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Research & Academia

An International Comparison on the Terms of Repurchase in
Multi-level Sales Scheme


Multi-level Sales (hereafter MLS) has been prevalent in Chinese Taipei since 1976. Its growth was boosted after the Fair Trade Commission began to implement the Supervisory Regulation of Multi-level Sales in 1992. Although the regulation has been effective in reducing improper business practices, there still exist many illegal MLS cases. Among the illegal MLS practices found, undue restrictions on the participants to return the products previously bought are common phenomena. To help clarify the issues concerning the repurchase of products in MLS, we conducted a research. Specially, the tasks of this research consist of three parts. First, we compared the regulations in different countries with regard to the repurchase of products in MLS. Second, we investigated the repurchase policies and practices of Chinese Taipei’s MLS enterprises and analyzed the reasonableness of those policies. Thirdly, we suggested methods and standards to determine the value discount of products returned by the participants.

We collected the regulations of MLS of nine countries, including Chinese Taipei, the USA, the UK, Germany, Japan, Korea, Malaysia, Canda, and the People Republic of China(PRC). Some of them, including Germany, Korea, do not have regulations concerning repurchase of goods by MLS firms. In the USA, we found that thirteen states have specific repurchase regulations for MLS.

The comparison of MLS regulations across countries shows differences in several aspects. For instances, the basic standings of regulations are different. The regulation of Chinese Taipei seems to give more protection to the participants of MLS than other countries. The participants in Chinese Taipei have two opportunities to terminate relationships with MLS firms and return the products they bought before within 30 days following the notices of contract cancellation or termination. In addition, there is no restriction on the conditions of goods that the MLS firms are obliged to repurchase. Other countries, such as many states of the USA and the PRC require that the products be in a resalable condition. Some states of the USA and the UK require MLS firms to repurchase only the products they sold to to the participants within a specific time period before the contract cancellation. Most countries set grace period for the participants to rescind the contracts they made with MLS firms, however, some states in the USA and Canada do not have specific grace periods. The grace periods of the research countries are within a range of 3 days to 3 months. After the grace period, only Chinese Taipei allow the participants to terminate the contracts with MLS firms and ask the latter to repurchase the products at a price no less than ninety percent of the original price deducted by any value diminished of the returned products. Finally, it is found that no country set clear guides for the determination of value discount of the returned products.

The illegal MLM practices concerning products repurchase found in Chinese Taipei are as following: (1) having not included in the contracts the terms and conditions of product repurchase when a participant would withdraw from organization; (2) the period set for repurchase being shorter than required by the regulation; (3) having signed contracts with the participants that forbids the latter to return the products when they would withdraw from the organization; (5) discounting undue deduction from the payments the MLS firms obliged to the participants when the latter withdraw from the organization; (6) not allowing the participants or the consumers to return the products once the packages were unsealed; (7) setting strict terms and conditions on repurchase to restrain the participants from exercising their rights when the latter withdraw from the organization; (8) repurchasing products from a consumer only it is the first time that he or she bought the products.

Owing to the great variety and constantly changing nature of product in MLS firms, this research concluded that it is neither possible nor desirable for the Fair Trade Commission to set standards for value deduction of the repurchase of products in MLS. We suggest that the Fair Trade Commission requires the MLS firms to include in their contracts a precise standards and items of fees to be deducted from the payments for the repurchased products, and have the agreement of the participant on the rights and obligations. We also suggest that the reasonable criteria for the product value deduction to be time passage owing the product, market value, cycle of fashion, function diminish, and appearance depreciation. For the intangible products, such as membership of recreation club, the MLS firms could set an initiation date and deduct value of products according to time passage after the initiating date or the first use of the service, whichever is sooner.

Finally, we suggest that the Fair Trade Commission consider the need of changing the regulations according to the development of MLS in Chinese Taipei, the cost and effectiveness of enforcement of laws. The strong degree of protection for the participants any be no longer necessary. In that case, the Fair Trade Commission may keep only the regulation of contract cancellation, and drop the regulation regarding to contract termination. Otherwise, the Fair Trade Commission may set stricter conditions for the participants to exercise their rights to return products to MLS firms, such as MLS firms only obliged to buy back the products brought within a certain period before contracts termination, or return only certain proportion of products bought.

Updated at:2008-12-19 08:08:01