Interpretation of the Fair Trade Law Requested by Ch'ang Jung Machinery Co., Ltd. regarding bidding requirements of Veterans Affairs Commission
Chinese Taipei
Case:
Interpretation of the Fair Trade Law Requested by Ch'ang Jung Machinery Co., Ltd. regarding bidding requirements of Veterans Affairs Commission
Key Words:
Veterans Affairs Commission, import, import license, discriminatory treatment, administrative coordination
Reference:
Fair Trade Commission Decision of July 26, 1995 (the 198th Commission Meeting); Disposition (84) Kung Erh Tzu No. 63313
Industry:
Machinery Retail Industry (5251), Government Agencies (9111)
Relevant Laws:
Article 24 and Article 9(2) of the Fair Trade Law
Summary:
1. Ch'ang Jung Machinery Co., Ltd. (hereinafter, "Ch'ang Jung") issued a letter to this Commission requesting an interpretation regarding whether the bidding requirements and contract terms/conditions set by Ret-Ser Engineering Agency (hereinafter "RSEA") infringe confidential trade information and/or violate the Fair Trade Law. Relevant restrictions and requirements are summarized as follows:
(1) The bidding instructions stipulate that:
"Bidders for the supply of materials who have prior import records shall submit photocopies of their recent import license, customs clearance and custom duty receipts upon the receipt of bidding application documents. Bidders who have no prior import records shall fill out an undertaking prepared by the RSEA during the bidding process and submit the above-mentioned information upon acceptance/payment of the goods."
(2) The contract also requires that:
"If the Buyer finds that the bidding price is too high, or that the Seller has exorbitant profits, based on the information such as the import license, customs clearance and custom duty receipts, it may request that Seller reduce the price to a reasonable level. If the Seller refuses to comply, the Buyer may disqualify the Seller from participating in the tendering/bidding organized by the Seller or its subsidiary entities for one to three years."
2. With respect to whether such bidding requirements of the Veterans Affairs Commission (hereinafter, the "VAC") have violated the Fair Trade Law, the results of this Commission‘s investigation are as follows:
(1) Request for price reduction sanctioned by disqualification for future tendering/bidding:
This Commission has not dealt with cases in which enterprises requested price reduction on the ground of avoiding exorbitant pricing. However, the Commission decided at its 168th Commission Meeting upon a case involving a penalty imposed by the Preparatory Office of Taipei Mass Rapid Transit against a bidder by suspending its bidding right pursuant to the standard “Bidding Instructions and Contract” prescribed by the Taipei Municipal Government. The Preparatory Office had also notified all affiliated agencies of the Taipei Municipal Government not to accept the bidding application of such bidder for a year. The penalties, including the suspension of bidding rights, were provided in accordance with Taipei Municipal Government‘s regulations implementing the “Statute for the Audit of Government Agencies’ Construction Projects and Purchase/Sale of Property”; all bidders were subject to the same penalties for their failure to comply with the relevant regulations. However, the fact that such bidders would be excluded, without justifiable reasons, from future tendering/bidding of the Taipei Municipal Government, and the fact that the application of such standard bidding instruction was not limited to any specific industry, the penalties were found to have violated the Article 19(i) and (ii) of the Fair Trade Law, considering the overall demand in the market of the Taipei Municipal Government. In order to maintain fair competition, this Commission consulted with the Taipei Municipal Government, the superior authority of the Preparatory Office, in accordance with Article 9(2) of the Fair Trade Law. As a result of such consultation, the Taipei Municipal Government amended and removed such unreasonable provisions governing suspension of bidding rights.
(2) RSEA‘s bidding requirements for information such as a recent import license, and contract clause for price reduction:
In order to negotiate for contract prices and reduce government expenditures, RSEA has been required by the VAC to indiscriminately request for information such as import licenses issued by the Board of Foreign Trade, customs clearance and custom duty receipts from bidders upon the receipt of bidding application documents if there is prior import history, or upon delivery of the goods if there is no prior import history. Due to RSEA’s wide variety of procurement items, RSEA may have valid reasons to request for confidential trade information from the bidders for the first-time purchase of items whose pricing information cannot be obtained from the market. However, items without reference market prices are only a part of the procurement list. Furthermore, in addition to RSEA, there are also other potential trading counterparts. The divulgence of import cost information is likely to deprive the bidders of their competitiveness or trading opportunities for the remainder of the market. Also, RSEA purchases materials on a regular basis, thus, the bidding instruction applies comprehensively to all suppliers. Although such bidding requirements have limited impact on the governments acquisition of general materials (only one percent of such acquisition will be affected), the legality of such requirements, in view of the general demand of the RSEA, is still open to challenge.
(1) Although the RSEA is an subsidiary entity of the VAC, the materials such as beam materials, steel pipe stakes and high tension ropes were procured for construction needs, each of which had its own market value. In accordance with the resolution adopted during the 80th Commission Meeting, RSEA is an “enterprise” under Article 2 of the Fair Trade Law. The procurement was conducted by the RSEA pursuant to the procurement requirements prescribed by the VAC, in its letter dated May 25, 1993 and bearing a reference number of 823, as well as the supplemental requirements set forth in Article 22(5) of the Procurement Operation Requirements. To answer the question of whether RSEA‘s request for price reduction or confidential trade information from the bidders violates the Fair Trade Law, it should be noted that RSEA engaged in such act in accordance with relevant administrative orders of the VAC. In addition, since the other subsidiary entities of the VAC are all bound by the above requirements, the legality of the relevant VAC procurement requirements should be reviewed before any further reasoning can be made for this case.
(2) In accordance with Article 19(ii) of the Fair Trade Law, an enterprise shall not reject transaction nor discriminate against another enterprise without due cause in such a way that is likely to impede fair competition. In this case, the RSEA could unilaterally determine the so-called fair prices based on cost information involuntarily provided by the bidders, so as to reduce the prices. While RSEA has the right to seek lower prices under the principle of freedom of contract, RSEA perpetrated refusal of transaction with a likelihood of preventing bidders from competition by its acts of (i) reducing the prices through forcible acquisition of cost information; (ii) sanctions against refusal to reduce prices by suspending such bidders‘ participation in any RSEA/affiliates bidding for a period of one to three years. As a result, the trading counterpart had, in effect, no bargaining power. Furthermore, the rejection of the bidding applications of such bidders by RSEA subsidiary entities would hardly have the “justifiable reasons” under Article 23 of the Enforcement Rules of the Fair Trade Law if the entities rely on the ground that such bidders’ rights are suspended.
(3) Based on the foregoing reasons, the legality of the Procurement Operation Requirements, the bidding instruction set forth in the supplemental provisions thereof, and the conditions attached to the execution of the contract as prescribed by the VAC and followed by the RSEA is open to question. Since this issue involves the VAC requirements, the superior authority of the RSEA, this Commission will consult with the VAC for the review and amendment of the Procurement Operations Requirements and the supplemental requirements thereof, in accordance with Article 9(2) of the Fair Trade Law.
4. With respect to the similar requirements prescribed by China Petroleum Corp., Taipei Municipal Government, Taiwan Power Corp., Taipei Bank and Central Trust of China, which require bid winners to submit copies of customs import documents and tax payment proof, this Commission finds the above issues different from the present case in terms of the contents of the requirements and the market they impact on. This Commission will review them on a case-by-case basis when concrete cases arise.
Summarized by Li, Yen-hsi
Appendix:
Veterans Affairs Commission's Uniform Invoice No.: 030723000
Ret-Ser Engineering Agency's Uniform Invoice No.: 200902825
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