FTC GUIDELINES ON　DISTRIBUTIVE　TRADE　SURCHARGES

07/01/2000

---

The Fair Trade Commission (FTC) recently completed its draft Principles for Handling Cases Involving Surcharges Levied by the Distributive Trades. The principles mainly aim to prevent distributive trade firms from levying charges not directly related to the transaction concerned. In the future, whether a firm has violated the prin-ciples will be determined by investigating the facts of the individual case.

Under the principles, businesses in the distribu-tive trades wishing to impose surcharges on suppliers of goods will have to first negotiate with suppliers the itemization, application and amount of such surcharges, and make a written contract. If firms wish to recover surcharges by directly deducting them from payments to sup-pliers for the supply of goods, they must first present a detailed account of the sums to be de-ducted.

The draft principles also list categories of im-proper surcharges. These are:

Requiring suppliers to bear costs not directly related to the promotion of the sale of goods, such as credit-card purchases, renovation of retail premises, or publicity and advertising.

Investment in related equipment, R&D or promotional activities, etc., where although such expenditure is conducive to promoting sales of the supplier's goods or reducing the supplier's operating costs, the sums demanded exceed the benefits which may directly accrue to the supplier.

Demanding surcharges based on considera-tions of the distributor's own operating prof-itability.

Demanding that a supplier reduce the supply price of goods already supplied, where the supplier is under no pre-existing obligation to do so.

Other actions to improperly levy surcharges not in keeping with normal trading practice.

The draft also states that where a distributive trade firm in a position of commercial strength requires a supplier to bear surcharges in contra-vention of the principles, and the supplier's in-terests are harmed as a result, the distributor will be in breach of Article 19, Paragraph 6 or Article 24 of the Fair Trade Law.