China: The Draft Auto Industry Antitrust Guidelines Significantly Affects Distribution System Of Car Makers

Last Updated: 7 April 2016
Article by Zhan Hao and Song Ying

China's National Development and Reform Commission (NDRC) released its draft antitrust guidelines for the auto industry on March 22, 2016, for seeking comments. A number of provisions in the guidelines are quite constructive and may have significant influence on car makers' future behaviors, especially on their distribution systems. This Alert is for the attention of companies in the auto industry.

What are noteworthy?

Market Definition The draft Guidelines mentioned that "car brand" is a critical factor to consider when defining the relevant market for automobile aftersales market, since the repair and maintenance services for specific model of specific car brand requires spare parts fitting such brand and model. That means, automobile aftersales market may be subdivided by brand in individual case.

Presumed Exemption The draft Guidelines provided specific circumstances when undertakings without appreciable market power impose territorial or customer restrictions in which presumed exemption (similar with block exemption in EU) can be applied. In the backdrop that it lacks detailed supplementary antitrust legislation for enforcement in China, such provision of presumed exemption could enhance the legal certainty and also could facilitate to save administrative enforcement costs. Regarding the question of how to evaluate "appreciable market power", the draft Guidelines indicate that below 25%-30% may signals no appreciable market power exists, but emphasize it is not absolute and requires the individual case analysis.

Individual Exemption When presumed Exemption does not apply the draft Guidelines provided that individual exemption may also be applied where undertakings could prove conditions stipulated in Article 15 of the AML are satisfied. Several horizontal agreements which may fall the scope of individual exemption are exemplified in the Guidelines, such as R& D agreement, specialization agreement, technological standardization agreement, joint production agreement and joint procurement agreement.

Resale Price According to the draft Guidelines, the recommended, guiding and maximum resale price usually will not have effect of restricting or eliminating competition, unless such price in fact leads to the effect of fixing resale price or restricting the minimum resale price.

Territory or customer restrictions The draft Guidelines specified several territorial or customer restrictions which usually could get the presumed exemption, and at the same time listed those that usually could not directly apply Article 15 of the AML.

Market Dominance The draft Guidelines indicate, the fact that an automobile supplier does not have a dominant position in the car sales market does not necessarily mean it could be determined as no market dominance in the aftersales market for brand automobile.

Restrictions on Production and Distribution of Parts Where automobile manufacturers have a dominant market position, several behaviors are listed as dangerous under the AML in the draft Guidelines, including restricting the part manufacturers on putting its own mark or identification on the parts, restricting the distributors or repairers on purchasing match quality parts or original parts from other channels, restricting the parts manufacturers on supplying to aftersales channels, restricting the sales of parts between different distributors, different repairers and between distributors and repairers, and restricting sales of parts form distributors or repairers to final users for the purpose of automobile repair and maintenance.

Availability of Technical Information The draft Guidelines also installed a provision to ensure the availability of technical information to aftersales market, with the view to stimulate and enhance the competition on the aftersales market.

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.

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