1 On the Conspiracy Requirement of Cartels --through the analysis of a practical case Wen-Hsiu,Lee Fair Trade Commission of Taiwan April 5, 2006

2 Agenda “Concerned Action” Is Prohibited in Taiwan 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 Promotion Program” Case The Analysis of “International Tourism Promotion Program” Case Focus on Real Conspiracy Introducing Leniency Policy

3 “Concerned Action” Is Prohibited Collusion among competitors can take many forms To deter cartels successfully depends efficient regulations and enforcement To deter cartels successfully depends efficient regulations and enforcement “Concerned action” is prohibited unless the prior permission is granted by TFTC “Concerned action” is prohibited unless the prior permission is granted by TFTC

4 The Legal Meaning of “Concerted Action” The conduct of any enterprise, by means of contract, agreement or any other form of mutual understanding Among competing enterprises Restrict each other's business activities Affect the market function of production, trade in goods, or supply and demand of services A Resolution of a general meeting of members or a board meeting of directors or supervisors

5 Conspiracy Requirement of Cartels Contract or agreement any other form of mutual understanding: a meeting of minds whether legally binding or not which would in effect lead to joint actions The nature of “Secret”

6 The Background of “International Tourism Promotion Program” The Tourism Bureau under launched an “ International Tourism Promotion Program ” to promote Taiwan ’ s tourism industry and planned to invite four domestic airline companies to discuss feasible promotional plans and request the airline association to consider offering discounted domestic fares to foreign tourists. The Tourism Bureau under launched an “ International Tourism Promotion Program ” to promote Taiwan ’ s tourism industry and planned to invite four domestic airline companies to discuss feasible promotional plans and request the airline association to consider offering discounted domestic fares to foreign tourists. Under the Tourism Bureau proposal, in order to avail of the discounted domestic fares, foreign tourists would present their arrival ticket and passport and would be able to purchase domestic joint tickets at ticket outlets designated by the Tourism Bureau at a specified price. The foreign tourists could then take any domestic airline for their travels around the island, because the tickets would be honored in any flight due to the joint transport and Special Prorate Agreement (SPA) between civil air transport companies. Under the Tourism Bureau proposal, in order to avail of the discounted domestic fares, foreign tourists would present their arrival ticket and passport and would be able to purchase domestic joint tickets at ticket outlets designated by the Tourism Bureau at a specified price. The foreign tourists could then take any domestic airline for their travels around the island, because the tickets would be honored in any flight due to the joint transport and Special Prorate Agreement (SPA) between civil air transport companies.

7 The Investigation of “International Tourism Promotion Program” To offer discounted tickets to foreign tourists, the airline companies first enter into a Special Prorate Agreement among themselves before the tie ups. Different flights servicing the same route can easily be replaced by one another, resulting in competition among airline companies servicing the same route. To offer discounted tickets to foreign tourists, the airline companies first enter into a Special Prorate Agreement among themselves before the tie ups. Different flights servicing the same route can easily be replaced by one another, resulting in competition among airline companies servicing the same route. the foreign tourists compose far less than 20% of the domestic airline market. On the other hand, the domestic airfare is controlled by the price ceiling set by the Civil Aeronautics Administration under the MOTC, which is the civil aviation competent authority. Further taking into account the impact on the alternate modes of transportation on airline services, both the Civil Aeronautic Administration and the Taipei Air Transport Industrial Association believed that the fare discounts would not affect the supply and demand of the aviation services market. the foreign tourists compose far less than 20% of the domestic airline market. On the other hand, the domestic airfare is controlled by the price ceiling set by the Civil Aeronautics Administration under the MOTC, which is the civil aviation competent authority. Further taking into account the impact on the alternate modes of transportation on airline services, both the Civil Aeronautic Administration and the Taipei Air Transport Industrial Association believed that the fare discounts would not affect the supply and demand of the aviation services market.

8 The Analysis of “International Tourism Promotion Program” To enforce the “ International Tourism Promotion Program ” launched by the Tourism Bureau, the airline companies should first enter into a Special Prorate Agreement among themselves before the tie ups. In the process, “ contracts, agreements, or other forms of mutually understanding ” seemed to exist. To enforce the “ International Tourism Promotion Program ” launched by the Tourism Bureau, the airline companies should first enter into a Special Prorate Agreement among themselves before the tie ups. In the process, “ contracts, agreements, or other forms of mutually understanding ” seemed to exist. From the general setup of the agreement, the tie up is what Article 7 of the Fair Trade Law refers to as “ concerted action. ” Article 5 paragraph 1 of the Enforcement Rules of the TFTL states that the “ concerted action ” as regulated by TFTL can only be established when key conditions exist, i.e., when the action is capable of affecting the market functions of production, trade in goods, or supply and demand. From the general setup of the agreement, the tie up is what Article 7 of the Fair Trade Law refers to as “ concerted action. ” Article 5 paragraph 1 of the Enforcement Rules of the TFTL states that the “ concerted action ” as regulated by TFTL can only be established when key conditions exist, i.e., when the action is capable of affecting the market functions of production, trade in goods, or supply and demand.

9 The Analysis of “International Tourism Promotion Program” The main reasons why the TFTC made the final conclusion that the tie-ups among the airline companies to offer discounted fares to foreign tourists were not in violation of the prohibition on concerted action by the TFTL as following : The main reasons why the TFTC made the final conclusion that the tie-ups among the airline companies to offer discounted fares to foreign tourists were not in violation of the prohibition on concerted action by the TFTL as following : A. The implementation of fare discounts only has limited impact on the supply and demand of the domestic airline market B. The airline companies merely acted in conjunction with government policies

10 The Analysis of “International Tourism Promotion Program” The TFTC has worked hard to investigate the related market impact of the “ International Tourism Promotion Program ” and submit reason A. The TFTC has worked hard to investigate the related market impact of the “ International Tourism Promotion Program ” and submit reason A. But the key reason should be reason B. There is no cartels if there is no real conspiracy. Since the “ International Tourism Promotion Program ” is set up by the Tourism Bureau, the total package of tie-ups is designed and controlled by the Tourism Bureau. The airline companies merely acted in conjunction with government policies. But the key reason should be reason B. There is no cartels if there is no real conspiracy. Since the “ International Tourism Promotion Program ” is set up by the Tourism Bureau, the total package of tie-ups is designed and controlled by the Tourism Bureau. The airline companies merely acted in conjunction with government policies. The airline companies just enter into the package of a formal agreement individually. There is no real conspiracy between these competitors. The airline companies just enter into the package of a formal agreement individually. There is no real conspiracy between these competitors.

11 Focus on Real Conspiracy The real conspiracy is difficult to be proved because of its nature of secret. The real conspiracy is difficult to be proved because of its nature of secret. The authorities should focus the limited resources and make good use of investigation tools to investigate the most difficult nuclear elements of cartels. The authorities should focus the limited resources and make good use of investigation tools to investigate the most difficult nuclear elements of cartels. the formal agreement among competitors, if which is carried out by the administrative agencies, it should belong the consideration of the Political Economics. It ’ s up to the national competition policy but not the competence of the authorities of competition law. the formal agreement among competitors, if which is carried out by the administrative agencies, it should belong the consideration of the Political Economics. It ’ s up to the national competition policy but not the competence of the authorities of competition law.

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