A complaint against Chinese Petroleum Corp. for abusing its monopolistic position in the aviation fueling service market to obstruct competition from other enterprises in violation of the Fair Trade Law
Case:
A complaint against Chinese Petroleum Corp. for abusing its monopolistic position in the aviation fueling service market to obstruct competition from other enterprises in violation of the Fair Trade Law
Key Words:
aviation fuel, price quotations, domestic routes
Reference:
Fair Trade Commission Decision of October 12, 2000 (the 466th Commissioners' Meeting); Disposition (89) Kung Ch'u Tzu No. 170
Industry:
Oil Refining Industry (2310)
Relevant Laws:
Article 10(1)(i) of the Fair Trade Law
Summary:
1. Wen Chiu Ltd. Co. have been engaged in the provision of aircraft fueling service to international routes at Chiang Kai Shek International Airport (CKS) since March, 1997. When the market of aircraft fueling service for domestic routes at CKS (the domestic fueling market) was open to private enterprises on July 1, 1997, Wen Chiu requested price quotations from Chinese Petroleum Corp. (CPC) on two occasions: 28 September 1999 and 19 October 1999. CPC, however, delayed in providing the quotations, asserting that it was still under the process of studying and developing a pricing structure. At the end of 1999, CPC concluded the fuel-supply agreements for the year of 2000 with all of the airlines on domestic routes at CKS. CPC then wrote to Wen Chiu in January 2000, saying it would not provide the quotations because all airlines that provided domestic flight at CKS had entered fuel-supply agreements with CPC. 2. Although the domestic oil market had been initially liberalized in January1999 and imports of aviation fuel had since then been allowed, the domestic fueling market was not open to enterprises other than CPC as the Chiang Kai Shek Aviation Fuel Supply, Storage, and Filling Business Guidelines was yet to be drafted. Despite that Formosa Plastics, another oil refinery in Chinese Taipei, had been approved to sell aviation fuel on May 9, 2000, yet the alleged misconducts by CPC occurred before the entering into the market of Formosa Plastics' products. Therefore, due to restrictions from the ongoing drafting of the Guidelines, CPC would still be able to maintain its monopolistic position in the short run. After investigation, it was the finding of the Fair Trade Commission that the refining and transportation costs of aviation fuel at CKS were the same for international and domestic routes. With the exception of the aprons whose filling stations were different, the other transportation, storage, and filling facilities were the same. CPC itself admitted that the fueling work for both the international and domestic routes could be carried out by the same personnel, and that the primary difference between the cost of aviation fuel for international and domestic routes was the taxes assessed: the business tax and sales tax was 5% and 0.59 per liter respectively for domestic routes, and were exempted for international routes. Their other costs differed insignificantly. Hence, CPC's delay in providing its price quotations was unjustifiable. Moreover, a uniform pricing structure had in fact been adopted in the domestic fueling market at that time. Even if CPC intended to change it into a discriminatory prici ng scheme by buyers' locations, no substantial measures for that change had been taken by CPC. CPC's difficulty in providing the price quotations was nothing more than an excuse for its attempt to secure promises of dealing exclusively with CPC from its competitors' customers. Its intention to exclude competition could further be evidenced by the postponed rely of not providing price quotations after its agreements with all domestic airlines were completed. In addition, fuel users should be entitled to terminate their agreements with CPC and sign agreements with other suppliers based on such considerations as costs, profits, transaction terms, and credit risk even though they had previously entered into fuel-supply agreements with CPC. The conclusion of agreements had no bearing on the decision of whether to provide quotations. CPC indeed had the intention to obstruct Wen Chiu's entrance into the domestic fueling market and as a result to allow it to maintain the monopolistic position in the market. The ef fects of CPC's conduct were not limited to the business relations between CPC and Wen Chiu in which CPC refused to provide Wen Chiu with price quotations; they extended to the trading opportunities available to Wen Chiu and Li Jung Airline Company, and thereby Wen Chiu's opportunities to compete for patronage from other airlines such as Far Eastern Airlines and China Airlines. It could even deter the potential entry into the domestic fueling market by other fueling companies such as Mobil Oil and Texaco, and would enabled CPC to maintain its monopolistic position in the market. 3. In 1999, CPC used its monopolistic position in the aviation fueling service market to refuse without legitimate grounds Wen Chiu's requests for price quotations obstructing Wen Chiu's opportunities to participate in competition. CPC engaged in such conduct for the purpose of maintaining its position in the domestic fueling market. The Fair Trade Commission found that CPC's conduct was in violation of Article 10(1)(i) of the Fair Trade Law. After weighing CPC's motivation, interest gained, enterprise scale, and exceptional market position, the Fair Trade Commission imposed on it an administrative fine of NT$5,000,000 pursuant to the forepart of Article 41 of the Fair Trade Law. Appendix: Chinese Petroleum Corp.'s Uniform Invoice Number: 03707901 Summarized by Hung, Hsuan; Supervised by Lin Gin-Lan