Complaints alleging Carrefour Corporation's collection of additional slotting allowance, rebates and patronage grants in violation of the Fair Trade Law

Chinese Taipei

Case:

Complaints alleging Carrefour Corporation's collection of additional slotting allowance, rebates and patronage grants in violation of the Fair Trade Law

Key Words:

slotting allowance, collection of rebates, patronage grants, additional fees

Reference:

Fair Trade Commission Decision of October 19, 2000 (the 467th Commissioners' Meeting); Disposition (89) Kung Ch'u Tzu No. 178

Industry:

Retailing and Volume-Selling Industry (5314)

Relevant Laws:

Article 24 of Fair Trade Law

Summary:

1. The Fair Trade Commission received letters from legislators stating that they had received complaints from suppliers alleging that Carrefour Corporation had demanded improper rebates and annual slotting allowance from them, and required them to pay patronage grants not directly related to the sales and promotion of products. If they failed to comply, they would face the threat by Carrefour of taking their product off of its store shelves. The suppliers asserted that Carrefour's conduct was in violation of the Fair Trade Law.

2. After investigation, the Fair Trade Commission founds as follows: (1) When suppliers negotiated annual supply agreements with Carrefour, the completed agreement consisted of the documents drafted unilaterally by Carrefour, including a national agreement attached with Addendum 1 (distributors of suppliers), Addendum 2 (national uniform products and services prices), Addendum 3 (national promotional agreement), and a national supplementary agreement. Under the documents, Carrefour was entitled to collect various "additional fees" from suppliers. Thereafter, both parties had to renegotiate annually the agreements with respect to price. Carrefour was established in 1987 and had 23 stores at the time the alleged disputes occurred. Carrefour had revenues of NT$39.77 million in 1999 accounting for 30.75% of the domestic market. Small- and medium-sized suppliers - which accounted for the majority of its suppliers - were at a comparative disadvantage to Carrefour. Carrefour regularly took advantage of the opportunities of annual renegotiation of the supply agreement between the suppliers and its purchasing department to introduce additional fees. As most suppliers were under the pressure to maintain their commercial relationship with Carrefour, it is implausible for them to reject the collection of those additional charges. A "supplementary fixed rebate" (referred to in the industry as a "secret rebate") introduced by Carrefour in 1997 is an example of such additional fees; and it did not directly benefit sales. Hence it would be difficult to deem such an additional fee as a reasonable transfer of its operating costs. (2) The additional fees collected by Carrefour over 1998 and 1999 amounted to NT$280 million. Hence the dispute clearly involved not just a small but large number of Carrefour's trading counterparts. To be sure, not all of the suppliers had to pay the additional fees; but most of the suppliers who found it unlikely to refuse to pay the additional fees even when doing so would be obviously against their own interest were small- and medium-size firms. Carrefour's reliance on its comparative advantage to deny its trading counterparts the freedom to decide whether they would like to accept the additional fees were culpable in terms of commercial competition ethics, and were sufficient to affect trading order. Objectively speaking, they constituted obviously unfair conducts. (3) When Carrefour introduced the "supplementary fixed rebate transaction clause" into the standard national supplementary agreement drafted unilaterally by Carrefour, as most of the small- and medium-sized suppliers were under the pressure to maintain their existing commercial relationship with Carrefour, it had used its comparative advantage to force the suppliers to accept the additional fees. Carrefour's conduct was clearly unfair and sufficient to affect trading order in violation of Article 24 of the Fair Trade Law. Therefore, the Commission imposed an administrative fine of NT$4 million on Carrefour.

Appendix:

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