Abstract

1. Key Points of the Report's Content

Over the past several decades, economic liberalization and technological innovation have set the tone for economic development and spurred further global economic integration. Furthermore, competition law, as a tool of economic liberalization, in addition to symbolizing a nation's determination to defend its market mechanism, has in actual practice prevented the abuse of market power.

Currently, some one hundred countries across the globe have enacted competition legislation. However, the appearance on a large scale of competition law and competition authorities does not necessarily mean that standards are widely or consistently enforced. Enterprises pursue unified management and economies of scale, while various countries, on the other hand, adopt statutes and regulations for merger control in order to protect their home markets. The inevitable result is that international mergers get tangled up in increasingly discordant and detailed regulatory regimes, which saddles businesses with increased operating costs, loads additional regulatory burdens upon government agencies, and poses potential conflict due to differences in the way each nation examines merger cases. Thus, various countries have begun to focus on this issue.

Chinese Taipei is now dealing with the dual impact of economic globalization and market liberalization, and although the Fair Trade Commission (FTC) has handled very few truly anti-competitive merger cases in the last decade, the FTC in the future is nevertheless sure to encounter an increasingly centralized market structure and a greater level of conglomeration in the economy. The FTC must therefore take prompt steps to review our country's competition legislation to determine whether our substantive criteria for merger control and filing procedures are in line with international trends.

2. Method

This study first of all analyzes various nations' substantive criteria for merger control, as well as the efforts that different nations are currently making to harmonize their merger control procedural regulations. On that basis, the study then surveys the substantive criteria for merger control and the provisions governing merger procedures in Chinese Taipei Fair Trade Act, and then goes on to describe the degree of concern accorded by various international organizations to this issue and the progress being made toward the adoption of international regulations. This study seeks to serve as a tool for the FTC's reference in its future implementation and revision of the law.

3. Main Findings, Conclusions, and Recommendations

(1) Substantive criteria for merger control in the competition laws of various nations

Internationally, there are currently three tests commonly employed for considering the effect of a merger on competition:

(i) Market dominance (MD) test: This focuses on whether a given merger might create or strengthen market dominance.

(ii) Substantial lessening of competition (SLC) test: This focuses on whether a given merger could potentially result in a substantial lessening of competition.

(iii) Public interest (PI) test: This focuses on whether a given merger is likely to have a net negative effect on the public interest. Ordinarily, the PI test comprises a pairing of one of the preceding two tests with a criterion for the determination of non-competitiveness.

The principal advanced nations employ either the MD test or the SLC test as their substantive criteria for merger control, depending on whether they practice continental law or common law. Countries under both legal systems view changes in market structure and market concentration as their barometer for observing increases or decreases in market power.

(2) Procedural regulations governing merger control under the competition laws and regulations of various nations:

Internationally, procedural regulations governing merger control can be divided into three categories, depending on which of the following three elements constitutes their principal focus:

(i) Notification regulations and examination procedures: Transaction scope; notification thresholds; timing of notification (pre- or post-merger); trigger events and filing deadlines; filing format; review periods; and filing fees.

(ii) Procedural protections: Non-discrimination; authority of government agencies, and limitations thereupon; transparency; and appropriate procedures.

(iii) Procedures conducive to international cooperation: Coordination of the timing of examinations in different countries, and of the different aspects of second-phase examinations; protection of confidential competition information exchanged among competition authorities; waiver of confidentiality rights by merger parties.

The business community is most concerned with the impact of procedural regulations on clarity and efficiency, and regards merger thresholds, jurisdictional nexus, and filing deadlines as the three most important elements.

(3) Substantive criteria for merger control and related procedural regulations under Chinese Taipei's competition laws and regulations

Whereas other countries use the MD test, the SLC test, or the PI test (the last of which combines one of the preceding two tests with a criterion for the determination of non-competitiveness), it is hard to say, based strictly on the letter of the law in Chinese Taipei, which of the above merger control tests is employed under Chinese Taipei's Fair Trade Act.

As regards notification procedures, the Fair Trade Act's notification threshold standards still require that market share be included as one of the notification thresholds. There is a global trend, however, toward the conclusion that this type of threshold is too subjective and that it tends to generate conflict, which reduces the clarity and effectiveness of this type of threshold.

(4) The role of international organizations in coordinating various nations' substantive criteria for merger control and related procedural regulations

The International Competition Network (ICN) has adopted Recommended Practices on the following seven aspects: jurisdictional nexus, notification thresholds, timing of notification, merger review periods, requirements for initial notifications, transparency, and review of merger control provisions.

The OECD conducted an appraisal of substantive criteria used in the examination of merger cases and came to the preliminary conclusion that while it is difficult to say whether the MD test or the SLC test is superior, the type of test used may affect the outcome of merger examinations, and therefore the use of a universal set of examination criteria would be beneficial to the functioning of the international market.

(5) Recommendations on the FTC's future focus:

(i) The FTC should identify and prescribe substantive criteria for merger examinations as soon as possible.

Intensive talks are already being held internationally on the subject of substantive criteria for merger examinations. If the FTC fails to identify and prescribe relevant principles of its own in this regard, it will be difficult for Chinese Taipei to participate in future international discussions and express its views, and our country could even find it difficult to express support for or reservations regarding the positions taken by other countries, possibly leaving us with no other alternative but to accept, either directly or indirectly, the results of other countries' deliberations.

(ii) The FTC should establish a unit charged specifically with merger examinations.

Unlike the implementation of other types of regulations, which are heavily weighted toward behavioral issues, merger control requires sophisticated analysis of the economic and industrial structure. However, the work of handling of merger cases in Chinese Taipei is currently divided among many different departments in the FTC. This situation is out of step with the requirements of modern society for a specialized division of labor, and the FTC's practices in this regard are very different from those observed in other countries. Serious future consideration should thus be given to the establishment of a specialized unit dealing strictly with merger control.

Written by: Tzung-Yu Hsu (Department of Planning)