Fair Trade Commission Policy Statements on Trade Associations	Guidelines

Prescribed by the 89th Commissioners' Meeting of June 16, 1993
Amended by the 397th Commissioners' Meeting of June 16, 1999
Circulated by the Letter (88) Kung Fa Tzu No.01873 of July 8, 1999

1. The Fair Trade Act officially went into force on February 4, 1992. A partial amendment to the Fair Trade Act was passed on February 3, 1999 and took effect on February 5 of the same year. Trade associations, which are "enterprises" under Article 2 of the Fair Trade Act, are subject to the Law as are companies and business establishments. Trade associations are organizations founded to smooth out relations between businesses in the same trade, foster common interests, and promote social and economic development. So the activities of trade associations and the applicability of the Fair Trade Law to such activities are a matter of common concern in various circles. To assist trade associations' understanding, and to facilitate implementation of the norms prescribed in the Fair Trade Act, the Fair Trade Commission had examined related regulations enacted in the United States, Japan, Germany, and South Korea and discussed related problems with experts, academics, representatives of trade associations, and competent government authorities, and subsequently pooled the opinions of people from various quarters and prepared this text.

   Our purpose in preparing this explanatory note is to assist trade associations in understanding and abiding by the relevant provisions of the Fair Trade Act and to provide suggestions for the Fair Trade Commission in handling relevant cases. However, this explanatory note is confined to explaining with examples how trade associations might have in the past violated the Fair Trade Law. Therefore, application of the relevant rules has yet to be finalized in specific.

2. Acts of trade associations which might have violated the Fair Trade Act

   1. Restricting the entry into and exit from specific markets by enterprises.

   2. Any one of the following acts which restrict competition in specific markets and hamper the functioning of markets:

      1. Impose restrictions on the types, specifications, or forms of goods or services:

         1. Distinguish between the types and specifications of goods manufactured or services provided, so that members will cooperate in imposing uniform standards on goods manufactured or services provided, or in creating a monopoly through division of the product market;
         2. Restrict, by refusing to grant approval, the delivery of goods or impose time limits on the marketing of new products;
      2. Restrict the expansion of production capacities or the scale of service: A trade association might try to restrict the expansion of production capacities by imposing restrictions on members' retooling, business expansion, and installation of new machinery. It also might try to limit the expansion of production capacities or service scales and hamper competition in the market by imposing restrictions on advertisement, the import of technologies, research and development, business territory, and form and substance of business operations.
      3. Restrict the production, delivery and marketing of goods and the provision of services. Such acts might be committed by means of quantitative controls, such as quotas, ceilings or floors of output, inventories, production time, and procurement of raw materials. In addiAtion to quantitative controls, there also are qualitative controls, such as restrictions on the standards of goods manufactured and marketed and the provision of services. Examples of acts rather frequently committed by trade associations in the past are as follows:
         1. Consultations held by trade associations with members on reducing production. For example, in the past, some trade associations held consultations with members on reducing production by collectively taking a break, causing price fluctuations;
         2. Trade associations' imposition of restrictions on consignment of goods: Some trade associations were involved in an agreement to reduce production and tried to impose restrictions on members' consignment of goods under a quota system.
         3. The establishment of cooperatives by trade associations to centralize procurement: Some trade associations, through cooperatives they had established, purchased vast quantities of goods and decided selling prices and other activities by agreement.
      4. Formulation, drafting, announcement or alteration of agreements on prices of goods sold by members or fees for services provided.
      5. Acts that impose restrictions on trading territories or trading counterparts connected with the goods or services provided by members:
         1. Impose restrictions, through a zoning scheme or a commonly accepted code of conduct on members' trading territories or trading counterparts;
         2. Impose restrictions on members' taking of orders and their eligibility for submission of tenders;
         3. Impose restrictions on members' trading counterparts or consumers by dividing the members, arbitrarily and not according to any specific or reasonable criteria, into different classes.
      6. Jointly decide the terms of sales, service, and payment: for example, relevant provisions of the Fair Trade Act might also apply to standardization of contract terms by trade associations and observance of mutual restraints in deciding ways of levying charges, ways of providing services, payment intervals, terms of payment, delivery points, means of delivery, and the duration, scope, and types of after-sales service.
   3. Conclusion of international agreements or contracts based on improper trading restrictions or unfair trading practices;
   4. Causing members to treat others discriminatively or commit other unfair acts;
   5. Any other improper joint actions that restrict business competition on specific markets.
3. Acts not subject to the Fair Trade Act:
   Acts for which approval is applied for and obtained under Article 14 of the Fair Trade Act.
4. If the activities of a trade association do not fit the above described acts that "might have violated the Fair Trade Act" but conform to the relevant provisions of Business Organizations Law and Industrial Organizations Law, these activities are unlikely to violate the provisions of the Fair Trade Act. Examples follow:
   1. Assembling information for members' reference, such as information about overseas markets and domestic and international economic trends;
   2. Developing and popularizing management skills, teaching members such skills, and providing training.
5. In the event the self-disciplinary code of trade associations involve provisions of the Fair Trade Act that govern concerted actions, the trade associations must still request interpretation or approval from the Fair Trade Commission. Examples follow:
   1. The formulation of a non-compulsory set of specifications or standards with a view toward raising operational efficiency and helping consumers make their choices.
   2. The formulation of a reasonable, non-compulsory code, in order to avoid unfair competition practices, such as exaggerated advertising and excessive distribution off free gifts.
   3. Acts and practices enumerated under section II.