The Fair Trade Commission fined 21 cement companies a total of NT$210 million yesterday for engaging in cartel practices to raise cement prices, one of the highest administrative fines to issued by the FTC since its establishment in 1992, after a four-year investigation of the companies.
The case concerned 21 cement enterprises, including 11 cement manufacturers and 10 cement silo holders or distributors in Taiwan, that allegedly adopted anti-competitive practices by colluding with each other to the raise price of cement on local market, the FTC said. Eight listed companies, including Taiwan Cement Corporation, Asia Cement, Chia Hsin Cement Group and Lucky Cement Corporation, were among those fined yesterday.
"The individual fines range from NT$5 million to NT$18 million and total NT$210 million," said FTC Vice Chairman Yu Chao-chuan, adding that it was the second highest penalty issued by the commission since it was established 12 years ago.
According to the FTC, domestic manufacturers set up a cartel over the past five years through the establishment of a joint venture to dominate an area in southern Taiwan and to prevent an international cement group from establishing local marketing channels.
Supply and demand
The cement manufacturers then tried to reduce the price effects of oversupply by negotiating with some enterprises to retreat from the market. To further shut out competition, the manufacturers also reached an agreement with certain international cement groups on marketplace allocations and made a deal to stay out each other's territories.
Domestic cement manufacturers and importers then colluded to sell locally produced cement to each other, instead of importing from other countries, so as to restrict market competition and facilitate the joint hiking of cement prices, the FTC's investigation revealed.
With this strategy, suppliers jointly raised cement prices substantially from NT$1,300 per ton in 2001 to the NT$2,250 at present, the FTC said.
To maintain the cartel, local cement enterprises also arrived at an understanding with Japanese steel enterprises to reduce the annual import volume of slag - a substitute product for cement - to Taiwan, leading to an increase in the price of slag, the FTC said.
"This case is significant because cement markets are generally cohesive in most countries, and it therefore very hard to obtain solid evidence of cartel practices," the FTC said in a press release issued yesterday.
After it received a report by an informant of illegal market practices in November 2001, the FTC formed a number of special expertise taskforces to carry out an investigation. In October this year, the commission, for the first time, held a formal hearing, in accordance with the Administrative Procedure Act.
The FTC however conceded that it understood the predicament of local cement enterprises faced with international competitors, and said in its investigation report that the local cartel had developed as result of international cement cartels that formed after the 1997 Asian financial crisis.
Following a sharp decline in demand for cement in Southeast Asia, the resulting oversupply and low prices of international products in the region led several international cement concerns, including the Mexico-based Cemex--the third largest international cement group in the world - to seek entry into the Taiwan market.
After Cemex's entry into the local market in 2000, it slashed the price of cement from NT$1,900 to NT$1,100 per ton.
As Cemex aggressively sought to gain a footing in Kaohsiung after acquiring silos in Keelung and Taichung, local cement manufacturers decided to take action to stop further expansion of the foreign company, the FTC press release said.
One of the enterprises fined, Taiwan Cement Corporation, expressed regret over the penalty and said it is considering filing an appeal against the ruling.
The increase in cement prices on the local market over the last two years was reasonable because of liberal market mechanisms, the TCC claimed.
However, prior to 2004, the low prices resulting from dumping by international cement groups had destroyed the market mechanism, TCC, a major domestic cement manufacturer, argued.
TCC said that the person who informed the FTC about the local cartel must completely lack an understanding of the cause and effect of cement price increases.
The company asserted that it could provide tangible and detailed evidence to prove that the accusations against it were wrong.