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On the Conspiracy On the Conspiracy Requirement of CartelsRequirement of Cartels

--through the analysis of a --through the analysis of a practical case practical case

Wen-Hsiu,LeeWen-Hsiu,Lee

Fair Trade Commission of TaiwanFair Trade Commission of Taiwan

April 5, 2006April 5, 2006

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AgendaAgenda

““Concerned Action” Is ProhibitedConcerned Action” Is Prohibited in in TaiwanTaiwan

The Legal Meaning of “Concerted Action”The Legal Meaning of “Concerted Action”

Conspiracy Requirement of Cartels Conspiracy Requirement of Cartels

The Analysis of “International Tourism The Analysis of “International Tourism Promotion Program” CasePromotion Program” Case

Focus on Real ConspiracyFocus on Real Conspiracy

Introducing Leniency Policy Introducing Leniency Policy

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““Concerned Action” Is Concerned Action” Is ProhibitedProhibited

Collusion among competitors can take Collusion among competitors can take many formsmany forms

To deter cartels successfully depends To deter cartels successfully depends efficient regulations and enforcementefficient regulations and enforcement

““Concerned action” is prohibited unless Concerned action” is prohibited unless the prior permission is granted by TFTC the prior permission is granted by TFTC

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The Legal Meaning of The Legal Meaning of “Concerted Action”“Concerted Action”

The conduct of any enterprise, by means of The conduct of any enterprise, by means of contract, agreement or any other form of contract, agreement or any other form of mutual understanding mutual understanding Among Among competing enterprisescompeting enterprisesRestrict each other's business activitiesRestrict each other's business activitiesAffect the market function of production, trade Affect the market function of production, trade in goods, or supply and demand of services in goods, or supply and demand of services A Resolution of a general meeting of members A Resolution of a general meeting of members or a board meeting of directors or supervisorsor a board meeting of directors or supervisors

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Conspiracy Requirement of Conspiracy Requirement of CartelsCartels

Contract or agreement Contract or agreement

any other form of mutual any other form of mutual understanding: a meeting of minds understanding: a meeting of minds whether legally binding or not which whether legally binding or not which would in effect lead to joint actionswould in effect lead to joint actions

The nature of “Secret” The nature of “Secret”

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The Background of “International The Background of “International Tourism Promotion Program”Tourism Promotion Program”

The Tourism Bureau under launched an “International The Tourism Bureau under launched an “International Tourism Promotion Program” to promote Taiwan’s tourism Tourism Promotion Program” to promote Taiwan’s tourism industry and planned to invite four domestic airline industry and planned to invite four domestic airline companies to discuss feasible promotional plans and companies to discuss feasible promotional plans and request the airline association to consider offering request the airline association to consider offering discounted domestic fares to foreign tourists. discounted domestic fares to foreign tourists.

Under the Tourism Bureau proposal, in order to avail of the Under the Tourism Bureau proposal, in order to avail of the discounted domestic fares, foreign tourists would present discounted domestic fares, foreign tourists would present their arrival ticket and passport and would be able to their arrival ticket and passport and would be able to purchase domestic joint tickets at ticket outlets designated purchase domestic joint tickets at ticket outlets designated by the Tourism Bureau at a specified price. The foreign by the Tourism Bureau at a specified price. The foreign tourists could then take any domestic airline for their tourists could then take any domestic airline for their travels around the island, because the tickets would be travels around the island, because the tickets would be honored in any flight due to the joint transport and Special honored in any flight due to the joint transport and Special Prorate Agreement (SPA) between civil air transport Prorate Agreement (SPA) between civil air transport companies.companies.

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The Investigation of “International The Investigation of “International Tourism Promotion Program”Tourism Promotion Program”

To offer discounted tickets to foreign tourists, the airline To offer discounted tickets to foreign tourists, the airline companies first enter into a Special Prorate Agreement companies first enter into a Special Prorate Agreement among themselves before the tie ups. Different flights among themselves before the tie ups. Different flights servicing the same route can easily be replaced by one servicing the same route can easily be replaced by one another, resulting in competition among airline companies another, resulting in competition among airline companies servicing the same route. servicing the same route.

the foreign tourists compose far less than 20% of the the foreign tourists compose far less than 20% of the domestic airline market. On the other hand, the domestic domestic airline market. On the other hand, the domestic airfare is controlled by the price ceiling set by the Civil airfare is controlled by the price ceiling set by the Civil Aeronautics Administration under the MOTC, which is the Aeronautics Administration under the MOTC, which is the civil aviation competent authority. Further taking into civil aviation competent authority. Further taking into account the impact on the alternate modes of transportation account the impact on the alternate modes of transportation on airline services, both the Civil Aeronautic on airline services, both the Civil Aeronautic Administration and the Taipei Air Transport Industrial Administration and the Taipei Air Transport Industrial Association believed that the fare discounts would not Association believed that the fare discounts would not affect the supply and demand of the aviation services affect the supply and demand of the aviation services market.market.

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The Analysis of “International The Analysis of “International Tourism Promotion Program”Tourism Promotion Program”

To enforce the “International Tourism Promotion Program” To enforce the “International Tourism Promotion Program” launched by the Tourism Bureau, the airline companies launched by the Tourism Bureau, the airline companies should first enter into a Special Prorate Agreement among should first enter into a Special Prorate Agreement among themselves before the tie ups. In the process, “contracts, themselves before the tie ups. In the process, “contracts, agreements, or other forms of mutually understanding” agreements, or other forms of mutually understanding” seemed to exist. seemed to exist.

From the general setup of the agreement, the tie up is what From the general setup of the agreement, the tie up is what Article 7 of the Fair Trade Law refers to as “concerted Article 7 of the Fair Trade Law refers to as “concerted action.” Article 5 paragraph 1 of the Enforcement Rules of action.” Article 5 paragraph 1 of the Enforcement Rules of the TFTL states that the “concerted action” as regulated by the TFTL states that the “concerted action” as regulated by TFTL can only be established when key conditions exist, TFTL can only be established when key conditions exist, i.e., when the action is capable of affecting the market i.e., when the action is capable of affecting the market functions of production, trade in goods, or supply and functions of production, trade in goods, or supply and demand. demand.

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The Analysis of “International The Analysis of “International Tourism Promotion Program”Tourism Promotion Program”

The main reasons why the TFTC made the final The main reasons why the TFTC made the final conclusion that the tie-ups among the airline conclusion that the tie-ups among the airline companies to offer discounted fares to foreign companies to offer discounted fares to foreign tourists were not in violation of the prohibition on tourists were not in violation of the prohibition on concerted action by the TFTL as followingconcerted action by the TFTL as following::

A. The implementation of fare discounts only has A. The implementation of fare discounts only has limited impact on the supply and demand of the limited impact on the supply and demand of the domestic airline marketdomestic airline market

B. The airline companies merely acted in conjunction B. The airline companies merely acted in conjunction with government policieswith government policies

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The Analysis of “International The Analysis of “International Tourism Promotion Program”Tourism Promotion Program”

The TFTC has worked hard to investigate the related The TFTC has worked hard to investigate the related market impact of the “International Tourism Promotion market impact of the “International Tourism Promotion Program” and submit reason A.Program” and submit reason A.

But the key reason should be reason B. There is no cartels But the key reason should be reason B. There is no cartels if there is no real if there is no real conspiracyconspiracy. Since the “International . Since the “International Tourism Promotion Program” is set up by the Tourism Tourism Promotion Program” is set up by the Tourism Bureau, the total package of tie-ups is designed and Bureau, the total package of tie-ups is designed and controlled by the Tourism Bureau. The airline companies controlled by the Tourism Bureau. The airline companies merely acted in conjunction with government policies.merely acted in conjunction with government policies.

The airline companies just enter into the package of a The airline companies just enter into the package of a formal agreement individually. There is no real conspiracy formal agreement individually. There is no real conspiracy between these competitors.between these competitors.

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Focus on Real ConspiracyFocus on Real Conspiracy

The realThe real conspiracy conspiracy is difficult to be proved is difficult to be proved because of its because of its nature of secret. nature of secret.

The authorities should focus the limited resources and The authorities should focus the limited resources and make good use of investigation tools to investigate the make good use of investigation tools to investigate the most difficult nuclear elements of cartels.most difficult nuclear elements of cartels.

the formal agreement among competitors , if which is the formal agreement among competitors , if which is carried out by the administrative agencies, it should belong carried out by the administrative agencies, it should belong the consideration of the Political Economics. It’s up to the the consideration of the Political Economics. It’s up to the national competition policy but not the competence of the national competition policy but not the competence of the authorities of competition law. authorities of competition law.

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Introducing Leniency PolicyIntroducing Leniency PolicyThe TFTC has used the substantial The TFTC has used the substantial leniency policy informally in the past. leniency policy informally in the past. For example, when the TFTC For example, when the TFTC assesses the fine for a illegal cartel , assesses the fine for a illegal cartel , the remorse shown for the act and the remorse shown for the act and attitude of cooperation shall be taken attitude of cooperation shall be taken into consideration.into consideration.It’s time to introduce leniency It’s time to introduce leniency program by revising the Fair Trade program by revising the Fair Trade Law of TaiwanLaw of Taiwan