Newsletter
FTC ADOPTS RULES FOR JOINT FUEL PURCHASES BY FILLING STATIONS
At a meeting on 24 November 2005, the Fair Trade Commission approved the "Principles for Handling Applications from Individual Domes-tic Fuel Filling Stations for Collective Purchases of Petroleum Products."
With the rapid growth of franchise chains, gas stations directly operated by fuel suppliers or franchise chains can enjoy competitive advan-tages in terms of discounted fuel purchase prices, advertising promotions, etc. The growing pres-ence of franchise chains, however, means that independent gas station operators (i.e., operators that have not joined chains) are likely to ex-perience difficulties due to their unequal market status vis-à-vis fuel suppliers. The FTC has drawn up the above Principles in accordance with the provisions of the Fair Trade Act (FTA) regarding approvals for concerted actions, with the aim of assuring the price negotiating ability of independent gas stations when purchasing petroleum products, so as to enable them to compete fairly with franchise chain members in the retail market, and thereby to protect con-sumers’ interests. The main points are as fol-lows:
Legal basis: Under Article 14 Paragraph 1 Subparagraph 7 of the FTA, application may be made to the FTC for approval for concerted actions undertaken "in order to enhance the operating efficiency of small and me-dium-sized enterprises, or to strengthen their competitiveness," if such actions are also beneficial to the overall economy and are in the public interest.
Definition of markets: The Principles relate to two markets in which gas station operators participate: the petroleum products wholesale market, and the gas station retail market. The former comprises fuel suppliers and gas sta-tion operators, and is national in scope; when defining the latter, it is necessary to consider the geographical regions in which gas station operators compete in the supply of goods or services, as well as the characteristics of pe-troleum products, and consumers’ opportuni-ties for substitution. Territory for competition is an important factor in defining this market.
Businesses to which the Principles apply: In-dependent gas station operators that are not part of any franchise system, who meet the current standards for identifying SMEs (oper-ating turnover of less than NT$100 million in the preceding year).
Scope of application:
1. Collective purchases of petroleum prod-ucts from upstream fuel suppliers by groups of independent gas station opera-tors.
2. Gas station operators that participate in collective purchasing may nevertheless conduct price negotiations with fuel sup-pliers individually, without being bound by the conditions of the collective pur-chase. If gas station operators are in-volved in other concerted actions, such as retail price agreements or territorial ex-clusivity agreements, of a nature such as to impair market competition, such actions may still be penalized under the relevant provisions of the FTA.
Threshold for applications: Before independ-ent gas stations with a combined market share of 5% or more (based on the number of gas stations announced by the Bureau of Energy, Ministry of Economic Affairs, for the month concerned) conduct collective purchases of petroleum products, they must apply to the FTC for approval to engage in concerted ac-tion.
If an intended collective purchase of petro-leum products by independent gas stations is below the above threshold for prior applica-tion for approval, it is recommended that the businesses involved nevertheless first notify the FTC in writing, to allow the FTC to review in advance whether the planned purchase would violate the ban on concerted actions, under Article 7 Paragraph 2 of the FTA. If participants fail to give the FTC prior notice, the FTC could commence investigations on a case-by-case basis.