Exemptions and Exceptions to Competition Policy and Law


Chairperson CHAO, Yang-ching
The Fair Trade Commission of Chinese Taipei for APEC' s
Competition Policy and Deregulation Workshop


Thank you Mr. Chairman and representatives of member economies for this opportunity to speak to you about the practices of Chinese Taipei on exemptions and exceptions to competition law and policy. Let me also express my deep gratitude to the convener of this conference, New Zealand, for all the hard work in the organization of the workshop, and the host economy, Malaysia, for arranging the conference.

I firmly believe that the views exchanged and shared in an opportunity like this could be of great help for member economies to foster the sound policies and to further their co-operation and coordination in the field of competition law and policy.

Since the Fair Trade Law was brought into effect in 1992, Chinese Taipei has opted for a deregulated and competitive market through formal legislation. In April 1995, the then Economic Leader Lian Chan further reaffirmed our commitment in supporting competition policy as the essential part of our economic development. The Fair Trade Commission, for which I represent, actively carries out the mission of establishing and maintaining competitive markets in Chinese Taipei.

We are no different from many other economies, not only in having legislation governing anti-competitive practices, but also in providing some exceptions and exemptions for particular activities or certain enterprises. In this regard, Chinese Taipei follows the principle that exemptions should be narrowly construed. It is also our belief that the scope of exemptions should be limited so as not to impair the goal of competition policy.

For the purpose of this presentation, I use "exemption" in referring to immunities granted by laws to particular activities or enterprises from applying the rules provided for in our Fair Trade Law. In the latter part of my discussion, I use the term "authorization" to indicate permissions granted by the Fair Trade Commission to allow the carrying out of some activities that are otherwise prohibited by the Fair Trade Law.

In the area of exemption, three main categories can be found in our Fair Trade Law as follows:

I. Exemptions Granted for Activities Permitted by Other Laws:

Government regulation has long been used to manage economic activities in many economies, including Chinese Taipei. Business activities brought off under the protection of laws or regulations may be in some situations not in conformity with the principles of competition policy. A provision in the Fair Trade Law is set forth to cope with this problem. Article 46, paragraph 1, of the Fair Trade Law states that the provisions of the Law shall not apply to any act performed by an enterprise in accordance with other laws. Under this provision, the Fair Trade Law is subject to statutory exemptions that immunize certain categories from anti-trust liability. Enterprises practicing the activities within these categories will not be held liable even if these activities constitute or give rise to violation of the Fair Trade Law.

Due to the fact that the Fair Trade Law was enacted and put into effect in relatively recent years (i.e. 1991 and 1992 respectively), it was necessary for us to identify the areas out of the enormous number of existing laws that fall under the Article 46 exemptions. A task force was thus established within the Commission, with seven study groups thereunder, to examine exemptions granted under this provision on the one hand, and to study the approach in dealing with the exemptions from the perspective of deregulation.

The task force identified some statutory provisions eligible to receive exemptions from the Fair Trade Law. For example, under Article 37 of the Railroad Act, if it is considered to be in the best interest for the public, the Ministry of Transportation and Communications may require railroad operators to conduct joint operations with other railroad operators or with operators of other modes of transportation. The Public Rapid Transportation Act has similar provisions in Article 32. A joint operation of this kind is a concerted action in nature and thus should otherwise be governed by the Fair Trade Law. However, laws explicitly exempt these operations.

Also under Article 5 of the Farmers Association Act and Article 5 of the Fishermen Association Act, associations may jointly engage in the operation of some business activities related to farmers or fishermen's affairs. These constitute statutory exemptions from the prohibition of concerted action granted under Article 46, paragraph 1 of the Fair Trade Law.

Another example is in Article 37 of the Architects Act, which provides that architect associations shall establish rules to govern architect's business and under these rules there shall be provisions stating rates of remuneration for architectural services. Associations engaging in price collusion has been considered illegal per se by our law. But the Architects Act provides a basis for an exemption from the anti-trust liability.

The Commission's position has been that even though there are legal bases for immunity from the liability of the Fair Trade Law, the anti-competitive impacts must be kept to a minimal level. Thus the Commission has in the past exercised the power granted under Article 9 of the Fair Trade Law to consult with relevant government agencies with a view to either encourage them to take initiatives to bring the laws in line with competition policy or to reduce the competitive impacts when they apply the laws. Thus far the Commission has received many positive responses from relevant ministries.


II. Exemptions Previously Granted for State-Owned Enterprises:

Chinese Taipei used to rely very much on state-owned enterprises to engage in many important economic activities that involved either high commercial risks or enormous capital. However, the philosophy has been greatly changed. Chinese Taipei favors a competitive market and less government intervention. It has been the policy of the government of Chinese Taipei to allow and encourage private enterprises to engage in a full range of business activities. Chinese Taipei had also commenced a privatization initiative to reduce inefficiency.

During the drafting phase of the Fair Trade Law, arguments were made in regard to whether to carry out the competition policy upon state-owned enterprises from the beginning of putting the Law into force or to allow a certain transition period for these enterprises. Many believed that some transitional arrangements were needed. Article 46, paragraph 2 of the Fair Trade Law thus provided a five-year transition period for specific conducts of state-owned enterprises approved by the highest administrative authority. In fact, the specific conducts that are entitled to the exemption are rather limited in number.

Examples of this kind include the Chinese Petroleum Corporation's provision of diesel oil for Taiwan Railway Administration and provision of gasoline for military units with preferential prices. Taiwan Sugar Corporation also used to provide sugar for military units and honeybee farmers with preferential prices. These were discriminatory practices that should otherwise be prohibited by Article 19 of our Fair Trade Law. However, due to the Article 46, paragraph 2, exemption, these state-owned corporations were exempted from anti-trust liabilities.

It should be particularly mentioned that upon the expiry of the transition period on the 4th of February in 1996, state-owned enterprises are now subject to the Fair Trade Law on an equal basis with private firms.


III. Exemptions Granted for the Proper Exercise of Intellectual Property Rights:

The Fair Trade Law of Chinese Taipei also gives special consideration to the exercise of intellectual property rights by providing that the legitimate and proper exercise of copyrights or rights under trademark or patent shall be exempted from the application of the Fair Trade Law.

The exempted activities with regard to, for example, patents, include the rights to exclude others from making, using or selling the patented product or process, the right to license others to practice a patent, and the right to impose reasonable limitations on patent licensees.

The Commission's interpretation of this provision is that it is not broad enough to exempt whatever action is carried out by the right-holders. The Commission does not exclude, for instance, unreasonable licensing practices such as coercive package licensing, exclusive grant-back licensing conditions, and conditions preventing challenge to validity of the intellectual property rights, from the application of the Fair Trade Law.

One of the lines that the Commission drew for the proper exercise of intellectual property rights is with regard to the sending of warning letters by right-holders. In order to ensure fair competition among enterprises and to effectively handle the abusive uses of intellectual property rights, the Commission established a set of guidelines to govern the right-holders' issuing of warning letters to require the sales channels to refrain from selling the allegedly infringing products. The guidelines set out the Commission's views on acts to be considered as the proper exercise of rights through sending warning letters, and grant exemption therefor.

In the area of authorization, the Fair Trade Commission is empowered to grant immunity for specific types of concerted actions and resale price maintenance arrangements. The Commission has also been empowered to give green lights for enterprises to engage in mergers and acquisitions.


I. Authorization for mergers:

Our law governing merger and acquisition requires merging firms reaching certain sales volume, or market shares before or after a proposed merger, to seek "prior" approval of the Commission. The threshold for merger application is 2 billion New Taiwan Dollars in sales volume, or 1/4 of the market to a merging party for a proposed merger or 1/3 of the market after the merger. The 2 billion dollar threshold is currently under the Commission's review.

If a merging enterprise meeting the threshold failed to file an application for approval or if an application for a proposed merger has been disapproved, the Commission is empowered to order the dissolution, suspension of business, or the cessation of the business of the enterprise in case that the merging enterprise still brought off the proposed merger.

To avoid mergers that might result in the substantial lessening of competition or undue concentration in a market, Article 12 of the Law requires that the benefit of the proposed merger to the economy as a whole must outweigh the disadvantages of its restraining competition.

In deciding whether a merger would result in providing benefit to the economy as a whole which outweighs anti-competitive effects, the Commission considers factors such as whether the merger would significantly increase concentration in the market, whether the merger would raise concerns about the adverse effects on competition, whether the proposed merger is a reasonable means to achieve efficiency of the merging enterprises, and, if the application is turned down, whether the merging enterprises and the relevant markets will be adversely affected to a substantial degree.

The Commission also recognizes that significant commercial opportunities and advantages could come with mergers, and the timing is highly important to enterprises. A set of simplified administrative procedures is thus set forth for those mergers with less impact on competition in the market. The purpose of the procedures is to significantly shorten the length of time needed to process the approval. The mergers eligible for the simplified procedures include:

  1. Conversion from existing merger relationship to different type of merger.

  2. Merger by enterprises with significantly low market share.

  3. Merger without increasing the merging firm's market share in the specific business.

  4. Franchising merger.

  5. Acquisition for potentially failing firms.

As opposed to the traditional merger, which was primarily motivated by efficiency or financial considerations, today's continuing merger waves are primarily strategic in nature. This means that more than ever before the mergers raise real competitive concerns that need to be reviewed carefully to ensure that the mergers will not harm competition in the marketplace nor harm consumers. This merger wave presents significant challenges to the Commission, including keeping up with the influx of mergers and reviewing the application in a timely fashion without giving rise to unnecessary costs on businesses or sacrificing consumer interests.

The Commission has taken a number of steps in this regard, among which are to speed up review process for those applications that do not raise serious anti-competitive concerns, to express our anti-competitive concerns to the enterprises that are likely to engage in mergers and to work with them so that they will be able to take steps to alleviate the anti-competitive aspects of their mergers.

II. Authorization for Concerted Actions:

Article 14 of the Fair Trade Law prohibits enterprises to engage in concerted actions. In other words, concerted actions are, in our law, considered illegalper sewithout regard to whether they will have any pro-competitive effect.

However, since some concerted actions could produce pro-competitive effects and some other concerted actions' anti-competitive effect can be disregarded in terms of its extent, the proviso of Article 14 provides that the following types of concerted actions will be admitted so long as a prior authorization from the Commission is obtained:

  1. Unification cartels or agreements for specifications or models.

  2. Rationalization cartels or agreements.

  3. Specialization cartels or agreements.

  4. Export cartels and agreements between exporters.

  5. Import cartels and agreements between importers.

  6. Depression cartels or arrangements.

  7. Concerted practices by small and medium-sized enterprises to improve operational efficiency.

Our practice has been that when granting authorization to these concerted actions, the Commission will take into account the positive contributions to the overall economy and public interest and the adverse impact on the restriction of market competition, if the concerted action is brought into existence. Only when the advantages outweigh the disadvantages can such concerted action be authorized.

Our policy is that this exemption should be used in a very restricted manner. We have granted very limited number of concerted actions in the past. One of the examples is that the manufacturers of certain food products decided to jointly procure soybean from abroad and to jointly enter into contracts with marine carriers. The Commission gave permission to them to carry out the joint procurements of soybean and shipping services to the extent and within the time period specified in the authorization.

In granting its approval to the concerted actions, the Commission may impose conditions, restrictions or encumbrances on the enterprises. The approval granted by the Commission shall only be valid for a limited period not exceeding three years. In the event that after the approval of the concerted action, the basis for such approval no longer exists, the economic condition has changed, or the conduct of the enterprises involved exceeds the scope of the approval, the Commission may either revoke the approval, alter the contents thereof, or order the enterprises involved to cease or rectify such conduct.

Meanwhile, the Commission is required to maintain a registry to record the approvals, conditions, restrictions, undertakings, and time limit. It shall also publish these matters in the government gazette.

With a view to stimulating efficiency competition among small or medium-sized enterprises, upholding orderly transactions and the interests of consumers, and benefiting the economy and public interest, the Commission also established "Principles for the Assessment of Concerted Pricing by Small or Medium-Sized Enterprises to Be Approved as an Exception" , pursuant to Article 14 (subparagraph 7) of the Law.

Since concerted pricing will restrict price competition, enterprises may apply to the Commission for authorization only if their concerted pricing activities are beneficial to the economy. In addition to this, the Commission will take the following factors into consideration when it reviews the application:

  1. Whether the organization representing the trading counterparts has been consulted with and a consensus has been reached on the matter of proposed concerted pricing.

  2. Whether concerted pricing is in conformity with the principles of "Transaction Stability" and "Transparency of Information". Whether the uniform prices resulting from concerted pricing are reasonable ones.

  3. Whether concerted pricing is beneficial to the economy and in the public interest.

When the Commission makes a decision, the approval date and expiration of authorization will also be determined on a case-by-case basis.

A relevant subject is in the joint undertaking of construction work. The Commission published a set of "General Standards for Identifying Joint Undertaking of Construction Contracts Not Subject to the Fair Trade Law". These Standards are set forth to promote the positive effects of "joint sub-constructing" in the bidding of construction projects, such as sharing of risk, increased financial resources, upgraded technology, consolidation, etc., and to prevent the obstruction of competition caused by joint undertaking. Companies that jointly undertake construction work under these rules will not raise anti-trust concern.

III. Authorization for Resale Price Maintenance:

Our Law does not prohibit vertical cartels with the exception that it outlaws resale price maintenance. Article 18 of the Law prohibits vertical price restrictions between parties at different functional levels in a market.

However, in view of the fact that the markets for daily products are relatively competitive and resale price maintenance could only produce a minimal effect on competition, the proviso of Article 18, paragraph 1, provides that daily products to be used by general consumers which are subject to free competition with similar kinds of goods available in the market will not be bound by the prohibition of resale price maintenance.

According to paragraph 2 of Article 18 of the Law, the Commission is to identify the scope and items of the "daily products" referred to in the first paragraph of the same article. It should be mentioned, however, that the Commission is not very active in the application of the proviso of Article 18, paragraph 1. There has not been any announcement in regard to the scope and items of the daily products. Thus resale price maintenance is outlawed with no exception in practice.


My concluding Remarks:

Mr. Chairman and Representatives of the member economies, in conclusion, I would like to express that while we consider our experience with regard to the implementation of our competition law and policy to be a positive one, we definitely still have a lot more to learn from other economies with great experience in the enforcement of competition law. Our deregulation policies directed toward increasing competition in the domestic market have helped our steady growth. In the last several seminars of this kind, we have shared our experiences with other economies. In regard to the topic of exceptions and exemptions, we still need a lot more intellectual input to refine our law and practice.

As highlighted in the APEC survey on competition laws, there are variations in the scope and application of competition laws among member economies. APEC member economies have a common interest in reviewing the types of exemption and authorization to identify anti-competitive effects and to assess the extent of necessity of these practices.

In this regard, we suggest that member economies could collaborate in dealing with exemptions and exceptions to competition law. The effect of the exemption and exception on trade and investment throughout the region may also be examined under this work. Some scheme to ensure transparency of the member economies' practices in this regard could be built in.

My presentation intends to illustrate not only our practice in the effective implementation of the competition law and policy, but also our commitment to the liberalization of our market. As I mentioned, our experience in dealing with exemptions and exceptions is limited, relative to other economies having enacted their competition laws many years ago. We will be grateful if our colleagues from member economies can provide us with their comments and experiences.

Thank you.