The Nantou County Gravel Suppliers Association affected market competition mechanisms in the gravel market in central Taiwan by leading the setting of reference sales prices for gravel in the Jhushan area to serve as sales price standards for members in all mining areas, and convened a meeting and resolved to act in concert to drive up members' gravel sales prices by suspending work or deliveries under the guise of complying with environmental protection regulatory measures, in violation of Article 14(1) of the Fair Trade Act
Chinese Taipei
The Nantou County Gravel Suppliers Association affected market competition mechanisms in the gravel market in central Taiwan by leading the setting of reference sales prices for gravel in the Jhushan area to serve as sales price standards for members in all mining areas, and convened a meeting and resolved to act in concert to drive up members' gravel sales prices by suspending work or deliveries under the guise of complying with environmental protection regulatory measures, in violation of Article 14(1) of the Fair Trade Act
Key Words:
concerted suspension of work, basing-point pricing
Reference:
Fair Trade Commission Decision of September 4, 2003 (the 617th Commissioners' Meeting); Disposition Kung Chu Tzu No. 092156
Industry:
River Gravel Quarrying (0621)
Relevant Law:
Articles 14 of the Fair Trade Law
Summary:
1. The case originated with allegations of concerted hiking of gravel sales prices by gravel enterprises in Nantou County forwarded by the Ministry of Justice Investigation Bureau with official letter, and reports by the Nantou County Government of price hikes, scarcified sales, and soaring prices, by gravel enterprises in Nantou county. The Fair Trade Commission was requested to dispatch personnel to investigate whether the enterprises were engaging in concerted action in violation of the Fair Trade Act.
2. The investigation found as follows:
The Nantou County Gravel Suppliers Association led the setting of reference
sales prices for gravel in the Jhushan area to serve as sales price standards
for members in all mining areas, and convened a meeting on 5 November 2002 at
which it resolved to act in concert to drive up members' gravel sales prices
by suspending work or deliveries in the name of complying with environmental
protection regulatory measures. The restraint of the gravel supply was found
to be factual, and had the effect of raising gravel prices. The Nantou County
area is currently a primary source of river gravel supply, occupies a key position
in both the mining and transport of gravel, and is a primary source of gravel
for the central Taiwan area (including Miaoli, Taichung, Nantou, and Yunlin).
Under the guise of complying with environmental protection regulatory measures,
the suppliers association concertedly suspended work and deliveries, driving
gravel prices continuously upward, with a huge impact on the gravel supply market
and the progress and costs of various infrastructure projects in the central
Taiwan region.
3. Grounds of the disposition:
(1) The suppliers' association led the fixing of reference prices:
The Nantou County Gravel Suppliers Association set reference prices for gravel
in the Jhushan area, and adopted those Jhushan prices as basing-point prices.
That is, suppliers in various mining districts took them as standard base points
for computing the transportation component to arrive at their own reference
prices. This peculiar pricing model in which, by prior mutual understanding,
base point prices were set and the prices in each district then determined by
calculating freight costs based on distance from a common departure point is
similar to “basing-point pricing” in economic theory, in which suppliers located
in particular markets employ means such as “freight absorption” and “phantom
freight” to monitor and control each others' actions and reinforce cartel arrangements.
Ever since basing-point pricing arrangements first began to appear in US industries
in which transportation is a major component of total cost, such as the steel
and cement industries, a majority of scholars and judicial cases in the United
States have deemed such uniform pricing and artificial price manipulation arrangements
to be evidence of the existence of a cartel agreement and therefore to be a
per se illegal anti-competitive practice.
(2) The suppliers association led the joint suspension of work and deliveries:
Mr. Shih Chao-Shang, who convened and chaired the suppliers association meeting
at 2 p.m. on 5 November 2002, asserted that the 15-day joint suspension of work
and deliveries was decided upon in response to a request to comply with the
closure regulation of a river access road by the Fourth River Bureau. On this
point, the Fourth River Bureau testified that the Nantou County Government had
asked it to halt dredging work on account of environmental factors and therefore
it issued a press release on 5 November 2002 indicating that it would close
the access road. According to the Fourth River Bureau, despite its plans to
close the transport access road, it never asked the gravel enterprises to suspend
work. Moreover, although a service rack [for spraying dust off the trucks to
prevent dust from spreading into the environment] was in the process of being
installed, the gravel trucks all had alternate routes, so the gravel enterprises
would not possibly be compelled to suspend work nor would the gravel trucks
be forced off the roads. Thus, Mr. Shih considered the suspension of work by
the gravel enterprises to be self-regulatory behavior. Even if the River Bureau
had requested that the gravel trucks refrain from traveling on the river access
road, it had no actual control over whether they did so. Furthermore, the Traffic
Squad of the Nantou County Police Bureau had opposed to road closure regulation
(because it would compel the enterprises' trucks to revert to traveling on Provincial
Highways 16 and 21) and thus the access road closure was never actually carried
out. Also, according to Mr. Shih's understanding, at the end of 2002, the lawful
gravel inventory at the site of each supplier exceeded 2 million cubic meters,
so even if dredging work were suspended, the individual gravel suppliers could
still continue to process and produce gravel for sale from their existing inventories
of raw material. They would not be forced to suspend production and delivery
even if any access road were closed.
In addition, according to the testimony of Mr. Yang Ming-Fong, there were two
exits for the river access road in March 2002 (there was the Jyuyang exit as
well as the Cyuanning exit). Therefore, even if a service rack were being installed,
it would not affect conveyance by the gravel trucks, nor would it force the
gravel enterprises to suspend work or deliveries. Furthermore, the Nantou County
Police Bureau Traffic Corps testified that although the Fourth River Bureau
made a press announcement on 5 November 2002 that it would suspend all dredging
work and close river access road, the Traffic Corps has issued an official letter
to the River Bureau requesting that they promptly restore travel on the river
access road to avoid having the gravel trucks travel on Provincial Highways
16 and 21, which would result in public complaints and opposition. As for the
respondent's subsequent resolution to suspend deliveries for 15 days from 11
to 25 November 2002, Mr. Yang stated that this was self-regulatory action of
the enterprises and was unrelated to him.
The Nantou County Environmental Protection Bureau further testified that it
had provided guidance to the gravel enterprises on compliance with environmental
protection regulatory measures, and had asked them early on to install service
racks and spraying equipment. When it contacted the River Bureau on 4 November
2002, it reiterated the above-stated position: the Environmental Protection
Bureau had never restricted gravel mining or transportation by the gravel enterprises.
Examples from the past could be found of the gravel enterprises continuing to
operate and make deliveries despite their failure to soundly implement environmental
protection regulatory measures. In such instances, the Bureau would merely impose
fines for pollution. It had no involvement in the suppliers association's resolution
to suspend work and deliveries for 15 days on its own initiative, and only learned
of it after the fact. In addition, pictures provided by the Bureau from before
and after the implementation of sound environmental protection regulatory measures
on the river access road offered proof that after the appropriate preventive
measures had been taken (installation of facilities for spraying the trucks
on the river access road), even repeated entry and exit by the trucks would
not cause any significant dust problem. The requirements of the environmental
authorities had thus been met, and there was no need for corrective measures
requiring any concerted suspension of work or deliveries. The respondent's assertions
that its actions were the result of the closure of the river access road by
the Fourth River Bureau and were meant to comply with environmental protection
facility requirements (installation of service racks) of the Environmental Protection
Bureau were merely excuses for its concerted suspension of work and deliveries.
(3) Impact of the concerted action on relevant markets:
It is true that every time the gravel enterprises suspended deliveries, they
raised their prices by NT$20 to NT$30 at the end of the period of the suspension.
From the first suspension of deliveries in November 2002 until March 2003, the
prices of gravel and stone had each been raised by approximately NT$70 over
the course of three periods of suspended delivery. In summary, the Nantou County
Gravel Suppliers Association affected competition in the gravel market in central
Taiwan by leading the setting of reference sales prices for gravel in the Jhushan
area to serve as sales price standards for members in all mining areas, and
convened a meeting and resolved to act in concert to drive up members' gravel
sales prices by suspending work or deliveries under the guise of complying with
and enforcing environmental protection regulatory measures, in violation of
the prohibitive provisions of Article 14(1) of the Fair Trade Act. After considering
such factors as the motivation of the unlawful acts and the degree and duration
of harm to trading order, the Fair Trade Commission ordered the respondent to
immediately cease the unlawful acts and imposed an administrative fine of NT$1
million under the fore part of Article 41 of the Fair Trade Act.
Summarized by Yang, Chia-Hsian; Supervised by Tso, Tien-Liang