Fostering Competition Law and Policy: A Facade of Taiwan's Political Economy

This Article is based on a paper delivered at the APEC Competition Policy Study colloquium in Tokyo in 2001 organized by the Washington University in St. Louis, University of Victoria and Chuo University. It examines Taiwan's experiment with competition law and policy throughout the first ten years of the Fair Trade Law. I argue that the pressure of globalization fostered general sentiments in favor of competition policy. The FTL reinforced those sentiments, but its first ten years also demonstrate a checkered history of enforcement, which the state of the political economy in Taiwan greatly affected. To illustrate that the first ten years of the FTL represent a facade of Taiwan's political economy, Part I begins with a review of the general principles and policy context of the FTL. This part discusses Taiwan's economic development insofar as it relates to the resistance and ultimate emergence of competition legislation like the FTL. It also reviews the traditional Chinese view of market regulation and some rudimentary forms of competition law contained in the Tang Code, as well as the small economy phenomenon in Taiwan and the challenges it presents to transplanting competition rules like the FTL. This is set against the background of the FTL's legislative goals. A critical review of the TFTC and its work follows, and I review the political constraints on the commission and the commissioners in a rapidly democratizing society like Taiwan. Through the definition of enterprises, I then review the state action doctrine that emerged from early TFTC decisions and interpretations. I also show the challenges brought by state-owned enterprises (SOEs) in enforcing competition rules. Discussion of the regulated industry exemption from the FTL follows, as well as the TFTC's moderately successful competition advocacy program that flows from this exemption. At the end of this section, I introduce the intellectual property exemption in the FTL, and the tautology it demonstrates. Part II then examines monopoly control. It begins with an introduction to the definition of monopolies and rules against monopolization in the FTL, and then traces the comparative law sources of these rules. Representative cases follow, which illustrate the dangers of taking a light-handed approach to SOEs as well as taking a heavy-handed enforcement approach towards foreign firms. Next, I explore merger control in Taiwan by examining statistics to show the regulatory cost of merger control in Taiwan and describing the few cases in which the TFTC rejected the combination applications. I then describe a major policy study in 2001 leading to an amendment to the FTL in 2002 reforming merger control law in Taiwan, with some emphasis on cross-border combinations that are related to Taiwan. Part III reviews horizontal restraints, vertical restraints, and unfair competition. It begins by explaining how the cartel prohibition rule works in Taiwan, including a description of what types of cartels can be approved and how. I then focus on the TFTC's staff study, which alludes to the empirical results of anti-cartel enforcement and areas where such enforcement is becoming more difficult. Next I review price-related and non-price vertical restraints and discriminatory treatment under the FTL, as well as the doctrinal issues arising from the way these FTL rules work. A description of unfair competition follows, as the FTL provides a strange continuum from antitrust rules to unfair competition in the same chapter. A salient but increasingly troubling feature of this chapter is a catchall rule against deceptive and unconscionable conduct, which is a transplant from Section 5 of the American Federation Trade Commission Act. I go on to show why this transplant has not worked well in the context of different FTL enforcement mechanisms. Part IV examines enforcement mechanisms under the FTL. It introduces civil liabilities, criminal sanctions, and administrative enforcement sequentially. I then demonstrate the features of these different enforcement mechanisms, with a view to comparing the advantages and constraints of each enforcement mode. Clearly, after its first decade, the FTL has become a form of administrative law. This phenomenon has important ramifications on the TFTC as an institution, and it affects the case load and case selection, enforcement position, and ultimate effectiveness of the FTL. Part V shifts the focus somewhat by examining competition policy as opposed to competition law per se. The focus of this section is to illustrate how competition policy can help to change the market structure in Taiwan. I use telecommunications reform as an example of how to foster competition policy in Taiwan by recounting the different phases of Taiwan's telecom reform in an expanded political and economic context. I also look beyond the opening of the telecommunications market and delve somewhat into the challenges of the media convergence in Taiwan and its impact on competition law and policy. Part VI goes on to review the interactions of the telecommunications laws and competition law rules like the FTL. It advocates the importance of embracing competition principles and agency coordination. It also suggests rethinking FTL rules in the context of a newly deregulated market where there clearly is not a level playing field. This illustrates the need to rethink industry regulation; in the case of telecommunications, leap-frogging technology rapidly makes old regulatory rules obsolete. This part ends with a call for independence, which will be important for the proposed Telecommunications, Information and Broadcasting Commission in Taiwan. Part VII concludes by offering a brief summary of the performance of competition law and policy in Taiwan. I commend the TFTC on laying a good foundation for public awareness of the FTL and developing case law in important areas of competition law enforcement. However, I also point out the deficiencies of both the FTL and the TFTC. By pointing out the risks of misdirecting the enforcement approach for the FTL, I show the challenges lying ahead for the TFTC and offer some suggestions for improvement. Finally, I stress the importance of faithfully implementing competition policy to change market structure, which makes conduct regulation under the FTL much easier. In sum, I argue that Taiwan's first decade of enforcing competition law has produced relatively good results, compared with experiences elsewhere. I also caution that globalization forces more challenges on a small economy like Taiwan, and that it needs to embrace competition and market-opening in all forms to remain competitive.