Nine upstream gravel companies along the Chuoshui River in Nantou County accused of violating the Fair Trade Law through concerted action in raising gravel prices
Case:
Nine upstream gravel companies along the Chuoshui River in Nantou County accused of violating the Fair Trade Law through concerted action in raising gravel prices
Key Words:
gravel, per cubic meter, crushed stone, unified management companies, concerted action
Reference:
Fair Trade Commission Decision of March 8, 2001 (the 487th Commissioners' Meeting)
Industry:
Onshore Quarrying (0612)
Relevant Law:
Article 14 of the Fair Trade Law
Summary:
1. A letter from the Nantou County office of the Ministry of Justice Investigation Bureau (MJIB) notified the Fair Trade Commission (FTC) of allegations that nine Nantou County gravel companies violated the Fair Trade Law by taking advantage of excess gravel demand associated with the reconstruction of schools, residences, and other public construction projects following the 21 September 1999 earthquake and the March 2000 temporary moratorium on quarrying in the Chuoshui River, which led to hoarding. Quarries in the Chuoshui River Drainage Area subsequently, under the direction of the Nantou County Gravel Quarrying Association, acted in concert to raise gravel prices. Beginning in March 2000, the price per cubic meter of black gravel rose from NT$200 to NT$250. The price had risen to NT$300 per cubic meter by May. 2. Investigation findings by the FTC are as follows: Although some of the companies in question raised their retail prices for gravel by NT$10 following the 2000 Lunar New Year holidays, which does not conform to the details of the MJIB allegations: (1) Overall, of the nine companies accused in this case, Chi Sheng has no operations, Li Tai has sold its business license, Sheng Fa has yet to undertake operations and the operating scale of Yi Chou is small. The remaining five companies, Sheng Hung Pang, Chin Ta Ch'uan, Tung Yi Fa (no actual production), Sheng Yun and Hsin Hsu Tai (no outside sales) were not on the original MJIB investigation list. However, because of the wide dispersal of the quarries of these enterprises and differences in their materials sources and sales operations conditions, the only common characteristic among them is that they had all previously either purchased materials from the Sector Three Unified Management Company or their quarries were located near Sector Three. As such, it is difficult to confirm which enterprises were involved in the practices that are the crux of this case. (2) A review of sales price data from accused enterprises in Sector Three of Nantou County's Chuoshui River indicates that in 1999, the sale price per cubic meter of gravel in Nantou County ranged from NT$200 to NT$220 (crushed stone prices ranged from NT$140 to NT$190). During 2000, the price of gravel rose to between NT$200 and NT$250 per cubic meter (NT$150 to NT$200 for crushed stone). Sales data from 1999 provided by the Ministry of Economic Affairs' Bureau of Mines shows that the average delivery price for gravel during that year was NT$265 per cubic meter. As of March 2000 the average delivery price had risen only NT$10 to NT$275 per cubic meter. The actual sale price from gravel enterprises was apparently under priced. As most of the enterprises cited in this case are Chuoshui River area Sector Three enterprises, they are relatively further away from the point of sales than most of their competitors and their transport costs are therefore relatively higher, requiring a lower sale price to remain competitive. Some of the enterprises, however, acknowledged raising sale prices by NT$10, which is consistent with the Bureau of Mines' statistics. In sum, review of the pricing data from the Bureau of Mines and the businesses involved revealed nothing to warrant the Nantou County MJIB office's claim that "Beginning in March 2000, the price per cubic meter of black gravel rose from NT$200 to NT$250. The price had risen to NT$300 per cubic meter by May." 3. Reasons for not constituting illegality: The price hikes at some of the companies in question were related to a decrease in supply and rising management costs. That and the lack of tangible evidence of illegal activity made it difficult to directly confirm illegal activities on the part of the enterprises in question. (1) Reasons for gravel price increases: Nantou County had a serious problem with over-quarrying and a number of companies had been prohibited from quarrying. That, coupled with the aftermath of the September 21st earthquake, which caused gravel companies to anticipate future hoarding, was related to the gradual rise in indiscriminate illegal quarrying. Those found to be over-quarrying were required to return to fill in the site that had been over-quarried or transport the material to upstream sites of erosion damage to fill in and level out the riverbed before water conservation authorities would consent to allow them to resume quarrying. Further inquiry determined that water conservation authorities had earlier imposed an extended prohibition against quarrying by the Chuoshui River Sector One Unified Management Company for over-quarrying. Water conservation authorities prohibited the Sector Two and Sector Four unified management companies from quarrying between late 1999 through early 2000 for the same reasons, thus only the Sector Three Unified Management Company was able to quarry and supply gravel following the 2000 Lunar New Year holidays in March. The Sector Three Unified Management Company also deemed its previous raw materials prices too low and subsequently raised the prices by NT$10 per cubic meter. This, in turn, prompted other quarrying businesses to raise their sale prices to reflect both their newly increased raw materials costs and market supply and demand factors. It is thus difficult to characterize these reasons for raising prices as inappropriate. (2) A further review of the earlier statements and invoices of the accused enterprises indicated considerable price differences among them and no single consistent price. While a majority of gravel companies raised sales prices by NT$10 to reflect rising costs, there remained, however, some companies that did not adjust gravel prices. This was perhaps related to these companies maintaining inventories of gravel but is not in itself evidence proving allegations that the enterprises in question violated the provisions of the Fair Trade Law by acting in concert to raise prices. Additionally, a comparison of testimony by each enterprise indicated that most attributed the rise in gravel prices to a reflection of the unified management companies' rising costs as a result of the previously mentioned prohibition on quarrying in certain sectors of the Chuoshui River area and denied any unlawful practices among gravel enterprises. Summarized by Liu, Ginger; Supervised by Tso, Tien-Liang