On 29 December 2010, the National Development and Reform Commission (NDRC) issued rules entitled "Rules on Anti-Price Monopoly"(rules). These are the first rules to provide further guidance in relation to the price-related prohibitions of the Anti-Monopoly Law (AML). [Note: The NDRC issued these rules in draft form for the first time in September 2009.] The rules were effective from 1 February 2011.
Broadly, the rules expand on and provide further guidance to the prohibitions against anticompetitive agreements and against an abuse of dominance within the AML.
Prohibition against anti-competitive agreements
Article 13 of the AML prohibits anticompetitive agreements or "monopoly agreements" between competing business operators. Article 13 of the AML also lists specified conduct which amounts to monopoly agreements between competitors (such as price fixing, restricting output, dividing markets and joint boycotts) which are explicitly prohibited.
The rules provide further guidance in relation to how the price-related prohibitions in respect of Article 13 will be interpreted. Specifically:
- Article 5 of the rules state that a price-related monopoly agreement refers to a price-related agreement, a decision or a concerted act;
- Article 6 of the rules state that the factors that the NDRC will take into consideration in determining whether conduct amounts to a "concerted act" include: whether there has been consistency between business operators in relation to their "pricing acts"; whether there is evidence of collusive behaviour between business operators; the structure of the market; and any changes to the structure of the market; and
- Article 7 of the rules outline specified conduct which amounts to a price-related monopoly agreement. Some examples of these specified conduct include fixing or altering the price level of commodities or services; fixing or altering a commission, discount or other charges; and agreeing to apply a standard formula as a basis to calculate prices.
Prohibition against abuse of dominance
Article 17 of the AML prohibits dominant business operators from abusing their dominant market positions. Article 17 also lists specified conduct which amounts to an abuse of dominance (such as selling commodities at unfairly high prices or unfairly low prices; selling commodities at below-cost prices; restricting trading conditions; and implementing differential treatment, without valid reasons).
The rules provide further guidance in relation to how the price-related prohibitions in respect of Article 17 will be interpreted. Specifically:
- Article 11 of the rules list out factors which the NDRC will consider when determining if prices are "unfairly high" or "unfairly low". Some of these factors include whether the selling price of a good or service increases or decreases beyond a "normal" volume when costs are "basically stable"; and whether the increase in price of a good or service is "much larger" than the increase in costs;
- Article 12 of the rules provide some guidance in relation to what the term "valid reason" means in the context of Article 17(2) of the AML. Article 17(2) of the AML prohibits dominant business operators from selling commodities at below cost prices without a valid reason (i.e. predatory pricing). Article 12 of the rules states that "valid reasons" (in relation to Article 17(2)) could include: reducing the price of fresh or live commodities, seasonal commodities and expiring commodities or over-stock; reducing the price of commodities for sale due to debt repayment, property transfers or because of a discontinuation of business; and adopting sales promotions for the purpose of promoting new products.
- Article 13 of the rules provide some guidance in relation to what the term "valid reason" means in the context of Article 17(3) of the AML. Article 17(3) of the AML prohibits dominant business operators from refusing to deal or transact with other trading counterparts without a valid reason. Article 13 of the rules state that "valid reasons" (in relation to Article 17(3)), could include situations where there are greater "transaction risks" (examples of situations where there are greater transaction risks include where there is an existence of serious adverse credit history on the part of a trading counterpart or where there is "continued deterioration" of operating conditions on the part of a trading counterpart).
- Article 14 of the rules provide some guidance in relation to what the term "valid reason" means in the context of Article 17(4) of the AML. Article 17(4) of the AML prohibits dominant business operators from implementing restrictive conditions on trading counterparts and from implementing "unreasonable terms" on trading counterparts. Article 14 of the rules state that "valid reasons" (in relation to Article 17(4)) include ensuring product quality and safety and maintaining brand image or improving service levels.
The AML was enacted in August 2008. It is timely that the NDRC has issued these rules to provide further guidance on the price-related prohibitions within the AML.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.