Application by the Hualien County Gravel Company, who was formed by gravel businesses in the Hualien River quarry area, for exemption approval of their concerted action in the form of joint gravel excavation.
Case:
Application by the Hualien County Gravel Company, who was formed by gravel businesses in the Hualien River quarry area, for exemption approval of their concerted action in the form of joint gravel excavation.
Key words:
gravel, crushed stone, per cubic meter, unified management company, concerted action
Reference:
Fair Trade Commission Decision of March 22, 2001 (the 489th Commissioners' Meeting); Decision (90) Kung Lien Tzu No. 001
Industry:
Gravel Quarry Industry (0612)
Relevant Laws:
Summary:
1. Ten gravel businesses operating in Sector A, Hualien River First District in Hualien County established a company called "Mukua River" Gravel Quarry Development Co., Ltd. They filed an application with the Fair Trade Commission (FTC) for exceptional approval under Article 14 of the Fair Trade Law (FTL) for the concerted action, which was in compliance with Taiwan Provincial Government's "Hualien River Quarry Integrated Management Program." 2. Nan Pin Gravel Factory Co., Ltd. and nine other quarry gravel businesses operating in the Hualien River area established a company to run quarry gravel business. Their efforts were made to comply with the Water Administration's overall quarry management program for the Hualien River area and the "Hualien River Quarry Gravel Re-development and Management Policy Guidelines." By establishing a unified company, the businesses could effectively reduce operational costs; minimize cost to the society; improve the quality of gravel (through prevention of sea gravel and illegal quarrying activities); increase efficiency in research and design of commodities; and expand the market. The applicants' efforts encouraged gravel businesses to operate more rationally (and legally) and to promote their respective professional development in the quarrying of gravel and crushed stone to comply with Article 14(1)(ii) of the FTL. Each enterprise in this case had the discretion to determine the amount that they required, depending on their respective commercial needs. This was different from the measure adopted by the quarry management program for the Chuoshui River area where the quarrying area or amount to be quarried was evenly allocated to operators. In this case, no individual enterprise would be allocated a specified amount of gravel or a specified quarrying area. In case that the total amount of gravel was insufficient to meet one's need, or that the raw materials in the quarrying area that one was approved to quarry ran out, the one could, on its own volition, file a new application with the competent authority to obtain another approval to quarry. Every individual enterprise, when in urgent, could, on its own volition, purchase the rights to quarry directly from another company. Further, individual enterprises in this case would be allocated different amounts of quarry volume. If the individuals were all being allocated an equal amount of quarry volume as is the case in other areas, the 10 businesses operating at Sector A of the First District would each be allocated at least 27,000 cubic meters of gravel. In the case of the proposed unified management company, the price of quarry volume allocated to individual businesses and the fee schedule for individuals who were not members of this unified company would be determined by the board of the company. The prescribed fees for the costs of quarrying would be paid to the competent authority according to the following schedule. By 31 December 2000, the applicable fee would be NT$10 per cubic meter; After 1 January 2001, the applicable fee would be NT$20 per cubic meter. The supervising fee would then become NT$1.52 per cubic meter, while the service fee would be adjusted to NT$1.95 per cubic meters. Before the adoption of the unified management project, each company dug its materials by itself but not by united collection, the result of which was a longer waiting period. The digging fee would be reduced by 50% after the unified management project was formed: the fee would drop from NT$15 to NT$10 per cubic meter. On the other hand, because of business tax (VAT) and corporate income tax borne by the unified management company, there would be a fee increase of NT$1.09 per cubic meter in. 3. The FTC's assessment of restriction on competition resulting in this case: The gravel business was a complicated business that was difficult to manage and to get involve in because of some non-economic factors. At this stage, it was still a labor-intensive industry, and was composed mostly of sole proprietors. Although the case at issue concerning mainly the gravel businesses located in the Hualien River area, it merely endorsed legal rights of gravel businesses to quarry in the local area. In this project very few businesses assigned their rights to third parties or withdrew from the business. Therefore, there was unlikely to competition in the market. Further, three distinct sectors of the Hualien River area are included in the Hualien River program. This project was divided into three sections that were further divided into six sub-sectors. There were respectively 10, 4, 3, 4, 6, and 1 business distributed into each of the six sub-sectors. This application involved the unified operation of 10 businesses within one of the sub-sectors only. The power of a unified management company to control over the market and to restrict fair competition was relatively insignificant. The amount of gravel allocated would not be determined by the size of the quarry area in this application; rather, it would be determined by the respective needs of the individual enterprise. Because it was up to each individual enterprise to decide the amount of gravel that it required based on its own sales performance, the concerted effort would not affect price competition. Further, the amount of gravel required by the individual enterprise in this application varied from one to another, and there were more than 150 gravel businesses other than those in this application that were competing in the industry. This may indeed help avoid over-concentration of gravel quarrying in one area. The transportation costs of the enterprises also varied depending on their quarrying areas, which further reduced the possibility of impeding free trade. There has been an emerging trend of demand exceeding supply. The establis hment of a unified management company would help with legalizing the quarrying of gravel. Note that the amount of gravel supply was not sufficient to meet market demand in the long term. Although this approval could provide short-term benefit to the enterprises filing the application, it would not provide a long-term solution to gravel shortage in the country. Enterprises will still rely on or have to seek for other resources. Therefore, the approval would not cause much impact on fair competition in the market. 4. Judging from the above, in addition to effectively stopping illegal quarrying in the managed areas, this approval may have positive results in public safety such as preventing damage to flood-prevention structures or bridges, improper river irrigation use, and from lowering of underground water level. The approval may also lead to positive benefits in reducing social costs that involved in policing illegal quarrying. Because the application was beneficial to the public interest and the economy as a whole without the disadvantage of imposing substantial restrictions on competition, the FTC granted its approval pursuant to Articles 14(1)(ii) and 15 of the FTL. The valid period was set in accordance with the Water Administration's overall quarry management program, and would be three years starting from the time that the Ninth River Authority of the Water Conservancy Agency, Ministry of Economic Affairs issued the approval for quarry gravel development. If the businesses of this application engage in any concerted actions regarding price beyond the scope of this approval, or other activities restricting competition, the FTC will still deal with such cases according to individual circumstance. Appendix: Nan Pin Gravel Ltd.'s Uniform Invoice No.: 94757008 T'ai Yi Enterprises Co., Ltd.'s Uniform Invoice No.: 94224658 Jung Min Engineering Co., Ltd., Hualien Gravel Plant's Uniform Invoice No.:16631762 You Cheng Gravel Co., Ltd.'s Uniform Invoice No.: 22214435 Chia Hung Gravel's Uniform Invoice No.: 94824479 He He Gravel Development Co., Ltd.'s Uniform Invoice No.: 16321598 Yi Chu Co., Ltd.'s Uniform Invoice No.: 31173483 Hsin Yang Gravel Co., Ltd.'s Uniform Invoice No.: 16720716 Tung Yun Co., Ltd.'s Uniform Invoice No.: 70629449 Hung Min Enterprises Ltd.'s Uniform Invoice No.: 23242769 Summarized by Wu, Min-Show; Supervised by Tso, Tien-Liang