The applicability of the Fair Trade Law to the distribution channel and price adjustment process of Kinmen Kaoliang wine

The applicability of the Fair Trade Law to the distribution channel and price adjustment process of Kinmen Kaoliang wine

Chinese Taipei

Case:

The applicability of the Fair Trade Law to the distribution channel and price adjustment process of Kinmen Kaoliang wine

Key Words:

contract, agreement or other forms of mutual understanding, distribution channel, Kaoliang wine

Reference:

Fair Trade Commission Decision of the 202nd Commission Meeting; Letter Kung-Er-Tsu-07158.

Industry:

Beverage Manufacturing Industry (1181)

Relevant Law:

Article 14 of the Fair Trade Law

Summary:

1.The price of the Kinmen Kaoliang wine is comparatively high for the following reasons:

(1) The product is of good quality and has been favorably received in the market.

(2) Since Kinmen was reclassified as a non-combat zone and became open to tourists on November 7, 1992, the number of tourists who visit Kinmen have been on the rise. In addition, as Kinmen Kaoliang wine is Kinmen's special local product, demand for the wine has greatly increased. However, distributors go to Kinmen to purchase Kinmen Kaoliang wine in large quantity. This also serves as a factor causing the increase in demand.

(3) The capacity of the Kinmen Wine Factory to produce Kaoliang wine is limited. The Kinmen County Government is in the process of building a second wine factory in order to solve the problem of short supply.

Nevertheless, it is impossible to immediately increase the supply of the said wine. Furthermore, the sudden increase in market demand caused by Kinmen's reclassification as a non-combat zone in late 1992 was not at all expected. Investigation reveals that the administration of production/sales of Kinmen Kaoliang wine is subject to the "Regulations Governing the Administration of the Production and Sale of Tobacco and Wine in the Kinmen Area" as enforced on January 27, 1993. The Kinmen County Government has replaced the Kinmen Combat Zone Administrative Committee to be the competent authority in charge of the administration of production/sales of Kimen Kaoliang Wine. However, Kinmen Kaoliang wine is sold to Taiwan area in the following manner:

(1) it is distributed on a consolidated basis by the Tobacco & Wine Monopoly Bureau (the "TWMB") to retailers in the Taiwan area; and

(2) it is transported to and sold in Taiwan area by Kinmen Kaoliang wine distributors who visit Kinmen and purchase the wine there. The selling price of the wine distributed by the TWMB as referred to in the preceding Paragraph is calculated based on the provisions set forth in Article 33 of the “Provisional Statute for Taiwan Tobacco and Wine Monopoly”. If a retailer changes the retail price in violation of the provisions of the said Statute, it shall be liable for a fine up to NT$2,000 under Article 38 of the same Statute.

2.The Commission has sent staff to Kinmen to obtain a picture of the site of the supply and sale of Kinmen Kaoliang wine there. They have learned that some retailers take into account the salability of the sales of said wine and obtain a wine seller's license so that they may apply for purchasing Kinmen Kaoliang Wine accordingly, while other retailers apply for the purchase through service wholesalers acting on their behalf, and subsequently authorize the service wholesalers to arrange the wine so purchased for shipment on a consolidated basis to Taiwan area for sale. The parties who obtain the Kaoliang wine from the Kinmen Materials Supply Department (the "KMSD") tend to sell the wine only through consolidated sales channel selling on their behalf. Moreover, the word, "royalty" refers to the fee paid by a retailer who obtains a wine seller's license from a license holder, so as to obtain the wine from the KMSD. The amount of the royalty will be determined based on the type of and the prevailing price of Kaoliang wine ordered by the service wholesalers in Taiwan and subsequently purchased from the local Kinmen retailers by the Kinmen service wholesalers. Therefore, the royalty will vary according to the type of the wine and should be adjusted from time to time based on the demand for the Kaoliang wine in Taiwan area. Basically, the rate of royalty relates to the quotations made by the service wholesalers in Taiwan area. Moreover, the retail price of the Kaoliang wine in a wine shop relates to the amount of royalty given to a retailer holding a wine seller's license. The foregoing relate to the quantity and the type of the Kaoliang wine supplied by the KMSD, as well as the time and frequency of the supply. In general, a service wholesaler purchases Kaoliang wine in the Kinmen Area at the price offered in each distribution (publicly announced price plus the royalty) plus an addition at NT$10 to NT$20, and subsequently arranges his/her purchase for shipment on a consolidated basis by sea at the charge of about NT$10 per bottle to Taiwan area for sale.

3.In regard to whether the retail market price for Kinmen Kaoliang wine being higher than the publicly announced retail price involves concerted actions: According to the provisions set forth in Article 7 of the Fair Trade Law and Article 2 of the Enforcement Rules of the Fair Trade Law, acts that constitute concerted actions are: 1) an act of an enterprise to enter into a contract, agreement or other form of mutual understanding with other enterprises with whom it competes, to jointly determine the prices of goods or to mutually restrict their business activities; and 2) an act among enterprises at the same level of production or distribution that is sufficient to influence production or the function of supply and demand in a market for goods or services. After Kinmen's reclassification as a non-combat zone, the Kinmen County Government, in order to avoid nepotism, issued licenses to retailers who apply for selling tobacco and wine as long as the applicants meet the prerequisites. As a result, more than 10,000 tobacco and wine retailer licenses have been issued. This appears to be a problem with the Kinmen County Government's administration of tobacco and wine retailers. It is unlikely that the tobacco and wine retailers have the ability to jointly monopolize the market. Therefore, no positive evidence is available to substantiate a violation of the Fair Trade Law.

Summarized by Hu, J. S.
Supervised by Shih, G. T.

＄: For information of translation, click here

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