February 01, 2011

Anti-Price Monopoly Provisions

Anti-Price Monopoly Provisions
Issuing Body: National Development and Reform Commission
Issuing Date: December 29, 2010
Effective Date: February 1, 2011

Regulations on Administrative Enforcement of the Anti-Price Monopoly Provisions
Issuing Body: National Development and Reform Commission
Issuing Date: December 29, 2010
Effective Date: February 1, 2011

The National Development and Reform Commission (NDRC), which is responsible for overseeing China's antitrust laws as they relate to price-fixing and other forms of price-related behavior, has enacted two sets of rules interpreting and enforcing China's Anti-Monopoly Law, which took effect on August 1, 2008. The NDRC issued both the Anti-Price Monopoly Provisions and the Regulations on Administrative Enforcement of the Anti-Price Monopoly Provisions (Anti-Price Monopoly Regulations) on December 29, 2010. The new rules—the first issued by the NDRC interpreting and enforcing the Anti-Monopoly Law—took effect on February 1, 2011.

The Anti-Price Monopoly Provisions focus on substantive issues of the law pertaining to price-fixing and other forms of price-related monopolistic behavior, while the Anti-Price Monopoly Regulations deal with procedural aspects of the enforcement of anti-price monopoly rules.

The Anti-Price Monopoly Provisions

The Anti-Price Monopoly Provisions apply to both price-related monopolistic behavior inside China and acts performed outside China that have the effect of eliminating and/or restricting Chinese domestic competition. Price-related monopolistic behaviors governed by the new rules include:

  • Business operators concluding price monopoly agreements, namely price-fixing; and
  • Business operators having a dominant market position that they use to eliminate and/or restrict competition through the setting or manipulation of prices.

Price Monopoly Agreements

The Anti-Price Monopoly Provisions specifically proscribe certain types of agreements between or among business operators that have a competitive relationship (horizontal price fixing):

            1. Fixing or changing the price of commodities or services;

            2. Fixing or changing the magnitude of price volatility;

            3. Setting or altering commissions, discounts or other surcharges that affect prices;

            4. Using an agreed-upon price as the basis of a transaction with a third party;

            5. Agreeing to adopt a standard formula from which a price is computed;

            6. Agreeing not to change a price unless other participating business operators consent;

            7. Fixing or changing a price by some other means in disguised form; and

            8. Other price-related monopolistic behavior recognized by the NDRC.

The Anti-Price Monopoly Provisions also prohibit monopoly agreements between or among business operators and transaction counterparties (vertical price fixing):

            1. Resale price maintenance;

            2. Minimum resale price maintenance; and

            3. Other price monopoly behaviors recognized by the NDRC.

Abuse of Dominant Market Position in Terms of Price

The Anti-Price Monopoly Provisions further prohibit the abuse of a dominant market position by business operators in the setting of prices:

            1. Selling a commodity or service at an unfairly high price, or purchasing a commodity or service at an unfairly low price;

            2. Selling a commodity or service at a below-cost price;

            3. Refusing, without legitimate reasons, to make transactions by setting an excessively high sales price or demanding an excessively low purchase price;

            4. Without legitimate reasons, restricting counterparties from making transactions with the dominant business operator or with other business operators of their choice;

            5. Imposing unreasonable charges on a transaction; and

            6. Without legitimate reason, imposing discriminatory prices on transaction counterparties.

Industrial Associations and the Abuse of Administrative Powers

Industrial associations are prohibited by the Anti-Price Monopoly Provisions from formulating rules or making decisions or announcements that eliminate or restrict price competition, organizing business operators to conclude price monopoly agreements of the type proscribed by the Anti-Price Monopoly Provisions, or organizing business operators to agree upon or implement other price-related monopolistic behaviors.

Government agencies and organizations that are responsible for the administration of public affairs are prohibited from abusing their administrative powers, and in particular from imposing discriminatory charges, setting discriminatory prices, or establishing discriminatory standards on non-local commodities and services.

Exemptions to the Anti-Price Monopoly Provisions

Cooperative behaviors and alliances among agricultural producers and agricultural cooperatives conducted in the course of the production, processing, sales, transportation, and storage of agricultural products are specifically exempted from the Anti-Price Monopoly Provisions.

Penalties for Violation of the Anti-Price Monopoly Provisions

The Anti-Price Monopoly Provisions establish potentially steep penalties for violations of the new rules:

  • If business operators have agreed to or implemented price-fixing, they will be ordered to cease the illegal behavior and illegal income will be confiscated. In addition, they will be fined between 1 percent and 10 percent of their total revenues for the previous year. If a price-fixing agreement has been concluded but not yet implemented, a fine of no more than RMB50,000 may be imposed.
  • For abuse of dominant market position in terms of price, companies will be ordered to cease the illegal behavior; illegal income will be confiscated; and a fine of between 1 percent and 10 percent of total revenues in the previous year will be imposed.

The NDRC and its offices are directed to consider such factors as the nature, degree, and duration of the illegal behavior in determining the specific amount of a fine.

Anti-Price Monopoly Regulations

The NDRC issued the Anti-Price Monopoly Regulations in order to regulate the enforcement of anti-price monopoly laws by the NDRC and its provincial and local offices.

Provincial offices of the NDRC are authorized to enforce the anti-price monopoly rules in their separate jurisdictions. Provincial offices may, within the scope of their own authorization, further delegate investigative powers to local offices. For cross-province cases, the NDRC has the authority to designate a "relevant" provincial office to handle the matter. "Major" cases are directly under NDRC jurisdiction.

Investigation Powers of the NDRC and Its Provincial and Local Offices

The Anti-Price Monopoly Regulations enumerate the powers of the NDRC to investigate potential violations of the Anti-Price Monopoly Provisions and, more broadly, China's Anti-Monopoly Law as it relates to price-fixing and other forms of price-related monopolistic behavior. The NDRC and its branches may:

  • Enter and investigate the place of business or other relevant sites of the business operator under investigation;
  • Make inquiries of business operators, interested parties, or other relevant entities or individuals under investigation (collectively, "the investigated persons"), requiring them to explain relevant statements;
  • Check, review, and reproduce the investigated persons' relevant documents and materials, such as vouchers, agreements, accounting books, business correspondence, and electronic data;
  • Seal and detain relevant evidence; and
  • Check bank accounts of business operators.

Investigated persons shall cooperate with NDRC offices for the investigation, and shall not refuse or hinder it. Investigated business operators and interested parties are entitled to state their opinions regarding facts, justifications, and evidence during the investigation.

Leniency for Active Reporting of Price Monopoly Behavior to NDRC Offices

For business operators that actively report price monopoly behavior and provide key evidence to NDRC offices, NDRC offices have the discretion to reduce penalties or exempt the operator from penalties. The Anti-Price Monopoly Regulations say in particular:

  • A business operator that is the first to report its price-related monopolistic behavior and provide key evidence may be exempted from penalties.
  • A business operator that is the second to report its price monopoly behavior and provide key evidence may enjoy a reduction in penalties of as much as 50 percent.
  • Other business operators actively reporting their own price monopoly behavior and providing key evidence may enjoy a reduction in penalties of no more than 50 percent.

The term "key evidence" refers to evidence playing a critical role in the NDRC's recognition of price-related monopolistic behavior.

Suspension and Termination of Investigation

If business operators under investigation promise to take action to eliminate the consequences of price-related monopolistic behavior within a timeline approved by the NDRC office, the office may decide to suspend its investigation. The investigation shall resume, however, if:

  • The business operator fails to fully perform its promises within the prescribed timeline;
  • The facts on which the decision to suspend an investigation is based have materially changed; or
  • The decision to suspend the investigation is made based on incomplete or untruthful information provided by the business operator.

If business operators fulfill their promises, the NDRC may decide to terminate its investigation.

Disagreement with the NDRC's Decision

A business operator may apply for an administrative review or file an administrative lawsuit in court if it disagrees with a decision made by an NDRC office.

Conclusions

Issued more than two years after China's Anti-Monopoly Law came into effect, the Anti-Price Monopoly Provisions and accompanying enforcement regulations clarify and expand upon definitions of price-fixing and other forms of price-related monopolistic behavior. As such, the new rules bring a certain—and certainly welcome—degree of transparency and predictability to the NDRC's enforcement of price-related antitrust law. It remains to be seen how the NDRC and its offices will implement the rules.

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