In the context of the revision of the Anti-Monopoly Law in 2022, various regulations and guideline documents have been revised, one such document is the Antitrust Guidelines on Trade Associations (Draft for Comments) ("the Guidelines") released by the State Administration for Market Regulation ("SAMR") on May 15, 2023. The Guidelines aim to create a more comprehensive and multidimensional regulatory framework. In 2022, a case of monopoly agreement organized by a trade association resulted in a total fine of 451 million yuan.
Given the increasing scrutiny faced by trade associations in recent years, it is crucial for foreign enterprises and relevant trade associations they may join to pay attention to these revisions. Foreign enterprises should refrain from engaging in monopolistic practices that are organized or supported by trade associations. They should prioritize strengthening their compliance efforts to ensure adherence to anti-monopoly laws and regulations. Similarly, foreign trade associations should enhance their compliance management by strictly avoiding any anti-monopoly violations or high-risk activities. Furthermore, they should utilize the distinct characteristics of trade associations to guide and support their members in optimizing their anti-monopoly compliance systems.
Trade associations, as an important force for the economic construction and social development of China, have played an active role in serving the development of enterprises and strengthening industry self-regulation. However, in recent years, some trade associations have been investigated and punished by the relevant authorities due to the negative impact of the behaviors implemented on market competition. Unfortunately, due to the lack of understanding and attention to anti-monopoly laws and regulations, such activities of trade associations still occur from time to time.
Below, we introduce the key points worthy of attention in the Guidelines.
I. Clarifying the Scope of Regulation for Monopolistic Activities of Trade Associations
As the self-regulatory organization of a certain industry and the representative of the interests of its members, trade associations play a certain role in leadership and organization. Therefore, if they implement monopolistic activities, the negative impact will be greater. The Guidelines emphasize that trade associations are prohibited from engaging in monopoly agreements, including the conclusion and implementation of monopoly agreements. Meanwhile, the Guidelines also clarify certain circumstances where the trade associations could be recognized as business undertakings. Articles 6 to 9 of the Guidelines provide a detailed list of specific situations in which trade associations reach monopoly agreements, abuse administrative power to exclude or restrict competition, exhaustively cover the risk behaviors that trade associations may encounter in their operations, and give guiding opinions on trade associations' future operation and compliance work. In the future, when trade associations engage in such behaviors, they must raise the compliance standards for antitrust issues including prohibiting the implementation of monopoly agreements and strictly complying with relevant laws and regulations, and the provisions of the Guidelines.
II. Setting Out the Three Types of High-risk Activities Trade Associations Should Avoid
Article 10 of the Guidelines sets out the high-risk activities that trade associations shall avoid engaging in. The three representative high-risk activities mainly include: promoting the exchange or discussion of competitively sensitive information among enterprises in the industry or notifying them of such information; issuing guiding prices, benchmark prices, reference prices, recommended prices, forecast prices, or formulating price calculation formulas for enterprises' reference; publishing untrue or exaggerated market information regarding cost trends, supply and demand conditions, and other market conditions. The listing of the above high-risk activities will help trade associations conduct risk assessment and compliance management of their pricing activities. Meanwhile, it will guide trade associations to strictly prevent monopolistic activities in advance and improve the timeliness, reasonableness, and effectiveness of trade associations to identify monopolistic activities.
III. Enumerating the Requirements and Measures for Trade Associations' Self-compliance
Article 16 of the Guidelines proposes the self-discipline and compliance advocacy of trade associations, encouraging trade associations to first strengthen their anti-monopoly compliance construction and to guide and help members of the associations in establishing sound anti-monopoly compliance management systems through industry rules, conventions, and market self-regulatory rules and leveraging the unique advantages of connecting government and market entities. This includes performing functions such as providing services, reflecting demands, and regulating behaviors to help enterprises in the market identify monopoly risks earlier and faster.
Article 17 of the Guidelines provides a clear list of measures that trade associations can adopt when establishing internal compliance management, including but not limited to formulating anti-monopoly compliance codes of conduct, establishing mechanisms for anti-monopoly compliance commitments, setting up departments or personnel responsible for anti-monopoly compliance, establishing systems for rewards and punishments related to anti-monopoly compliance, and strengthening anti-monopoly compliance training. The above provisions reflect the active role of trade associations in controlling anti-monopoly risks, enabling better identification of monopoly risks among enterprises, and establishing a more comprehensive and systematic anti-monopoly compliance reporting mechanism.
IV. Introducing the Legal Responsibilities and Credit Punishment System for Trade Associations
Article 23 of the Guidelines provides that, where a trade association engages in or organizes undertakings in the industry to engage in monopolistic activities, the Anti-Monopoly Law enforcement authorities shall determine the legal liability to be borne by the trade association and undertakings by comprehensively considering the respective roles played by the trade association and the operators and the nature and severity of the illegal conduct. This is helpful to more reasonably allocate the legal liability of the trade association and undertakings.
Article 24 clarifies the credit-related penalty system for trade associations. Where a trade association is subject to administrative penalties due to violation of the Anti-Monopoly Law, the registration authority for social organizations may include the trade association in the list of abnormal activities or the list of seriously illegal and dishonest activities and make it public. Anti-Monopoly Law enforcement authorities may also regard the trade association as a key regulation target. These provisions combine the legal responsibilities and credit punishment for trade associations engaged in anti-monopoly violations, broadening the connection and collaborative work between the two regulatory actions, and making the regulation more comprehensive and multidimensional.
V. Implementation of Competition Policy
On June 29, 2021, the SAMR, the National Development and Reform Commission, and three other departments jointly issued the Detailed Rules for the Implementation of the Fair Competition Review System, further clarifying and refining the requirement for conducting fair competition review for various policy measures.
The Guidelines implement this through the following specific provisions: Article 13 of the Guidelines clarifies the administrative status of trade associations empowered by laws and regulations to manage public affairs, prohibiting them from violating Chapter 5 of the Anti-Monopoly Law by abusing administrative power to exclude or restrict competition. Article 15 specifies that when such trade associations, which have the authority to manage public affairs, formulate documents related to market entities' economic activities, they should undergo fair competition review.
VI. Summary
Out of the 13 administrative penalty cases that have been announced by SAMR in 2023, two cases are related to trade associations, and a special anti-monopoly law enforcement action in the field of people's livelihood was carried out by Anti-Monopoly Law enforcement authorities around China, requiring increased attention from foreign companies and their associated trade associations to ensure compliance with the evolving anti-monopoly law system of China. In short, as members of trade associations, foreign enterprises should strive to enhance their compliance efforts and avoid participating in monopolistic practices facilitated by the associations. On the other hand, trade associations should align with anti-monopoly laws, regulations, and guidelines, and proactively manage the risk of anti-monopoly violations, while promoting a healthy competitive order within their industries.
The public consultation for this draft will be open until June 15, 2023, with a total duration of one month. We will keep you updated with the progress.
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.
