Traffic light manufacturers in Taipei was complained for violation of the Fair Trade Law by participating in the public bidding for traffic light construction project

Rules for Operation and Administration of Customs Clearance Service and establishment of Trade-Van Information Service Co., Ltd. were allegedly in violation of the Fair Trade Law

Chinese Taipei

Case:

Rules for Operation and Administration of Customs Clearance Service and establishment of Trade-Van Information Service Co., Ltd. were allegedly in violation of the Fair Trade Law

Key Words:

promotion of competition, differential treatment, abuse of market position

Reference:

Fair Trade Commission Decision of July 16, 1997 (the 298th Commission Meeting), Letter (86) Kung Yi Tzu No. 8509304-010

Industry:

Information Processing Industry (7502)

Relevant Laws:

Article 9(2) of the Fair Trade Law

Summary:

1. Customs clearance network operators complained that the Rules for Operation and Administration of Customs Clearance Service (the "Rules") prescribed by the Ministry of Finance ("MOF") allegedly assisted Trade-Van Information Service Co. ("TVIS"), Ltd. in preventing other enterprises from competing therewith, and that the qualification restrictions under such Rules have constituted an improper competition barrier for enterprises seeking to enter this market. 2. After the Commission's investigation, the following analyses are provided:

(1) A customs clearance network was set up in order to implement the comprehensive automation of customs clearance for goods, a project originally handled by the Task Force for Automation of Customs Clearance for Goods, established by the Ministry of Finance. Later, the MOF obtained approval for privatization of the task force by establishing a joint venture between the government and the private sector (with the government's share holding in the joint venture exceeding that of any other shareholder and accounting for less than 50% of the total shares of the joint venture). Therefore, TVIS was established on such basis, and the Rules for Establishment and Administration of Customs Clearance Operation were enacted to meet the administration needs after the privatization. The administrative directive issued by the MOF was not about providing goods or services to engage in transaction; therefore, the Fair Trade Law is not applicable. In addition to this, the above Rules obtained a legal authorization under Article 4-3, Paragraph 2 of the amended Tariff Law. Therefore, the Fair Trade Law shall not apply according to Article 46, Paragraph 2 of the Fair Trade Law.

(2) However, the Fair Trade Law is enacted to ensure fair competition, promote economic stability and prosperity. From the perspective of the competition law, the customs clearance network business involves the use of government authority, which probably explains why it is necessary to have an approval system in accordance with the law to screen and regulate enterprises seeking to operate. However, if the restrictions under such Rules are imposed without justifiable cause to the extent of forming an undue market barrier for market entry or undermining fair competition, such practice will run contrary to the gist of the Fair Trade Law. Under Article 9, Paragraph 2 of the Fair Trade Law, the Commission may conduct negotiation and request the MOF to review and amend such practice so as to ensure a sound competitive environment for the market.

(3) Under the above approval system, the applicant is required to have a minimum paid-in capital of NT$500 million with an approval for operation of value-added networks (Article 6 of the Rules), to pass the preparation review, and to meet the requirements for operation of customs clearance networks in terms of finance, technical operation management and equipment capability. Such network system should also meet the MOF's ten requirements such as comprehensives, efficiency, reliability, etc. In addition, "establishment preparation for [any customs clearance network] may not commence if, following the review, such network is likely to undermine the convenience, economy and performance of the customs system" (Article 7 of the Rules). A high capital requirement is imposed for the applicant, and such requirement has neither solid nor adequate justification. Moreover, the requirement and standard for the establishment application is mostly subject to the subjective discretion of the MOF with respect to uncertain legal concepts, and no technical specification for objective evaluation is provided. Furthermore, the MOF may reject the application on the ground that such application "is likely to undermine the convenience, economy and performance of the customs system." Therefore, it is hard to imagine if any new enterprise will raise NT$500 million to participate in the market where no establishment or operating approval will be obtained. It is true that the privatization process was rash, thus TVIS, after having received assets and staff transfer from the task force, cannot wait to carry on its network operation until its receipt of the operating approved. TVIS nevertheless enjoys the market advantage by inheriting assets from the task force and its client base. Additionally, TVIS is indeed a monopoly in the customs clearance network market, and any player seeking to enter this market is disadvantaged in terms of competition. Finally, the MOF has set up several unreasonable requirements in the above Rules, which in effect help to maintain the monopolistic position of TVIS. As a result, market mechanism has been destroyed, in contradiction to the gist of the Fair Trade Law and against the objective of privatization without excluding operation of a second operator. Therefore, it was necessary for the Commission to consult with the MOF pursuant to Article 9(2) of the Fair Trade Law with an aim to promote market competition.

3. The 298th Commission Meeting adopted the following resolution: The Rules for Operation and Administration of Customs Clearance Service were enacted by the MOF with the authorization under Article 4(3)(ii) of the Tariff Law. In addition, such enactment was not an act involving supply of goods or services for transaction. Therefore, the Fair Trade Law is not directly applicable. However, since the customs clearance network service has been turned over to private operators for operation, the Commission will, in order to promote market competition, consult with the MOF to cooperate in handling the following matters in accordance with Article 9(2) of the Fair Trade Law:

(1) If it is indeed necessary to have an approval system for customs clearance network operators, unnecessary qualification restrictions and other entry barriers should be eliminated or reduced as much as possible. In addition, the Commission also asks the MOF to set a clear, reasonable and objective standard regarding the application review and inspection and examination following such establishment, so that enterprises seeking to enter the market can make better assessment and carry out necessary preparations.

(2) Review of establishment application and inspection and examination prior to issuance of operating approval shall be conducted in a fair and non-discriminatory manner for TVIS and other enterprises to ensure fair competition.

(3) Supervision of TVIS should be strengthened to prevent such company from abusing its market position.

Summarized by Yeh, Ning
Supervised by Hsin, Chih-chung

＠: For information of translation, click here

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