Eleven sandstone companies from the central region, including Hung Chen Sandstone Company, had maliciously hoarded sandstone to drive prices up, and violated Article 24 of the Fair Trade Law

Chinese Taipei

Case:

Key Words:

hoarding, drive prices up, dredging at the source of material

Reference:

Fair Trade Commission Decision of May 11, 2006 (the 757th Commissioners’ Meeting), Disposition (95) Kung Ch’u Tzu No. 054 to 064, a total of 11 dispositions

Industry:

Construction (3802)

Relevant Laws:

Article 24 of the Fair Trade Law

Summary:

1. This case originated from the impact of an announcement made by the Mainland China in April 2006 that it would ban the export of natural sand starting May 1, 2006 on domestic sandstone market (an announcement was made at the end of April to postpone the enforcement of the said measure). The said announcement has received public concerns because there were supply/demand imbalance and price rise in the domestic market due to short-term supply fluctuation after its announcement. Soon after, the Fair Trade Commission’s “Task Force for the Prevention of the Price Manipulation of Necessary Commodities” stepped in to understand whether there were malicious hoardings to drive prices up in the sandstone market, a market of daily necessity. Therefore, the FTC, in accordance with Article 26 of the Fair Trade Law, initiated an ex officio investigation on circumstance that harms the public interest.
2. Between April 22, 2006 and May 18, 2006, the FTC dispatched several groups of personnel to the major sources of sandstone to conduct in-depth investigations. Upon the investigations, it is found that:
1. The sandstone inventory at Nantou’s Chenyulan River and Jhuoshuei River was originally around 500,000 cubic meters in the beginning of 2006. The 4th River Basin Management Bureau, Water Resources Agency opened up the extraction and dredging of sandstone for around 3 million cubic meters at the end of 2005, and hence the occurrence of supply shortage was unlikely. The sandstone companies, Tseng Kuang Yi Enterprise Co., Ltd., Shang Ting Sandstone Co., Ltd., Ming Wei Development Co., Ltd., Ting Hsing Sandstone Company, Miao Pu Sandstone Company, Shun Yi Sandstone Company, Chen Feng Co., Ltd. and Hung Chen Sandstone Company, have abundant inventories. The accumulated inventory of material sources exceeded 1.3 million cubic meters. The aforementioned suppliers took advantage of the critical supply/demand situation in domestic sandstone market caused by the earlier Mainland China’s announcement in April 2006 to ban the export of natural sand starting May 1, 2006. Under the circumstances that no increments of other costs except that for inventory, the aforementioned suppliers with the reason that the tender price for dredging material sources has increased and thus insisted that they would only supply materials at the increased prices. Such conducts obviously were means to drive the prices up with the sandstone inventories. In addition, at the end of March 2006, the estimated sandstone inventory of Taichung County was around 2 million cubic meters. Amongst were Chan Chuan Sandstone Co., Ltd., Min Feng Enterprises Co., Ltd. and Tseng Tai Sandstone Co., Ltd. also adopted the same hoarding measures to drive the prices of sandstone up. The total sandstone inventories for the aforementioned three companies exceeded 750,000 cubic meters.
2. The conducts of the aforementioned eleven sandstone companies hoarding sandstone to drive the prices up indeed have seriously affected the trading order because Jhuoshuei River and Dajia River are the important sources of domestic sandstone. The selling prices of sandstone from Chichi and Shuili of Nantou County have increased from NT$ 360 – NT$ 390 per cubic meter in March 2006 to NT$ 430 – NT$ 460 per cubic meter by the end of April 2006. As for the sandstone from Tungshih and Shihkang area of Taichung County, the selling prices have increased from below NT$ 400 per cubic meter to NT$ 500 – NT$ 550 per cubic meter. In the nation’s central region, the cost of sandstone for each unit of pre-mixed concrete production, after conversion from the total payment to sandstone company and transportation charge (estimated as 1.22 times of the original price), has increased to NT$ 680 – NT$ 750 per cubic meter since April, or approximately 13% to 23% increase.
3. Grounds for disposition:
1. The sufficient supply of sandstone has huge impact on the nation’s economic development because the sandstone is a significant daily necessity, and the sufficiency of its supply will influence the progress of infrastructure and residential construction. In order to resolve the said demand/supply imbalance, the government has established a “Joint Task Force on Sandstone’s Demand and Supply”, a task force made up of several ministries and departments. The said Task Force coordinates the relevant competent authorities and enterprises from the industry to solve the shortage crisis of sandstone together. On this occasion, all enterprises must confront such difficult time together and coordinate with the government’s countermeasures. They should fully supply the market and not engage in any improper and malicious hoarding to drive the prices up. The legislative purposes of the Fair Trade Law are stipulated in Article 1, “maintaining trading order, protecting consumers’ interests” and “promoting economic stability and prosperity”. It is obvious that the conduct of an enterprise is contrary to the legislative purposes of the Fair Trade Law when the said enterprise takes advantage of the product market’s supply/demand imbalance and critical situation to decline supply or engage in improper sales conducts which seriously damage public interest and harm the economic benefits of society as a whole. Article 24 of the Fair Trade Law stipulates, “In addition to what is provided for in this Law, no enterprise shall otherwise have any deceptive or obviously unfair conduct that is able to affect trading order”. The “obviously unfair” as used in Article 24 refers to unfair competitive conduct contrary to business competition ethics, engaging in trade by means contrary to social ethics, and abusing an advantageous market position to engage in unfair trade. Therefore, an enterprise is violating the provision of Article 24 of the Fair Trade Law if it takes advantage of the occasion of market failure and supply/demand imbalance and by means of contrary to business ethnics or public order and good moral to maliciously hoard the daily necessity so as to drive the price up.
2. The eleven punished companies in this case have individually hoarded around 100,000 cubic meters to 400,000 cubic meters of sandstone during this period. Furthermore, there was a fact that the selling prices has increased tremendously. The Mainland China announced that it would ban the export of natural sand starting May 1 2006, the government has adopted relevant emergency measures and there was no problem with the supply of sandstone in domestic market. Under such circumstances, the aforementioned companies were unable to explain the tremendous increase of their inventories in April 2006 as compare with the earlier or the corresponding period. They were also unable to give evidences to justify the reasons of their selling price increases. Therefore, the punished indeed have obviously unfair conducts of driving up the prices by means of malicious hoarding at the time that the supply/demand of domestic sandstone market was in critical situation. Their conducts have damaged market mechanism and seriously affected the market trading order; reprehensible in terms of business ethnics and harmed public interests, and violated the provision of Article 24 of the Fair Trade Law. Therefore, a fine ranges from NT$ 1 million and NT$ 5.5 million is separately imposed on the aforementioned 11 companies in accordance with the anterior paragraph of Article 41 of the Fair Trade Law. The total fines imposed on the eleven companies are NT$ 33.08 million.

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

Appendix: Nil