Gravel volume allocation by the Hualian County Gravel Industry Trade Association, as well as boycotting sales of dredged materials by non-members and refusal of membership applications from non-members, affecting the trading order as regards supply and demand on the gravel market in the Hualian area in violation of the Fair Trade Law

Chinese Taipei

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Summary:

1. Tian Yu Construction (Tian Yu) of Hualian County and Yilan area gravel quarries united as contractors and won the bid for the Fung Shou River Fung Ping Bridge stage-two gravel dredging project undertaken by the 9th River Basin Management Bureau of the Water Resources Agency, Ministry of Economic Affairs (MOEA). They, however, encountered a boycott directed by the Hualian County Gravel Industy Trade Association (the Association) due to their non-member status, as well as restrictions on member operators against making purchases from them. As a result, they were unable to easily sell gravel from the dredging, and submitted a complaint alleging that the Association was attempting to monopolize the gravel industry in the Hualian area in violation of the Fair Trade Law.

2. Through investigation it was found that in April of 2001, the Association had already engaged in concerted action involving collusive bidding and gravel volume allocation during stage one of the aforementioned Fung Shou River dredging project. The Association's intent was to follow suit for the stage two bid in early 2002, but non-member and non-Association-designated bidder Tian Yu won the stage two bid at a price higher than that agreed upon through collusion by Association members in stage one, thus threatening the long-standing ability of the Association to direct monopolization of Hulian area gravel resources. The Association responded by initiating a boycott against purchase of gravel from winner of the stage two bid. In order to prevent such purchases by members, the Association actually used the authority vested in it by the MOEA to approve northward shipment of gravel product sourced in eastern Taiwan, telling members that such purchase would mean denial of the preferential rates that it could grant for such shipment. There were in fact two gravel industry operators that violated their commitment to the Association, resulting in the Association's refusal to grant such shipping rights followed by heavy losses that resulted therefrom. Investigation showed that the Association's gains from monopolization of the stage one project amounted to over NT$4 million, and in addition, the Association refused new membership applications from some operators based on the claim that their prices for gravel shipped from the east to the north were too low and therefore contrary to their articles of association. The various types of concerted action undertaken by the Association were found to have been for the purpose of restricting competition between members, constituting violation of the prohibition against concerted action contained in the Fair Trade Law.

3. Grounds for disposition:  Concerted action by enterprises is prohibited by Article 14 of the Fair Trade Law. Concerted action is further defined in subparagraphs 1 and 4 of Article 7 of that law: “The term 'concerted action' as used in this Law means action by any enterprise, by means of contract, agreement, or other form of consent with any competing enterprise, to jointly determine the price of goods or services, or to limit quantity, technology, goods, facilities, trading counterparts, or trading territory with respect to such goods and services, thereby restraining each other's activities,” and “Use by a trade association of its charter, a resolution of a member meeting or a directors or supervisors meeting, or other means to restrict activities of enterprises is also considered to be horizontal concerted action as set forth in Paragraph 2.” Application for extraction of earth and gravel may take place under several different frameworks, including basic application and approval, united management by operators, public tenders, and management of public enterprises (lawful gravel sourcing may take place only at rivers). Bidding in this case was undertaken through public tender, and a decision on whether to participate should have been made by each bidder based on considerations of extraction costs as well as their management and marketing abilities. If there were no real benefits to be gained, operators would have no reason not to raise their bids out of fear of possible losses, so the respective bids of the different operators are all made under consideration of the inherent economic risks. This is the nature of competition, but the Association's collusive bidding, involving allocation of gravel resources, seems to have been made with the benefits of each of its members in mind in order to reduce the costs of sourcing gravel, raising the possibility that earth and gravel resources were sold at unreasonably low prices by means of restriction of competition as referred to in the Fair Trade Law, and thus constituting concerted action as defined in that law. The Association emphasized that “finding the lowest-priced sources” was its mission, though it should have known that free competition was also one of the various possible means of accomplishing that goal, and that there was no need to restrict competition in violation of the Fair Trade Law. Approval from the Fair Trade Commission is required for any such concerted action involving restriction of competition, and in this case, the Association's members include the great majority of gravel sourcing firms in the Hualian area, giving the Association the power to influence supply and demand on the market. In addition, as gravel extraction is being prohibited at more and more rivers in western Taiwan, Hualian operators enjoy an increasingly important position in projects that ship their gravel to the west or the north. In this case, whether the mutual consent to engage in concerted action was formed through a decision or resolution reached by the board of directors or supervisors of the Association, or by the 20-plus operators involved in the project to ship gravel to the north, or by the entire membership of the Association, the constituent element of mutual consent is satisfied, with the Association implicated in each case. Implementing the concerted action from its directorial position, the Association was the subject enterprise that was the actor in this concerted action case, and as such, a disposition and an administrative fine of NT$2 million were issued against the Association.

Summarized by Liu, Ginger; Supervised by Tso, Tien-Liang