Taiwan Lunchbox United Association, Taichung County Lunchbox Association, and Taichung City Lunchbox Association agreed to increase the school lunch charges and violated the provision of concerted action in the Fair Trade Law

Chinese Taipei

Case:

Key Words:

School lunch, public bidding, trade association, concerted action

Reference:

Fair Trade Commission Decision of June 1, 2006 (the 760th Commissioners’ Meeting), Disposition Kung Ch’u Tzu No. 95070

Industry:

Instant Food Manufacturing (0895)

Relevant Laws:

Article 7 , Paragraph 1, Paragraph 3 and Article 14 , Paragraph 1 of the Fair Trade Law

Summary:

1. This case originated from a newspaper report on April 21, 2006, indicating that Taiwan Lunchbox United Association has invited its members to convene “Forum on the Danger of Shoddy Food in Schools and the Quality of Nutritious Lunch for Students” on April 20, 2006 at the Public Health Bureau, Taichung City. An announcement to increase the charges of school lunch was made in the forum. The charges for junior high school and elementary school students will be increased by $5 per lunchbox, and the increase for senior high school is $10 per lunchbox. Since such act may have violated Article 14, Paragraph 1 of the Fair Trade Law that no enterprise shall have any concerted action, the Fair Trade Commission (FTC) thus has included this case into items to be examined by “Task Force for the Prevention of the Price Manipulation of Necessary Commodities” and initiated an ex officio investigation.
2. Upon the investigating, the FTC found that Taiwan Lunchbox United Association indeed has convened “Forum on the Danger of Shoddy Food in Schools and the Quality of Nutritious Lunch for Students” at the Public Health Bureau, Taichung City on April 20, 2006. The said forum was sponsored by Taiwan Lunchbox United Association and co-sponsored by Taichung City Lunchbox Association and Taichung County Lunchbox Association. The chairpersons of the aforementioned associations were speakers in the said forum. The chairperson of Changhua County, Taoyuan County and Tainan County Lunchbox Associations were also invited to attend this forum. In addition, all seven member companies of Taichung City Lunchbox Association and thirteen member companies of Taichung County Lunchbox Association have attended this forum. In the said forum, Mr. Chiu Ta-Tien, the Chairman of Taiwan Lunchbox United Association, Mr. Fang Tsung-Mao, the Chairman of Taichung City Lunchbox Association and Mr. Lin Chen-Chieh, the Chairman of Taichung County Lunchbox Association publicized a study on the cost and charges of school lunch for schools in the central region. At the same time, they also suggested that the charges for school lunch should be increased beginning from the next academic year, a $5 increase for elementary and junior high school and a $10 increase for senior high school. In addition, the written documents of “Safety and Sanitation Management, and Important Factors of Operation for Group Catering and Lunchbox Enterprises – A View from the Shoddy Food Hazard Prevention in School” were given out in the forum. The wordings “Chairman Chiu of Taiwan Lunchbox United Association and chairmen of lunchbox associations from the central area will adjust the lunchbox charges for schools of all levels soon, from the original $40 to $50…..” was recorded in the said documents.
3. Grounds for disposition:
1. Article 14, Paragraph 1 of the Fair Trade Law stipulates no enterprise shall have any concerted action. Article 7, Paragraph 4 of the Fair Trade Law stipulates by means of its charter, a resolution of a general meeting of members or a board meeting of directors or supervisors, or any other means, to restrict activities of enterprises is also deemed as horizontal concerted action as defined in the Fair Trade Law. Taiwan Lunchbox United Association, Taichung City Lunchbox Association and Taichung County Lunchbox Association invited their members to participate in “Forum on the Danger of Shoddy Food in Schools and the Quality of Nutritious Lunch for Students” that convened on April 20, 2006. An announcement that the charges for school lunch will be adjusted beginning from the next academic year was made by means of verbal suggestion and given out written documents. It is substantiate to conclude that the said associations have given concrete suggestions or instructions to their member enterprises on important business activities relating to market competition, such as whether to adjust the charges of school lunch, timing, range and method of adjustment. The aforementioned associations argued that the bidding of school lunch adopted the most advantageous bidding principle in contract awarding and the selling price is determined by the school. Therefore, unless the school agreed with their requests to increase the selling price of school lunch, or else they were not able to increase the price successfully. Nevertheless, the conduct of the aforementioned associations calling together their members to a meeting and announced to increase the charges of school lunch still indirectly affect the selling price of school lunch. If the school wishes to carry out bidding smoothly, the selling price set forth in the bidding instructions must above the “reservation price” of at least one enterprise, otherwise, no enterprise will have intention to participate in the bidding and the bidding will be aborted. (In the case that the Government Procurement Act is applicable, then according to Article 48 of the said Act, the opening of tender can be carried out only when there are three or more of qualified enterprises participate in the bidding. In other words, the selling price set forth by the school must above the “reservation price” of at least three suppliers). Under the circumstance of normal competitive market operation, the “reservation price” of each supplier is “personal data” that known only by the respective supplier. The suppliers will decide whether to participate in the lunch tender of a specific school after comparing the selling price set forth by the school and its own “reservation price”. However, after the aforementioned forum, the suppliers exchanged with one another their opinions on the selling price. They coordinated and jointly adjusted their opinions on the “reservation price” of supplying school lunch (in this case, the charges for junior high and elementary schools were increased by $5, the charges for senior high school was increased by $10 or from $40 to $50). Consequently, the likelihoods of tender failure due to not enough tender suppliers for schools that did not increase the selling prices will increase when they conducted lunch tender for the next academic year. The supply of school lunch will be affected. Moreover, the schools had learned that the suppliers jointly determined or adjusted their “reservation prices” from news release and external message circulation, and in order to avoid the outcome of no lunch can be provided due to tender failure, it is likely that the schools in order to cope with the issue will adjust the selling prices of school lunch. Hence, the final price of school lunch was affected. Because of the aforementioned exchange, coordination, and adjustment of opinions on the selling price of school lunch, the likelihoods of tender failure due to not enough tender suppliers for schools that did not increase the selling prices will increase when they conducted lunch tender for the next academic year. In addition, there were less inducement to lure the member suppliers to participate in the school lunch tender and thus lesser competition in the quality of school lunch.
2. The Commissioners’ Meeting discussed and concluded that the conduct of Taiwan Lunchbox United Association, Taichung City Lunchbox Association and Taichung County Lunchbox Association calling their members together for a meeting and made an announcement of increasing the charges of school lunch has violated the prohibitive provision for concerted action stipulated in Article 14, Paragraph 1 of the Fair Trade Law. The said associations are ordered to cease the unlawful act immediately, in addition to this, a fine of NT$ 890,000, NT$ 400,000 and NT$ 300,000 are imposed on Taiwan Lunchbox United Association, Taichung County Lunchbox Association and Taichung City Lunchbox Association respectively.

Summarized by: Liao, Hsien-Chou;
Supervised by: Chen, Yuhn-Shan