Fair Trade Law Q&A - Concerted Actions

1. The actors in a concerted action should refer to those enterprises that actually engage in the restriction of each other's business activities. Is it appropriate then for Article 14 of the Fair Trade Law and Article 5 of the Enforcement Rules to provide, as they do, that a trade association may be a subject of concerted action and that a representative of a trade association may be deemed the actor in such a concerted action?

A1:

Under Article 14(4) of the Fair Trade Law, it is deemed horizontal concerted action for a trade association "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. "Article 5 of the Enforcement Rules of Fair Trade Law further provides that "authorized representatives of the trade associations or other organizations described in Paragraph 2 of Article 2 of the Law may be deemed as actors in concerted actions in the Law." The primary reasons for the adoption of these provisions are as follows:
  1. Trade associations are composed of homogeneous members among whom there exists a relationship of competition. If trade associations place mutual restrictions on the business activities of members through their charters or resolutions of member meetings or directors' or supervisors' meetings, the result is no different than if individual enterprises were to engage in concerted action. Therefore, although trade associations themselves are not entities obtaining revenues or engaging in economic activity, they have customarily and historically played a leading role in concerted action or as a forum by which enterprises arrive at mutual understandings to engage in concerted actions such as production and sales negotiations, unified pricing, market delineation, or product standardization. To prevent trade associations from leading competing enterprises into concerted actions and to prevent companies, sole proprietorships, and partnerships from using trade associations as a "loophole" or cover under which to engage in concerted actions, and to avoid resultant restraints on competition and harm to consumer interests, as well as with an eye to correcting the longstanding and unsound customary practice of concerted action by trade associations. Hence, trade associations are defined as one kind of enterprises in Article 2 of this Law, thereby identifying them as being subject to the provisions of the Law.
  2. Trade associations are often the mechanism by which members effect unlawful concerted actions. Hence, in corresponding laws in other countries, trade associations are consistently taken as subjects of concerted action provisions. Article 2(2) of the Law follows the lead of such comparative laws. In practice, it has always been the trade association representative who is referred for prosecution. Article 5 of the Enforcement Rules of Fair Trade Law therefore serves a positive purpose by impelling (reminding) representatives to be alert to and avoid such violations.

Relevant article(s) of law: Fair Trade Law, Articles2, 14, 34, and 40; Enforcement Rules of Fair Trade Law, Article 5

2.What are the penalties for enterprises engaging in concerted actions in violation of the Fair Trade Law?

A2:

According to Article 40 of the Fair Trade Law, the Fair Trade Commission may order any enterprise that violates regulations against concerted actions set forth in the Fair Trade Law to cease or rectify its conduct or take necessary corrective measures within a given period and at the same time impose on the enterprise an administrative fine between NT$100,000 and NT$50 million. If such an enterprise fails to cease or rectify its conduct or take necessary corrective measures within the period given, the Fair Trade Commission may continue to order it to cease or rectify its conduct or take necessary corrective measures within a given period and also impose an administrative fine between NT$200,000 and NT$100 million each time until it ceases or rectifies its conduct or takes necessary corrective measures.

As stated in Article 34 of the Fair Trade Law, if any enterprise is ordered according to the Fair Trade Law to cease or rectify its conduct, or take necessary corrective measures within the time prescribed in the order but fails to do so or engages in the same illegal practice again after ceasing the conduct, the actor may be given a prison term of up to three years or detention or a fine up to NT$100 million, or both.

Relevant article(s) of law: Fair Trade Law, Articles 34 and 41

3.What are the relevant factors considered in determining the approval or rejection of a concerted action?

A3:

  1. According to Article 16 of the Fair Trade Law, the competent authority may impose conditions or undertakings in the approval of a merger notification. The approval shall specify a time limit not exceeding five years. The enterprises involved may, with justification, file a written application for an extension thereof within three to six months prior to the expiration of such period. However, that the term of each extension shall not exceed five years. In addition, in order to respond to economic changes as well as management supervision, it is stipulated in the Articles 17 and 18, that the FTC may revoke the approval, alter the contents of the approval, or order the enterprises involved to cease from continuing the conduct or rectify its conduct, or to take necessary corrective actions, if the cause for approval no longer exists, the economic condition changes, the enterprises involved engage in any conduct beyond the scope of approval, or violate the conditions or undertakings imposed. Moreover, the FTC shall voluntarily make public the approvals, and their relevant conditions, undertakings, and time limits.
  2. In accordance with the provisions of this Law, when granting special approval to the application of concerted actions, the Commission should take into account the positive contributions to the overall economy and public interest after the concerted action has been taken, as well as the adverse impact on the restriction of market competition. Only when the advantages outweigh the disadvantages, can such concerted actions be approved.
  3. The considerations to the overall economy and public interest as mentioned in the preceding paragraph include the following: the degree by which the overall level of industrial technology may be increased after the concerted action has been approved; the amount of change in the prices of goods or services; and the increase in user' convenience, as well as public interests such as safety, sanitation, and environmental protection.
  4. The considerations on the impact of the restriction of market competition include the following: obstruction against enterprises that are not part of the concerted action; the effect on market competition or on up-stream and down-stream industries; the risk of relevant enterprises to abuse their market position; and the risk of infringing upon the interests of the consumers and other related enterprises.

Relevant article(s) of law: Fair Trade Law, Article 15,16,17,and 18

4.How are "small or medium-sized enterprises" determined under Article 15(1)(vii) of the Fair Trade Law ?

A4:

Article 15(1) of the Law provides that enterprises shall not engage in any concerted actions except under certain exceptional circumstances where beneficial to the economy as a whole and in the public interest and where approved by the central competent authority, the Fair Trade Commission. Article 15(1)(vii) specifies one such circumstance as "joint acts for the purpose of improving operational efficiency or strengthening the competitiveness of small and medium enterprises." To determine qualification as a small or medium enterprise, an enterprise can file an application for approval of concerted actions under the above stated provision. According to Article 21 of the Enforcement Rules of Fair Trade Law, the identification of a small or medium sized business as referred to in Article 15(1)(vii) of the Law shall be made in accordance with the criteria set forth in the Act for Development of Small and Medium Enterprises. Under the current standards adopted by the Small and Medium Enterprise Administration of the Ministry of Economic Affairs, the determination criteria vary with industry, capitalization, and number of employees, and the factors considered are too numerous to list in detail here.

Relevant article(s) of law: Fair Trade Law, Article 15; Enforcement Rules of Fair Trade Law, Article 21; Act for Development of Small and Medium Enterprises

5.An economic downturn is not entirely the same as a recession for a certain industry. If the overall economy is very good but a certain industry is suffering a recession, can businesses in such an industry apply for permission for concerted actions?

A5:

The term "economic downturns"as used in Subparagraph 6 of Article 15 of the Fair Trade Law includes recessions for all industries as a consequence of an overall economic downturn and recessions for individual industries. When the Fair Trade Commission reviews concerted action permission applications from businesses in an industry suffering a recession, besides taking into account the particular circumstances of the industry, the decision will be made mainly based on whether the intended concerted action will benefit the overall economy.

Relevant article(s) of law: Fair Trade Law, Article 15

6.Which types of concerted action can be filed with the Fair Trade Commission for approval?

A6:

As specified in the Fair Trade Law, no enterprise shall engage in any concerted action; unless a concerted action meets one of the eight requirements specified in Article 15 and is also beneficial to the economy as a whole and in the public interest, and the Fair Trade Commission has given its approval. The eight types of concerted action that may be considered to be exceptions and approved are as follows:

  1. Unification of specifications or models of goods or services for the purpose of reducing costs, improving quality, or increasing efficiency, generally referred to as a specification or model unification concerted action;
  2. Joint research and development on goods, services, or markets for the purpose of upgrading technology, improving quality, reducing costs, or increasing efficiency, generally referred to as a "rationalized concerted action";
  3. Development of a separate and specialized area by each business for the purpose of promoting rational management, generally referred to as a specialization concerted action;
  4. Establishment of agreements regarding competition in foreign markets for the purpose of securing or promoting exportation, generally referred to as an "exportation promotion concerted action";
  5. Joint acts in regard to the importation of foreign goods or services for the purpose of strengthening trade, generally referred to as an "importation strengthening concerted action";
  6. Joint acts limiting production and sales, quantities of equipment or prices for the purpose of meeting the demand to cope with an economic downturn when the enterprises in the same industry have difficulty maintaining their business or are overproducing, generally referred to as a "downturn-coping concerted action";
  7. Joint acts for the purpose of improving operational efficiency or strengthening the competitiveness of small and medium enterprises, generally referred to as a "small and medium enterprise efficiency improvement concerted action";
  8. Other joint acts required for improving industrial development, technological innovation, or operational efficiency.

    Relevant article(s) of law: Fair Trade Law, Article 15

7. Is it in compliance with the provisions set for the in the Fair Trade Law when a trade association establishes a set of price standards only for referential purposes?

A7:

According to Article 14 of the Fair Trade Law, the definition to the concerted action is that, "competing enterprises at the same production and/or marketing stage, by means of contract, agreement or any other form of mutual understanding, jointly determine the price, technology, products, facilities, trading counterparts, or trading territory with respect to goods or services, or any other behavior that restricts each other's business activities, resulting in an impact on the market function with respect to production, trade in goods or supply and demand of services."Therefore, even if a trade association establishes a set of price standards that is "for reference only"and not mandatory for members to follow or issued as a suggestion, it often has an effect on the member businesses when they make cost and price adjustments. Therefore, the establishment of such a set of price standards is still intrinsically a concerted action and is in violation of Article 15 of the Fair Trade Law.

Relevant article(s) of law: Fair Trade Law, Articles 2, and 14, and 15

8.Are standard prices set by the trade association for reference viewed as concerted action?

A8:

The concerted actions subject to regulation by this Law are to prevent competing enterprises from mutually restricting each other's business activities. In accordance with Article 2 of this Law, the term enterprise also includes trade associations. Therefore, when a trade association sets a uniform price standard for reference only, despite being non-compulsory or merely suggestive, it often becomes an obstacle for other enterprises to adjust their individual pricing structure. Such action is considered as a concerted action.

Relevant article(s) of law: Fair Trade Law, Articles 2, and 14

9.Is it considered a concerted action in violation of the Fair Trade Law when a trade association establishes a set of uniform price standards in accordance with related regulations?

A9:

If the establishment of a set of uniform price standards by a trade association in accordance with related regulations is in violation of Article 14 of the Fair Trade Law, the Fair Trade Commission will assess whether the corresponding legal basis is in contradiction with the legislative purposes of the Fair Trade Law before deciding whether the legal basis of concern is applicable.

Relevant article(s) of law: Fair Trade Law, Articles 2, 14, and 46

10.Since small companies sometimes follow large companies' price decisions in an oligopoly market, will this constitute a concerted action even though they didn't coordinate or reach agreement on prices?

A10:

The term "concerted action" as referred to in Article 14 of this Law refers to an act to mutually restrict the activities of enterprises, such as an act by an enterprise that enters into a contract, agreement, or other forms of mutual understanding with other enterprises with whom it competes to jointly determine the prices of goods or services, or to restrict quantities, technology, products, equipment, trading counterparts, or trading territories. The other forms of mutual understanding include written or verbal, as well as expressed or implied agreements. In an oligopoly market, small companies sometimes follow the selling price of large companies. This could be considered as an act of uniformity caused by the market structure. In case of an absence of mutual understanding, such an act shall not be deemed as a kind of concerted action. Competition law authorities around the world tend in practice to treat such acts as concerted actions where there exists relevant indirect evidence sufficient to determine that they are deliberate parallel acts. In practice, the Commission has gradually moved toward the position that concerted action is also constituted where enterprises knowingly and deliberately reach a non-binding consensus or understanding regarding their future market actions through a communication of intent.

Relevant article(s) of law: Fair Trade Law, Article 14

11. What is the "Standard for Determination of Concerted Actions Being Too Insignificant for Fine Imposition"?

A11:

The FTC decided at the 1,266th Commissioners' Meeting on Feb. 3, 2016 that the standard for the determination of concerted actions being too insignificant for fine imposition was as follows: The enterprises participating in a concerted action together account for less than 10% of the relevant market and are assessed as being unable to affect the production, transactions or supply of and demand for service in the said market, but concerted actions intended mainly to restrict the price or quantity of product or service, trading counterparts or trading areas are excluded.

Due to the considerable impacts of concerted actions on trading order, the FTC has always considered concerted actions to be illegal. However, if the enterprises participating in a concerted action have very insignificant market power and are therefore unable to exert any substantial effect on the market, the adoption of regulatory measures is unnecessary since the likelihood of such a concerted action leading to any restriction on competition is extremely small. In addition, collecting evidence of a concerted action is difficult while a suitable allocation of administrative resources is an important consideration. Hence, competition authorities generally find it more appropriate to concentrate their efforts on investigating concerted actions that can have serious effects on market competition and order. For this reason, the FTC has defined concerted actions with slight impacts on the supply-demand function in the market as "concerted actions too insignificant for fine imposition" to be the standard, and participants in such concerted actions may be granted immunity from administrative fines.

Currently, the threshold in the EU and Germany for granting immunity to businesses engaging in insignificant concerted actions is that the aggregate market share of such businesses is less than 10% of the relevant market. Since small and medium enterprises form the principal part of the domestic industrial structure as in Germany, the 10% threshold adopted in Germany is therefore deemed suitable in this country. Moreover, as for the concerted actions that the FTC has sanctioned over the years, the combined market share of participants has generally been larger than 10% of the relevant market in most cases. Therefore, concerted actions with participants accounting for less than 10% of the relevant market are defined as concerted actions too insignificant for fine imposition.

Meanwhile, concerted actions involving price, quantity, trading counterpart or trading area restrictions are considered hard-core cartels because such concerted actions are highly harmful to market trading order. The EU and Germany have both excluded participants in hard-core cartels as candidates for immunity from fines. Therefore, the FTC has also specified that the regulation of granting immunity from fines to enterprises participating in concerted actions too insignificant for fine imposition is inapplicable to concerted actions adopting hard-core cartel practices.

After assessing the regulations in other countries as mentioned above and the actual circumstances in the country, the FTC made the decision at the 1,266th Commissioners' Meeting and also announced on Mar. 1, 2016 the Kung Fa Tzu Interpretation No. 10515600941 in which it is stated: "In respect of Article 14 of the Fair Trade Law, an insignificant concerted action is defined as that where the enterprises participating in a concerted action together account for less than 10% of the relevant market and are assessed as being unable to affect the production, transactions or supply of and demand for service in the said market, but concerted actions intended mainly to restrict the price or quantity of product or service, trading counterparts or trading areas are excluded in order to retain flexibility in law enforcement. "

12. What is "Concerted Actions"?

A12:

It is stipulated in Article 14 of the Fair Trade Law that " The term "concerted action" as used in this Law means that competing enterprises at the same production and/or marketing stage, by means of contract, agreement or any other form of mutual understanding, jointly determine the price, technology, products, facilities, trading counterparts, or trading territory with respect to goods or services, or any other behavior that restricts each other's business activities, resulting in an impact on the market function with respect to production, trade in goods or supply and demand of services. "

The term "any other form of mutual understanding" means other than contract or agreement, a meeting of minds whether legally binding or not which would in effect lead to joint actions.

The law of a trade association or other groups, as referred to in Article 2 Paragraph 2, to restrict activities of enterprises 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 concerted action as used in the Fair Trade Law.

13. What is "The mutual understanding of the concerted action "?

A13:

It is stipulated in Paragraph 3 of Article 14 of the Fair Trade Law that "The mutual understanding of the concerted action may be presumed by considerable factors, such as market condition, characteristics of the good or service, cost and profit considerations, and economic rationalization of the business conducts." In practice, it is very difficult for the competent authority to obtain direct evidence of the concerted actions. In order to regulate concerted actions effectively, after the amendment of the Fair Trade Law on February 4, 2015, the competent authority has been given a moderate basis to presume the mutual understanding, as one of the elements of a concerted action, with considerable factors.

Relevant article(s) of law: Fair Trade Law, Article 14

14. What is the " Principles of Anti-trust Compliance for Enterprises "?

A14:

With the advent of globalization, domestic enterprises find it's increasingly necessary to run transnational operations of businesses. To help prevent and avoid violations of antitrust law (or "competition law" in some countries, the "Fair Trade Law" in the ROC; the same hereinafter) and corresponding penalties, the FTC has established this "Code of Conduct for Antitrust Compliance of Enterprises", passed by the 1040th Commissioners' Meeting of October 12nd, 2011, for enterprises to follow so that the violation risk could be reduced while engaging in businesses activities. The contents are as follows:

  1. Before contacting or establishing any agreement with competitors or attending any trade union conferences, enterprises must request the organizer for the agenda and seek assistance from antitrust law specialists to evaluate whether the conduct in question is in any violation of competition regulations.
  2. All personnel approached by competitors expressing the intention to discuss market competition-related issues (such as prices, quantities, capacity utilization rates, trading counterparts, etc.) must refuse and leave the venue immediately and report it to their superiors or the antitrust compliance department.
  3. All personnel must remain highly alert toward letters, emails and text messages between businesses and also keep written records of the time, location and content of all meetings, phone calls and encounters with their competitors and make explicit their standpoint of not to discuss any sensitive information.
  4. Acquisition of price information of market competitors must come from public information platforms or data compiled by the trade union only.
  5. All personnel must be careful while they answer questions from industrial analysts or market survey institutions, as replies involving future company pricing decisions may be interpreted as leading to illegal agreement.
  6. All personnel must avoid discussing business-related issues with friends working for competitors and must refrain from making any business contacts by personal email or telephone.
  7. All personnel shall never discuss competition-related issues, such as (past, current or future) prices or information likely to affect prices, trading terms, production capacities, inventories, trading counterparts, business strategies, or allocation of market share through email, telephone, text messaging or during meetings.
  8. All enterprises shall never provide information by making public announcements, press releases or convening meetings in the name of the trade union, as such behavior could create opportunities for competitors to discuss competition-related issues or adjust price.

Relevant article(s) of law: Fair Trade Law, Article 2,14 and 15