Yuan Jie Co., Ltd. & Other 30 Enterprises

Case:

Key Words:

tobacco product

Reference:

Fair Trade Commission Decision of March 2, 2011 (the 1008th Commissioners' Meeting), Disposition Kung Ch'u Tzu No. 100027

Industry:

Manufacture of Tobacco Products (1000)

Relevant Laws:

Article 14 of the Fair Trade Law

Summary:

1. After receiving phone calls in May 2010 from private citizens reporting that 31 imported cigarette distributors had jointly increased cigarette prices on June 1, 2010, the FTC initiated an ex officio investigation to understand whether the said distributors were in violation of the regulation against concerted actions set forth in Article 14 of the Fair Trade Law (FTL).
2. Findings of the FTC after investigation:
   The FTC's investigation revealed that Yuan jie Co., Ltd. and 30 other distributors had indeed met frequently through the "Taiwan Distributor Association" to discuss their business practices and the condition of the cigarette market over a long period of time. The market competition over wholesale price was particularly fierce between January and April in 2010. The price of a carton Mild Seven Series, for example, even dropped below NT$660 during the said period. As a result, the aforesaid distributors held three meetings in May 2010 and reached an agreement to raise their wholesale prices starting in June. The wholesale price of the Mild Seven series was therefore increased to NT$680 per carton. It was also decided on that meeting that each distributor was to open a separate account in the same bank (in Taipei City) and deposit NT$15 for every carton of the Mild Seven series and the Mine series and NT$10 for other series, such as Winston and More, into the account. The purpose of this agreed practice was meant to demonstrate the determination to execute the decision.
   Meanwhile, to ensure the concerted action would be executed and continued without any obstacles, the said association also hired an accountant to monitor the above accounts and regularly check whether each distributor had made the bank transfer on time. The action was meant to reduce the cash flow and circulating capital of each distributor to suppress and prevent each distributor from undertaking price competition.
3. Grounds for disposition:
   (1)The establishment of the mutual understanding regarding the concerted action: For a long period, the 31 distributors had held meetings through the "Taiwan Distributor Association" to discuss their business practices and the condition of the cigarette market. As fierce market competition between January and April of 2010 made it impossible for anyone to have any profit, they met intensively in May 2010 to work out a practical measure to stabilize the market and decided to raise the wholesale prices of cigarettes starting in June 2010. They also visited the office of the aforesaid accountant together to arrange the account opening. .
   (2) Content of the mutual understanding regarding the concerted action:
   (i) Mutual understanding on the prices: The wholesale prices of the Mild Seven series, the most popular products, were increased to NT$680 per carton, starting in June 2010.
   (ii) Appropriation: "NT$15 for each carton of the Mild Seven and Mine series and NT$10 for each carton of other series were to be appropriated." In line with the quantities of each purchase, every distributor was required to deposit the corresponding amount into a separate account in Chang Hwa Bank's downtown branch in Taipei. The appropriation would last two years and the amount in the account could be withdrawn only once every three months.
   (iii)Supervision: An accountant was hired and paid NT$10,000 per month by the Taiwan Distributor Association to guard each distributor's bankbook for the said account and check regularly to see whether money was being transferred into the account on time. The accountant was to report to the chairperson or the chief financial officer of the association if anyone failed to transfer money on time.
   (iv)Purpose of appropriation: Some of the distributors admitted that the appropriation was a complementary measure for the purpose of stabilizing cigarette prices. As the money deposited into Chang Hwa Bank's downtown branch in Taipei could not be withdrawn right away, the total amount of money that a distributor could not touch between June and September of 2010 already reached several million. This money was regarded the cost to push up cigarette prices and actually had the effect of cost increase for each distributor. By doing so, the distributors expected one another to refrain themselves from lowering prices to boost sales.
   (v) Restriction on business activities: Through the cohesion or collective influence among the members, the Taiwan Distributor Association was able to make all the members abide by the decision and put their business activities under control. Without any exception, all the 31 distributors acted in line with the understanding. Undoubtedly, it was restriction on business activities.
   (3)Impact of the concerted action on the supply-demand function of the market: As cigarette smokers normally have certain brand loyalty to the tobacco products they purchase, cigarettes therefore have the characteristic of non-interchangeability. By jointly raising the wholesale prices of cigarettes, the 31 distributors not only jeopardized the competition function of the distribution market but also directly increased the purchase prices of the retailers who had no choice but shifted the burden onto consumers in order to maintain their profits. The conduct was indeed disadvantageous to fair competition on the market and the interests of consumers.
   (4)According to the above, the joint increase of cigarette prices by the 31 distributors in June 2010 was able to affect the supply-demand function of the domestic cigarette market in violation of the regulation against concerted actions set forth in Article 14 (1) of the FTL. The FTC therefore imposed administrative fines NT$900,000, NT$600,000 and NT$300,000 respectively on the said distributors. The fines totaled NT$21,900,000.

Appendix:
Deen Herr Trading Co., Ltd.'s Uniform Invoice Number: 75963436
Ri Sheng Wine and Tobacco Co., Ltd.'s Uniform Invoice Number: 97250432
Lu Yi Enterprise Co., Ltd.'s Uniform Invoice Number: 28037099
Ming Hwai Enterprise Co., Ltd.'s Uniform Invoice Number: 25087307
Chuan Hsin Wine and Tobacco Co., Ltd.'s Uniform Invoice Number: 86510306
San He Wine and Tobacco Co., Ltd.'s Uniform Invoice Number: 13011923
Yu Hwa Co., Ltd.'s Uniform Invoice Number: 84916816
Hong Zhi Co., Ltd.'s Uniform Invoice Number: 86436257
Miao Sheng Co., Ltd.'s Uniform Invoice Number: 13007842
Zhang Mei Wine and Tobacco Co., Ltd.'s Uniform Invoice Number: 97417904
Xin Mao Xin Enterprise Co., Ltd.'s Uniform Invoice Number: 84237325
Fu Yi Jian Co., Ltd.'s Uniform Invoice Number: 89566330
Li Peng Co., Ltd.'s Uniform Invoice Number: 97087404
Yuan Jie Co., Ltd.'s Uniform Invoice Number: 86223043
Xing Hwa Company's Uniform Invoice Number: 25323225
Da Wu Wine and Tobacco Company's Uniform Invoice Number: 36615614
Bo Li Co., Ltd.'s Uniform Invoice Number: 25052659
Shen Yi Marketing Co., Ltd.'s Uniform Invoice Number: 28532605
Song De Enterprise Co., Ltd.'s Uniform Invoice Number: 28306072
Fu Mao Wine and Tobacco Co., Ltd.'s Uniform Invoice Number: 27632486
Long Ting Co., Ltd.'s Uniform Invoice Number: 70644595
Jing Jiu Co., Ltd.'s Uniform Invoice Number: 13017481
Yi Jie Enterprise Co., Ltd.'s Uniform Invoice Number: 13026067
Tai Jie Co., Ltd.'s Uniform Invoice Number: 24414986
Lu Yi Imported Wine and Tobacco Co., Ltd.'s Uniform Invoice Number: 86697999
Song Yi Company's Uniform Invoice Number: 93845124
Jia Li An International Co., Ltd.'s Uniform Invoice Number: 27497480
Cheng De Fa Enterprise Co., Ltd.'s Uniform Invoice Number: 86980159
Bie Yun Wine and Tobacco Co., Ltd.'s Uniform Invoice Number: 84118398
Cha Li Shi Co., Ltd.'s Uniform Invoice Number: 16169714
Cheng Tai Wine and Tobacco Co., Ltd.'s Uniform Invoice Number: 28548677

Summarized by: Huang, Hsiao-Yin; Supervised by: Yang, Chia-Hui