The Chinese Petroleum Corporation [hereinafter referred to as "CPC"] for setting up the rule that exempts state enterprises from submitting financial statements for review while participating in bidding in compliance with the instructions of the Ministry of Economic Affairs ["MOEA"]

Chinese Taipei

Case:

The Chinese Petroleum Corporation [hereinafter referred to as "CPC"] for setting up the rule that exempts state enterprises from submitting financial statements for review while participating in bidding in compliance with the instructions of the Ministry of Economic Affairs ["MOEA"]

Key Words:

CPC; MOEA; Tai Chi Company; state-run enterprises; invitation to bid; financial statements; discriminatory treatment; justifiable cause; Article 19(ii) of the Fair Trade Law

Reference:

Fair Trade Commission Decision of 28 May 1997 (the 290th Commission Meetings); Letter (86) Kung Er Tzu No. 8505268-007

Industry:

Petroleum and coal products manufacturing industry (2120)

Relevant Laws:

Article 19(ii) of the Fair Trade Law

Summary:

1. Yi Ting Engineering Company [hereinafter referred to as the "Yi Ting Co."] and Wei Chieh Engineering Co. Ltd. [the "Wei Chieh Co."] complained that the supplementary rules publicly announced by the Northern Storage and Shipping Office of the CPC for invitation to bid for the welding project of isotropic buoyant-top oil tank of 20,000 kl in the Sha Lun navigation fuel area specially stated that state enterprise bidders do not have to submit their financial statements for review. Such a rule was in violation of the provisions of Article 7(1) of the Points for Attention Regarding Bid Invitation for Construction Projects, which stated that "all bidding manufacturers shall provide their financial statements of the latest year or the previous year." Moreover, the aforesaid rule developed by the MOEA regarding its subordinate state enterprises participating in bidding for engineering projects has been abolished, so the CPC's aforesaid rule that exempted state enterprises from submitting their financial statements for review may be in violation of the Fair Trade Law.

2. The investigation found that the aforementioned rule which exempted state enterprises from submitting financial statements for review in violation of Article 19(ii) of the Fair Trade Law as follows:

(1) Whether the item in question involved discriminatory treatment: Pursuant to the provisions of Article 7(1)(ii) and Article 7(1)(iii) of the Points for Attention Regarding Bid Invitation for Construction Projects, a bidding manufacturer shall produce financial statements which can prove its net value to be no less than one twelfth of the total budget of the project, its liquid assets no less than its liquid liability, and its total liability no more than four times of its net value. Therefore, the agency calling for bid determines the bidding qualifications based on the experience, actual achievements, financial resources and facilities of the bidding manufacturers; whether the bidding manufacturer is a state enterprise or a private enterprise does not affect the review of qualifications. So the aforesaid rule applies to all bidding manufacturers. However, the rule in question, was not applicable to bidding manufacturers of different equity structures, thus it resulted in discriminatory treatment between the private enterprises, which were required to submit financial statements for review, but the state enterprises which were exempted from financial statements reviews.

(2) Whether the reason for setting up such a rule was justifiable: The decision by government agencies or private enterprises to seek contractors for construction projects or to conduct procurement businesses through public bidding aimed to facilitate the sellers' competition with one another, where each enjoys equal trade opportunities, and the buyers' are able to purchase products which have of the quality they desire at reasonable prices in a fair, just and public bidding process that enhance the market efficiency and overall benefits for both the buyers and the sellers. Therefore, the requisite for any public bidding shall be equal trade opportunities. According to the investigation, the reason for setting up such a rule that exempted state enterprises from submitting financial statements for review was to protect the Tai Chi Company, a subordinate business of the CPC, in case it could not participate in the bidding, which it needed to sustain its operations, due to its poor financial status. So such a rule was obviously unfair to private enterprises whose financial conditions were similar or better than that of the Tai Chi Company. In addition, no legal grounds could be found for the rule in question. Therefore it can hardly be concluded that such a rule was justifiable.

(3) Whether the rule in question was likely to impede fair competition: According to the investigation, the rule that exempted state enterprises from submitting statements for reviews has been adopted by the subordinate enterprises of the MOEA, General Headquarters of the Ministry of National Defense and National Police Administration of the Ministry of the Interior, which all play the role of the buyer. As for the sellers, all companies whose scope of operations is similar to that of the Tai Chi Company could be affected. Therefore, in view of the generality of the rule, there is no doubt that the public bidding system, which in nature is competition, could be harmed, thus is likely to impede fair competition.

3. In this case, the CPC incorporated the rule which exempted state enterprises from submitting their financial statements for review in its public announced supplementary rules for project bidding in compliance with the written instructions given by the MOEA. The administrative orders of the MOEA were not based on any legal grounds, yet for its subordinate enterprises, such as the CPC in this case, such orders were mandatory. The Commission therefore has requested the MOEA to rescind the said administrative order so as to comply with the related provisions of the Fair Trade Law. If the CPC still applies the said rule which exempts state enterprises from submitting financial statements for review in its public bidding process after having received this decision, it shall be subjected to the provisions of the Fair Trade Law.

　

Summarized by Chen, Ying-ju
Supervised by Lee, Yan-hsi

Appendix:
Chinese Petroleum Corporation's Uniform Invoice No. 03707901

＊＊: For information of translation, click here

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