Taiwan Sugar Corporation

Case:

Key Words:

Jiansu, recommended retail price, general distributor

Reference:

Fair Trade Commission Decision of February 25, 2009 (the 903rd Commissioners' Meeting), Letter Kung Er Tzu No. 0980001798

Industry:

Sugar Manufacturing (0893)

Relevant Laws:

Article 18 of the Fair Trade Law

Summary:

1. The complainant in this case is the general distributor for the Jiansu products of Taiwan Sugar Corporation (hereinafter referred to as TSC). The complainant claimed that TSC violates Article 18 of the Fair Trade Law for the price of TSC's Jiansu products.
2. Findings of FTC after investigation
   1. "Jiansu" (which means health and yeast) is a brand name used by TSC for yeast-related products. At the time, there are many yeast-related products in the market. Since the raw material for domestic yeast power are almost 100% imported, if we use the percentage of yeast powder imported by TCS against the whole as a proxy, TSC's Jiansu products have a relatively low market share in domestic yeast powder market.
   2. TSC signed a "Distribution Agreement for TSC's Jiansu Products" with the complainant. In the appendix, "TSC's price for Jiansu Products," it specifies that "the recommended retail price: Brewer Yeast NT$ 500/bottle, Snow-flake Yeast NT$180/box, Jianxu Tablet NT$ 200/can, Vita Yeast Power NT$ 120/bag, Xiang Jiansu NT$110/can, Jiansu Candy NT$ 120/can, Yeast Powder NT$3,500/bag." Besides, according to Article 12 of the Agreement, "the complainant shall maintain the end price in the distribution system, and no cutthroat competitions are allowed. For any violations to this Article, if the complainant fails to correct in the prescribed period after TSC's written notice, TSC may terminate the Agreement without advance notice and confiscate the performance bond." The complainant claimed the said article to directly restrict its sales price. However, TSC claimed that the said price is only a reference which indicates reasonable profits for distributors; TSC did not monitor the end price, nor did it request the complainant to comply with the said article. In fact, the complainant did not sell relevant products at the said price, and TSC have imposed neither corrective measure nor punishment against the complainant.
3. Grounds for Non-Disposition
   1. According to Article 18 of the Fair Trade Law, "Where an enterprise supplies goods to its trading counterpart for resale to a third party or such third party makes further resale, the trading counterpart and the third party shall be allowed to decide their resale prices freely; any agreement contrary to this provision shall be void." The above article regulates vertical price constraints between enterprises in the upper and lower streams; that is, an enterprise shall allow its trading counterpart to freely decide the resale price. If an enterprise sets the resale price for goods it supplied and request the trading counterpart to comply with relevant measures, trading activities in the lower-stream will be affected. Enterprises in the lower stream will be deprived the rights to freely determine price based on its cost and market competition, and price competition among sellers of same brand products will weaken. This is clearly prohibited by the Fair Trade Law. In addition, in case an enterprise sets a recommended price for certain products, the Commission concludes that even with a recommended price, if the enterprise does not force distributors in the lower stream to agree to sell the product at the recommended price or with no discounts, a recommended price itself does not violate Article 18 of the Fair Trade Law.
   2. The disputed article mentioned that "the end price in the distribution system shall be maintained;" however, it did not restrict the resale price to a "specific," "highest," "lowest" amount or a price range. Thus, it is questionable whether the said article is enforceable in practice. In addition, the complainant admits that its price for distributors and consumers does not comply with TSC's "recommended retail price" in the agreement. TSC did not take any corrective measure or punishment against the complainant, and the complainant provided no evidence to have been punished by TSC when it failed to comply with the "recommend retail price" or failed to supervise the sales by lower stream distributors at the "recommended retail price." There is no evidence showing that TSC imposes punishments against trading counterparts to enforce the compliance.
   3. In addition, the end price for Jiansu products in TSC-owned stores are various and not the same as the "recommended retail price." Also, another TSC's distributor, R-T Mart International Ltd. has an end price for Jiansu products different from the "recommended retail price." The complainant also states that TSC's Jiansu products have various end price in the distribution system. Hence, we can confirm TSC's claim that the recommended retail price in the price table attached to the distribution agreement is merely a reference.
   4. In summary, based on existing facts, it is not sufficient to say that TSC violates Article 18 of the Fair Trade Law. However, the wording in TSC's agreement, which states that "the end price in the distribution system shall be maintained with no cutthroat competitions allowed," may lead to certain misunderstanding. The Commission thus warns TSC to modify the wording in TSC's agreement avoid similar misunderstanding in the future.

Appendix:
Taiwan Sugar Corporation's Uniform Invoice Number: 03794905
Summarized by Chang, Chan-Chi; Supervised by Yang, Chia-Hui