Tofu Association of Kaohsiung City

Case:

Key Words:

concerted action, specific market, price reference

Reference:

Fair Trade Commission Decision of August 13, 2008 (the 875th Commissioners' Meeting), Disposition Kung Ch'u Tzu No. 097107

Industry:

Business Associations (9421)

Relevant Laws:

Article 7 and 14 of the Fair Trade Law

Summary:

1. The case originated from the fact that on July 31, 2008, the Fair Trade Commission received a complaint stating that the market buzzed about that the price of tofus in Kaohsiung City would go up on August 1, 2008, and the Tofu Association of Kaohsiung City was suspected of intervening and leading the raise.
2. Findings of FTC after Investigation:
   (1) As prices of raw materials such as soybeans, and fuel oil were rising, the members of the Tofu Association of Kaohsiung City felt that business operation was difficult. Therefore, the association held a meeting of directors and supervisors on July 19, 2008, and invited each member to participate in the meeting. The meeting made a resolution to adjust the sales prices, NT 50 for each slab of 16-squred tofu, NT$ 70 for each slab of 20-squred tofu, and NT$ 80 for each slab of 25-squred tofu, from August 1, 2008. After the meeting, the association notified each member of the same trade by its letter.
   (2) After conducting an investigation and an onsite inquiry about the abovementioned matter on tofu dealers in Kaohsiung, the FTC found out that the suppliers of traditional firm tofus in the area were members of the Tofu Association of Kaohsiung City. Supplying enterprise has indicated that the association did hold meetings for discussion and some of the suppliers indeed raised prices.
3. Grounds for Disposition:
   (1) Article 7(4) of the Fair Trade Law provides that "restricting activities of enterprises by means of the association's charter, a resolution of a general meeting of members or board meeting of directors or supervisors, or any other means, is also deemed as a horizontal concerted action as used in Paragraph 2." Therefore, where an association restrains enterprises' activities by means of its charter, or a resolution of a general meeting of members or board meeting of directors or supervisors, and such an act is sufficient to affect the supply and demand in the market, the association's restraint on enterprises' activities is in violation of the Fair Trade Law which prohibits concerted actions.
   (2) Definition of Market: This case was about that the meeting of directors and supervisorsof the Tofu Association of Kaohsiung City resolved on adjusting sales prices and notified all the members. Although the content of the resolution encompassed traditional firm tofus and bean curd, the main businesses of members of the association are to produce traditional firm tofus, and only a few members manufactured bean curd. Therefore, the product involved in this case should be traditional firm tofu. Furthermore, as traditional firm tofu breaks apart and goes off very easily, and transporting for a long distance is not favorable, as well as the area where each member sold such a type of tofu was mainly in Kaohsiung. Thus, the market in this case should be delineated as "the market of traditional firm tofus in Kaohsiung."
   (3) Action Subject: In accordance with Article 2(iii) of the Fair Trade Law, an association is deemed as an enterprise. Furthermore, Article 7(4) of the Fair Trade Law provides that "restricting activities of enterprises by means of the association's charter, a resolution of a general meeting of members or board meeting of directors or supervisors, or any other means, to restrict activities of enterprises is also deemed as a horizontal concerted action as used in Paragraph 2." Accordingly, an association can be an action subject of a concerted action. The entity holding the 1st meeting of the10th directors and supervisors for discussion and resolution on adjustment of sales prices of traditional firm tofus was the Tofu Association of Kaohsiung City. Therefore, the association should be recognized as an action subject of this case.
   (4) Way of Forming Concerted Action and Content of Concerted Action: The findings of FTC after investigation showed that the Tofu Association of Kaohsiung City discussed and resolved to adjust sales prices of traditional firm tofus in the 1st meeting of its 10th directors and supervisors meeting on July 19, 2008. With the aim of coping with the price-ups of raw materials and fuel, the association also issued letters to notify each of its members after the meeting. The association also admitted such affairs and its admission was on record. In the same way, Letter Kao-Shih-Tou-Pin-Tzu No. 08 issued by the association could be taken as evidence of the aforesaid affairs. The findings also showed that the content of the association's resolution to adjust the sales prices, NT 50 for each slab of 16-squred tofu, NT$ 70 for each slab of 20-squred tofu, and NT$ 80 for each slab of 25-squred tofu, from August 1, 2008. Therefore, the content of the abovementioned resolution involved in a determination of prices of the product, and such an act of the Tofu Association of Kaohsiung City was an act that restrained business activities.
   (5) Impact of Concerted Action on Market: On the basis of the content of the statement made by the Tofu Association of Kaohsiung City, its members supply approximately 80% of tofus in the market of Kaohsiung City. Also, the findings of FTC showed that some members of the Tofu Association of Kaohsiung City did, as a result of the facts that the directors and supervisors meeting of the association made the resolution in casu and the association issued letters to its members, raised prices of tofus on August 1, 2008. Although members of the association indicated that the association would not restrain or punish members which/who did not comply with the resolution, and dealers indicated that some members had not followed the resolution to adjust the prices. Thus, it would be difficult to recognize that the association's resolution in casu was enforceable. Nevertheless, the FTC weighed and considered the point that the Tofu Association of Kaohsiung City resolved to adjust prices due to price-ups of each cost, it found that the resolution on prices in casu had, however, clearly had an appearance of a concerted action. In the same way, with respect to the fact that the association issued the resolution in casu to each member, although the association had not had the regime or capability of supervising sales prices of its members, the act might still make its members adjust sales prices on the basis of its resolution, which might increase dealers' cost, and raise retail prices of traditional firm tofus. As a result of the aforesaid possibilities, rights and benefits of the consuming public would be affected. These possibilities should be recognized as risks sufficient to affect the supply and demand in the market.
   (6) In conclusion, the fact that the Tofu Association of Kaohsiung City adjusted prices of traditional firm tofus by the resolution reached in the meeting of directors and supervisors was sufficient to affect the traditional firm tofus market in Kaohsiung, and the Commission found that such an act of the association violated Article 14(1) of the Fair Trade Law, which prohibits concerted action. Accordingly, the association was ordered to cease the unlawful act in accordance with the fore part of Article 41 of the same Law, and an administrative fine of NT$ 200,000 was imposed.

Summarized by Chang, Chan-Chi; Supervised by Yang, Chia-Hui