GMB Baby Products Co., Ltd. violates the Fair Trade Law by improper rising the prices of surgical facemasks during the SARS outbreak

Case:

GMB Baby Products Co., Ltd. violates the Fair Trade Law by improper rising the prices of surgical facemasks during the SARS outbreak

Key Words:

trading order, superior market position

Reference:

Fair Trade Commission Decision of January 8, 2004 (the 635th Commissioners’ Meeting); Disposition (93) Kung Ch’u Tzu No. 093008

Industry:

Wholesale of Drugs, Medical Goods (4451)

Relevant Laws:

Article 24 of the Fair Trade Law

1. As mounting public concern during the outbreak of severe acute respiratory syndrome (SARS) led to a surge in demand for surgical facemasks, the Fair Trade Commission (FTC) on March 29, 2003 make inquiries into whether or not the surgical facemask market was experiencing instances of improper price hikes, concerted price hikes and improper hoarding of facemasks and launched ex-officio investigations under Article 26 of the FTL where circumstances harmful to the public interest were found. The FTC filtered telephone and email reports from the public and targeted those retailers specifically identified, punishing those retailers found to be improperly raising prices. The FTC further examined the state of surgical facemask imports, examining price and quantity data submitted by importers to the Ministry of Finance and investigating specific importers where irregularities were found in wholesale prices.
2. Article 24 of the Fair Trade Law (FTL) provides: “In addition to what is provided for in this Law, no enterprise shall otherwise have any deceptive or obviously unfair conduct that is able to affect trading order.” In Article 24, “obviously unfair conduct” refers to engaging in competitive or commercial transactions by obviously unfair means and where such unfair trading practices are sufficient to affect the trading order and involve specific abuse of a superior market position, such as engaging in trading practices where the market’s supply and demand mechanism has failed and where enterprises are providing goods or services that are everyday necessities of low substitutability by means that contravene business ethics or accepted public norms. The FTL is an economic law, and differs from civil laws under which the weighing of individual private interests is the primary concern. The primary policy objective of the FTL is to actively regulate and protect the competitive order in the public interest, consequently invocation of the provisions of Article 24 of the FTL in response to the type of practices described above is necessary to protect the public interest. During the SARS outbreak in the first half of 2003, spurred both by media reports and public opinion, the price of surgical facemasks began to spiral out of control. Reports of hoarding added to public uncertainty and facemasks became increasingly difficult to obtain. Given the keen demand for facemasks at this time, facemask dealers enjoyed a superior market position on the supply side, commanding considerable influence in the allocation of facemasks to the market. Add to that the panic-driven demand and the dearth of information that left consumers with little alternative as regards transaction price and the superior market position of the facemask dealers is abundantly clear. Furthermore, during the period of the outbreak, upstream surgical facemask suppliers enjoyed a comparatively superior market position in determining such trading terms as price and quantity. Therefore, if suppliers improperly raised prices, the trading partner would be forced to accept unfair trading terms and, thus, the provisions of Article 24 of the FTL are applicable.
3. To prevent the spread of SARS and protect public health, the Office of the President on May 2, 2003 issued Executive Order Hua Zong Yih Tzu No. 0920081120, the Provisional Act for the Prevention and Eradication of SARS, which decreed that the critical necessity of SARS prevention during the outbreak period required that enterprises relevant to SARS prevention shall work together toward that common end. Consequently, facemask dealers were expected to eschew improper price hikes or concerted price fixing in meeting emergency public demand. On May 14, 2003, the FTC dispatched an officer to GMB Baby Products Co., Ltd.’s (hereinafter “the Respondent”) place of business to inquire about facemask prices. Import records show that on March 25, 2003 and April 4, 2003, the Respondent took delivery of two import shipments of “Japanese high performance three-ply filter facemasks” (model no. G-141 (PH155)), at an import cost of NT$51 per unit and importing a total of 17,400 units. The Respondent, however, sold 4,224 units of the facemasks to the Li Sin Pharmacy and 21 units other downstream retail establishments at a price of NT$102 per unit, a markup of 100 percent of cost. As such, the Respondent clearly engaged in improper price hikes of facemasks during the SARS outbreak, reaping profits far in excess of what could be considered reasonable return. The Respondent clearly took advantage of the supply and demand imbalance in the facemask market caused by the domestic SARS outbreak to take advantage of the relatively weak position of buyers with regard to information and other trading variables to engage in obviously unfair trading practices sufficient to affect the trading order, a violation of the provisions of Article 24 of the FTL. After considering factors such as the degree of severity of the violation, the level of improper profit, the adverse impact on the trading order and society and harm to the public interest, the FTC ordered the Respondent, in accordance with the provisions of the fore part of Article 41 of the FTL, to immediately cease the illegal practices.

Appendix:
GMB Baby Products Co., Ltd.’s Uniform Invoice Number: 22887312

Summarized by Yang, Chia-Hui; Supervised by Lin, Kin-Lan