Zhongpu Township Betel Nut Association

1178th Commissioners' Meeting (2014)

Case:

Zhongpu Township Betel Nut Association violated the Fair Trade Law by jointly deciding the prices of betel nuts

Key Word(s):

Betel nut, Zhongpu Township Betel Nut Association, improper means, causing another enterprise to refrain from price competition

Reference:

Fair Trade Commission Decision of June 4, 2014 (the 1178th Commissioners' Meeting); Disposition Kung Ch'u Tzu No.103072

Industry:

Wholesale of Fruit and Vegetables (4541)

Relevant Law(s):

Article 19(iv) of the Fair Trade Law

Summary:

The complainant stated that the Zhongpu Township Betel Nut Association (hereinafter referred to as the “Association”) has long jointly determined the prices of betel nuts in its meetings. At the beginning of the betel nut harvest season in 2013, some wholesalers who were members of the Association began purchasing betel nuts from farmers at a price lower than the price decided by the Association, violating the Fair Trade Law by increasing the price difference to gain illegal profit.

Findings of the FTC after investigation:

The Association had been established for several decades and was the first betel nut trade association in the country. It consisted of betel nuts wholesalers in Zhongpu Township, and each village in the township was represented by one or more supervisors depending on the number of members from each village. The supervisors elected a chairman, who appointed a vice chairman, accountant, associate clerk, and general affairs director. Supervisors were responsible for collecting information on the betel nuts supply and demand of each village for the Association. The chairman would convene meetings with the vice chairman and supervisors at the beginning of the betel nuts harvest season and when market supply-demand changed, during which they decide the buy and sell prices of betel nuts based upon the information provided by the supervisors. The betel nut harvest season was similar in central parts and overlap considerably. Wholesalers all hoped to purchase and sell betel nuts at the same price to prevent resellers from lowering the price. Hence, after Betel Nut Associations were formed in Nantou, Taichung and Changhua, the chairmen or vice chairman of the associations would occasionally attend the Association’s price setting meetings, and would provide the information on supply-demand in their respective area to help the Association decide the prices of betel nuts.

After the betel nut harvest season ended in June 2013, the Association’s chairman had to leave the position for personal reasons and the general affairs director became the acting chairman of the Association. The acting chairman convened a meeting with the vice chairman and supervisors, as his predecessors did in the past years, at the beginning of the betel nut harvest season on August 17, but they did not reach a consensus during that meeting because some supervisors intended to change the method for setting purchase prices. The acting chairman did not convene any further meetings with the vice chairman and supervisors thereafter, but continued to collect market supply-demand information as requested by wholesalers and farmers, and decided the prices of betel nuts, and then had cadre members of the Association notify their members to have the prices as a basis for trading betel nuts.

Grounds of disposition:

(1) The betel nut prices decided by the acting chairman of the Association included buy and sell prices. Members only needed to employ the prices as the buy prices of betel nuts from farmers and then sell to resellers so that they would be guaranteed a profit from the price difference. There was no incentive for them to engage in price competition on the betel nut market to gain trading opportunities. The purpose for setting the prices was not only to avoid resellers from surveying the prices of different wholesalers and lowering the prices of betel nuts, but also to prevent members from lowering their prices in competition with other members. Therefore, the aforementioned conduct caused members to buy and sell betel nuts at the predetermined price and to refrain from price competition, damaging market order that was based on the market competition in terms of quality, price and service. The conduct was punishable under business ethics and was the use of improper means to refrain other enterprises from price competition.

(2) Although the betel nut prices decided by the Association’s acting director was only provided to members through cadre members, the information was highly accessible and could even be obtained online. As a result, all wholesalers in the central region of the country could easily acquire the information, and use the prices to deal with farmers and resellers, which prevented every wholesaler in the region from engaging in price competition. Farmers and resellers were thus faced with rigid trading conditions from wholesalers. The conduct damaged market order that was based on the market competition in terms of quality, price and service and restricted competition. Hence, the FTC determined that the conduct was in violation of Article 19(iv) of the Fair Trade Law.

(3) Considering the fact that the Association consists of more than one hundred members, and wholesalers in Chiayi, Nantou, Changhua and Taichung all buy and sell betel nuts at the price decided by the Association's acting chairman, it was determined that the market order had been severely damaged. In addition, the facts regarding the volume of betel nuts per volume, their 2013 revenue, period of violation roughly 6 months, first violation, and their cooperation with the FTC’s investigation were taken into consideration too. Consequently, the FTC imposed an administrative penalty of NT$300,000 on each party in accordance with the first section of Article 41(1) of the Fair Trade Law.

Summarized by Hsu, Cho-Yuan; Supervised by Chiou, Shwu-Fen

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(1)	The betel nut prices decided by the acting chairman of the Association included buy and sell prices. Members only needed to employ the prices as the buy prices of betel nuts from farmers and then sell to resellers so that they would be guaranteed a profit from the price difference. There was no incentive for them to engage in price competition on the betel nut market to gain trading opportunities. The purpose for setting the prices was not only to avoid resellers from surveying the prices of different wholesalers and lowering the prices of betel nuts, but also to prevent members from lowering their prices in competition with other members. Therefore, the aforementioned conduct caused members to buy and sell betel nuts at the predetermined price and to refrain from price competition, damaging market order that was based on the market competition in terms of quality, price and service. The conduct was punishable under business ethics and was the use of improper means to refrain other enterprises from price competition.
(2)	Although the betel nut prices decided by the Association’s acting director was only provided to members through cadre members, the information was highly accessible and could even be obtained online. As a result, all wholesalers in the central region of the country could easily acquire the information, and use the prices to deal with farmers and resellers, which prevented every wholesaler in the region from engaging in price competition. Farmers and resellers were thus faced with rigid trading conditions from wholesalers. The conduct damaged market order that was based on the market competition in terms of quality, price and service and restricted competition. Hence, the FTC determined that the conduct was in violation of Article 19(iv) of the Fair Trade Law.
(3)	Considering the fact that the Association consists of more than one hundred members, and wholesalers in Chiayi, Nantou, Changhua and Taichung all buy and sell betel nuts at the price decided by the Association's acting chairman, it was determined that the market order had been severely damaged. In addition, the facts regarding the volume of betel nuts per volume, their 2013 revenue, period of violation roughly 6 months, first violation, and their cooperation with the FTC’s investigation were taken into consideration too. Consequently, the FTC imposed an administrative penalty of NT$300,000 on each party in accordance with the first section of Article 41(1) of the Fair Trade Law.