canada, Mexico, Korea or Japan considered the company to be engaging in activities constituting unfair competition by establishing warehouses in areas restricted to wholesale operations while also serving its individual gold card holders and business members. For the sake of caution, the Commission undertook a thorough investigation of the card issuance and verification methods applied to their memberships by volume wholesalers in the industrial zones in the greater Taipei area. They found that aside from Makro, which had stricter qualifications for membership application, accepting applications from individuals was in fact the norm. For membership verification, the company in question would check ID photos and allow only the cardholder to check out at the counter, whereas other operators would allow anyone carrying a card to make purchases. In comparison with the operations of other wholesale warehouse operators, it seems difficult to maintain that the company in question was involved in unfair practices that would affect the trading order. A comparison of operating costs in industrial warehousing zones and ordinary business districts did show that industrial zones enjoyed some advantage in terms of rents, land prices, land taxes, and building taxes. However, given that the volume outlets in the above-mentioned industrial zones have been developing successfully and domestic consuming habits adjusting accordingly, and after further taking into account that the conduct in question had never been deemed unfair by the competition laws of other countries or relevant provisions of international conventions, the most appropriate regulatory agencies with regard to the conduct in question should be agencies other than this Commission. The issues that this Commission can effectively address include international trends, overall developments in co mmerce, the development of the domestic market and issues that genuinely affect market competition. 3. Referring to past instances of sanctions by the Commission against wholesale warehouses engaging in retail activities, it was found that all involved operators who failed to carry out membership verification to restrict entry to the premises, so that Commission personnel were themselves able to enter and make purchases without a card. The final disposition of those cases centered on the failure to verify membership and the indiscriminate issuance of memberships by the operators upon which the decisions against them for their engaging in covert retailing business that had constituted unfair competition to ordinary retailers under Article 24 of the Fair Trade Law were made. With regard to whether the defendant was also engaging in retail activities in addition to its wholesale warehousing operations in the industrial district, letters to agencies such as the MOEA, the Ministry of the Interior, and the Taipei City Government requesting information received no response. Moreover, the concept of "wholesale" and "retail" would get even more blurred if the argument such as "buyers of wholesale goods may provide those goods directly to the final consumer, and goods for final consumers may be those originally intended for the use of wholesale operators" was taken into consideration during the review by the Commission of the cases that affecting competition. Further, the MOEA held that there were some difficulties involved in carrying out the prohibition of retailing in industrial zones, and that in fact it was contrary to market demand. The MOEA thus resolved that revision of the relevant regulations should be considered in accordance with the original legislative intent of st rict retailing prohibition and the needs of the market. 4. Finally, only applications to establish wholesale warehouses under the "Enforcement Rules for Urban Planning in Chinese Taipei area" and the "Main Points for Approval of Financial and Operating Plans for Distribution Centers, Wholesale Warehouses and Software Producers" are subject to regulations restricting clientele and prohibiting retail activities. Further, the Ministry of the Interior holds that if the approved use in the building use permit specifies "general wholesale," whether or not retail services may be provided to end consumers shall be decided by the competent architectural authority under points 1 and 3 of the enforcement rules under Article 73 of the Building Law. If the ruling by the Kaohsiung City government holding that the Makro company was simultaneously engaging in retail activities is taken as precedent, then unlawful retail activities would be in violation of the urban planning regulations, and the Taipei City government should have authority over the issue. Again, the afor ementioned investigation by the Commission of the card issuance and verification methods of the volume wholesalers using the membership system in industrial zones in the greater Taipei area showed that most operators customarily issued memberships to individual consumers and employed rather lax verification methods. The obligation to determine the legality of such regulation-circumventing behavior should fall upon the authority of agencies regulating businesses or industrial land use. In conclusion, the said company's issuance of business memberships and individual gold card memberships, and its method of verification of cardholder identity, preventing non-members from entering the premises and making purchases, was found not in violation of Article 24 of the Fair Trade Law. Summarized by Taur Rong; Supervised by Lin Gan-lan