The Competition Policy on Taiwan Financial Industry: From the Perspective of Competition Law
Date Issued
2012
Date
2012
Author(s)
Yen, Ya-Lun
Abstract
Individual economies may adopt different ideologies concerning the interrelation between government and market, and their approach thereof will largely determine theirattitudes and tendencies in antitrust law enforcement, and how to interpret the highly uncertain legal concepts and terms in antitrust law. Upon advocating and establishing competition law in 1980s and 1990s, Taiwan was deeply influenced by European competition law, which follows German Ordo-liberalism tradition. Compared to American antitrust law emphasizing efficiency with consumer welfare standard and European Union competition law simultaneously pursuing multiple goals, Taiwan has been embedded the developmentalism tradition. Taiwan economic policies consistently recognize the importance of efficiency and economies of scale.
Therefore, as a relatively small economy in North East Asia, the enforcement of Taiwan antitrust law could not ignore the merits of firms’ attaining minimum efficient scale (MES), and it is appropriate for Taiwan to adopt the competition policy highlighting efficiency and using total welfare criterion. Nevertheless, Taiwan should be wary of the temptation of pursuing or supporting national champions, and then loosening antitrust law enforcement. The emphasis placed on economies of scale should be limited to necessary extent. In addition, in Taiwan, the lasting governmental intervention and regulations related to the market economy are still the main issues, which is different from the background of strong advocates of re-regulation based upon the behavioral economies in the United States after the financial crisis. Moreover, since behavioral antitrust policy has not presented a comprehensive and coherent set of theories and empirical evidence to predict market activities, it is not a good choice for Taiwan antitrust enforcement now.
The recent financial crisis triggered the debate about and tension between competition policy and industry policy. Taiwan financial industry is highly regulated, and Taiwan government explicitly supports the mergers among financial institutions in order to foster national champion. Hence, financial industry is the specific field embodying the interrelation, competition and conflict between competition law and regulations, the role of Taiwan government in Taiwan economy, and the approach and development of Taiwan competition policy. The author of this thesis compiled and analyzed the cases regarding financial institutions investigated by Taiwan Fair Trade Commission (“Taiwan FTC”) and Taiwan financial regulations. Based upon the foregoing, the author makes the suggestions as to the future enforcement of the Fair Trade Act (“FTA”) in financial industry as follows:
1. Taiwan FTC has submitted to industrial policy when reviewing the merger cases of financial institutions for many years. Taiwan FTC shall strengthen its economic analysis of and research onefficiency arising from economies of scale and scope possibly achieving by the mergers of financial institutions, and then,under Article 12 of the FTA,determine whether the overall economic benefit outweighs the disadvantages resulted from competition restraints, and it is necessary or appropriate to attach conditions or require undertakings to conduct specific acts. In addition, Taiwan FTC shall adopt the criterion of significantly impeding competition rather than forming or strengthening market dominating position in reviewing the legality of the merger case in dispute.
2. “Too big to fail” financial institutions should not be the main concern of the FTA and shall be coped with in financial regulations. The exemptions now described in Taiwan financial regulations from merger fillings should be deleted. Any exemption due to financial stabilization concerns should be clearly defined with shortening the waiting period after merger filings. Furthermore, following pocket decree procedure in the United States to balance short-term financial stabilization with long-term market competition may be a better choice compared to completely exemption.
3. Taiwan FTC should embrace material influence standard to resolve if there is any situation qualifying as the “merger” described in Article 6 of the FTA, and refer to “controlling interest” and “same concerned person ” defined in Article 4 of the Financial Holding Company Act upon the application of Article 6 I(5) of the FTA. Furthermore, in the event that one enterprise directly or indirectly control directors, supervisors, or high-rank officers of the other enterprise to the extent that the former enterprise could serve as or control the chairman of board of directors, chief executive officers, or be able to veto the matters required to be approved by the supermajority resolution of the boards of the latter enterprise, the former enterprise should be deemed to have a material influence on the latter enterprise, which is possible to establish the merger defined in Article 6 of the FTA; if the former enterprise could serve as or control the managing directors of the latter enterprise, Taiwan FTC shall thoroughly examineany other facts that these two enterprises are under the same control, or other factors that will influence market competition, in order to determine whether there is a merger under Article 6 of the FTA.
4. From this perspective, if Taiwan FTC is unable to notice the material influence of Taiwan government on several big financial conglomerates, and the plans or schemes that financial institutions or family groups use multi-tiers corporation structures, or investment corporations to control several financial institutions, Taiwan FTC may improperly underestimate the concentration rate of Taiwan financial market.
5. Financial holding companies could virtually merger with nonfinancial enterprises under Article 6 of the FTA through interlocking directorates or directly or indirectly controlling the directors of the other enterprises (especially by means of Article 27 of the Company Act or endowing foundations). It is common in Taiwan that family groups simultaneously control industrial groups and financial conglomerates, or industrial groups control financial institutions. Faced with Taiwan the potential financial merger wave in the following years, Taiwan FTC should be mindful of the risk that some industrial conglomerates controlling large or various financial institutions will pursue the competitive advantages,or engage in anti-competitive activities without any efficiency related to economies of scaleby directing the affiliated or controlled financial institutions not to give capital to the competitors of these industrial conglomerates or its subsidiaries or affiliates. Moreover, since conglomerate mergers may pose some competitive concerns in Taiwan, the market share thresholds described in Article 11 Ⅰ(1) and (2) are still meaningful for controlling the larger conglomerates’ influence straddling different markets.
6. If Taiwan FTC takes more lenient view on the mergers of financial institutions, Taiwan FTC shall strictly prohibit illegal cartels andinvestigate the exclusionary actions of the enterprises with market power and any barrier caused by these enterprises. In addition, Taiwan FTC shall vigorously enforce the FTA to stimulate market competition when the financial regulations are relaxed or there is any loophole therein, and look into the complicated financial activities, e.g. co(re)-insurance, more carefully so that Taiwan FTC will not take these activities for granted and be sluggish in enforcing the FTA with regard thereto.Financial regulations are more dominant in financial exchange, clearing, and information platform that are monopolies. However, it would be unwise to refer to Trinko and Credit Suisse cases in the United States and let the financial authority be completely in charge of market competition in some strongly regulated financial fields. For instance, there shall be still room for Taiwan FTC’s intervention ofapplying the FTA to anticompetitive activities related to securities underwriting.
7. Taiwan FTA and Financial Supervisory Commission (“FSC”) should establish a communication mechanism under Article II of the FTA on shareholding structure, investment, market dynamic related to financial institutions. In addition, after Financial Consumer Protection Act takes in force, FSC shall incorporate the rules developed from the cases invested by Taiwan FTC and targeting financial institution for protecting financial consumers under Article 9 II of the FTA. However, as for financial consumer protection, Taiwan FTC shall step back to the second line. Neither is appropriate to use Article 24 of the FTA as the main remedy to protect financial consumers, nor is proper to apply market relatively superior position theory to deal with tying in financial products. Then Taiwan FTC shall set its resources aside for strengthening antitrust law enforcement.
Subjects
Competition Policy
Financial Institution
Financial Industry
Financial Holding Company
Small Economy
Merger Control
Fair Trade Act
Dodd-Frank Act
SDGs
Type
thesis
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