Recently, the Jiangsu Administration for Industry & Commerce ("Jiangsu AIC") issued sanctions against the Concrete Committee of the Construction Materials and Construction Machinery Industry Association of Lianyungang City ("Association") and 16 concrete manufacturers for breach of the Anti-Monopoly Law, by way of having entered into a monopoly agreement.

This is the first publicly released enforcement decision by the SAIC (which delegated power onto the AIC) in respect of the Anti-Monopoly Law (AML), since the enactment of the AML in August 2008.

This is the first publicly released enforcement decision by the SAIC (which delegated power onto the AIC) in respect of the AML, since the enactment of the AML in August 20081.

The State Administration for Industry & Commerce ("SAIC") possesses the jurisdiction to govern and enforce non-price prohibitions in respect of the AML. And, according to the Article 10 of the AML and the Article 2 of the Procedural Rules by Administration of Industry and Commerce regarding Investigation and Handling of Cases relating to Monopoly Agreement and Abuse of Dominant Market Position, where necessary, SAIC may delegate to relevant AIC of a province, an autonomous region, or a municipality ("Provincial AIC") the authority of anti-monopoly law enforcement with regard to monopoly agreement and abuse of dominant market position.

Facts

The salient facts of this case are as follows:

On 3 March 2009, the Association facilitated the coordination of 16 members (who were manufacturers of premixed concrete) to enter into what they called a "Self-disciplinary Agreement" and the "Supervision and Punishment Rules". The following agreement was reached:

  • Allocating market shares to each of the 16 members according to their capacities;
  • dividing the market in Lianyungang City;
  • requiring the manufacturers to file their concrete sales agreements to the Association for record (any failure in doing so would incur some sort of sanction or "punishment" by the Association);
  • manufacturers who do not cooperate with the Association will be fined by the Association.

According to the SAIC press release, the "Self-disciplinary Agreement" and "Supervision and Punishment Rules" were put into effect by the Association and the members. On 17 March 2009, the Association required the manufacturers to report their daily project volumes with the Association. On 21 March 2009, the Association required the manufacturers to file their sales agreements with the Association.  The Association governed and enforced the Self-disciplinary Agreement.  The Association also organized inspections to the sites of the members and also punished manufacturers for allegedly violating the "Self-disciplinary Agreement".

Jiangsu AIC's Investigation

  • In June 2009, a construction enterprise filed a complaint to the Lianyungang Bureau of Industry and Commerce (Lianyungang AIC) against the Association, alleging that several construction projects had to be suspended because there wasn't sufficient supply of premixed concrete.  The construction enterprise alleged that the Association prohibited its members from entering into sales agreements with downstream entities, without first seeking the Association's approval.
  • The Lianyungang AIC immediately reported this case to the Jiangsu AIC as it considered this case involved a violation of the AML.
  • After undertaking a preliminary investigation, the Jiangsu AIC submitted a written report to SAIC seeking instructions.
  • The Antimonopoly and Anti-Unfair Competition Enforcement Bureau of SAIC identified this case as possibly having the effect of restricting competition (by wat of a monopoly agreement) and therein authorized the Jiangsu AIC to initiate a formal investigation.
  • The Jiangsu AIC formed a special investigation team comprising 10 officers ("the Special Investigation Team") in order to undertake investigating this case. The Special Investigation Team interviewed employees working at the Association and employees of some 18 concrete manufacturers.  The Special Investigation Team also conducted on-site inspections of more than 20 construction projects, and collected  approximately150 "pieces" of evidence including the Self-disciplinary Agreement, meeting minutes, evidence which displayed the effects of the conduct of the Association and its members on the pricing of concrete, etc. The investigation lasted for more than 200 days.

Final Decision by the Jiangsu AIC

  • Jiangsu AIC found that the Association violated the AML by organizing for competing concrete manufacturers to enter into the Self-disciplinary Agreement.  This conduct was found to have restricted competition in the premixed concrete industry in Lianyungang City, in breach of Article 16 of the AML (prohibition against industry associations who "organize" business operators to engage in monopoly conduct) Taking into consideration that Association actively cooperated with the investigation, the Jiangsu AIC ordered an injunction against the Association to cease the illegal conduct; as well as a fine of RMB 200,000.
  • Jiangsu AIC also found that the 16 manufacturers entered into the monopoly agreement to divide sales regions, in breach of Article 13 (3) of the AML. In light that the 16 manufacturers cooperated with the investigation and stopped the illegal conduct timely, pursuant to Article 46 of the AML, Jiangsu AIC ordered the 16 manufacturers to stop the illegal conduct and imposed fines to 5 of them.  The SAIC press release did not stipulate the amounts in relation to these fines.

Comments

From a procedural point of view, it appears that the investigation procedure of the case is fully in compliance with the Procedural Rules by Administration for Industry and Commerce regarding Investigation and Handling of Cases relating to Monopoly Agreement and Abuse of Dominant Market Position issued by SAIC which became effective on 1 July 2009.

(a)   The Jiangsu AIC imposed sanctions on both the Association as well as its members.  This is distinct from the first public enforcement decision by the National Development Reform Commission (NDRC, the authority in charge of price-related prohibitions of the AML) against the Zhejiang Fuyang Paper Making Industry Association,  where only the association, rather than its members, was found to have breached the AML (see article entitled " First price enforcement action by the NDRC in 2011 - against paper association" for more on the Zhejiang Fuyang Paper case).  It is clear that both "facilitators" and "implementers" of monopoly acts will be punished pursuant to the AML.

We note that amongst the 16 business operators that were being investigated in this case, only 5 members were being fined.  There are two possible explanations: either the rest of the members were "let off" pursuant to the leniency regime; or there wasn't sufficient evidence to establish a breach in relation to the other members (with the exception of 5 members).  We note also that there was some recognition in the SAIC press release that cooperation during investigation was a mitigating factor in relation to the determination of remedies.

Pursuant to the SAIC press release, we note that Mr. Ning Wanglu (SAIC Director General of the Antimonopoly and Anti-unfair Competition Enforcement Bureau) was quoted as saying that this case sets a good example for AIC to get involved in the enforcement of the AML.  We can expect that more AICs will be active in the governing and enforcing the AML in the near future.

1 Please see SAIC's press release at http://www.saic.gov.cn/ywdt/gsyw/dfdt/xxb/201101/t20110126_103772.html