Administrative litigation against Li Shan Iron & Steel Co. Ltd. ["the Li Shan Co." or "the plaintiff"] for restricting activities of other enterprises, thus influencing the function of market mechanism in the market of hot and cold rolled steel
Chinese Taipei
Case:
Administrative litigation against Li Shan Iron & Steel Co. Ltd. ["the Li Shan Co." or "the plaintiff"] for restricting activities of other enterprises, thus influencing the function of market mechanism in the market of hot and cold rolled steel
Key Words:
concerted action, collusion
Reference:
Administrative court, P'an Tzu No. 352 (86)
Industry:
Steel Rolling Industry (2712)
Relevant Laws:
Articles 7, 14 and 41 of the Fair Trade Law and Article 2 of the Enforcement Rules of Fair Trade Law
Summary:
1. Pursuant to Article 7 of the Fair Trade Law and Article 2(2) of the Enforcement Rules of the same Law, a concerted action refers to an act among enterprises that reduces their competition and restricts one another's activity, which leads to an adverse effect on the market function. According to Article 4 of the Fair Trade Law, the term "competition" means an act or activity of two or more enterprises competing in the market place by offering more favorable price, quantity, quality, service or any other term in order to acquire trade opportunities. Therefore, all factors that may influence the prices should be considered in order to determine whether or not an enterprise's act of acquiring trade opportunities with price conditions fits the definition of concerted action as set forth in Article 7 of the Fair Trade Law. While evaluating these factors in real cases, the demand and supply in the market, cost differences, trade volume, credit risks, and other terms and conditions of the transaction such as length of tenors, support from advertisements, sharing of information, technical feedback, and cost of interest all need to be taken into account; a single formula is not available. As these terms and conditions shall directly or indirectly affect the transaction prices, if enterprises at the same level restrict each other's activities related to the aforesaid terms and conditions of the transaction, which then leads to restraints on fair trade, such act shall be deemed a concerted action to interfere in the transaction prices. Moreover, collisions which may actually result in parallel actions constitute concerted actions as defined in Article 7 of the Fair Trade Law.
2. The plaintiff in this case was a member of a subcommittee of rolled steel and steel products processing industries under the Taiwan Steel & Iron Industries Association. The way it ran its businesses was to acquire cold and hot rolled steel from upstream industries and then in accordance with the orders placed by customers process the steel so that they would be ready for delivery. Certain amounts of the steel was reserved for the spot market. The plaintiff was an enterprise in competition with the other sanctioned parties in the previous disposition of the Northern Taiwan market. On 14 November 1994, the plaintiff and the other sanctioned parties negotiated jointly to shorten the terms of negotiable instruments to be two months as conditions of the transactions and signed written documents in this regard. Some sanctioned parties even discussed with their downstream customers and had actually changed the tenors to be two months. On the other hand, according to the information about the domestic demand for the steel products in question provided by the China Steel Corporation and the information about their production and distribution provided by the 17 sanctioned enterprises, the plaintiff and the other sanctioned parties in quantitative terms accounted for 16.0% and 8.7% respectively of the national market of cold and hot rolled steel. Therefore, their collusion of shortened tenor would be able to affect the competition in the specific market, thus constituting the so-called concerted action defined in Article 7 of the Fair Trade Law.
Moreover, it is common knowledge to people engaged in business activities that shortened tenors would change terms of payment and thus affect the prices, so the plaintiff's excuse to the effect that they were not aware of this specific fact was not acceptable. In addition, the table on the prices changes of local cold and hot rolled steel products filed by the authority which had delivered the original disposition showed that in January 1995 the middle wholesale price of cold and hot rolled steel products in the northern market had jumped by 21% (13% for the hot rolled steel) from the previous month, which were much higher than the average increase of 3% (1%) of the previous 5 months and the 4% (3%) upward revision of China Steel Corporation's quarterly wholesale price. Furthermore, the spread between the China Steel Corporation's wholesale price in that specific month and the middle wholesale price was up to 24% (21%), which were far more than the average spread of 11% (8%) in the previous 5 months. Accordingly, the plaintiff's claim that there was no unusual increase in the price of cold and hot rolled steel in question was clearly untrue.
3. Enterprises should be free to access the terms and conditions as well as the risks involved in the transaction according to their own operation costs so as to acquire trade opportunities; no uniform terms and conditions should be imposed without giving proper consideration to each enterprise's operations. In this case the plaintiff along with the other sanctioned parties on November 14, 1994 agreed to jointly shorten the tenors as part of the terms and conditions of the transaction, which would cause the buyer to incur additional interest expenses. The act was a joint interference in the function of supply and demand in the market, which was tantamount to the concerted action as defined in Article 7 of the Fair Trade Law and is prohibited pursuant to the provisions of Article 14 of the same Law.
Summarized by Hsieh, Kuan-cheng
Supervised by Lu, Yu-ch'ien
Appendix:
Li Shan Iron & Steel Co. Ltd.'s Uniform Invoice Number.: 11005349