Two days after China's National Development and Reform
Commission ("NDRC") published its final rules
implementing China's Anti-Monopoly Law ("AML"),
China's other non-merger antitrust agency, the State
Administration of Industry and Commerce ("SAIC"),
published three sets of implementing rules pertaining to abuses of
dominant position, anticompetitive agreements ("monopoly
agreements"), and administrative monopolies. These rules
constitute the primary substantive and procedural rules governing
the enforcement of the AML against anticompetitive conduct.
Except for detailed guidelines on the application of the AML to
intellectual property rights, China's non-merger antitrust
agencies now have released all their anticipated rules and
guidelines, procedural and substantive, placing them in position to
start to enforce the AML against anticompetitive conduct much more
vigorously.
This Alert highlights key changes in the final SAIC substantive
rules as compared to earlier published drafts, as well as some main
differences between the SAIC and NDRC rules.
Background
These final substantive rules come after a round of public
comments in June 2010 (see previous Antitrust Alert). SAIC previously
issued final procedural rules relating to its the enforcement of
the AML, which came into effect in July 2009 (see previous Antitrust Alert).
SAIC is responsible for enforcement of the conduct (non-merger)
provisions of the AML, except for price-related monopolistic
conduct. NDRC is entrusted with enforcement against price-related
violations of the AML as well as the earlier Price Law. (For our
summary of the recent NDRC rules, see previous Antitrust Alert.) The distinction
between "price" and "non-price" anticompetitive
conduct is not clear-cut, so in certain cases it may be possible
for both agencies to claim jurisdiction.
Key points in the SAIC rules
Abuses of dominant position. The AML prohibits
abuses of dominant position. Article 17 of the AML lists several
examples of conduct that, absent valid justification, constitutes
such abuses: imposition of unfair prices, refusals to deal,
exclusive dealing, sales below cost, tying and other unreasonable
trading practices, and discrimination in pricing and other
terms.
The final SAIC rules unfortunately remove language contained in the
draft rules that had directed the agency, when assessing the
validity of an asserted justification, to examine whether the
conduct actually restricts competition and harms consumer
interests. Instead, the final rules provide that the agency
"shall generally consider" two factors: "whether the
activities are based on normal operations and normal benefits for
the undertakings" and "the effect of the activities on
economic efficiency, public interest, and economic growth." It
is unclear whether these listed factors are meant to be exhaustive
– precluding the agency from considering competitive
effects or other factors – or are merely illustrative
examples.
In contrast, the NDRC rules provide more concrete guidance on
possible valid justifications for each category of potentially
abusive conduct. For example, according to the NDRC rules, a
refusal to deal could be justified by the existence of alternative
sources of supply for the purchaser, while exclusive dealing may be
imposed to maintain brand image or improve service.
A second, more welcome change in the final SAIC rules compared to
the draft version is the addition of language expressly providing
the agency with discretion to grant a mitigated penalty or even
complete exemption from punishment to a dominant firm that ceases
its abusive conduct. The possibility of leniency in such a
circumstance is helpful especially in view of the potentially high
fines imposed by the AML. However, it appears that this will remain
entirely at the discretion of the agency.
Both the SAIC and NDRC rules also permit companies under
investigation to propose commitments to remedy their challenged
behavior. The agencies may accept such commitments, suspending
their investigations, and eventually close the investigations if
those commitments are fulfilled. One apparent difference between
the two agencies' procedures is that the SAIC may reduce a
penalty independent of the commitment regime if the violator
voluntarily ceases its conduct.
The final SAIC rules retain most of the additional elaborations on
abuses of dominant position originally set forth in the draft rules
and discussed in our earlier alert . These include (1)
"refusing to deal" by reducing trading volume with a
current counterparty or refusing access to "essential
facilities under reasonable conditions," (2) discriminating
between similarly situated counterparties by offering different
trading volumes, discounts, or other terms, (3) imposing
"unreasonable trading conditions" that are in violation
of prevailing trade practices or customer habits, and (4) imposing
"unreasonable restrictions" regarding sales territories
or target customers.
Monopoly Agreements. The final SAIC rules
regarding monopoly agreements also no longer include language from
the draft that appeared to prohibit all vertical agreements that
restrict competition and harm consumers. This may suggest that,
absent a dominant market position, vertical arrangements other than
resale price maintenance (expressly prohibited by the AML)
– such as exclusive or selective distribution –
will be subject to a rule of reason analysis.
The new NDRC rules also do not mention any types of vertical
agreements beyond resale price maintenance.
The final SAIC rules also include some changes regarding leniency.
First, they no longer explicitly state that cartel organizers may
not benefit from leniency, although such an exclusion remains in
SAIC's final procedural rules. Second, as with abuses of
dominant position, the SAIC monopoly agreement rules state that
undertakings that voluntary terminate monopoly agreements may be
granted a mitigated or exemption of penalty at the discretion of
the agency.
The final SAIC rules do not explicitly specify whether the first
self-reporting undertaking "should" or "may" be
exempted from penalty, although a literal reading suggests it is
"should." Moreover, the SAIC press release announcing the
rules stated that the first applicant "should" be
exempted. In contrast, the NDRC rules, like the AML itself, retain
the term "may," appearing to give the agency full
discretion to award or withhold leniency. The SAIC rules thus seem
to provide greater assurance of grants of leniency to qualifying
candidates.
Another important distinction is that the NDRC rules contain
explicit ranges of penalty reductions for second-reporting (at
least a 50% reduction) and later-reporting applicants (at most a
50% reduction), while the SAIC rules merely state that the agency
may grant reduced penalties without mentioning particular
ranges.
Finalization of these rules provides additional guidance on the
approaches of these agencies and may mark the beginning of more
vigorous antitrust enforcement in China.
Documents
SAIC documents (in Chinese) on the rules:
- Announcement
- SAIC Q&A
- Rules on Abuse of Dominant Market Position
- Rules on Monopoly Agreements
- Rules on Abuse of Administrative Powers
Unofficial Chinese-English translations of the SAIC rules:
- Rules on Abuse of Dominant Market Position
- Rules on Monopoly Agreements
- Rules on Abuse of Administrative
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