Waste Electronic & Electrical Equipment Disposal Businesses

Case:

Key Word(s):

Waste electronic and electrical equipment, disposal business, operation center

Reference:

Fair Trade Commission Decision of June 19, 2013 (the 1128th Commissioners' Meeting); Disposition Kung Ch'u Tzu No. 102096

Industry:

Non-Hazardous Waste Treatment and Disposal (3821)

Relevant Law(s):

Article 14 of the Fair Trade Law

Summary:

1. It was originated from that the FTC received phone calls from private individuals complaining that the waste electronic, electrical and information equipment disposal businesses had offered different purchase prices before they set up a joint operation center and, after the center was set up, the disposal businesses met regularly to decide their rates for purchase prices. After a prior investigation, the FTC decided at the 1059th Commissioners' Meeting on February 22, 2012 that E&E Recycling Company (hereinafter referred to as E&E) and 11 other domestic waste electronic and electrical equipment disposal businesses had violated Article 14(1) of the Fair Trade Law for their joint decision of purchase prices for recyclable objects and proportional distribution of disposal work. Both practices were likely to affect the supply-demand function of the domestic waste electronic and electrical equipment disposal market. The offenders found the FTC's decision unacceptable and appealed to the Executive Yuan. The Executive Yuan revoked FTC's original decision. The FTC made a new decision at the 1092nd Commissioners' Meeting on October 3, 2012 and the offenders again found the new decision unacceptable and appealed. The Executive Yuan revoked the decision again on the grounds that the FTC had failed to provide in the disposition the basis of its decision and calculation of the administrative fines imposed, whether the reasonable profit and excessive profit from the unlawful act had been differentiated, whether the calculation of the profit obtained by the offenders in the 3-5 year period of time in question had exceeded the statute of limitations imposed upon the FTC's discretionary power, the total subsidies provided by the Recycling Fund Management Board (RFMB) in accordance with the environmental protection policy and whether it was appropriate to include this amount when calculating the business profit of the appellants, the respective administrative fines the FTC had imposed on the appellants, and the criteria applied when making the decision. In subsequence, the case was presented during the 1121st Commissioners' Meeting to discuss the instruction from the Executive Yuan requesting "the FTC to come up with a more appropriate decision in accordance with the appeal decision."
2. Findings of the FTC after investigation:

   (1)

   The "table of percentages of subsidies received by domestic waste electronic and electrical equipment disposal businesses from the RFMB" that the FTC compiled according to the ratios of subsidies E&E and the 12 other domestic waste electronic and electrical equipment disposal businesses (13 plants in total) received between 2003 and 2011 and the amounts each business obtained from 2005 to July 2011, indicated that each of the said businesses had been given more or less the same percentage of subsidy. Another finding of the FTC showed that some of the said businesses had opened an account under the name of “Joint Waste Electronic and Electrical Equipment Recycling and Disposal Management Team” at a bank in Pingtung. The FTC sent its staff members to the involved businesses to record their statements and also interview and attain the statements of the downstream trading counterparts (recycling plant operators) of the involved businesses. During the investigation, the FTC obtained 14 items of information, including meeting minutes of the said businesses.

   (2)

   Meanwhile, acting according to the decision of the Executive Yuan, the FTC examined the annual business income tax return applications and annual waste electronic and electrical equipment capacity utilization rates of the offenders. In addition, the FTC initiated a legal procedure to acquire from the RMBF the subsidization details listed in related financial reports and its opinions.

3. Grounds for disposition:

   (1)	The Executive Yuan revoked the FTC's original decision but the content of its decision indicated that the Executive Yuan had affirmed and supported the FTC's conclusion with regard to the facts and confirmation of the said violation. The reason for the revocation was that the FTC had to review the approach and the basis of calculation of the administrative fines and also clarify whether it was appropriated to include the subsidies from the Environmental Protection Administration (EPA) in business profit calculation.
   (2)	The facts considered for the new disposition made by the FTC: (i) Parties intending to enter the waste electronic and electrical equipment disposal market are required to apply to the EPA according to related regulations set by the EPA and pass written and on-site evaluation before they can begin the business of dismantling waste electronic and electrical equipment generated in the country each year. Therefore, the product market in this case was the domestic waste electronic and electrical equipment disposal market. Meanwhile, since no waste electronic and electrical equipment was imported into the country and waste electronic and electrical equipment came from all over the country without any regional restriction, the geographic market involved in this case was defined as the entire country. (ii) The result of the FTC investigation showed that there were 12 waste electronic and electrical equipment disposal businesses registered with the EPA, namely E&E, Hung Kung Recycling Company, HanLin Environmental Technologies Corporation, Chiu-Fa Environmental Protection & Engineering Company, Liuh-Jian Company, Perfect Recycling Company, FGD Recycling Industrial Company, Hong Chin Recycling Enterprise Corporation, Ke Bai Sheng Company, Rui Yuan Environmental Protection Company, Big South Resource Recycling Company and Da Chi Enviromental Technologies Company. The above businesses first acquired the status to apply for subsidies from the EPA before they started to collect waste electronic and electrical equipment both on their own and from recycling plants and dismantle the objects, and then applied to EPA for subsidies. They were horizontal competitors of the same production-marketing stage. Between March 2001 and October 2011 (each business joined the concerted action at different points of time), they signed the "Joint Waste Electronic and Electrical Equipment Recycling and Disposal Agreement" and established the "Joint Waste Electronic and Electrical Equipment Recycling Management Regulations," as well as a set of penalty provisions. To ensure the implementation of the above agreement, each business turned in a check or promissory note for NT$3,000,000 as the guarantee deposit. Although Hung Kung Recycling Company and HanLin Environmental Technologies Corporation claimed that they had never signed the agreement or participated in the allocation of recycling and disposal work, the result of the FTC investigation revealed that they had indeed entered the negotiations, filled out daily recycling reports, made adjustments to their inventories, and shared the expenses of Guo Meng Recycling Co., Ltd. In fact, Hung Kung joined the "joint waste electronic and electrical equipment recycling and disposal" operation at the latest in April 2011 and HanLin in September of the same year. There was no doubt that the two businesses participated in the concerted action. (iii) The regulations regarding the ratio of recycling and disposal work of each participant, the approaches to confirm inventories and quantities disposed, the establishment of the joint recycling and disposal operation fund and organization, the amount of the agreement fulfillment guarantee required, and the penalties for breaches of agreement were all specified in the agreement for the concerted action. Meanwhile, it was set forth in the Joint Waste Electronic and Electrical Equipment Recycling Management Regulations that the council of signees was the highest decision-making body, with a management team and an operation center under it. Also specified in these regulations were the rate for the purchase prices for recyclable objects, establishment of inventories and daily reports, work allocation and balance calculation, coverage of the agreement, management of the operation fund, as well as penalty provisions against "price increase manipulations," "hoarding" and "cross-district acquisition." Each agreement signee took turns to serve as the convener of the council. The management team meeting was convened each month and meeting minutes were taken every time. During these meetings, the businesses discussed and determined the purchase prices. At the same time, the council of signees, the highest decision-making body, met quarterly to discuss important issues, such as recruitment of new members, work allocation ratios, handling of violations by the members, and so forth. The operation center under the management team was responsible for the execution of the decisions made at team meetings and enforcement of management regulations. It also presented business reports to the management team on a regular basis and was in charge of allocation of recycling and disposal work among the plants, accounting, custody of documents of the management team, and general affairs. (iv) E&E and the other waste electronic and electrical equipment disposal businesses signed the "Joint Waste Electronic and Electrical Equipment Recycling and Disposal Agreement" and operated through the management team and the operation center to allocate waste electronic and electrical equipment evenly among the businesses (except for E&E's Taipei plant which was given a slightly larger quantity) regardless of the capital expenditure, cost structure, and management capacity of each business. To achieve the established allocation ratios, those capable of collecting more recyclable equipment had to turn their surpluses over to the ones unable to collect as much through the operation center. As a consequence, the capacity utilization rate of most of the businesses was low, the resources were distributed inappropriately, the purchasing rates were stiff, and there was no competition at all.
   (3)	Factors considered in determination of new administrative fines: (i) The gross profit is the amount acquired after subtracting management costs from net business income which is obtained after deducting goods returned and discounts given from total sales. Since E&E and the other offenders listed the subsidies from the RFMB as part of business income, the subsidies therefore had to be included in business profit calculation. However, due to the source and nature of the subsidies, the FTC regarded the subsidies as an important factor in consideration of penalty reduction. (ii) The concerted action was achieved through negotiations and meetings among the offenders and decisions were made with regard to the ratios of work distribution (allocation ratios) agreed upon. Each plant then carried out the recycling and disposal work accordingly. The businesses also agreed to adopt the purchase prices determination mechanism approved by the management team to ensure the consistency of their purchase prices for waste electronic and electrical equipment. After the disposal of waste electronic and electrical equipment was done, the businesses applied to the EPA for subsidies whose amount were decided according to the quantities processed in compliance with established criteria. Every one of the businesses admitted that the subsidies had been considered and listed as part of its business income. As mentioned earlier, except for E&E's Taipei Plant, the amount (ratio) of recyclable objects to be processed was evenly distributed among the plants. Hence, with the exception of E&E (which had two plants and its Taipei Plant was given a larger proportion), the subsidies each plant received from the EPA were more or less the same. Meanwhile, after treatment, some of the recycled objects were reusable and sold, and the income was also listed as part of business revenue. As the businesses had agreed to share the allocation management expenses, this cost for each plant was generated as a result of the concerted action and was therefore considered illegitimate. Therefore, the FTC's adoption of the revenue of each business from disposal of waste electronic and electrical equipment as a standard for fine determination was legally justifiable. The participants in the concerted action purchased waste electronic and electrical equipment, allocated the disposal work, and then applied to the RFMB for subsidies. Their earnings could not be separated from the concerted action and therefore there was no need to differentiate the excessive profit from their illegal conduct and their reasonable profit. (iii) After assessing the length of participation of each offender in the concerted action, its role in the concerted action, the ratio of disposal work it was allocated, its cooperation with the FTC during the investigation, the amount of information it provided, the profit it made, and its business scale and size of capital, the FTC acted according to the first section of Article 41 (1) of the Fair Trade Law, ordered the said businesses to cease their unlawful act, and also imposed an administrative fine of NT$12.5 million on E&E, NT$7.5 million on each of FGD Recycling Industrial Company, Perfect Recycling Company, and Hong Chin Recycling Enterprise Corporation, NT$6 million on Liuh-Jian Company, NT$5.5 million on Chiu-Fa Environmental Protection & Engineering Company, NT$4.5 million on Da Chi Enviromental Technologies Company, NT$3.5 million on Big South Resource Recycling Company, NT$1.6 million on Rui Yuan Environmental Protection Company, NT$1.2 million on Ke Bai Sheng Company, NT$500,000 on Hung Kung Recycling Company, and NT$200,000 on HanLin Environmental Technologies Corporation. The fines totaled to NT$58 million.

Appendix:
E&E Recycling Corporation's Uniform Invoice Number: 16636181
FGD Recycling Industrial Co., Ltd.'s Uniform Invoice Number: 16181490
Perfect Recycling Company's Uniform Invoice Number: 16725373
Hong Chin Recycling Enterprise Corp.'s Uniform Invoice Number: 16393240
Liuh-Jian Co., Ltd.'s Uniform Invoice Number: 16821593
Chiu-Fa Environmental Protection & Engineering Co., Ltd.'s Uniform Invoice Number: 22926912
Da Chi Enviromental Technologies Co., Ltd.'s Uniform Invoice Number: 80703951
Big South Resource Recycling Company's Uniform Invoice Number: 27224616
Rui Yuan Environmental Protection Company's Uniform Invoice Number: 80426350
Ke Bai Sheng Company‘s Uniform Invoice Number: 28792313
Hung Kung Recycling Co., Ltd.‘s Uniform Invoice Number:80632513
HanLin Environmental Technologies Co., Ltd.'s Uniform Invoice Number: 24360525