The Taiwan Tobacco and Liquor Corporation’s 40-proof cooking rice wine sales promotion was alleged to have violated the Fair Trade Law

Chinese Taipei


Case:

The Taiwan Tobacco and Liquor Corporation’s 40-proof cooking rice wine sales promotion was alleged to have violated the Fair Trade Law

Key Words:

rice wine, 40-proof rice wine for cooking

Reference:

Fair Trade Commission Decision of October 2, 2003 (the 621st Commissioners' Meeting)

Industry:

Wine and Liquor Manufacturing (0881)

Relevant Law:

Article 10(1)(i) and 10(1)(iii) of the Fair Trade Law

Summary:

1. The Taiwan Tobacco and Liquor Corporation (the Respondent) allegedly carried out a rice wine sales promotion from 6 December to 20 December 2002 in which it marked down the price of all of its 20-degree ("40-proof") cooking-use rice wine from NT$48 to NT$32 per bottle or offered it on a buy-two, get-one-free basis. This was alleged to violate the provisions of Article 10(1)(i) and Article 10 (1)(iii) of the Fair Trade Law because given that the Respondent was created out of the restructuring of its predecessor entity the Taiwan Tobacco and Wine Monopoly Bureau and that it currently enjoys a 50 percent market share, this kind of below-cost dumping was intended as a means to monopolize the market.

2. Findings of the Fair Trade Commission’s (FTC’s) investigation:
(1) Rice wine has long been a staple of Taiwanese cooking. With Chinese Taipei’s entry into the World Trade Organization (WTO), the imposition of relatively higher taxes on traditional rice wine gave pause to many consumers. Conversely, lower priced rice wine for cooking began to supplant traditional rice wine in the market as it was now taxed at a relatively lower rate. So, the disputed 40-proof rice cooking wine in this case and other relevant varieties of rice wine are, to a considerable degree, interchangeable and must be viewed as the same market.
(2) The simultaneous implementation of the Tobacco and Alcohol Administration Act and the Tobacco and Alcohol Tax Act on 1 January 2002 fully opened the alcoholic beverage market to private sector production or importing of alcoholic beverage products. According to Ministry of Finance Statistics released 10 January 2003. If traditional rice wine and rice cooking wine are viewed as interchangeable, then the total production industry comprises 68 companies (or 79 percent of all domestic alcoholic beverage producers). Furthermore, as of 10 August 2003, at least 180 enterprises had obtained licenses to produce alcohol, among which 147 planned to produce varieties of rice wine (82% of the total). It is clear that since the loosening of legal restrictions and the opening of the market there have been few concerns regarding impediments to market participation and the trend is toward a higher degree of competition. Consequently, the Respondent in this case cannot readily be deemed what the Fair Trade Law terms a “monopolistic enterprise” within the scope of the domestic market for relevant rice wine products since the opening of Taiwan’s alcoholic beverage market.

3. Grounds for dismissal:
(1) Since the enforcement of the Tobacco and Alcoholic Tax Act, the Respondent shoulders a tax burden of NT$90 per each 0.6 liter of traditional rice wine it produces. The resultant hike in price to the current wholesale level of NT$117 per bottle and suggested retail price of NT$130 per bottle was widely perceived by consumers as excessive. The price hike was closely accompanied by a succession of news stories of illegal enterprises producing and selling bootleg rice wine and of members of the public dying after drinking bootleg rice wine. To satisfy the widespread public demand for a safe, inexpensive alternative, the Respondent decided to conduct a “limited time” sales promotion involving the disputed rice wine as a means to convince the public to change their cooking habits and switch to its salted rice cooking wine, which is lower-priced and similarly flavored. At the time, the disputed promotion did indeed achieve the beneficial effect of reducing the incidence of rice wine bootlegging.
(2) Prior to the Respondent’s conduct of the disputed sales promotion, its inventory of the 40-proof rice wine for cooking was limited. To facilitate coordination of production and sales and preparation of raw materials, the promotion initially adopted a “limited quantity” supply plan, supplying limited quantities of the product to wholesalers and retail chains and limiting purchases at its own retail outlets to six bottles per person. Of the amount sold during the promotion period, 91% was produced during the promotion period, thus the promotion was not a scheme to dump existing inventories at a reduced price. This fact is supported by a “2002 monthly sales and inventory chart for 40-proof rice cooking wine for cooking” provided by the Respondent.
(3) According to the Ministry of Finance, the Respondent’s limited time, limited quantity, NT$32 per bottle or buy-two get-one-free offer to promote sales of its 40-proof rice cooking wine was in compliance with Point 1, subparagraph 2, of its 2 August 2002 administrative order, issued pursuant to the intent of Article 37, subparagraph 2, of the Tobacco and Alcoholic Administration Act; fixing the maximum permissible value of alcoholic beverage giveaways and prizes: “The value of giveaways offered when advertising or promoting alcoholic beverages may not exceed one-third of the given transaction value for the given alcoholic beverage product and the maximum value may not exceed NT$1,000. The value of a giveaway shall in principle be determined based upon the 'acquisition cost' provided by the enterprise.”
(4) Based on the results of the final accounting shown by the Respondent, the discounted price of the disputed 40-proof rice wine for cooking during the promotion period was higher than the average variable production costs for said product. Additionally, according to the Ministry of Finance, the discounted price during the disputed promotion period was indeed sufficient to cover taxes and, unless allegations of government subsidies were involved, the promotion was also in line with official government policy to encourage citizens to opt for lower-priced rice cooking wine over higher-priced rice wines. Consequently, the Ministry of Finance took an approving attitude.
(5) In summary, the Respondent was not deemed a monopolistic enterprise within the scope of the relevant rice wine products market. The Respondent’s conduct in the disputed rice cooking wine sales promotion was considered to be in the public interest and was not government subsidized. There was no specific evidence to show that the Respondent either restrained or hindered participation in competition by producers or importers of the same goods or demanded any special concessions from upstream or downstream trading partners such as would be likely to violate the provisions of Article 10(1)(i) or Article 10(1)(iii) of the Fair Trade Law.

Appendix:
Taiwan Tobacco and Liquor Corporation’s Uniform Invoice Number: 03787101

Summarized by Sun, Ya-Chuan; Supervised by Wu, Bi-Ju


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