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FTC APPROVES GUIDELINES ON RETAIL TRADE SUR-CHARGES
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To prevent large retailers from abusing their dominant market position to demand inappro-priate surcharges from suppliers of goods, on 9 November 2000 the Fair Trade Commission (FTC) passed its Principles for Handling Cases Involving Surcharges Levied by the Retail Trade. The FTC will begin a three-month period of publicity and guidance to urge companies to adjust their operations accordingly.
The main content of the principles is as follows:
Retail trade covers discount stores, conven-ience stores, supermarkets, department stores, consumer co-operatives and other businesses engaged in the retail sale of a wide range of goods.
Surcharge means any charge other than the price of goods supplied that a retailer demands of a supplier by direct payment, by direct de-duction by the retail trade from amounts payable to the supplier, or by any other means.
The FTC will assess whether a retailer is in a dominant market position by considering such factors as the retailer's scale of operations and market share relative to those of the supplier, the supplier's degree of dependence on busi-ness with the retailer, the possibility of the supplier switching his merchandise to other distribution channels, and supply and demand conditions for the specific goods concerned.
Where a retailer requests a supplier to bear surcharges, such matters as the itemization, application and amount (or method of calcu-lation) of such surcharges must be agreed with the supplier by prior negotiation and a written contract concluded.
Where a retailer intends to levy surcharges on a supplier by direct deductions from payments for the supply of goods, it must first present an itemized account of the sums to be deducted.
Examples of improper surcharges:
1.Requiring a supplier to bear the costs not directly related to promoting the sale of merchandise supplied.
2.While the investments in equipment, R&D operations or promotional activities and so on may be conducive to promoting the sale of a supplier's merchandise or reducing a supplier's operating costs, the amounts demanded from the supplier exceed the benefits which may directly accrue to the supplier.
3.Requiring a supplier to bear surcharges solely in order to achieve accounting goals of the retailer, such as meeting annual profitability targets.
4.Requiring a supplier to reduce the supply price of goods already supplied, where the supplier is under no pre-existing obligation to do so.
5.Other improper surcharges not in line with normal reasonable trading practices or commercial ethics.
Where a retailer in a dominant market position seeks surcharges from a supplier in a manner not compliant with the principles and suffi-cient to affect the orderly conduct of trade in the retail market, this will be grounds for sus-picion of violation of Article 19 Paragraph 6 or Article 24 of the Fair Trade Law.
