Taiwan's Fair Trade Act: Achieving the Right Balance Symposium on Competition Law and Policy in Developing Countries
Taiwan's FairTrade Act
Policy in Developing Countries Taiwan's Fair Trade Act: Achieving the Right Balance Symposium on Competition Law and
Pijan Wu 0
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Dr. Pijan Wu* & Caroline Thomas"
Adopting competition laws is part-and-parcel of a global trend. Indeed,
it is striking to see how many countries first implemented competition laws
within the last twenty-five years. In 2000, Fr6d6ric Jenny commented that
"today between 80 and 100 countries have a competition law or are in the
process of adopting one whereas ten years ago no more than 50 countries
had such a law."' This compares to less than ten countries in 1960.2
Promulgated by a Presidential Order on February 4, 1991 and coming into
force one year thereafter, Taiwan's Fair Trade Act ("FTA") must be
interpreted in this context.
Competition policy, however, is never pursued in isolation and the
implementation of competition policies over the last twenty years tends to
be part-and-parcel of deregulation and liberalization measures.
Competition law is just one tool used by governments to try to achieve
maximum sustainable growth in their economies. Anti-dumping, consumer
protection, corporate governance, deregulation, industrial (i.e., promoting
national industries), intellectual property ("IP") liberalization, privatization,
and trade policies are generally pursued simultaneously and may at times
conflict or concur with the aims of competition policy. Consequently, most
* Senior Counsel of LCS & Partners, Taiwan; admitted in New York; Adjunct Associate
Professor, Soochow University; J.S.D., New York University School of Law; LL.B.,
National Taiwan University; EMBA, National Taiwan University (expected 2006).
**LPC, BPP Law School London; GDL, BPP Law School London; BA (hons.) Economics
and History, Trinity College, Dublin; Dipl6me du Programme International, Institut d'Etudes
Politiques de Paris (Sciences Po).
1 F~d~ric Jenny, Globalization,Competition and Trade Policy: Convergence,Divergence
and Cooperation,in INTERNATIONAL AND COMPARATIVE COMPETITION LAWS AND POLICIES
31, 37 (Yang-Ching Chao et al. eds., 2001).
2 Walter Winslow, OECD Programmes for International Responses to Global
Competition Issues, in INTERNATIONAL AND COMPARATIVE COMPETITION LAWS AND
POLICIES, supranote 1, at 235, 240.
experts agree that there is no "one size fits all" competition policy. Rather,
each country must balance the various policies it uses so as to match its
individual needs and review the policy recipe when circumstances change.
In this article we seek to identify some of the successes and challenges
related to the implementation of competition law in Taiwan. We will
examine this topic in three parts: first, in Section II, we will explain the
historical background to the FTA so as to reveal the aims of Taiwanese
competition law; second, in Section III, we will explain how the law is
structured and its intent; and third, in Section IV, we will look at the
effectiveness of the FTA to date.
II. BACKGROUND-WHY IMPLEMENT COMPETITION LAW IN
THE FIRST PLACE?
As is the case in many Asian countries, international trade has fuelled
Taiwan's economy for over forty years. During this time, it has matured
significantly, to the extent that in many respects, including GDP per capita,
the country resembles a developed country more closely than a developing
country. During the high growth years between 1950 and the mid-1980's
(during which growth averaged between 7% and 8%), 3 Taiwan refocused its
economy in the classical pattern from agriculture to manufacturing, and
since 1986, the services sector has become dominant. These major changes
made it necessary for government policy to adjust accordingly. In
particular, during the 1980s, increasing local labor costs and currency
appreciations linked to a huge trade surplus and increased competition in
export products from low wage countries led to the deceleration of the
economy. For this reason, and in line with a shift from protectionist
policies to neo-liberal policies worldwide as well as pressure from abroad
(particularly the United States) to open the economy to imports and to
protect intellectual property, strategies of liberalization and
internationalization were also adopted in Taiwan. In 1984, the government
introduced a new guiding principle for economic development called
"Liberalization, Internationalization, and Institutionalization of [the]
Economy. ' '4 Soon thereafter the process was precipitated since Taiwanese
economic liberalization coincided with major political changes, including
the lifting of martial law in 1987 and the death of President Chiang
Chingkuo one year later.5 This process also involved a gradual eclipsing of the
3 Industrial Development & Investment Center Ministry of Economic Affairs, GDP
Growth Rates of Major Countries, http://investintaiwan.nat.gov.tw/en/env/stats/gdp-growth.
html (last visited Dec. 16, 2005).
4OECD COMPETITION COMMITTEE, Annual Report on Competition Policy Developments
in Chinese Taipei 2005 (forthcoming 2006).
5For a brief overview of the Republic of China's history see Politics of the Republic of
China, http://en.wikipedia.org/wiki/Politics ofTaiwan.
monopolies enjoyed by government enterprises such as China Steel, China
Petroleum, China Airlines, Taiwan Sugar, Taiwan Fertilizer, as well as
various banks and insurers.6
Liberalization and internationalization strategies are still being pursued
in Taiwan today. Stimulus is provided both by the pressures from other
countries and the progress made by them, as well as from international
organizations such as the Organization for Economic Co-operation and
Development ("OECD"), the World Trade Organization ("WTO"), and
Asia-Pacific Economic Cooperation ("APEC"). Specific measures
introduced include reducing tariffs, applying for membership in the General
Agreement on Tariffs and Trade ("GATT") in 1990
(accession to the WTO
took place in 2002)
, relaxing foreign exchange controls, allowing foreign
participation in most industries, easing restrictions on foreign direct
investment ("FDI"), and, of course, introducing a competition policy for the
The legislative route that led to the FTA is as follows: the process was
first implemented by the Executive Yuan (the Cabinet) which
commissioned the Ministry of Economic Affairs ("MOEA") to draft a
competition law. Once the draft was finished in 1986, it was submitted to
the Executive Yuan, which then forwarded it to the Legislative Yuan (the
Congress) to be promulgated and enacted.7 The motivation behind the FTA
is best summarized in a statement attached to the draft by the Executive
Yuan before it was forwarded:
As explained by the Ministry of Economic Affairs, due to the rapid
economic development in recent years, the domestic economy is in
transition. As such, the government has decided that economic
liberalization and internationalization will be the key economic
development strategies. However, these economic development policies
should be based on fair, reasonable and free competition rule and
environment. Currently the country still lacks a competition law and it
has been observed that business conduct frequently infringes "normal
business behavior." More specifically, in anticompetitive aspects, those
infringing behaviors include: monopoly, oligopoly, mergers and
acquisition and concerted action. In terms of unfair competition, those
infringing behaviors include: counterfeiting other business's goods or
business trademarks, false or misleading advertisements, "distorted"
multilevel sale schemes, as well as other behaviors. These conducts have
not only seriously damaged the image of the country but also imposed
trade barriers and have adversely affected consumer's interests. As
6 Chung Kuo Insurance Company, Taiwan Fire & Marine Insurance Company, Central
Insurance Co., Ltd., and Central Re.
7 Gee San & Changfa Lo, A Decade of FairTrade Law Legislationand its Enforcement
in the Republic of China, in INTERNATIONAL AND COMPARATIVE COMPETITION LAWS AND
POLICIES, supra note 1,at 82.
such, the Executive Yuan has carefully taken into consideration the
country's present economic policy and environment. In addition, it has
also examined competition laws as found in nations such as the ones of
tdhreafUttnhietepdroSptaotseesdoFfaAirmTerraidcea, LWawes.8t Germany, Japan and South Korea to
This statement was concise and, in retrospect, very telling of the
ensuing development. It shows that the government recognized the need to
implement a competition policy to complement its liberalization policies. In
economic terms such reasoning is sound, since there is no point in rolling
back government influence on the economy only to allow private players to
exercise market power in its stead. Even more importantly, the statement
recognized that infringing behavior was "frequently" damaging the interests
of local consumers as well as Taiwan's reputation abroad. 9 Furthermore,
the sources of inspiration-namely the competition laws of the United
States of America, West Germany, Japan, and South Korea-are clearly
A salient point to note about the FTA is that it required over ten years
of preparation. Indeed, even after the draft was provided to the Legislative
Yuan in 1986, it still took almost six years to implement.' 0 According to an
article written by Gee San and Changfa Lo, two former Commissioners of
the Fair Trade Commission ("FTC"), several legislators were worried that
the act would hamper Taiwan's economic development." In particular,
many critics pointed out that as Taiwan's economy was dominated by small
and medium-sized enterprises ("SMEs") these were still "infant" industries
that would not be adequately protected by the FTA. According to San and
Lo, the most disputed aspects of the FTA were its provisions for merger
III. ANATOMY OF THE FAIR TRADE ACT
To date, the FTA has already been amended three times-in 1999,
2000, and 2002. It is the current version to which we refer, unless
otherwise specified. In regards to the purpose of the FTA, Article 1
reiterates the principles of the statement by the Executive Yuan quoted
above. It clarifies that the purposes of the law are to maintain trading order,
protect consumers' interests, ensuring fair competition, and promote
economic stability and prosperity. 13 The FTA is divided into seven
8 Id. at 81-83 (quoting The LegislationRecord ofthe FairTrade Law) (emphasis added).
2 Id. at 85-86.
13 Fair Trade Act of 1992, Faigui Huibian, art. 1 (amended 2002).
chapters: Chapter I includes general principles and definitions; Chapter II
relates to unfair business practices, namely monopolies, mergers and
concerted actions; Chapter III deals with unfair competition; Chapter IV
provides for the establishment of the FTC; Chapter V prescribes
compensation for damages; Chapter VI relates to punishment for violation
of the act; and Chapter VII contains miscellaneous supplementary
provisions. Some of the more important provisions of the law are outlined
and analyzed below.
A. Broad Coverage of Competition, Consumer Protection, and IP Issues
The FTA covers an unusually wide range of acts. Most countries tend
to have separate laws for competition, consumer protection, and intellectual
property.' For example, Article 6 of the UN Model Law on Competition
provides for consumer protection elements but states clearly that "in a
number of countries, consumer protection legislation is separate from
restrictive business practices legislation."15 In the FTA there is a certain
degree of overlap. Protecting consumers' interests is specifically included
as one of the FTA's aims listed in Article 1. This was done deliberately, as
there was a great deal of discussion about whether consumers' interests
should be included. 16 Furthermore, a number of provisions in Chapter III of
the act (which deals with unfair competition) can be seen as specific
consumer protection and IP law measures.
One example of such a provision is Article 23.17 This prohibits the
conduct of multi-level sales if the participants receive commissions,
bonuses, or other economic benefits primarily from inducing others to
participate, rather than from the marketing or sale of the goods or services
at reasonable market prices. 18 Multi-level sales are defined in Article 8 as
the promotion or sales plan or organization pursuant to which the
participants pay a certain consideration to obtain the right to promote or
sell goods or services and the right to introduce other persons to
participate in the plan or organization, thereby receiving a commission,
bonus, or other economic benefit. 19
14U.N. CONFERENCE ON TRADE & DEVELOPMENT [UNCTAD], The Model Law on
Competitio-UNCTAD Series on Issues in Competition Law and Policy, U.N. Doc.
16See Chien-Te Fan, Consumer Protection of the Fair Trade Law in Taiwan,
INTERNATIONAL AND COMPARATIVE COMPETITION LAWS AND POLICIES, supra note 1, at 447,
17Fair Trade Act, supranote 13, at art. 23.
'9Id. at art. 8.
In substance, this refers to pyramid schemes in which products are sold to
multiple tiers of (generally untrained) distributors-each of whom hopes to
make a sizable profit-before finally reaching the consumer. In the 1980's,
there were a number of scandals involving such schemes and legislators
realized how quickly a large number of people could be embroiled. As a
result, Article 23 was enacted to protect the public and, in particular,
participants (people involved in such schemes).2 Participants are given a
fourteen-day period during which they can rescind the participation
agreement and recover all payments for goods made upon purchase and any
other fees paid within thirty days of rescission. 21 After the lapse of the
fourteen-day period of entitlement to rescind the agreement, the participant
may still terminate the multi-level sales agreement, in which case the
operator is required to buy back all goods sold to the participant at ninety
percent of the original purchase price.22 Any person violating the
provisions of Article 23 will be subject to the disposition pursuant to Article
41 and may be subject to an order for dissolution, suspension, or
termination of business operation by the FTC.23
Another example of the overlap with consumer protection contained in
the FTA is Article 21, which deals with misleading representations,
symbols and advertisements. This article includes the following provisions:
No enterprise shall make or use false or misleading representations or
symbol as to price, quantity, quality, content, production process,
production date, valid period, method of use, purpose of use, place of
origin, manufacturer, place of manufacturing, processor, or place of
processing on goods or in advertisements, or in any other way making
known to the public. No enterpriseshall sell, transport,export or import
goods bearing false24or misleading representations referred to in the
Clearly these provisions, while preventing business from unfair
competition, also protect consumers from being mislead by illegal copycat
products and help businesses maintain their IP rights.
Other provisions where overlaps are obvious are Articles 20 and 22.
Article 20 looks more like an IP law provision protecting against passing
off (pretending that the goods or services were actually rendered by another
company) and trademark infringement than a competition law measure.2 5
Similarly Article 22, which prevents competitors from making or
20 Id. at art. 23.
22 Id. at arts. 23-1, 23-2.
23Fair Trade Act, supra note 13, at arts. 41, 42.
24 Id. at art. 21 (emphasis added).
25 Id. at art. 20.
disseminating false or misleading statements that might damage business
reputation (defamation), is not a typical competition law provision.26 In
addition, Article 24, which prohibits deceptive or obviously unfair conduct
that affects trading order, is a catch-all provision.27
B. Traditional Competition Law Provisions
Since most of the actual competition law provisions contained in the
FTA are broadly similar to those in other countries, we will give a very
basic outline of these only.
Under Article 10, monopolistic enterprises are banned from:
1. Directly or indirectly preventing competition by unfair means;
2. Improperly setting, maintaining or changing prices or remuneration;
3. Giving unjustified preferential treatment to trading partners; and
4. Otherwise abusing its market power. 28
There is a rebuttable presumption that a company is not a monopolist
enterprise unless its market share of the relevant market is greater than or
equal to fifty percent, or the combined market share of two or three
enterprises reaches two-thirds to three-quarters of the relevant market
respectively. 29 "Relevant market" is very broadly defined as a geographic
area or coverage area where enterprises compete in particular goods or
Article 11 of the FTA provides that the FTC must be notified of
mergers in advance if:
1. The resulting company will have one third of the market share;
2. One of the companies involved has a quarter of the market share or;
3. Sales for the preceding fiscal year of one of the enterprises involved
exceed a threshold amount.3 '
26 Id. at art. 22.
27 Id. at art. 24.
28 Id. at art. 10.
29 Fair Trade Act, supranote 13, at art. 5-1.
30 Id. at art. 5.
31 The threshold amounts are NTD 10 billion in sales volume for an acquiring enterprise
(raised to NTD 20 billion for financial institutions) and, as a cumulative condition, NTD 1
billion for the acquisition target. See Press Release, Fair Trade Commission Executive Yuan,
Mergers are defined as situations where:
1. Two enterprises are merged into one;
2. One enterprise holds or acquires the shares or capital contributions
representing over one third of the total voting shares or total capital of
3. One enterprise leases from or is assigned the whole or a major part of the
business or properties of another enterprise;
4. Enterprises operate jointly on a regular basis or one enterprise is
entrusted to operate the other's business or;
5. aOpnpeoienntmteerpnrtisoer ddiirsecchtalrygeorofinemdipreloctyleyescoonftraonlosththere ebnutseirnperissse.3o2peration or
If the FTC neither responds within thirty days of the application being
properly filed nor officially approves the merger, the merger can proceed.3
The guiding principle is that there will be no prohibition if the overall
economic benefit of the merger outweighs the disadvantages resulting from
competition restraint. Moreover, the FTC can attach conditions or require
undertakings to its decisions.34 Failure to comply with the merger
procedure could have serious consequences. The FTC might prohibit or
reverse the merger, remove certain persons from their positions or order the
suspension or even dissolution of the company.35
While concerted actions are generally banned under Article 14, there
are a number of exceptions to this general rule. Where the following
requirements are fulfilled and the FTC has approved the application,
concerted actions will be allowed:
1. Unifying specifications or models of goods so as to reduce costs,
improve quality or efficiency;
2. Joint research and development (R&D) on goods or markets in order to
upgrading technology, improving quality, reducing costs, or increasing
3. Each developing a separate and specialised area so as to rationalise
Public Notice of the "Thresholds of Sales Monetary Amount" Above Which Enterprises of a
Merger Shall File with the Fair Trade Commission (Feb. 25, 2002) (on file with author).
32 Fair Trade Act, supra note 13, at art. 6.
31 Id.at art. 11.
14 Id. at art. 12.
31 Id. at art. 13.
4. Entering into agreements concerning solely the competition in foreign
markets for the purpose of securing or promoting exports;
5. Joint acts relating to imports so as to strengthen trade;
6. Joint acts limiting price, quantity of production and sales, or equipment
during an economic downturn; or
7. Joint acts to promote operational efficiency or to strengthen the
competitiveness of SMEs.36
While some of these exceptions are also used in other countries
(particularly the R&D exception), many reflect the Taiwanese
government's specific policies. In particular, because local companies have
historically been original equipment manufacturers ("OEM") of major
multi-nationals, the FTA permits some forms of cooperation among
enterprises, for a limited period of time, to strengthen their collective
bargaining position vis-A-vis their foreign counterparts.37 Furthermore, the
exceptions clearly reveal the government's ambition to promote local SMEs
and to promote exports.
However, companies are not automatically exempt; rather, they need
to apply for permission from the FTC.3 8 After receipt of an application the
FTC must make its decision within three months unless it extends the
timeframe.3 9 Under Article 15 of the FTA, the FTC is entitled to make
approval subject to conditions. Furthermore, approval is granted for a
maximum of three years, which the enterprises may apply to have extended
for a further three year period.n
4. Vertical Restraint-FixingResale Prices
Under Article 18, when goods are sold, the trading counterpart and
third parties are free to decide the resale price. Any agreement attempting
to fix resale prices is void.
5. Abusive Behavior
Article 19 bans the following behavior:
(1) causing another company to stop dealing with third company in
order as to damage the third company; (2) discriminating against
another company for no reason; (3) inducing or coercing the trading
36 Id. at art. 14.
37 Margaret Huang & Victor I-Hsiu Chang, Antitrust Regulation in Taiwan, ASIA PAC.
ANTITRUST REv (2004), available at http://www.globalcompetitionreview.com/apar/
taioverview.cfm (last visited Dec. 16, 2005).
38 Fair Trade Act, supra note 13, at art. 14.
partners of the competitor to do business by improper means; (4)
causing another company to refrain from competing in price or taking
part in a merger or concerted action by improper means; (5) acquiring
trade secrets improperly and (6) limiting the business activity of trading
C. The FTC-The "Competent Authority"
Article 9 of the FTA clarifies that the "competent authority" is "the
Fair Trade Commission, Executive Yuan, at the central level. 4 2 It is worth
pointing out that it was initially suggested that the FTC be subordinate to
the MOEA, the very body that had drafted the Act. Instead, however, the
FTC was made directly subordinate to the Executive Yuan, which
theoretically gives it a great deal more clout. Furthermore, it was legislated
to be independent.4 3 There are nine Commissioners, each of whom serves a
three-year term that is renewable once. 4 Compared to other countries, the
duration of tenure is actually rather short4.a While Commissioners must be
recommended by the Premier and are appointed by the President, several
provisions exist to safeguard their independence: Commissioners are
required to act free of the influence of any political party4 6 and the number
of Commissioners within the same political 7party cannot exceed fifty
percent of the total number of Commissioners. Unlike in most countries,
however, the Chairman of the FTC is effectively a Minister and a member
of the Cabinet meeting. This allows for discussion of competition policies
at weekly Cabinet meetings and makes obtaining government support
easier.48 Furthermore, only persons who are well versed and experienced in
law, economics, finance, tax, accounting, or management can be appointed
as Commissioners. 49 A visit to the FTC website confirms that all
CAommermiciasnsi,onGeerrsmdaon, iTnadieweadnehsoel,danadcaJdaepmanicesetitulensiveinrsitthieess.e50 disciplines from
The FTC is in charge of preparing and formulating fair trade policy,
41 Id. at art. 19.
42 Id. at art. 9.
41Id. at art. 28.
44The Organic Statute of the Fair Trade Commission of 1992, art. 11 (2002).
45See San &Lo, supranote 7, at 114.
46 The Organic Statute of Fair Trade Commission Executive Yuan, Faigui Huibian, art.
13. 47 Id. at art. 11.
reviewing fair trade matters related to the FTA, investigating enterprises
and economic activities, investigating and disposing of violations of the
FTA, and any other matters related to fair trade.5 1 This broad mandate
allows it to review laws and industries and to suggest changes that would
promote competition. One example is the 46-1 Project Task Force that
examined regulations inconsistent with the FTA in 1994.52 Other examples
include the Deregulation Task Force established in 1996 to identify and
correct anti-competitive behavior and the Project for Review of the
Enforcement of the "Green Silicon Island Vision and Promotion Strategy"
Regulations of 2001.
With regards specifically to the FTA, either upon receiving complaints
or ex officio, the FTA is empowered to investigate and handle any violation
of the FTA that harms public interest.54 Once a case falls within the FTC's
jurisdiction, it is passed on to the relevant FTC department for
investigation. The FTC has the power to notify parties that they must
appear to make statements as well as submit relevant information. 55
Furthermore, it is entitled to send staff to carry out onsite inspections.5 6
Decisions are taken by majority vote at the meetings of the Commissioners,
the highest policy making organ of the FTC, which must take place at least
once a week.57 With regards to the corrective measures, the FTC has
teeth-it can issue cease and desist orders, require correction of illegal
practices, and impose fines directly.5 8 Furthermore, where there are
repeated violations, it may recommend the imprisonment of offenders.
IV. CHALLENGES OVERCOME AND HURDLES YET TO
A. Introducing Competition Policy for the First Time
The challenge of introducing competition policy for the first time
should not be underestimated. As we have explained above, there was the
concern that the FTA would damage rather than promote Taiwan's
economy. This led to considerable resistance to and the eventual delay of
the legislation. Since there were no precedent provisions in place, many
businesses were involved in activities that would have suddenly become
51 Fair Trade Act of 1992, art. 25 (2002).
52 See Annual Report on Competition Policy Developments in Chinese Taipei 2005,
illegal once the FTA came into force. Clearly such a drastic change might
have had undesirable effects. Hence, a number of interim measures were
introduced, including an initial one-year grace period from promulgation
(Article 49) and an ongoing initiative to educate FTC staff, enterprises, and
the general public. 59
Another example of a transitory provision is the second part of Article
46 which-until it was completely amended in 1999-read: "The acts of a
governmental enterprise, public utility or communications and
transportation enterprise approved by the Executive Yuan shall not be
subject to the application of this Law until the elapse of five years after the
promulgation of this Law., 60 Until this provision expired in February 1996,
Chinese Petroleum Corporation and Taiwan Sugar Corporation were to
supply the military with petroleum and sugar products, respectively, at
preferential prices contrary to Article 19.61
Some of these preliminary difficulties have not been entirely
surmounted. According to a 2004 article in the Asia Pacific Antitrust
Review, the most common inefficiencies of the current competition law
system result from an incomplete integration of the FTA into the day-to-day
practice of the civil court system. 62 It cites anecdotal evidence that, due to a
lack of familiarity with its precedents and methods defining "relevant
markets," some judges are still slow in deciding cases based on the FTA.6 3
The authors believe that this problem will be resolved once judges have
more experience with the FTA and that this process can be catalyzed using
B. Can the FTA be Overridden?
As discussed above, the FTC is independent, has wide competences,
and is subordinate only to the Executive Yuan. In addition, the FTA
contains a provision for consultation: "[F]or any matter provided for in this
Law that concerns the authorities of any other ministries or commission, the
Fair Trade Commission, Executive Yuan shall consult with such other
ministries or commissions to deal therewith. 65 However, as originally
drafted, the FTA also contained a provision that weakened the FTC. This
was the first part of Article 46, which read: "The provisions of this Law
shall not apply to any act performed by an enterprise in accordance with
other laws." 66 Clearly, this contradicted the wide powers of the FTC to
formulate fair trade policy 67 and could have potentially undermined the
In 1999, Article 46 was amended to read: "Where there is any other
law governing the conducts of enterprises with respect to competition, such
other law shall govern; provided that it does not conflict with the legislative
purposes of this Law."68 According to the FTC, the objective of this
redrafted provision is to direct each sector to a competition-based system.69
One of the main aims of the provision is to expressly apply the principle of
precedence of specificity over generality. 70 Therefore the FTA will apply it
to competition law issues, unless there is a more detailed provision
elsewhere (for example in banking or insurance law). However, even if the
FTA is found to apply, the FTC recognizes the need for government to
structurally regulate industries (i.e., use industrial policy) from time to time.
In the Annual Report on Competition Policy Developments in Chinese
Taipei 2005, the FTC suggests that in practice such issues be resolved using
the consultation provision so7 t1hat competition policy and industrial policy
can be used complimentarily.
C. The Conflicting Aims of the Government's Merger Policy
An issue touched on previously in this paper is the fact that during
legislation, one of the most contentious points was how mergers should be
dealt with. In their article, Gee San and Changfa Lo list the three main
arguments that were widespread at the time.72 These can be summarised as
follows: first, the policy contradicted the government's own policy to
encourage mergers; second, merger controls could prove to be cumbersome
and cause delays, thus hindering mergers; and third, since the MOEA was
asserting that the FTA would adopt "low standards" on anti-competitive
behaviour, there was little point in including merger control provisions at
The interesting thing about the first argument is that it still holds true
today. For the past few years, the government's policy-notably in the
66Fair Trade Act of 1992, art. 46 (1992).
67Fair Trade Act of 1992, art. 25 (2002).
68Fair Trade Act of 1992, art. 46 (1999).
69See Annual Report on Competition Policy Developments in Chinese Taipei 2005,
supranote 4, at 8.
70 See id. at 15.
71 See id. at 8.
72 See SAN & Lo, supranote 7, at 84-86.
banking and insurance industries-seems to be to liberalize industries while
trying to beef up and to render internationally competitive Taiwanese
companies.7 4 The government is thus actively promoting mergers. Concrete
examples of laws that promote mergers are the amendments to the Business
Mergers and Acquisitions Law, the Company Law, and the new 2004
Financial Holding Company Act. The latter allows holding companies to
own various different types of financial institutions. Furthermore, while
there are currently fourteen holding companies, the government has openly
requested that this number be reduced to seven by the end of this year-an
ambition which if realized implies further consolidations.7 5 Another
measure that signalled the beginning of a new wave of mergers was the
establishment of the cabinet level Financial Supervisory Commission
("FSC") in 2004.76 This body encompasses the regulators of most of the
financial services industry and is charged with modernization.
Consequently, it is not surprising to note that out of 6,186 merger cases
received by the FTC, only four cases were disapproved and prohibited to
date: three applications for merger were disapproved in 2000 and one
merger was prohibited in 2002. 7
With regard to the second argument, it is important to note that as
originally drafted, the FTA required companies, if they fulfilled certain
criteria, to seek prior approval from the FTC.7 8 Due to the sensitive nature
of mergers, however, any delay could jeopardise a potential deal. In view
of the resistance to the provision, the original FTC already specified that the
FTC had to make its decision within two months of receipt of the
application.7 9 Changing the merger mechanism of Article 11 was one of the
main aims of the 2002 amendment to the FTA. 80 Now, more mergers are
exempt from the procedure and companies are required to notify the FTC
instead of obtaining their prior approval.8 ' If they do not hear back from the
FTC within thirty days, they may proceed with the merger. 82 This
"premerger notification system" also benefits the FTC, since it substantially
lessens administrative burdens. The aims of the amendment are candidly
described in the Explanatory Notes to the Amendment of the Fair Trade Act
The current amendment relates to the situation where local enterprises
have been encountered enormous competitive pressurefrom economic
globalisation in the 21st Century, and the competitive advantages of
large multinationalenterprises as well as the current structure of the
economy have made acquisitions and mergers an important trend to
competition. To accommodate the aforementioned industrial restructure
and the needs of current economic environment, secure market
competition mechanisms, and meet the request made by consensus of
the industrial sub-group of the Economic Development Advisory
Conference (hereinafter the "EDAC") that the government should
streamline procedures, remove barriers, and offer suitable incentives for
mergers and acquisitions, the Commission, taking into account foreign
legislation relating to merger regulation, drafted the current amendment
in 2001, which was aimed to be in line with the international regulatory
developmen8t 3 and to establish a fair and reasonable competition
This statement clarifies that one of the main aims of the amendment is
to promote mergers and acquisitions in Taiwan so as to allow domestic
companies to achieve a significant scale to compete globally. Furthermore,
fallen significantly since the amendment was intrwoodrukceldo.a8d4 of the FTC has
statistics clearly show that the merger-related
D. Could the Wide Scope of FTC Duties Cause Difficulties?
As we have seen, the FTA contains a number of provisions which are
contained in separate IP and consumer protection laws in other
jurisdictions. Chien-Te Fan, a Professor of Law at National Tsing Hua
University, views FTA cases linked to soured real estate transactions
(brought under Article 21) as disputes that "look more like consumer
protection vis-a-vis competition cases. ' ' 85 In his opinion,
theoretically, the fundamental legal framework governing real estate
transactions should be with the Civil Code and its related special
legislation ... so the FTA should aim at the regulation of their
competition related market performance yet the slow movement of
judicial trials in enforcing the Civil Code and its related legislation tends
to frustrate the consumer. 86
In this context, the pertinent question that must be raised is whether this
84 See Statistics: Cases Received, Fair Trade Commission, supra note 77.
85 See FAN, supra note 16, at 456-57.
overlap between promoting competition and protecting consumers is a
Theoretically, it should not matter where law provisions are contained
as long as they are enforced. However, problems might arise in situations
where there are conflicting provisions in different laws and multiple
enforcement bodies attempting to perform the same tasks. In Taiwan,
consumer protection legislation, like competition law, is relatively new.
The Consumer Protection Law has been effective since 1994 and was
amended in 2003.87 Furthermore, the Consumer Protection Commission
("CPC") does not have the same standing or power as the FTC. In the past,
there were serious discussions on merging the FTC and CPC to reduce and
simplify government structure. 88 However, the so-called "government
reengineering plan" has been put on hold following various controversies.
In practice, each of the two agencies deals with different aspects of
consumer protection-the FTC strives to maintain trading order and avoid
unfair competition and the CPC protects consumers as a whole and forces
enterprises to correct illegal acts. Furthermore, the FTC generally makes
use of the consultation provision and defers to the authority concerned
boefftohree CmPaCkianngditiss idnevciitseidont.o tIhnedeCePdC,t'shemConhtahirlymaCnomofmthisesiFonTeCrsisMaeemtienmgsb.e8r9
Hence, the overlap does not currently pose a challenge to competition
E. Is the FTC Powerful Enough?
The FTC is potentially weakened by a number of factors which relate
either to its role and/or to its structure. A point that relates to the above
argument about the overlap of competition, IP, and consumer protection
policies is that it seems that the FTC does not have the power to screen
complaints based on the degree of public interest. This means that it must
investigate all complaints that violate the FTA. Consequently, it spends
much of its time and resources on reviewing smaller cases and thus tackling
bigger, more decisive cases is rendered more difficult.90 Another
shortcoming relating to the role of the FTC is that in contrast to competition
enforcement agencies in other countries (for example in the European
Union) the FTC generally cannot take interim measures. 9' This can
sometimes lead to parties suffering as a result of abusive business behavior
(such as unfair trade terms being imposed by powerful trade partners) and
being dissuaded from making a complaint to the FTC.
With regard to the structure of the FTC, the three-year terms of the
Commissioners (renewable once) are relatively short and expire
simultaneously. Furthermore, since most of the appointees are academics,
they may be reluctant to continue for a second term. The high turnover rate
could seriously undermine the continuity of policy and the ability to garner
experience of the FTC. Another potential weakness is that while the FTC
was expressly made to be independent, it must negotiate its annual budget
with the government.9 2 This has consumed much of the Chairman's time in
the past. In addition, some aspects of the decision making process can lead
to delay. The fact that decisions are made by majority vote of the
CwohmenmtihsesiConoemrsmimsseiaonnt hthadatto"itdteoaolkwittoho immupcohrtatnimtceatsoesc."o9m3e to a conclusion
F. Noteworthy Improvements
1. Improved ProtectionoflP Rights
Many multinational companies and their governments have
complained about the protection of IP rights in Taiwan for some time. The
topic tends to come up in American and European Chamber of Commerce
reports and, since 2001, Taiwan has been on the United States' Priority
Watch List.94 In fact, however, the country has made visible progress on
this front. An anecdotal example, which most Taiwanese citizens would
confirm, is that while pirated videos were as easily available fifteen years
ago as fake DVDs are in certain Asian countries today, this is no longer the
case. Furthermore, while Taiwan is still on the United States' Priority
Watch List, its position on the list was lowered at the end of 2004 "in
recognition of Taiwan's successful passage of strengthened
legislation and improved intellectual property right enforcement."' 95copyright
2. Innovative Ways of CollectingEvidence
When investigating potential collusion cases, the FTC has found that
the concept "any other form of mutual understanding" as defined in Article
7 is so vague that there are often practical difficulties in acquiring sufficient
92 See San & Lo, supranote 5, at 114.
9' Id. at 113.
94 2005 Special 301 Report, Watch List, U.S. Consulate, http://www.usconsulate.org.hk/
ustw/economic/2005/042902.htm (last visited Dec. 16, 2005).
evidence. 96 Consequently, where the FTC is unable to produce enough
evidence to prove concerted action, it will investigate the issue from the
angle of Article 19 instead.9 7
One concrete example of the FTC using innovative measures when
tackling collusion is how it dealt with a series of simultaneous petrol price
increases at Chinese Petroleum Corporation ("CPC") and Formosa
Petrochemical Corporation ("FPC"). 98 The FTC found that the advance and
public communication of information on price increases by these two
corporations was a meeting of minds and that equivalent and simultaneous
price increases were sufficient to affect the price and supply mechanism of
the oil market in Taiwan; this, consequently, violated the provision against
concerted action contained in Article 14, paragraph 1 of the FTA. The
problem was that the traditional way of proving conspiracy (uncovering
written or oral agreement) was not available since communication between
the parties was carried out by way of unspoken common interest. The
innovative procedure that the FTC used was: (1) to warn the companies; (2)
to accumulate data on the price increases; (3) to collect public
announcements made by CPC which also served as disclosures of intention
to Formosa; (4) to finally reach decisions. 99 Based on Article 36 of the
Enforcement Rules to the FTA, the FTC imposed a fine of NTD 6.5
million °° on each enterprise in accordance with Article 41 of the FTA. 101
Another innovative measure the FTC is seriously considering
introducing is whistle blowing. 10 2 Such provisions (as are commonly used
in the European Union) would facilitate the evidence collecting process and
reduce investigation costs.
96 See Annual Report on Competition Policy Developments in Chinese Taipei 2005,
supranote 4, at 32.
99 The decision was made after taking into account the motive, objective, expected
improper benefits, degree of damage to trading order, duration of the action, benefits
obtained, scale of business, business operations, revenue and market position, whether the
competent authority had previously corrected or warned against such acts, type and number
of previous violations, interval of violations, punishments incurred, conduct after the
violation, cooperation during the investigation, and other factors. See id. at 7.
100 New Taiwanese Dollar.
101Newsletter of the Taiwan Fair Trade Commission, (Taiwan Fair Trade Commission),
supra note 4, at 32-33.
1. Can the FTC Make DecisionsRelating to Mergers ofForeign
Theoretically, the scope of the FTA allows the FTC to look into the
behaviour of foreign companies where competition in Taiwan is affected.
However, as the competition authority of a relatively small country with a
complicated diplomatic status, the FTC is in a very different position than
its equivalents in the United States and the European Union. The FTC itself
acknowledges that cases involving foreign elements are extremely hard to
handle because: (1) it is difficult to acquire evidence and information
abroad; (2) it is difficult to verify the authenticity of foreign documents; (3)
it is difficult to serve documents abroad; and (4) it is difficult to enforce
sanctions abroad. 0 3 Nonetheless, the FTC has been taking steps to
strengthen its international ties. In particular, it has entered into
cooperation agreements with Australia, New Zealand, and France and
obtained observer status at the OECD. Furthermore, in 2003, Taiwan was
the first country apart from the United States to achieve a settlement with
Microsoft (Taiwan). 10 4 For the FTC, this was a landmark case in
international competition law. Even so, the long-term effects of the
sceritttilceims mentthaatretheextepremctsedofttohebseetmtleinmimenatl diadndnotthgeorefahraesnobuegehn.10c5onsiderable
2. The FTC's FirstDecisionon InternationalCartels
As outlined above, while the FTC has limited extraterritorial powers, it
recently made a breakthrough decision. On December 15, 2005, the FTC
issued a penalty order amounting to NTD 210 million (approximately USD
$6.3 million) against twenty-one cement enterprises for their
anticompetitive practices.0 6 Allegations had been made against cement
manufacturers in Taiwan for quite some time. In particular, they were
accused ofjointly raising the list prices of products since 2001. The context
within which this situation arose was the formation of an international
cement cartel following the 1997 Asian financial crisis. In 2000, Cemex
(an international cement group based in Mexico) proposed cooperation with
103 See id. at 53.
104 FTC Approves Microsoft's Settlement Proposal, What's New, Taiwan ROC News,
Taipei Economic and Cultural Office, March 2003, http://www.teco.org.au/whatnew/
march2003/eftc-approves-microsoft.htm (last visited Dec. 16, 2005).
105 See Huang & Chang, supra note 37, at 5.
106 Press Release, Fair Trade Commission, The Taiwan FTC Imposes Heavy Fine on
Cement Cartel (Dec. 15, 2005), http://www.ftc.gov.tw.
domestic Taiwanese cement importers. Since its successful entry into the
Taiwan market, Cemex slashed the market price of cement from NTD 1900
to NTD 1100 per metric ton. The company had a major impact on
Taiwan's cement market and had been increasing its market share by means
of takeovers and mergers. 10
After a four-year investigation, the FTC found that Taiwan's cement
manufacturers reached an agreement to conduct anti-competitive practices
in order to dominate the market and hike up the price of domestic
cement. 108 Their conduct can be described as follows:
1. Domestic manufacturers reached an agreement to set up a joint venture to
acquire the silo of harbor in order to prevent international cement groups
from establishing domestic marketing channels.
2. In order to reduce price competition resulting from oversupply of cement,
cement manufacturers negotiated the retreat of some enterprises from the
3. The international cartel and local manufacturers reached an agreement to
carve up the marketplace, to stay out of each other's territories, and make
compensation by using counterpart's silo to keep foreign enterprises out of
4. Domestic cement manufacturers and importers reached an agreement to
sell domestic cement to each other instead of importing from other
countries at lower prices for the purpose of restricting market competition
and inflating the cement price.
5. By reducing their production capacity and supply quantities, shortening
the effective term of order, and fixing their final selling price, cement
suppliers managed to jointly increase the price of cement
substantiallyfrom NTD 1300 to the present NTD 2250 per metric ton.
6. Viewing that slag, a substitute product for cement, is inversely related to
the sales of cement, domestic cement enterprises reached an agreement or
understanding with steal enterprises in Japan to reduce the annual
exporting volume of slag to Taiwan.10 9
The FTC further noted that while the production capacity of cement
producers exceeded market demand and production costs remained
108 The investigation process included more than one thousand man-hours, collecting
relevant data from other government institutions, and taking testimony from associated
enterprises. Relevant documents of over 20,000 pages were accumulated, with at least 100
files related to the collusion of cement manufacturers. In addition, in order to examine that
case more thoroughly before the final decision, the FTC formed several task forces
according to each commissioner's expertise. Id.
unchanged, the domestic price rose substantially in recent years.1 ° The
anti-competitive practices and agreements constituted economic
infringements designed to maximize the profits of the participating
enterprises. The harmful effects for the markets and consumers were
particularly serious in the cement sector since they are passed on to the
construction and housing sector and to the real estate market in general.
Therefore, the FTC imposed one of the heaviest administrative fines it ever
issued since its inception in 1992. We believe that an appeal to the
Administrative Appeals Commission to have the FTC's decision reversed is
This ground-breaking FTC decision on an international cartel is yet
another step in the direction of building a competitive market at home and
abroad. While competition agencies in other countries have already taken
steps against international cartels,"' the FTC's move against cement
producers is remarkable. Clearly it is a bold move to clarify that the FTA,
which theoretically can be applied extraterritorially where the Taiwanese
market is affected, will also be applied extraterritorially in practice. This is
in line with the powers claimed by competition authorities in other
countries. For example, the antitrust law of the United States is
extraterritorially applicable when certain conditions are met. Similarly, in
2002, Korea's FTC announced that the condition for extraterritorial
applicability of the Korean Competition Law is satisfied if the cartel's
actions have an actual or potential impact on the Korean market.1 2
Following the FTC's decision on the international cement cartel, we
can start to review and examine to what extent Taiwan's FTA is
extraterritorially applicable and what circumstances will prompt
enforcement by the FTC in the future. It seems that while the FTC
acknowledges that cases involving foreign elements are extremely hard to
handle because of the difficulty of acquiring evidence and information
abroad, it is taking bold steps to overcome these challenges.
V. SOME STATISTICS
Having outlined some of the challenges, it is worthwhile to examine
what the FTC has achieved to date. Between 1992 and November 2005, the
FTC handled 27,667 cases. Of these, the vast majority (19,035) were
111 The United States, the European Union, Canada and several developed countries have
made efforts to punish international cartels. In 2002, the Korea Fair Trade Commission made
its decision to impose penalties on several foreign producers. See Woo Yun Kang Jeong &
Han, Competition-Korea, First Case of ExtraterritorialApplication of Antitrust Law,
http://www.intemationallawoffice.com/newsletters/detail.aspx?r=5098 (last visited Dec. 20
Northwestern Journal of
International Law &Business
received as complaints, 6,186 were mergers, 2,314 were requests for
explanation, and 132 were applications for concerted action. The
complaints resulted in over 2,060 decisions that the accused enterprise
violated regulations and was thus subject to disciplinary action. In over 303
cases, the FTC took administrative action.' 13 As discussed above, very few
merger cases resulted in action being taken. Similarly, only ten applications
for concerted action were refused outright. However, instead of outright
refusal, the FTC can make approval for concerted action and merger subject
to conditions and undertakings from the enterprises concerned. An
interesting point to draw out is that a majority of the FTC's decisions
related to unfair trade practices rather than restrictive business practices. In
particular, a large number of decisions related to misleading advertisement
under Article 21 (1001 decisions), deceptive or obviously unfair actions
under Article 24 (805 decisions), or illegal multilevel sales under Article 23
(332 decisions).1 4 These statistics highlight that the FTC plays a very
important consumer protection function.
The Taiwanese Fair Trade Act does not stem from a purely domestic
development. Rather, it is an amalgam of legal notions imported from the
United States, Japan, and Europe. Its adoption reflects the increasingly
sophisticated Taiwanese economy which, following decades of domination
by the Kuomintang party ("KMT")" l5 enterprises, is now essentially
privatized and integrated into the world economy. Local consumers have
become aware of their rights and the Taiwanese legislature acknowledged
that the balance of power between consumers and their suppliers has
shifted. In addition, the Taiwanese legislature has recognized international
obligations in the field of intellectual property rights.
While the FTC has never been a very outspoken or aggressive agency
in Taiwan and has never vigilantly challenged all mergers, we believe that it
nonetheless provides a good basis for promoting competition in Taiwan.
By making decisions prudently and finding innovative solutions to tough
issues (such as concerted gas price rises), it has built up a solid reputation.
It is pushing steadily towards professionalism (providing staff with
training), internationalism (employing foreign educated commissioners),
and extraterritorial applicability of the FTA (as is evidenced by the recent
international cement cartel case). Furthermore, the FTC has gained
recognition from consumers and the public alike. The fact that many of the
113 See Statistics: Cases Received, Fair Trade Commission, supra note 77.
115 The KMT was in control of the government from the arrival of Chiang Kai-shek's
troops in Taiwan after World War II until its electoral defeat by the Democratic Progressive
Party (DDP) in 2000.
FTA provisions are drafted widely may contribute to future successes of the
FTC by allowing it to flexibly adapt its policy in line with the continuing
dynamic development of the Taiwanese economy. However, such future
flexibility also carries the risk of not providing enough guidance to
regulated enterprises as to how their behavior might be judged in the future.
This phenomenon of pendulum swings is similarly observed in the United
States where the current Republican administration is also trying to reduce
government intervention with regard to antitrust laws. Indeed, we urge that
creating uncertainty in this way should be avoided and that the FTC should
continue to sustainably expand its expertise and influence.
48 Helmut Schroetter , The Reform of EC Competition Policy, in INTERNATIONAL AND COMPARATIVE COMPETITION LAWS AND POLICIES, supra note 1, at 157, 173 .
49 The Organic Statute of the Fair Trade Commission of 1992, art . 12 ( 2002 ).
50About FTC : Commissioners and the Commissioners Meeting , Fair Trade Commission, http://www.ftc.gov.tw (follow "About FTC" hyperlink; then follow "Commissioners and Commissioners Meeting" hyperlink) (last visited Dec . 16 , 2005 ).
59 Background Competition Policy Information and Research Center, http://www.ftc. gov.tw (follow "Competition Policy Information Center" hyperlink; then follow "Background" hyperlink) (last visited Dec . 16 , 2005 ).
60 Fair Trade Act of 1992, art . 46 ( 1992 ).
61 See Annual Report on Competition Policy Developments in Chinese Taipei 2005 , supra note 4, at 13.
62 See Huang & Chang, supranote 37 , at 6.
65 Fair Trade Act of 1992 , art. 9 ( 2002 ).
74 Joyce Huang , Seven-percent limit has to go, FSC chairman says , TAIPEI TIMES, Saturday, Jan. 1 , 2005 , at 10.
76 See FSC website, http://www.fscey.gov.tw.
77 Statistics: Cases Received, Fair Trade Commission, http://www.ftc.gov.tw (follow "Statistics" hyperlink; then follow "Cases Received" hyperlink) (last visited Dec . 16 , 2005 ).
78 Fair Trade Act of 1992, art . 11 ( 1992 ).
79 Fair Trade Act of 1992, art . 11 ( 2002 ).
80 Explanatory Notes to the Amendment to the Fair Trade Law ( 2002 ), available at http://www.apeccp.org.tw/doc/Taipei/Policy/comenrra2002.htm.
87 Consumer Protection Law , availableat http://www.apeccp.org.tw/doc/Taipei/Comlaw/ conprot. html (last visited March 4 , 2006 ).
88 Yeong-Chin Su , Competition Authorities in Competition, in INTERNATIONAL AND COMPARATIVE COMPETITION LAWS AND POLICIES, supra note 1 , at 176-77.
89 See Annual Report on Competition Policy Developments in Chinese Taipei 2005 , supra note 4, at 45.
90 See San & Lo, supra note 5, at 114.
91Experienced competition law practitioners at LCS & Partners have noticed this trend . Oct . 31 , 2005 , at 6, availableat http://www.ftc.gov. tw (last visited Dec . 16 , 2005 ).
102 See Annual Report on Competition Policy Developments in Chinese Taipei 2005 ,