FTC action in PP allegation

12 June 2000 00:00  [Source: ACN]

Japan's PP producers may have to wait a year for an outcome from the investigation into alleged cartel activities

Japan's PP producers may have to wait 12 months before they know the outcome of an investigation against alleged price fixing launched against them at end-May by the Fair Trade Commission (FTC).

The inquiry sent shock-waves through Japan's PP industry.

If found guilty, the producers could face a monetary penalty amounting to 6% of net sales during the period under investigation. And if criminal charges are established, as happens in rare cases, top company officials involved in the alleged violation of the law may face up to two years imprisonment.

The inquiry is among the 40-50 such cases investigated every year by the FTC under the Anti-Monopoly Act.

The investigation, the first against Japanese PP producers since 1974, could take between six months and one year, an FTC source said.

'Japanese domestic prices have always been higher than international prices because of the high cost of transportation within Japan. But raising prices becomes an unfair business practice only when the price increase oversteps the market-oriented pricing system,' an industry source said.

'The FTC investigation should help safeguard the effectiveness of the market-oriented pricing system.'

On 30 May, the FTC raided more than 20 offices of Japan Polychem, Grand Polymer, Sumitomo Chemical, Tokuyama, Idemitsu Petrochemical, Chisso Petrochemical and Montell Sunrise SDK, FTC director Kyohei Sakai confirmed (ACN 5 June, p5). The seven producers have a combined PP capacity of 2.7m tonne/year.

Companies contacted by ACN confirmed the raids, but declined to comment on the investigations. One producer, however, did point out that PP price increases in 1999 had been much lower than the rise in propylene prices.

If the allegations prove founded, the offenders may have to pay a maximum monetary penalty of 6% of total sales during the period when the cartel was operating.

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In the case of the last investigation against PP producers in 1974, the offending companies received a recommendation that they must retract two price hikes that had been implemented in November 1973, and a warning that they must not repeat the offence.

It was only in 1977 that the Japanese Anti-Monopoly Act was amended to include a provision for a monetary penalty.

'This was done because the FTC found that offenders were frequently repeating their offence, despite warnings. We felt that companies would stop trying to form cartels only if they had to pay a price for the violation of the law,' said FTC investigator Takujiro Kono.

The legislation was aimed not merely at encouraging domestic but also overseas competition, an FTC source pointed out.

In 1998, MDS Nordion was found to have prevented its competitors from entering the Japanese market by concluding 10-year contracts effective from 1996, with two customers for Molybdenum-99, a raw material of technetium-99m, a radio pharmaceutical made in Japan.

The FTC in June 1998 ordered MDS Nordion to cease the violation.

The last case involving domestic chemical producers was in 1993, when eight companies were found guilty of raising prices of polyester material for electronic items by 15%.

Seven of the companies - Hitachi Kasei Kogyo, Matsushita Denko, Sumitomo Bakelite, Richo Kogyo, Kanebuchi Kagaku, Shinkobe Denki and Mitsubishi Gas Kagaku -were fined a total penalty of US$5m. The eighth company, Toshiba Chemicals, disputed the payment order and was ordered to pay US$550 000, US$27 000 less than the original penalty.

The most recent dispute settlement case was that of Mizuda Denko, which was found guilty of fixing the price in a bid for a government tender for electronics fittings in construction.

The company's penalty was reduced by US$2000 to US$25 000 on 21 April this year, after a panel of three independent arbitrators appointed by the FTC submitted its report.

The application for a reduction in penalty has to be submitted within 30 days of receiving the original order from the FTC. The final decision rests with the FTC, which has the power to veto the verdict of the independent panel and dismiss the case if it is found to be invalid.

The number of violators seeking a reduction in penalty is minimal. Of the 242 cases which came before the FTC between 1977 and 1999, only 17 penalty payment orders were disputed.

The total monetary penalty collected by FTC has been on the rise. In the financial year 1999-2000 ending 31 March 2000, the total penalty amounted to US$55m. It was US$30m the previous year, Kono said.

The highest monetary penalty was the US$110m paid collectively by 10 cement companies in 1991. The violators paid the fine within the stipulated period of 60 days, without dispute. Japan Cement alone paid Yen2.3bn (US$21.4m), the largest penalty to be paid by a single company.

Yet to be completed is the investigation begun last year into the charges of cartel-formation against 11 petroleum companies. The companies, including Kosumo Sekiyu, Nisseki Mitsubishi and Showa Shell, are suspected of deciding collectively who would win the bid for a government tender for procurement of automobile gasoline, aviation and shipping fuel and diesel, the FTC source said. The investigation is expected to be completed in the next six months.

Not all violators are required to pay a monetary penalty.

Of the 40-50 cases investigated in the financial year 1999-2000, only 20 were fined. The rest were issued a recommendation that they stop the infringement of the law and inform customers that an investigation had been conducted into the infringement. They were also warned not to repeat the offence.

In rare cases when criminal charges are brought against the offender, a maximum two-year sentence could be awarded along with the monetary penalty.

If the violator is a corporate entity, the individuals facing imprisonment could be the chief executive officer or chief operating officer as well as officers directly involved in the violation.

For a prison sentence to be imposed, the case is referred to the Public Prosecutor General, who pronounces the judgement.

The most recent case of such action was that involving three companies found guilty of forming a cartel for price fixing and bid-rigging for ductile iron pipes. Kubota Ltd, Kurimoto Tekosho and Nihon Tyutetsuka were in February this year criminally charged with violating the Anti-Monopoly Act and asked to pay a fine of US$1.3m, US$700 000 and US$300 000 respectively. Ten officials belonging to the three companies were also sentenced to 3-10 months imprisonment but the sentence has been suspended for two years.

Prison sentences are, however, viewed as the last resort by the FTC, and are therefore uncommon, said an FTC source. Only four or five offenders have so far been awarded jail terms.

Heavy monetary penalties are seen to be the preferred option to deter violators from repeating the offence.

In case the guilty party is unable to pay, the FTC can collect the amount through taxation channels or acquire the company or individual's non-monetary assets to guarantee future payments.

ICIS Copyright © Reed Business Information 2009

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