Complaints against domestic cement enterprises for jointly raise the price of cement and monopolize the market supply

Chinese Taipei

Case:

Key Words:

Joint venture, reciprocal shareholding, basing-point pricing (BPP), blocking import, international cartel

Reference:

Fair Trade Commission Decision of December 15, 2005 (the 736th Commissioners’ Meeting), Disposition Kung Ch’u Tzu No. 094136

Industry:

Cement Manufacturing (2231)

Relevant Laws:

Article 14 of the Fair Trade Law

Summary:

1. The Fair Trade Commission (FTC) received a confidential letter from an agency in November 2001, indicating that domestic cement enterprises had jointly monopolized and raise the price of cement. Thereafter, the FTC has successively received similar complaints from the relevant agencies and associations. Consequently, the FTC has immediately initiated an investigation. The cement industry is mostly an oligopoly market in every nation. Hence, it is rather easy for enterprises to cohere but very difficult to obtain solid evidence of their concerted actions in the cement industry. More than 1,000 persons/times have involved in a four-year investigation. More than five hundred pre-mixed concrete enterprises, cement manufacturers, constructors and builders, bagged and bulk cement suppliers, distributors and importers were surveyed. The FTC gathered the related information from the relevant government agencies, more than 20,000 pages of documents and 100 relevant files had been collected. On the issues of substitutability of cement products, delineation of market, reciprocal shareholdings among cement enterprises, control of marketing channel through joint venture, production facilities, maneuver and procurement of materials, international cartel of cement, and other forms of conduct that restrict market competitions, the FTC had divided the Commissioners into groups according to their specialties. Several group meetings were convened to investigate the issues. On October 17, 2005, the FTC hold the first hearing according to the Administrative Procedure Act because this case was material and complicated, exerted great influences on the relevant market, and seriously related to public interests. The scholars, experts, representatives of government agencies, the parties concerned, the affected parties and the public were invited to attend the said hearing. The opinions presented in the hearing were then submitted to the Commissioner’s Meeting for further discussions.
2. The investigation found that twenty one cement enterprises had engaged in conducts of mutually restricting one another business activities, such as joint decision with the competitors to increase the price of cement, limit cement delivery, resell cement, withdraw from the market or did not import through joint ventures, contracts, meetings or any other form of mutual understanding. The aforementioned cement enterprises included eleven cement manufacturers; Taiwan Cement Corporation (hereinafter referred to as Taiwan Cement), Asia Cement Corporation (hereinafter referred to as Asia Cement), Lucky Cement Corporation (hereinafter referred to as Lucky), Chia Hsin Cement Corporation (hereinafter referred to as Chia Hsin), Southeast Cement Corporation (hereinafter referred to as Southeast), Universal Cement Corporation (hereinafter referred to as Universal), China Rebar Company (hereinafter referred to as Rebar), Hsing Ta Cement Company (hereinafter referred to as Hsing Ta), Hsin Hsin Cement Enterprise Corporation (hereinafter referred to as Hsin Hsin), Chien Tai Cement Co., Ltd. (hereinafter referred to as Chien Tai) and China Hi-Ment Corporation (hereinafter referred to as China Hi-Ment), and ten cement silo holders or distributors; Tunwoo International Co., Ltd. (hereinafter referred to as Tunwoo), Shih Hsin S&T Co., Ltd. (hereinafter referred to as Shih Hsin), Universe Company Ltd. (hereinafter referred to as Universe), Ever Green Corporation (hereinafter referred to as Ever Green), Huanchung Cement Corporation (hereinafter referred to as Huanchung), International Chia Hsin Corporation (hereinafter referred to as International Chia Hsin), Goldsun Nihon Cement Co., Ltd. (hereinafter referred to as Goldsun Nihon), Chia Huan Tung Cement Co., Ltd. (hereinafter referred to as Chia Huan Tung), Huatung Cement Corporation (hereinafter referred to as Huatung) and Tong Fa Jinn Enterprises Co., Ltd. (hereinafter referred to as Tong Fa). The aforementioned conducts of mutually restricting one another business activities included:
1. In order to stop the world’s third largest cement group Cemex Company from acquiring marketing channel in the southern Taiwan, the domestic cement manufacturers had reached a joint venture agreement to invest in Chia Huan Tung and Shih Hsin and gain control of marketing channel for cement in southern Taiwan. Such conduct was an integration of domestic cement manufacturers.
2. In order to curb the competition among domestic cement enterprises, Chien Tai and Tong Fa had agreed to withdraw from the domestic cement market, Chia Huan Tung had stopped operation, the silo of Shih Hsin, Rebar, Lucky, Tunwoo were rarely utilized. The Ta Liao Factory of Teng Hui Co., Ltd. in Kaohsiung and the rights for Universe to operate cement silo at Kaohsiung Port were acquired through Shih Hsin in order to stop or reduce the import of cement or cement clinker.
3. In order to prevent price cut competition, the domestic cement enterprises have reached cartel agreements with international cement groups, including Cemex Company. All parties agreed not to sell cement to the territory of the other party, interchanged and used the counterpart’s silo to keep imported cement out of the local market.
4. The domestic cement manufacturers Hsin Hsin, Hsing Ta, Lucky, Chia Hsin and the cement importers Universe, Tunwoo, Goldsun Nihon, Rehua, Huanchung, International Chia Hsin, Shih Hsin had reached an agreement to sell domestic cement instead of importing from other countries for the purpose of restricting market competition and jointly raising the cement price.
5. After forming international cartel with foreign cement groups, the domestic cement enterprises accordingly reduced their production and quantity supplied, shortened the effective term of order, and fixed the selling prices for end-users to attain the goal of joint price increase for cement. The cement price increased substantially from $1300 per metric ton in the middle of 2001 to $2150 - $2250 per metric ton in 2004.
6. On April 7, 2003, the cement enterprises that supplied bagged cement in the southern Taiwan, including Taiwan Cement, Asia Cement, Huatung (represented Hsin Hsin, Universal, Southeast), Shih Hsin, Goldsun Nihon, Rebar, had separately invited their cement distributors to a meeting, and concurrently requested them to raise the price of bagged cement.
7. China Hi-Ment represented its cement business shareholders to carry out “information exchange” with Japanese steel enterprises, reached an agreement to reduce slag export to our country year by year that consequently lead to the price increase of slag, which is a substitute of cement.
3. Grounds of Disposition:
   1. Under the globalization, the cement industry is a common industry in all nations. The cement industry, petrochemical and steel industries are capital-intensive industries that have high-energy consumption. The wave of globalization has even pushed the industry toward centralization and syndication, in particular after the Asian financial crisis. The Asian enterprises encountered financial crisis and thus the international large cement groups were given opportunities to make acquisitions. The authority of each nation has already aware of such activities and the cement industry has even received great attentions from all over the world. After the Asian financial crisis, the cement consumption in East Asian countries had declined sharply, the excess supply of cement in that area were sold to every corner of the world at low prices. Such price cut competition had exerted great impact on the global cement market (the world’s cement production capacity was around 20 hundred million metric ton but the consumption was only around 18 hundred million metric ton, the excess supply was mainly caused by East Asian countries). The world’s five largest cement groups, Swiss Holcim, France Lafarge, Mexico Cemex, Germany Heidelberg and Italian Italy Cement had acquired Southeast Asian cement market, controlled more than 53% of the production capacity of Southeast Asia cement. The extent of market concentration in Philippine cement market was notably the most serious. The world’s cement groups, including the sixth largest Japanese Taiheyo and Taiwan Cement of Chinese Taipei had also separately acquired one cement enterprise in Philippine (the production capacity was within 1 million ton). The foreign capital had controlled 95% of the Philippine’s cement market. In order to avoid the Japanese Taiheyo and Taiwan Cement from selling cement to Philippine at low prices, which further would jeopardize the stability of Southeast Asia cement market and the world cement market, the international cement group by means of dumping had sold great volume of cement locally. At the same time, the international cement group had completely controlled the major production sites of cement in Columbia of South America Columbia, Egypt of Africa and Philippine of Asia. The domestic cement enterprises in order to avoid price cut competition, had reached a cartel agreement with the international cement group Cemex at the end of 2002. In addition to agreeing not to sell cement to the territory of the other party, all parties also agreed to interchange and use the counterpart’s silo to keep imported cement out of the local market. After attaining the international cartel, the cement enterprises of East Asian nations had agreed not to cut the price of excess cement produced in this region, instead, the excess supply was sold to the United States, Middle East and Africa. Such division of trading boundary and competition restrictions had caused the price of cement sold in East Asia nations and that exported to the rest of the world continued to rise.
   2. A penalty order varying from NT$ 5 million to NT$ 18 million was imposed on each cement enterprises, totally amounting to NT$ 210 million fine. Such amount of fine is asymmetrical to the business scale of cement enterprises. The grounds for the said asymmetry were that the domestic cement enterprises engaged in concerted actions to cope with the dumping of international cement groups that attempted to monopolize the local market. The conducts of domestic cement enterprises were passive moves of countermeasures. If the international cement enterprises had succeeded in their attempts at that time, then it is very likely that the current domestic cement price is under the monopolization of international cement groups. The domestic cement market will become the second Mexican market, the price of cement is $4000 per metric ton. Therefore, the FTC has taken the domestic cement industry development and market competition into consideration when rendered punishments to this case.
   3. After this anti-competition practice was punished, the England Global Competition Review has selected our Fair Trade Commission as the best “Team of the Year” for 2005 from a list of 100 countries that implement antitrust laws, the second nation that received this award after the European Union. The European Union Executing Committee investigated and rendered punishment on the case of Microsoft and was selected as the best “Team of the Year” for 2004. It is apparent that the law enforcement performance of the FTC has won affirmations and applauses from international circle.

Summarized by Liu, Chin-Chih;
Supervised by Sun, Ya-Chuan

Appendix:
Taiwan Cement Corp.’s Uniform Invoice Number: 11913502
Tunwoo International Co., Ltd.’s Uniform Invoice Number: 23469224
Asia Cement Corp.’s Uniform Invoice Number: 03244509
Shih Hsin S&T CO., Ltd.’s Uniform Invoice Number: 23465944
Chia Hsin Cement Corp.’s Uniform Invoice Number: 11892801
Lucky Cement Corp.’s Uniform Invoice Number: 40601248
Southeast Cement Corp.’s Uniform Invoice Number: 83078600
Chia Huan Tung Cement Co., Ltd.’s Uniform Invoice Number: 16773305
Hsing Ta Cement Co., Ltd.’s Uniform Invoice Number: 03279507
Universal Cement Corp.’s Uniform Invoice Number: 07568009
China Rebar Co., Ltd.’s Uniform Invoice Number: 03090407
Universe Company, Ltd.’s Uniform Invoice Number: 22822418
Hsin Hsin Cement Enterprise Corp.’s Uniform Invoice Number: 36513594
Ever Green Corp.’s Uniform Invoice Number: 86686472
Huanchung Cement Corp.’s Uniform Invoice Number: 86003245
Goldsun Nihon Cement Co., Ltd.’s Uniform Invoice Number: 86378284
International Chia Hsin Corp.’s Uniform Invoice Number: 04401230
Chien Tai Cement Co., Ltd.’s Uniform Invoice Number: 03322504
Huatung Cement Corp.’s Uniform Invoice Number: 89390918
Tong Fa Jinn Enterprises Co., Ltd.’s Uniform Invoice Number: 82042268
China Hi-Ment Corp.’s Uniform Invoice Number: 86119908