The fulfillment of the contract between China Petroleum Corp. [hereinafter referred to as "CPC"] and Jui Hua Marine Engineering Co. ["Jui Hua"] for maintenance work of offshore oil-unloading equipment

Chinese Petroleum Corporation's requirement that its private gas station franchisees sell exclusively Kuo Kuang Lubricants, impeding fair competition in the lubricant market

Chinese Taipei

Case:

Chinese Petroleum Corporation's requirement that its private gas station franchisees sell exclusively Kuo Kuang Lubricants, impeding fair competition in the lubricant market

Key Words:

lubricants, Chinese Petroleum Corporation (CPC)

Reference:

Fair Trade Commission Decision of 7 June 1995 (the 191st Commission Meeting); Letter (84) Kung Erh Tzu No. 05441 and Disposition (84) Kung Ch'u Tzu No. 079

Industry:

Other Chemicals Manufacturing Industry (2290)

Relevant Laws:

Article 19(vi) of the Fair Trade Law

Summary:

1. Complaints were brought to this Commission regarding the following matters:

(1) Chinese Petroleum Corporation (CPC) suspended its acceptance of applications for becoming its lubricant distributors.

(2) CPC's private franchisees have the option of purchasing gasoline from CPC on credit, if collateral is provided, or by cash, while non-franchisees can only purchase by cash.

(3) CPC's private franchisees may only distribute CPC's Kuo Kuang lubricants, excluding all other brands of lubricants.

2. Regarding Fact (1) that Chinese Petroleum Corporation (CPC) suspended its acceptance of lubricant distributor applications, this Commission found that CPC set qualification requirements for its distributors as part of its marketing strategies to increase its sales volume when facing the market competition. Based on its respect for an enterprise's free choice of distributors, this Commission does not find such act of CPC in violation of the Fair Trade Law. With respect to Fact (2), CPC explained that it was a misunderstanding due to the ambiguity of the contract. CPC further clarified this by stating that it had never rejected any purchase of its petroleum on credit by non-franchisees. CPC should have explained its position to private gas station owners that it would agree to any non-franchisee's purchase of its gasoline and diesel fuel on credit, if such non-franchisee is willing to provide collateral whose security is verified by the CPC. Therefore, such act of CPC is not in violation of the Fair Trade Law.

3. As for CPC's requirement that its private franchisees may only distribute CPC's Kuo Kuang lubricants, this Commission found that CPC was the only supplier in the market of gasoline and diesel fuel, and that CPC, at the same, also manufactured lubricants. CPC imposed such restrictions with an intent to exercise effective control over gas stations as a distribution channel for lubricants and to ensure its advantageous position in such distribution channel. In addition, gas stations operated directly by CPC or by private franchisees account for 99% of the total market. Therefore, CPC had a significant power in the market for the distribution of automobile and motorcycle lubricants.

4. Automobile and motorcycle lubricants come in different grades to satisfy various consumer needs. The transactions of lubricants are diversified and of small-quantity. Although CPC claims that its requirement of exclusive sale of its brand lubricants is to ensure the quality of automobile and motorcycle lubricants and to protect CPC's corporate image, Kuo Kuang lubricants designated by CPC may not fully meet the need of automobile and motorcycle users for different grades of lubricants. Further, if the private franchisees are allowed to sell lubricants with no lower quality than Kuo Kuang lubricants to increase their own competitiveness and meet the needs of more consumers without damaging the consistency of the franchise system, the ancillary functions of gas stations and the sales of their gasoline/diesel fuel will be enhanced. Under the present circumstance, CPC's restriction makes it difficult for gas stations to enhance their ancillary functions and impede efficiency competition in the gas station market. Since the distribution channel through gas station is almost exclusively owned by CPC, no other brands of lubricants can go through such distribution channel. Such act of CPC has also violated the principle of fair competition in the market of automobile and motorcycle lubricants and thus has violated Article 19(vi) of the Fair Trade Law, which outlaws improper restrictions on trading counterparts' activities.

　

Summarized by Li, Yen-hsi

＠: For information of translation, click here

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