China’s New Provisions on Anti-price Monopoly and Related Law Enforcement Procedures
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The competition law in the People's Republic of China ("PRC") is embodied in the Anti-Monopoly Law (the "AML") which was implemented in 2008.
But given the complexity of the monopoly issues in different business contexts, the basic principles and institutional framework established by the AML need to be supplemented by more detailed regulations. As a result, the National Development and Reform Commission (“NDRC”) issued two AML-related rules, ie, Provisions on Anti-price Monopoly (Order No.7 of NDRC) (“Order No. 7”) and Provisions on Procedures for Administrative Law Enforcement on Anti-Price Monopoly (Order No.8 of NDRC) (“Order No.8”) (collectively called the “Orders”), on 29 December 2010, which Orders became effective on 1 February 2011.
2. Order No.7
Order No.7 elaborates on the price-related monopoly acts, which can be summarized as three price fixing behaviors as follows:
(a) Price Monopoly Agreements
Article 7 of Order No.7 prohibits competing operators from reaching price monopoly agreements in relation to the following:
(i) fixing or changing the price of commodities and services;
(ii) fixing or changing the range of price changes;
(iii) fixing or changing the transaction fees, discounts or other fees which will affect prices;
(iv) adopting an agreed price as the basis for transactions with third parties;
(v) adopting standard formula in calculating prices;
(vi) prohibiting business operators from effecting price changes without prior consent of other signatory operators;
(vii) fixing or changing prices in other disguised forms; or
(viii) any other price monopoly agreements as determined by the competent price regulatory authority under the State Council.
The term “price monopoly agreements” includes any agreements, decisions or other concerted practices that exclude or limit price competition.
Further, trade associations are not allowed to formulate rules, decisions or notices to eliminate or restrict price competition or arrange undertakings to reach any price monopoly agreement which is prohibited by Order No.7 (Article 9).
(b) Abuse of Dominant Market Position
Order No.7 elaborates on Article 17 of the AML in relation to 6 types of abuse of dominant market positions. Business operators with dominant market positions are prohibited from:
(i) selling commodities at unfairly high prices or buying commodities at unfairly low prices, taking into account factors such as the price offered by other business operators for the same kind of commodity and the normal price range when costs are generally stable (Article 11);
(ii) selling commodities at prices below cost without justifiable reasons, considering factors such as the expiry dates of the commodities, repayment of debts by the business operators and sales promotion etc (Article 12);
(iii) refusing to enter into transactions with their trading counterparts through setting excessively high sale prices or excessively low purchase prices without justifiable reasons; justifiable reasons would include poor credit record of the trading counterparts etc (Article 13);
(iv) restricting their trading counterparts to conduct transactions only amongst themselves by means of discount without justifiable reasons. Guaranteeing quality and safety of products and maintaining brand image etc may be accepted as justifiable reasons (Article 14);
(v) adding unreasonable fees to prices in trading (Article 15); or
(vi) applying different price treatments to different trading counterparts with the same conditions without justifiable reasons (Article 16).
According to Article 17, “dominant market position” refers to a market position which enables a business operator to control pricing, quantity and other transaction conditions or to hinder or affect other business operators’ entry into the relevant market. Article 19 is a deeming provision pursuant to which a business operator is deemed to hold a dominant market position eg when a business operator holds 50% market share in the relevant market.
(c) Abuse of Administrative Powers to Eliminate or Restrict Competition
To prevent the abuse of the administrative powers, Order No.7 provides that administrative departments and other organizations authorized by laws or regulations to manage public affairs shall not abuse their administrative powers by imposing discriminatory charging items or charging standards, or fixing discriminatory prices on non-local commodities (Article 20), compelling business operators to engage in price monopoly conducts (Article 21) or formulating regulations to exclude or limit price competition (Article 22).
3. Order No.8
Order No.8 outlines powers and obligations of NDRC and its subordinate authorities in relation to the enforcement of anti-price monopoly violations, especially on important procedural matters, such as when and how investigation may be carried out, leniency in cases of self-reporting and suspension of investigation etc.
(a) Applicable Investigation Measures
According to Article 6 of Order No.8, the price authority may take the following measures in investigating any alleged price monopoly violation:
(i) entering the business premises of the business operator or other related locations to conduct investigation;
(ii) questioning the investigated business operator, stakeholders or other related persons (referred to collectively as "investigated persons") for a statement of relevant information;
(iii) inspecting and copying the investigated persons' files and materials, such as relevant vouchers, agreements, accounting books, business letters and electronic data;
(iv) seizing or confiscating the related evidence; and
(v) checking the business operator's bank account.
The investigation shall be carried out by no less than 2 persons assigned by the price authority, who shall show their price-related administrative law enforcement certificates (Article 8). Further, the price authority and its personnel shall be obligated to keep confidential the trade secrets to which they have access to during the law enforcement (Article 9).
The investigated persons shall cooperate with the price authority in the latter's fulfillment of duties and cannot refuse or hinder the authority's investigation (Article 10).
(b) Leniency
Order No.8 provides that a business operator who reports its involvement in any price monopoly agreement and supplies important evidence may qualify for leniency.
According to Article 14, if the reporting business operator is the first to report, he may be exempted from any penalty. As to the second to report, there may be no less than 50% reduction in penalty and for any other subsequent reports, the reduction will be no more than 50%.
(c) Suspension of the Investigation
Under Order No.8, the investigated operator may apply for suspension of investigation, which application should state the relevant facts, the measures undertaken to eliminate the consequences and the time limit etc. If the price authority decides to suspend the investigation, it will supervise the implementation promised by the operator and if the operator has fulfilled its commitment, the price authority may decide to terminate the investigation, or if necessary, resume the investigation.
4. Implementation
It was reported that on the date of the promulgation of the above two Orders, the NDRC issued its first penalty note of RMB500,000 to a paper trading association for arranging a price monopoly agreement amongst its members. It is expected that notes of similar nature will enhance the understanding of, and compliance with, the Orders and promote a fair market. Business operators should be familiar with the Orders and ensure that they will not be in contravention of the relevant rules in their operations.
ABOUT THE AUTHOR: Angela Wang & Co
Angela Wang & Co is a focused Greater China corporate commercial practice. Our defined objective is to provide discerning users of law firms with a firm of real legal capabilities at acceptable cost. Our dynamic team of lawyers adopts a creative and practical approach to commercial solutions, with special attention to good transaction management and close client involvement. We constantly put the needs of clients first.
Copyright Angela Wang & Co.
More information about Angela Wang & Co.
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
2. Order No.7
Order No.7 elaborates on the price-related monopoly acts, which can be summarized as three price fixing behaviors as follows:
(a) Price Monopoly Agreements
Article 7 of Order No.7 prohibits competing operators from reaching price monopoly agreements in relation to the following:
(i) fixing or changing the price of commodities and services;
(ii) fixing or changing the range of price changes;
(iii) fixing or changing the transaction fees, discounts or other fees which will affect prices;
(iv) adopting an agreed price as the basis for transactions with third parties;
(v) adopting standard formula in calculating prices;
(vi) prohibiting business operators from effecting price changes without prior consent of other signatory operators;
(vii) fixing or changing prices in other disguised forms; or
(viii) any other price monopoly agreements as determined by the competent price regulatory authority under the State Council.
The term “price monopoly agreements” includes any agreements, decisions or other concerted practices that exclude or limit price competition.
Further, trade associations are not allowed to formulate rules, decisions or notices to eliminate or restrict price competition or arrange undertakings to reach any price monopoly agreement which is prohibited by Order No.7 (Article 9).
(b) Abuse of Dominant Market Position
Order No.7 elaborates on Article 17 of the AML in relation to 6 types of abuse of dominant market positions. Business operators with dominant market positions are prohibited from:
(i) selling commodities at unfairly high prices or buying commodities at unfairly low prices, taking into account factors such as the price offered by other business operators for the same kind of commodity and the normal price range when costs are generally stable (Article 11);
(ii) selling commodities at prices below cost without justifiable reasons, considering factors such as the expiry dates of the commodities, repayment of debts by the business operators and sales promotion etc (Article 12);
(iii) refusing to enter into transactions with their trading counterparts through setting excessively high sale prices or excessively low purchase prices without justifiable reasons; justifiable reasons would include poor credit record of the trading counterparts etc (Article 13);
(iv) restricting their trading counterparts to conduct transactions only amongst themselves by means of discount without justifiable reasons. Guaranteeing quality and safety of products and maintaining brand image etc may be accepted as justifiable reasons (Article 14);
(v) adding unreasonable fees to prices in trading (Article 15); or
(vi) applying different price treatments to different trading counterparts with the same conditions without justifiable reasons (Article 16).
According to Article 17, “dominant market position” refers to a market position which enables a business operator to control pricing, quantity and other transaction conditions or to hinder or affect other business operators’ entry into the relevant market. Article 19 is a deeming provision pursuant to which a business operator is deemed to hold a dominant market position eg when a business operator holds 50% market share in the relevant market.
(c) Abuse of Administrative Powers to Eliminate or Restrict Competition
To prevent the abuse of the administrative powers, Order No.7 provides that administrative departments and other organizations authorized by laws or regulations to manage public affairs shall not abuse their administrative powers by imposing discriminatory charging items or charging standards, or fixing discriminatory prices on non-local commodities (Article 20), compelling business operators to engage in price monopoly conducts (Article 21) or formulating regulations to exclude or limit price competition (Article 22).
3. Order No.8
Order No.8 outlines powers and obligations of NDRC and its subordinate authorities in relation to the enforcement of anti-price monopoly violations, especially on important procedural matters, such as when and how investigation may be carried out, leniency in cases of self-reporting and suspension of investigation etc.
(a) Applicable Investigation Measures
According to Article 6 of Order No.8, the price authority may take the following measures in investigating any alleged price monopoly violation:
(i) entering the business premises of the business operator or other related locations to conduct investigation;
(ii) questioning the investigated business operator, stakeholders or other related persons (referred to collectively as "investigated persons") for a statement of relevant information;
(iii) inspecting and copying the investigated persons' files and materials, such as relevant vouchers, agreements, accounting books, business letters and electronic data;
(iv) seizing or confiscating the related evidence; and
(v) checking the business operator's bank account.
The investigation shall be carried out by no less than 2 persons assigned by the price authority, who shall show their price-related administrative law enforcement certificates (Article 8). Further, the price authority and its personnel shall be obligated to keep confidential the trade secrets to which they have access to during the law enforcement (Article 9).
The investigated persons shall cooperate with the price authority in the latter's fulfillment of duties and cannot refuse or hinder the authority's investigation (Article 10).
(b) Leniency
Order No.8 provides that a business operator who reports its involvement in any price monopoly agreement and supplies important evidence may qualify for leniency.
According to Article 14, if the reporting business operator is the first to report, he may be exempted from any penalty. As to the second to report, there may be no less than 50% reduction in penalty and for any other subsequent reports, the reduction will be no more than 50%.
(c) Suspension of the Investigation
Under Order No.8, the investigated operator may apply for suspension of investigation, which application should state the relevant facts, the measures undertaken to eliminate the consequences and the time limit etc. If the price authority decides to suspend the investigation, it will supervise the implementation promised by the operator and if the operator has fulfilled its commitment, the price authority may decide to terminate the investigation, or if necessary, resume the investigation.
4. Implementation
It was reported that on the date of the promulgation of the above two Orders, the NDRC issued its first penalty note of RMB500,000 to a paper trading association for arranging a price monopoly agreement amongst its members. It is expected that notes of similar nature will enhance the understanding of, and compliance with, the Orders and promote a fair market. Business operators should be familiar with the Orders and ensure that they will not be in contravention of the relevant rules in their operations.
ABOUT THE AUTHOR: Angela Wang & Co
Angela Wang & Co is a focused Greater China corporate commercial practice. Our defined objective is to provide discerning users of law firms with a firm of real legal capabilities at acceptable cost. Our dynamic team of lawyers adopts a creative and practical approach to commercial solutions, with special attention to good transaction management and close client involvement. We constantly put the needs of clients first.
Copyright Angela Wang & Co.
More information about Angela Wang & Co.
View all articles published by Angela Wang & Co.
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
