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Cablegate: Bilateral Consultations On Competition Law and Antitrust Seminar

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 TAIPEI 003961

SIPDIS

STATE PASS TO AIT/W, DOJ, AND USTR

STATE FOR EAP/RSP/TC

DOJ FOR DELRAHIM

USTR FOR KI/FREEMAN

E.O. 12958: N/A
TAGS: KIPR ECON ETRD TW
SUBJECT: Bilateral Consultations on Competition Law and Antitrust Seminar


Summary
-------
1. (U) In order to share information and open channels for
future cooperation on antitrust issues, AIT and the US
Department of Justice met with officials from the Taiwan
Fair Trade Commission (TFTC) in Taipei, November 15-16. DOJ
and TFTC officials compared antitrust developments in the US
and Taiwan and committed to establish an intellectual
property rights (IPR) and competition working group under
the auspices of AIT and TECRO. In a separate session, which
included private US attorneys as well as other Taiwan
agencies and academics, the two sides gave presentations on
the importance of antitrust enforcement to economic
development. DOJ also participated in a competition law
seminar hosted by the US-Taiwan Business Council and the
Taiwan Semiconductor Industry Association (TSIA). End
Summary.

DOJ Focuses on Increasing Penalties While Providing Amnesty
--------------------------------------------- --------------
2. (U) On November 15, 2004 Deputy Assistant Attorney
General Makan Delrahim, Special Counsel Stuart Chemtob, and
DOJ Attorney Andrew Finch met with TFTC representatives for
3 hours of consultations at TFTC headquarters. The U.S.
presentation focused on a dual approach of simultaneously
increasing penalties for cartel behavior and the benefits of
the amnesty program. DOJ reported that the US has increased
the maximum penalty from 3 years in jail to 10 years in jail
and the maximum criminal fine from US$10 million to US$100
million. The amnesty program, which offers amnesty to the
first company from a cartel that comes forward with
information, now also provides for reduced civil penalties
for amnesty recipients. The amnesty program is the single
most effective tool for breaking up cartels. Mr. Delrahim
also stressed that an effective antitrust policy should not
discriminate based upon nationality. He cited several
examples of US companies investigated by DOJ for
anticompetitive practices against foreign firms.

Taiwan Still Developing its Antitrust Enforcement Program
--------------------------------------------- ------------
3. (U) Taiwan is also exploring an amnesty program and
expressed interest in the lessons learned from the DOJ, but
TFTC Chairman Hwang Tzong-Leh noted that TFTC does not share
the US DOJ's ability to prosecute antitrust violators. This
limits TFTC's ability to put pressure on and negotiate deals
with violators. Taiwan's amnesty law is still being
discussed in the legislature. TFTC Vice Chairman Chen Chi-
yuan stated that TFTC's focus over the next three years
would be examination of enforcement procedures and
legislation in order to create a consistent enforcement
policy. He pointed out that this is necessary because Taiwan
has a very short antitrust law history compared to the US.
Chairman Chen also mentioned that Taiwan prefers to educate
the business community rather than regulate them. He
particularly stressed that dissemination of information in
forums such as seminars are as important as enforcement
actions.

4. (U) The two groups also discussed their different
procedures for evaluating mergers. In 2002 Taiwan amended
the requirement that two firms intending to merge submit a
pre-merger application. Now, they require a pre-merger
notification, meaning that if TFTC does not request more
information within 30 days, the merger would be
automatically approved. TFTC's policy also uses market
share as a benchmark for determining which merger
applications will require more requests for information.
When Chemtob questioned this policy, TFTC responded that
other measures such as assets and sales volume are absolute
numbers and do not reflect the relative nature of
monopolies. TFTC prefers flexible standards that promote
competition. Chemtob stated DOJ also prefers flexible
standards that promote competition, but does not consider
market share to be the primary determiner of anticompetitive
practice. TFTC asked DOJ whether it placed a greater
priority on a short time frame for evaluating merger
applications in order to improve efficiency or on accuracy
of the data in order to catch more offenders. They also
asked whether DOJ used a large database of information to
evaluate which cases constituted compliance problems. DOJ
responded that it evaluates mergers on a case-by-case basis.
Out of 1454 merger notifications in FY 2004, it had to
scrutinize only about 75 cases, and only in 15 cases (one
percent) did they issue a second request for information.

Agreement to Establish IPR and Competition Working Group
--------------------------------------------- -----------
5. (U) Mr. Delrahim proposed establishing an intellectual
property and competition working group with the TFTC in
order to help it distinguish IPR rights from anti-
competitive practices, based on sound economic policy. He
said that DOJ has already established working groups with
the Japan Fair Trade Commission (JFTC) and the Korea Fair
Trade Commission (KFTC). Delrahim proposed establishing a
similar dialogue with Taiwan to include issues such as
standard setting and unilateral refusals for licensing. He
suggested that the working group include both economists and
attorneys. Chemtob said the US Federal Trade Commission
would participate in the working group. Vice Chairman Chen
agreed that a working group would be an important venue to
exchange ideas in the IP and competition area and to receive
advice from DOJ. He stated that the International
Competition Network (ICN) was also a good forum to discuss
issues such as these, as the US and Taiwan are both members.

Seminars Highlight Need for Antitrust Education in Taiwan
--------------------------------------------- -----------
6. (U) The afternoon session on November 15 was open to
officials from several Taiwan ministries as well as
professors and students from local Universities. DAAG
Delrahim spoke about the antitrust enforcement priorities in
the United States, citing cartels as the highest priority,
followed by mergers, and lastly, monopolistic behavior. He
stressed the importance of international cooperation in
anti-cartel enforcement and praised the establishment of the
ICN and intellectual property and competition working groups
to promote convergence on policy and enforcement. The
audience asked why Taiwan, which had much smaller companies
than the US, should be worried about antitrust issues. Mr.
Delrahim explained that antitrust investigation should be
primarily concerned with preserving the competitive
environment, not the size or even the market share of the
firms involved.

7. (U) Commissioner Yu said that the Taiwan Fair Trade Law
distinguishes anti-trust issues, such as mergers and
monopolies, from unfair competition issues, such as false
advertising, illegal multilevel sales, fraud, and
counterfeiting. In the last 12 years Taiwan has handed out
over NT$1.3 billion in fines and has punished over 3,666
companies. He reiterated the TFTC view that punishment
should not be the primary tool. Taiwan instead favors
education, through universities, mass media, and information
dissemination to the companies so that they can effectively
self-regulate.

8. (U) The US-Taiwan Business Council and TSIA organized
presentations to industry representatives November 16 in
Hsinchu. The key points discussed included cooperation
between governments on investigations, which DOJ praised,
and the inconsistency of penalties and time frame for
investigations, which private firms complained about. The
private attorneys also raised questions about how patent
pools (groups of companies combining large numbers of
related patents for licensing arrangements) were hindering
smaller firms from innovating and, conversely, how patent
"trolls" (companies who buy up large numbers of patents
without intending to market them and then sue when another
company markets a product, allegedly based on such patents)
were hindering innovation by larger firms. In the last
session, companies asked how they could protect themselves
from antitrust suits. Finch stressed that an effective
compliance program must communicate the severity of possible
penalties for anti-competitive activity, before it starts to
occur.

Conclusion
-------
9. (U) This conference built on the relationship established
by last year's meetings in Washington. TFTC appreciated the
opportunity to personally discuss the development of
Taiwan's enforcement program with DOJ. More importantly,
they were able to establish a channel for regular
communication between Taiwan and US officials. The public
seminars directly addressed TFTC's focus of educating firms
about antitrust laws rather than regulating them.
Participants agreed that this kind of education program
would help prevent compliance problems in the future and
requested more education programs on this relatively new
area of Taiwan law.
Paal

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