YFY Paper MFG. Co., Ltd. intends to lease the property of Banyu Paper Mill Co., Ltd., and a merger application is filed with the Fair Trade Commission according to regulations of the Fair Trade Law

Chinese Taipei

Case:

Key Words:

cardboard, paper products, paper

Reference:

Fair Trade Commission Decision of June 16, 2005 (the 710th Commissioners' Meeting)

Industry:

Paperboard Mills (1522)

Relevant Laws:

Article 6 (1) (iii), Article 11 (1) (iii), Article 11-1 and Article 12 (1) of the Fair Trade Law

Summary:

This case originates from an application that YFY Paper MFG. Co., Ltd. (hereinafter referred to as YFY Company) intends to lease the property of Banyu Paper Mill Co., Ltd. (hereinafter referred to as Banyu Company), such form of combination falls under the provision of Article 6 (1) (iii) of the Fair Trade Law, furthermore, the sales of YFY Company for the preceding fiscal year is approximately NTD 25.2 billion and the figure for Banyu Company is approximately NTD 3.5 billion, the total sales of both enterprises have met the threshold of filing application for merger as stipulated in the provision of Article 11 (1) (iii) of the Fair Trade Law. The non-applicable circumstances as enumerated in the Article 11-1 of the Fair Trade Law are not found in this combination. Therefore, YFY Company and Banyu Company have filed a merger application with the Fair Trade Commission.
An investigation found that YFY Company primarily focuses on the production of paper, cardboard, and processed paper products whereas Banyu Company only produces cardboard. Therefore, only cardboard market will be affected after this combination. According to the production and sales statistics made by Taiwan Paper Industry Association in 2004, the domestic demand of local cardboard for the year of 2004 is 2,455,953 ton; a reference to the 2004 import information of Directorate General of Custom, Ministry of Finance indicates that a total of approximately 423,211 ton cardboard was imported in 2004. In conclusion, total domestic demand for cardboard in 2004 is approximately 2,879,164 ton. The domestic sales of YFY Company’s cardboard in 2004 is 378,022 ton, a market share of approximately 13%; for the same fiscal year, the domestic sales of Banyu Company’s cardboard is 316,547 ton, a market share of approximately 10%. After the combination, the total market share will rise to 23%.
After this combination, the operating condition of Banyu Company can be improved; the running of existing facilities and the livelihood of employees can be maintained. In addition to this, as Banyu Company will sell all cardboard production to YFY Company, therefore, YFY Company will reduce the cost of setting up a plant, attain economy of scale and reduce operating cost. Furthermore, the capacity can be utilized to produce high quality cardboard to replace imported cardboard, meanwhile, the product quality and service of downstream paper products can be increased, the competitions of domestic cardboard-related markets becomes elastic. Also, our nation’s export trade will increase as there are more cardboard exports, and this is beneficial to promote international competitiveness of our nation’s paper industry, our nation’s overall economy will definitely be benefited from this combination.
Although paper industry is considered as a capital and technology intensive industry, however, except for the requirement of following standards stipulated in environmental protection laws; there are no other market entry and exit restrictions. In this combination, with regard to cardboard market, YFY Company has already bought part of its cardboard products from Banyu Company prior to the combination, and after the combination, Banyu Company will supply all its cardboard products to YFY Company. Therefore, although the combination has led to the domestic cardboard market share of both companies participate in the combination reaches 23%, however, there are other competitors with similar scale of operation, Cheng Loong Corp. and Long Chen Paper Co., Ltd. in the related product market. This combination does not have any obvious negative impact on raw materials sources, upstream and downstream companies. Thus, with respect to the related market, the disadvantages of competition restraint resulted from this combination is limited.
To sum up, after YFY Company and Banyu Company combine together in this case, the overall economic benefit shall outweigh the disadvantages resulted from competition restraint. Accordingly, pursuant to the provision of Article 12 (1) of the Fair Trade Law, this combination is not prohibited.

Summarized by Sun, Ya-Chuan;
Supervised by Wu, Bi-Ju

Appendix:

YFY Paper MFG. Co., Ltd.’s Uniform Invoice Number: 85066002
Banyu Paper Mill Co., Ltd.’s Uniform Invoice Number: 63834304

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