Cheng Loong Corporation has on several occasions given advance notice in the media of planned price hikes, giving rise to the question of whether such actions have prompted other firms in the same industry to follow suit with price hikes of their own in violation of the provision of the Fair Trade Law
Chinese Taipei
Case:
Cheng Loong Corporation has on several occasions given advance notice in the media of planned price hikes, giving rise to the question of whether such actions have prompted other firms in the same industry to follow suit with price hikes of their own in violation of the provision of the Fair Trade Law
Key Words:
industrial paper, pulp
Reference:
Fair Trade Commission Decision of July 24, 2003 (the 611th Commissioners' Meeting)
Industry:
Paper Mills (1521)
Relevant Law:
Summary:
1. Newspapers reported in May 2002 that Cheng Loong Corporation (Cheng Loong), the largest manufacturer of industrial paper in Taiwan, had announced plans to raise its prices for industrial papers in July of that same year, and that other major paper manufacturers were expected to follow suit. If a domestic manufacturer of industrial papers were to use the mass media to provide advance notice of plans to raise its prices in the near future, thereby prompting other firms in the same industry to follow suit, such action would constitute a veiled exchange of information regarding enterprise management policies and pricing strategy, and could easily lead competitors to tend toward uniformity in the price quotes and other transaction terms that they offer to trading counterparts. Such circumstances would give rise to the likelihood of: (1) joint efforts inducing other enterprises not to engage in price competition; and (2) imposition of improper restrictions on the business activities of trading counterparts. The Fair Trade Commission (FTC) therefore initiated an investigation.
2. Findings of the FTC's investigation:
(1) Logging is illegal in Taiwan, therefore all the wood required for the production of new pulp is imported. The two main pulp producers in Taiwan account for less than 1% of annual worldwide output, and thus play no role in determining pulp prices. Upstream producers of industrial papers, for which new pulp and recycled pulp constitute the main raw materials, experience cost fluctuations in response to price movements on the international pulp market, and pass them on to midstream and downstream enterprises.
(2) No evidence has been found in materials collected by our investigators to indicate that the relevant enterprises have ever jointly decided prices by means of contract, agreement, or any other form of mutual understanding, or that they have actually offered identical price quotes for products in the same category. Our investigators have also found that price adjustments by the relevant enterprises from January to October of 2002 were not uniform in terms of either timing or amount.
(3) The relevant enterprises state that they have never gone out of their way to issue advance notice of price adjustments via the print media. Most reporters get their stories on upcoming price adjustments by reading about market conditions in the international media or on the Internet, or perhaps by interviewing or chatting with industry insiders on either a regularly scheduled or randomly timed basis. The news media publish such stories on their own initiative, and the market information contained in such media reports is quite publicly available already, thus its market impact is not great.
(4) Our analysis of the paper industry indicates that pulp procurement costs in Chinese Taipei fluctuate virtually in synch with movements in international pulp prices. The major pulp producing countries of North America and Scandinavia reached an agreement in February 2002 to control output and sales in order to reduce inventories, and international pulp prices subsequently began to climb in April 2002.
3. Grounds for decision not to impose sanctions:
(1) In the minutes taken at meetings held by the enterprises at various levels of the paper industry, our investigators did not find evidence of any price setting consent among such enterprises, nor have our investigators found identical price quotes by upstream enterprises for products in the same category. Moreover, it is understood that enterprises were already expecting price hikes as a result of the February 2002 agreement among the major pulp producing countries of North America and Scandinavia to reduce inventories by controlling output and sales, and international pulp prices did indeed begin to climb in April 2002. External circumstances such as these prompted, or at least played a role in, the appearance of reports in the news media concerning plans by Cheng Loong to raise its prices in response to an ongoing trend toward higher pulp prices on the international market. Our review of prices charged by Taiwanese enterprises for paper products from January to October of 2002 shows that, while prices did rise during this period, there was no uniformity among different enterprises in terms of the timing, number, or amount of such price hikes.
(2) In summary, price hikes by relevant enterprises in response to the publication of information concerning trends in the international market should be seen as the result of external factors. This conclusion holds true regardless whether: (a) the print media predicted, independently on the basis of international pulp prices, that domestic price were also to be raised; or (b) Cheng Loong took the initiative to issue public notice. There is no evidence to indicate: (1) that Cheng Loong and other relevant enterprises have ever acted via reports in the print media to reach any meeting of the minds involving consent to a concerted price hike in violation of Article 14(1) of the Fair Trade Law; (2) that Cheng Loong has ever used coercion, inducement with profit, or other improper means to make other enterprises take part in a concerted action against price competition in violation of Article 19(iv) of the Fair Trade Law; or (3) that Cheng Loong has ever imposed improper restrictions on the business activities of a trading counterpart as a condition of trading in violation of Article 19(vi) of the Fair Trade Law.
Appendix:
Cheng Loong Corporation's Uniform Invoice Number: 33085508
Summarized by Sun, Ya-Chuan; Supervised by Wu, Bi-Ju