Singapore: China's First Public Anti-Cartel Action under the Anti-Monopoly Law

Client Update: Competition & Antitrust
Last Updated: 11 June 2010

By Kala Anandarajah and Dominique Lombardi

Overview

On 30 March 2010, China's National Development and Reform Commission ('NDRC') published its first public infringement decision under the Chinese Anti-Monopoly Law ('AML'), in which it imposed financial penalties on 21 members of a Rice Noodle Cartel for price-fixing. The NDRC is the Chinese competition authority tasked with enforcing the AML in relation to price-related anti-competition activities. The public infringement decision was imposed almost a year and a half after the coming into force of the AML in August 2008. Significantly, the NDRC decision also demonstrates the application of the leniency provision under the AML. 12 members of the Cartel were issued with warnings only, escaping financial penalty for their co-operation with the NDRC's investigations. Interestingly, there have also been reports in the Chinese media of arrests made of executives involved in the Cartel. The infringement decision sends a strong message to businesses across the world which have, or which are contemplating, a presence in China: the Chinese authorities will not hesitate to take businesses to task for infringements of the AML.

The Rice Noodle Cartel

According to the NDRC report, the Rice Noodle Cartel involved 18 rice noodle producers from Nanning and 15 rice noodle producers from the neighbouring city of Liuzhou in the Guangxi Autonomous Region of China.

On 1 November 2009, a senior executive in a rice noodle manufacturing company in Nanning organised a meeting with local competitors to discuss avenues of co-operation in the industry. In the following month, 18 rice noodle producers from Nanning met to discuss a joint increase in rice noodle prices. This joint increase, of RMB 0.20 per 500 grams of rice noodles, was implemented on 1 January 2010. On 21 January 2010, 15 rice noodle producers from neighbouring Liuzhou joined their counterparts in Nanning in the price increase, entering into profit-sharing agreements with the Nanning producers.

Although this is the first published infringement decision pursuant to the AML by the NDRC, this is by no means the first allegation of anti-competitive practices by China's noodle businesses. In August 2007, prior to the coming into force of the AML, an investigation by the NDRC was carried out into allegations that several instant noodle companies in Shanghai had agreed to an illegal co-ordinated price increase. The alleged collusion, according to the NDRC, also involved the China branch of the International Ramen Manufacturers Association ('IRMA'). The NDRC, acting in accordance with the powers awarded to it under the Chinese Price Law which prohibits price-collusion by business operators, ordered the instant noodle producers to immediately slash prices.

The Chinese Price-Fixing Prohibition

Article 13 of the AML prohibits, amongst other things, agreements among competing undertakings which 'fix, maintain or change prices of products'.

Significantly, in the Rice Noodle Cartel infringement decision report, the NDRC also relied on Article 14(1) of the Price Law, which provides that business operators must not 'work collaboratively with others to control market prices to great detriment to the lawful rights and interests of other business operators or consumers' to 'effect abnormal price behaviour'.

From the NDRC's infringement decision, it is clear, therefore, that the NDRC will not hesitate to enforce both the AML and the Price Law against businesses involved in cartel activity.

The Penalties Imposed

Under Article 46 of the Anti-Monopoly Law, the penalty for the successful implementation of an anti-competitive agreement is a fine of one percent up to maximum of ten percent of the sales revenue of the business for the preceding year.

Further, Article 40 of the Price Law provides that 'business operators who have violated Article 14 of the Price Law shall be ordered to remedy the violation, have their illegal proceeds confiscated and be fined concurrently for an amount less than five times the illegal proceeds obtained. In cases where there are no illegal proceeds, a warning shall be issued, together with a fine. For serious cases, the business operators in infringement of the Law shall be ordered to cease business operations or have their business licenses revoked. If other laws have stipulations concerning the penalties for conduct listed in Article 14 of this law, the related laws shall prevail.'

According to the NDRC infringement report, three 'organisers' of the Rice Noodle Cartel were fined RMB 100,000 each while fines of between RMB 30,000 to RMB 80,000 were imposed on 18 members of the Cartel pursuant to the AML. The NDRC also exercised its powers under Article 40 of the Price Law by ordering the Cartel members to restore the rice noodle prices to 'pre-increase' prices.

Leniency

Significantly, the Rice Noodle Cartel case also demonstrates the application of the leniency provision under the AML. Article 46 of the AML provides that where 'business operators concerned voluntarily report the conditions on reaching the monopoly agreement and provide important evidence to the Anti-Monopoly Law Enforcement Agency, they may be given a mitigated punishment or be exempt from punishment at the discretion of the Anti-Monopoly Law Enforcement Agency'. In the Rice Noodle Cartel case, 12 noodle producers were issued with warnings only, escaping financial penalty for their cooperation in the NDRC's investigations.

Criminal Sanctions?

Neither the AML nor the Price Law contains criminal sanctions. According to media reports, however, several executives who participated in the Rice Noodle Cartel were arrested following allegations that they 'coerced' several of the Liuzhou rice noodle producers into participating in the Cartel.

As the NDRC report does not contain any information with regard to the arrests made, it is unclear, from conflicting reports on the matter, which provision in the Chinese Criminal Law applies.

There have been suggestions by some commentators that the applicable provision is Article 225 of the Chinese Criminal Law, which states that '[a] person who, in violation of the State's regulations, commits any [act of illegal business operations which seriously disturbs the market order] shall be sentenced to fixed-term imprisonment of not more than five years or criminal detention and concurrently or independently, to a fine of not less than one time and not more than five times the illegal gains therefrom if the circumstance is serious and, if the circumstance is especially serious, to fixed-term imprisonment of not less than five years and concurrently to a fine of not less than one time and not more than five times the illegal gains therefrom or confiscation of property.'

Other commentators have cited Article 226 of the Criminal Law which provides that 'a person who, by means of violence or threat, buys or sells a commodity, or forces others to provide or accept a service, shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention and concurrently or independently, to a fine, if the circumstance is serious.'

Whereas Article 226 requires 'coercion' by members of a cartel of others into participating in the cartel for example, from the wording of Article 225 of the Criminal Law, criminal sanctions may be imposed on executives involved in any conduct which 'seriously disturbs market order'. Hence, this can include any anti-competitive conduct. If, indeed, executives can be prosecuted under Article 225 for any anti-competitive conduct which 'seriously disturbs market order', then China may well be the first country in which executives may be indicted for offences in relation to abuses of dominance and anticompetitive mergers as well as for price-fixing so long as such conduct 'seriously disturbs market order'. This, however, is proverbially, 'putting the cart before the horse' and it remains to be seen if criminal charges will be brought against the individuals involved in the Rice Noodle Cartel under the Chinese Criminal Law.

Concluding Words

The Rice Noodle Cartel case represents an important step towards understanding how the AML will be enforced in China in relation to price-fixing infringements – previous public decisions under the AML have been limited to merger regulation decisions by the Chinese Ministry of Commerce ('MOFCOM'). Further, and more significantly, the case shows that the NDRC will not limit its enforcements powers to those under the AML only; the Price Law will be applied where necessary. Whether criminal penalties will be imposed on individuals for cartel and other anti-competitive activity in China remains to be seen. However, the message is now clear: the NDRC is actively investigating and punishing infringements of the AML.

The Competition & Antitrust Practice will be happy to answer any queries that you may have or to conduct a briefing for you if there is interest. Please contact us at competitionlaw@rajahtann.com.

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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