China's competition law enforcement authorities published
their first decision against a price cartel on March 30, 2010, more
than one and a half years after the Anti-Monopoly Law (AML) came
into effect. This action against domestic rice noodle producers was
reported by the National Development and Reform Commission (NDRC),
one of two agencies responsible for nonmerger enforcement. The
decision – which suggests the possibility of criminal
liability for cartel conduct – indicates that anti-cartel
enforcement activity is gathering steam in China.
The Guangxi Rice Noodle Cartel
A s reported by NDRC, the rice noodle cartel involved 33
producers in 2 cities in the Guangxi Autonomous Region of China. In
November 2009, one producer in Nanning City organized meetings and
telephone conferences with local competitors, seeking to increase
prices. After those meetings, 18 producers in Nanning agreed to
raise rice noodle prices by RMB 0.2 (approximately USD 3 cents) per
half kilogram starting January 2010, causing retail prices to rise
by RMB 0.5 per half kilogram. After learning of the price increases
in Nanning, 15 producers in neighboring Liuzhou City contacted the
Nanning organizer to discuss participation in the cartel,
eventually signing a written agreement on cooperation and
profit-sharing. The organizers reportedly "coerced"
several of the Liuzhou rice noodle producers to participate in the
cartel.
The Enforcement Authorities
The NDRC is a PRC government agency with broad authority over
industrial policy and economic planning. Under the AML, it also
serves as the enforcement agency with jurisdiction over
price-related anticompetitive conduct, including price-fixing,
predatory pricing, and price discrimination. NDRC also has
enforcement responsibility for the Price Law, which prohibits
unfair pricing behavior, among other things.
The investigation team was led by local price authorities
(counterparts to the national-level NDRC) in Nanning City and
Liuzhou City, with involvement from the local Public Security
Bureau, Quality Supervision and Inspection Bureau, Food Bureau,
Administration of Industry and Commerce, Food and Drug Supervision
Bureau and Market Order Supervision Office.
Penalties and Leniency
A fter their investigation, the Nanning and Liuzhou price
authorities found that the price increases resulting from the
cartel members' collusion constituted "unfair price
behavior" in violation of the Price Law, the AML and related
regulations. The local price authorities imposed fines of RMB
100,000 (approximately USD 15,000) on each of the three
"organizers" of the cartel, and fines of RMB 30,000 to
80,000 (approximately USD 4,500 to 12,000) for 18
"participants" in the cartel.
The authorities allowed another 12 participants in the cartel to go
free with only "warning orders" and no fines because they
had "cooperated with the investigation, provided important
evidence and taken corrective measures on their own
initiatives."
Finally, for several companies who were "followers" to
the price increase but were not participants in the cartel, the
local price authorities issued caution letters requesting that they
"enhance self-discipline" on pricing.
Observations
The AML does not require the enforcement agencies to publish
details of enforcement actions (except for negative or conditional
merger control decisions). Therefore, this published decision
provides some valuable insights into the early stages of
anti-cartel enforcement in China, although many issues remain to be
clarified.
Overlaps between the Price Law and the
AML. The NDRC report appears to state that liability
for the cartel members was based both on the Price Law and the AML.
Although no specific statutory provisions are quoted in the NDRC
report, price-fixing activities would violate both article 14(1) of
the Price Law (which prohibits collusion in manipulating prices as
"unfair price behavior") and article 13(1) of the AML
(which prohibits price fixing as an illegal "monopoly
agreement").
The two laws provide for different penalties. Article 46 of the AML
states that an illegal monopoly agreement such as price-fixing will
be punished by confiscation of any illegal gains and fines of 1-10%
of the violator's annual turnover. The penalty under article 40
of the Price Law is a fine of up to five times the amount of any
illegal gains plus confiscation of those gains; if there is no
illegal gain, then a fine of RMB 100,000 to 1,000,000
(approximately USD 15,000 to 150,000) can be imposed.
Leniency. The granting of warning-only
penalties to some cartel participants in this case indicates that
it was at least part based on the AML. Unlike the Price Law, the
AML contains a "leniency" provision. Specifically,
article 46 of the AML allows for the possibility of reduced
punishment or complete exemption from punishment for companies that
voluntarily report and provide important evidence of violations.
The NDRC report indicates that a substantial number of cartel
participants cooperated with the investigation and provided
important evidence to enforcers and thus were exempted from
penalty, although it does not say whether or not those exempted
participants voluntarily reported themselves.
Potential criminal liability. Finally,
the rice noodle case suggests that criminal liability for cartel
behavior may be available in China. It has been reported that
executives of the cartel organizer were arrested for the criminal
offense of "coercing" participation in the cartel. The
AML itself does not prescribe criminal liability for violations,
although article 52 states that liability may exist under the PRC
criminal laws for obstruction. Article 226 of the PRC Criminal Law
makes it a violation to buy or sell products through violence or
intimidation or "compel" another person to provide or
receive a service; if the circumstances are "serious,"
the offender can be sentenced to up to 3 years' imprisonment
and fines.
Enforcement in China. It is also worth
noting that all the entities penalized under this decision were
domestic Chinese entities. Concerns have been expressed that the
AML to date has been applied more aggressively in matters involving
foreign companies, in part because the only transactions that have
been prohibited or approved subject to conditions under the merger
review provisions of the AML have involved foreign companies.
However, in the Guangxi rice noodle cartel case, all of the
companies fined or given warnings were domestic Chinese
entities.
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