Six sand and gravel businesses in Hsinchu Region

Case:

Key Words:

sand and gravel excavation, consolidated production and sales, public property

Reference:

Fair Trade Commission Decision of September 26, 2012 (the 1090th Commissioners' Meeting), Disposition Kung Ch'u Tzu No. 101138

Industry:

Other Mining and Quarrying (0700)

Relevant Laws:

Article 14 of the Fair Trade Law

Summary:

1. Excavation of sand and gravel in rivers in the Hsinchu area was banned for years. When sand and gravel excavation on land met obstructions as a result of growing eco-environment awareness, the supply of sand and gravel had to rely on the surplus from construction projects in the county and sand and gravel from river dredging in neighboring counties and cities. However, longer transportation would push up the cost while there could also be transportation and environmental protection issues. Hence, between 2009 and 2010, Hsinchu County Government put up the sand and gravel from the dredging work in You Luo Creek for tender to increase the supply of sand and gravel in the county. After Typhoon Morakot hit Taiwan in August 2009, the riverbed scouring in many places produced more supply of sand and gravel than the market demanded and sand and gravel prices went down as a consequence. During the investigation of another case, however, it is discovered by the FTC that the prices of sand and gravel in Hsinchu County, instead of dropping, had gone up. As a result, the FTC decided to initiate an ex-officio investigation.
2. Findings of the FTC after investigation:
   It was revealed during the investigation that the total dredge volume that Hsinchu County Government had publicly announced was 600,000 cubic meters and the price per cubic meter was NT$322 (NT$140 per ton). Nine sand and gravel businesses had obtained the right to purchase the dredge (sixty-seven thousand cubic meters each). Mr. A, Chienshih Industrial Co., Ltd. (hereinafter referred to Chienshih) and Yising Gravel Limited (hereinafter referred to as Yising) began to persuade the other businesses to participate in a concerted action. Three of them turned down the proposal and the six remaining businesses, namely Mr. A, Chienshih, Yising, Joystar Enterprise Co., Ltd. (hereinafter referred to as Joystar), New Chungli Environmental Science and Technology Co., Ltd. (hereinafter referred to as New Chungli) and Mountains Earth and Rock Co., Ltd. (hereinafter referred to as Mountains), reached the agreement to make a joint purchase. They worked together to provide the funds, excavate and transport, process and store, and allocate and market the sand and gravel. Then, by raising the resale prices of the products, these businesses gained unjustifiable profits. As a result, the prices of related products in the Hsinchu area went up abnormally and the supply-demand function of the local sand and gravel market was affected.
3. Grounds for disposition:
   (1) All business entities should act according to factors such as management costs, market competition and others to decide independently whether they want to enter a market and choose their trading counterparts. Any agreement established against the abovementioned principle of business independence, such as joint purchases of supply, excavation and transportation, storage, processing, distribution and sales, will end up with jointly controlling the production and distort the production-sales structure. This is a practice of competition restriction.
   (2) In this case, the six businesses first singled out the two quarries and Songyi because of their advantageous locations for transportation and sales. Chienshih and Mr. A then negotiated with these two suppliers and made them surrender their rights to purchase the sand and gravel in You Luo Creek. Mr. A fronted the funds needed to make the purchase for all the businesses, except Chienshih. Joystar was in charge of transportation and processing. The procedure of purchasing sand and gravel involved providing the funds needed, presenting the application and required documents, storing sand and gravel, transporting, processing and selling the product, and it was obvious that the process could not have been completed without establishing mutual understanding in advance. Therefore, the purchase, transportation and storage were carried out jointly and this constituted a concerted action of "consolidated production and sales."
   (3) After assessing each business' motive and purpose in the unlawful act, its operation scale and management condition, the type of the violation, and the level of damage to the market competition, and the market structure in this case, the FTC imposed on the said businesses administrative fines ranging from NT$200,000 to NT800,000. The fines totaled NT$3,000,000.

Appendix:

Fines Imposed on the Six Sand and Gravel Businesses in Hsinchu Region for their Concerted Action

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