Board to help small firms against big chains

Under the 2006 guidelines, eight regulations have been created to protect manufacturers and suppliers from large players.

They cover price dumping, collection of entrance fees, unfair product-return policies, the use of unfair trading contracts, forcing suppliers or retailers to purchase or pay "special costs", unfair use of a supplier's workforce, forcing manufacturers or retailers to promote house brands and refusing to purchase all or some made-to-order products.

Charles Cheung, chairman of the BoT's Competition Committee, said that while the 2006 guidelines are having some effect on the conduct of the giant retail chains, unfair practices, transfer of excessive risks and unexpected costs had continued.

"We believe the 2006 guidelines are quite flexible to allow mutual benefit agreements between large retailers and suppliers. However, extensive use of the terms 'reasonable', 'fair', 'unfair' or 'justifiable' would seriously undermine the potential effectiveness of the guidelines," he said.

For a large retailer, small and medium-sized suppliers are probably "not key to their profitability", he said.

But when the small supplier loses the large retailer as a customer, his profitability will probably be severely reduced and his business may not even survive.

Without effective regulatory intervention, suppliers typically are beholden to large retailers, which allow them to demand terms that are in their favour - a move that could be seen as unfair.

Besides using more specific content in the guidelines, the panel chief said the country should form an "arbitration organisation" to handle disputes between giants and small suppliers under amended guidelines.

It should establish a "wholesale and distribution committee" to focus on the purchasing power of retailers, he said.