Requests by AT&T Taiwan Telecommunication Co., Ltd. and Chunghwa Telecom Co., Ltd. for clarification of the legitimacy of the Digital Telephone Exchange Procurement Program developed by Chunghwa Telecommunication Co., Ltd.

Requests by AT&T Taiwan Telecommunication Co., Ltd. and Chunghwa Telecom Co., Ltd. for clarification of the legitimacy of the Digital Telephone Exchange Procurement Program developed by Chunghwa Telecommunication Co., Ltd.

Chinese Taipei

Case:

Requests by AT&T Taiwan Telecommunication Co., Ltd. and Chunghwa Telecom Co., Ltd. for clarification of the legitimacy of the Digital Telephone Exchange Procurement Program developed by Chunghwa Telecommunication Co., Ltd.

Key Words:

digital telephone exchange, restriction on number of factories, compatibility test, number of subscriber lines

Reference:

Fair Trade Commission Decision of April 2, 1997 (the 283rd Commission Meeting); Letter of (86) Kung Er 85511200.

Industry:

wire communication machinery and materials manufacturing industry.

Relevant Law:

Article 19(ii) of Fair Trade Law

Summary:

1. In 1983, the Cabinet approved and imposed a restriction that "The number of telephone exchange manufacturers permitted in Chinese Taipei shall be two in principle and not more than three." As such, there are only three local manufacturers in this industry at issue namely: Taiwan IBM, Taicom Systems Limited (TSL), and AT&T Taiwan Telecommunications Co., Ltd. (AT&T Taiwan), and these three manufacturers and their types of system are principally used for procurement of digital telephone exchange systems. However, on February 26, 1996, the Cabinet abolished the above-mentioned restriction imposed on the number of manufacturers as suggested in the conclusion of the 813th meeting of the members of the Council for Economic Planning and Development held on January 24,1996 and announced that "... the number of telephone exchange systems is decided in the operation policy of an enterprise in this industry instead of in the industry policy of the state...- Chunghwa Telecom Co., Ltd. shall decide ex officio its procurement policy upon its incorporation...”. Based on such principle as stated above by the Cabinet and with the apprehension that the previous "three manufacturers and three types of system procurement principle might restrain and obstruct the competition in the market of the commodity at issue, Chunghwa Telecom Co., Ltd. (CTC) intends to liberalize the method of procurement of digital telephone exchange at issue and to include bidder's qualification requirements and system compatibility test requirements in the bidding instructions so as to assure its requirements in respect of communication quality, operation efficiency and urgent need of sufficient number of telephone lines. Therefore, it filed an application with this Commission for clarification of the legitimacy of its intended program so as to use the interpretation as the legal basis in formulating the specifications of the exchange systems to be procured.

2. In handling this case, this Commission made an explanation of the applicability of the Fair Trade Law on the matter and also suggested CTC to process the technology-related matters through transparent operation procedures in order to comply with essence the spirit of fair competition. The contents of the clarification adopted by the resolution of this Communication were made by taking into consideration the procurement specifications, market competition condition, technology level and relevant applicable laws and regulations at a specific period of time and place of procurement; therefore, if the conditions of subjective and objective environment are changed, then CTC shall be responsible for making necessary review of the relevant procurement specifications so as to make them conforming to the requirements set out in the Fair Trade Law.

3. Regarding the matters pertaining to the "bidder's qualification requirements", "compatibility test", "proved capacity of the digital telephone exchange equipment to be proposed by the bidder"' and "urgent procurement of replacement system for the obsolescent systems currently being used by certain Telecommunication Offices" contained in the procurement program developed by CTC, and in view of the fact that the long term maintainability and serviceability of digital telephone exchange system is very important to the quality assurance of communication service as well as to the protection of the interests of telecommunication network users, this Commission considered that statement of CTC that "the above mentioned procurement specifications are formulated for the purpose of assuring the operating stability and security, and the communication service quality" should be acceptable as a reasonable cause as required in Fair Trade Law.

As to the issue pertaining to the proper time of adopting the compatibility test requirement, FTC was initially tending to respect the discretionary power of CTC, but subsequently considered that if CTC adopts the pre-bidding compatibility test approach, the new system supplier will not be able to enter the market at issue until one year later, and this will in turn result in greater impact on the competition environment in the market involved as well as the business opportunity of the new-comers to the market; furthermore, as the evaluation results made by CTC also revealed that the acceptance test procedure is another alternative for the compatibility test, FTC then recommended CTC to keep using the acceptance test procedure adopted in its previous procurement policy. With respect to the matters relating to the relevant compatibility test specifications and procedures and the method to verify the system growth capability, since FTC is not a technology-based agency, it could only suggest CTC to follow the spirit of the Draft Law of Government Procurement by developing the operation procedures related to publication of technical specifications, and submission and processing of oppositions, and providing adequate seats in the Opposition Screening Board for participation by impartial and objective experts retained from technical sectors concerned in order to accommodate professional opinions through transparent operation procedures so as to gain the trust of the consuming public.

Finally, regarding the intent of CTC to exclude the manufacturers of Japan, Korea and mainland China and their products from participating in the bidding project by invoking the restriction on place of procurement currently being enforced by the Government, it should be noted that as such procurement place restriction is not a mandatory prohibition, CTC shall certainly not use it as legal reference to avoid the responsibility of enforcing discriminative treatment. Furthermore, as this issue involves the foreign trade policy, diplomatic policy and industrial policy of Chinese Taipei and is a subject of negotiation for Chinese Taipei’s accession to the WTO, it is therefore deemed inappropriate for CTC to impose area restriction on system suppliers by invoking the aforementioned procurement area restriction while developing its procurement policy. For prudential purpose, FTC suggested CTC to request the competent authority to consult and coordinate with relevant agencies for a policy-making decision in respect of the feasibility of imposing area restriction on procurement for digital telephone exchange systems.

Summarized by Lin, C. T.
Supervised by Yang, C.T.

Appendix:
Chunghwa Telecom Co., Ltd.’s Uniform Invoice Number: 96979933

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