Violation of the Fair Trade Law by China Steel Chemical Corporation's Sales of Anhydrous Coke
Chinese Taipei
Case:
Violation of the Fair Trade Law by China Steel Chemical Corporation's Sales of Anhydrous Coke
Key Words:
China Steel Chemical Corporation; customer restrictions; agreement of non-competition in production, resale price
Reference:
Fair Trade Commission Decision of June 14, 1995(the 192nd Commission Meeting); Disposition (85) Kung Chu Tzu No. 084
Industry:
Anhydrous Coke Processing Industry (2699)
Relevant Laws:
Summary:
1. Case background: The China Steel Corporation (hereinafter referred to as CSC) was complained against to have sold all waste materials from steel smelting such as coke breeze and coke sediments to its subsidiary China Steel Chemical Corporation (hereinafter referred to as CSCC) for processing and manufacturing into anhydrous coke. After investigation, it was found that apart from the complaint, CSCC(s sale of the anhydrous coke involved maintenance of resale price and restrictions on the business activities of the trading counterparts. An investigation on those these was incorporated in that for the above complaint for the purpose of investigation, ex officio, by this Commission.
2. Based on the relevant facts and evidences, the acts by CSCC and distributors of allocating customers, maintenance of resale price and having agreement of non-competition in production with respect to the sale of anhydrous coke were initiated by CSCC. They did not result from consensus among the participating distributors to control market competition. Thus the above-mentioned restrictive acts did not satisfy the requirements of "concerted actions" under Article 7 of the Fair Trade Law. In the present case, CSCC's acts in violation of the Fair Trade Law were as follows:
(1) CSCC and its distributors were in a buy-and-sell relationship, and were considered as trading counterparts under Article 18 of the Law. Investigation showed that CSCC, in order to maintain market price, had on several occasions issued memorandums to its affiliated distributors, emphasizing that "price cutting shall be prohibited." On June 22, 1993 during a production and sale coordination meeting, it was resolved that the resale price of anhydrous coke be set at NT$200 per metric ton. An additional set of (Anhydrous Coke Distribution Agreement Implementation Procedures) further stipulated the penalties imposed on price cutting. Thus, CSCC's acts met the requirements of Article 18 of the Law. In addition, CSCC demanded resale price maintenance as a trade condition, a violation of which would entail refusal to supply products, monetary penalties, or other improper restrictions on the trading partners' business activities. Such acts met the requirements of Article 19(vi) of the Law.
(2) Allocation of customers: Since its entry into the anhydrous coke market in 1991, CSCC had allocated customers to four of its affiliated distributors. In October 1993, in order to prevent competition among the distributors, CSCC, during a production and sale coordination meeting, again reiterated the importance of having customer management. In practice, CSCC also at times allocated customers. For those distributors who refused to abide by the agreement, CSCC on several occasions demanded corrections by threatening to terminate the contract. Thus, CSCC indeed conditioned the grant of distributorship on improper restrictions such as the allocation of customers. Such acts of using the supply of goods to improperly restrict downstream distributors' sales, for the purpose of maintaining market prices, met the requirements of Article 19(vi) of the Law.
(3) Non-competition agreements in production with CSCC: Article 10(2) of CSCC distributorship agreement stated that "in the event Party B (note: the Complainant of the present case) imports coke and processes/manufactures anhydrous coke either on its own or by commissioning a third party, Party A (note: CSCC) may terminate this contract without prior notice." The Complainant was one of the distributors who had received a letter from CSCC stating that supply of anhydrous coke would be temporarily discontinued as a penalty. The aforementioned provision of the distributorship agreement had the effect of preventing the Complainant and other potential competitors from entering into the production and distribution of the products at issue, and thus was likely to restrict competition in particular market. CSCC's act was to condition transactions on the restrictions on the trading counterparts' business activities, which were prohibited by Article 19(vi) of the Law. There was no "justifiable causes" for the above acts of CSCC.
(4) CSCC is the sole domestic manufacturer of anhydrous coke who has a special position in the domestic market. The company(s acts of restricting its trading counterparts( business activities, such as resale price maintenance, imposing penalties on the violators, allocating customers, non-competition agreement in production, were arrangements made within its distribution system to restrict competition without justification of economic benefits. Taking into account CSCC's market position and its acts of vertical restraint, it was obvious that such acts were likely to impede fair competition among the distributors, which were in violation of Article 18 and Article 19(vi) of the Fair Trade Law.
Summarized by Lin, Chin-tang
Supervised by Yang, Chia-chun
Appendix:
China Steel Chemical Corporation's Uniform Invoice No.: 23221384
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