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Guidelines on belated payments to SMEs

Chun-yih Cheng

The Fair Trade Commission has promulgated guidelines for big enterprises in response to complaints made by the association of small- and medium-sized enterprises (SMEs) regarding belated payments to them by big enterprises. Big enterprises are those enterprises that are not SMEs (as defined in the SMEs Law) and have dominant position in the relevant markets.

In determining whether a big enterprise has a dominant position in the relevant market, regard should be had to the following factors: (i) the business size and market share that the big enterprise has vis-à-vis SMEs; (ii) the degree of business dependence on the big enterprises by the SMEs; (iii) the possibility for the SMEs to shift their trading counterparts from the big enterprise to other enterprises; and (iv) the supply and demand relationship of the relevant products.

In essence, the guidelines dictate the following.

(i) If there is no written agreement on the payment, and the SMEs have performed their obligations, a big enterprise will be considered to be abusing its dominant position where it:

a. delays payment without justifiable cause (whether there is a justifiable cause should take into account trade customs, factors attributable to the SMEs, payment ability of the big enterprises as affected by macro-economy, or other reasonable excuses);

b. pays by cheques that the big enterprise knows will bounce later; and

c. reduces the amount of payments without written notice and explanation.

(ii) Where the big enterprise is a monopoly, the abuse of its dominant position will be a breach of Article 10 of the Fair Trade Law, which prohibits the abuse of a dominant position by a monopoly.

(iii) Where the big enterprise is not a monopoly, the abuse of its dominant position will be a breach of Article 24 of the Fair Trade Law, which prohibits an enterprise from engaging in any obviously unfair activity that may affect trading orders.

Chun-yih Cheng

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