McDermott Will & Emery has a strategic alliance with MWE China Law Offices, a separate law firm based in Shanghai. This China Law Alert was authored by MWE China Law Offices lawyers Henry Chen and Jacqueline Cai.
On 27 April 2009, China’s State Administration for Industry and Commerce (SAIC) issued two draft implementation rules for comment: Regulations for Prohibiting Monopoly Agreements, and Regulations for Prohibiting Abuses of Dominant Market Positions. The draft regulations are intended to implement the Chinese Anti-Monopoly Law (AML), which took effect on 1 August 2008. The deadline for submission for the comments on these two draft rules is 31 May 2009.
The SAIC is one of three anti-monopoly bodies in China, and it is responsible for enforcement of the AML’s prohibition of monopoly agreements and abuse of dominant market positions. The other two enforcement bodies are the National Development and Reform Commission (NDRC), which has enforcement responsibility for price-related cases, and the Ministry of Commerce (MOFCOM), which has responsibility for enforcement of the AML’s merger control provisions.
Regulations for Prohibiting Monopoly Agreements
The Regulations for Prohibiting Monopoly Agreements (Monopoly Agreement Regulations) cover both horizontal monopoly agreements and vertical monopoly agreements. Horizontal monopoly agreements include the following:
- Limiting output or sales of products
- Allocating sales markets or raw materials supply markets
- Limiting the purchase of new technologies and equipment, or limiting the development of new technologies and products
- Boycotting transactions
- Bid rigging
- Other monopoly agreements determined by the SAIC
Prohibited vertical monopoly agreements include the following:
- Monopoly agreements among tenderees and bidders in bidding activities
- Agreements among business operators and their trading counterparties that require the trading counterparties to conduct business activities only in certain regional markets without justifiable reasons
- Agreements among business operators and their trading counterparties that require the trading counterparties to trade only with the business operators or only with parties designated by the business operators without justifiable reasons
- Other monopoly agreements determined by the SAIC
- The Monopoly Agreement Regulations also address the provisions of the AML that prohibit trade associations and their members from acting in concert to eliminate or restrict competition.
The draft Monopoly Agreement Regulations also provide further details on the leniency regime mentioned in the AML in which the first company to voluntarily report a cartel with substantial evidence can receive full immunity. The second company to voluntarily report receives a 50 per cent reduction, and the third receives a reduction of 30 per cent. However, the immunity and reduction regime does not apply to the cartel organiser, instigator or any business operator that forced others to participate in the monopoly agreement by means of threats.
Regulations Prohibiting Abuses of Dominant Market Position
Under the draft Regulations Prohibiting Abuses of Dominant Market Position (DMP Regulations), a dominant market position means a market position held by business operators that have the ability to control the prices or quantities of commodities or other trading conditions in the relevant market, or to block or affect the entry of other business operators into the relevant market. “Other trading conditions” means the factors, other than commodity prices and quantities, that can substantially affect market transactions, including commodity grades, terms of payment, methods of delivery, after-sale services and so on. “To block or affect the entry of other business operators into the relevant market” means excluding or delaying the entry of other business operators into the relevant market within a reasonable time period, or significantly increasing the entry cost for other business operators, such that they cannot effectively compete with existing enterprises.
The draft DMP Regulations further provide that determining whether a business operator has a dominant market position will include the following factors:
- The market share of such business operator in the relevant market, and the competition condition of the relevant market
- The ability of the business operator to control the sales market or the raw material supply market
- The financial strength and technical conditions of the business operator
- The dependency of other business operators on such business operator in respect of transactions
- The difficulty for other business operators to enter the relevant market
- Other factors relating to the determination of the dominant market position of the business operator
Consistent with the text of the AML itself, the draft regulations state that a business operator may be presumed to have a dominant market position if one of the following is true:
- Its market share accounts for half or more of the relevant market.
- The total market share of two business operators accounts for two-thirds or more of the relevant market.
- The total market share of three business operators accounts for three-fourths or more of the relevant market.
However, a business operator may rebut these presumptions if one the following is true:
- It has a market share of less than one-tenth.
- It is relatively easy for other business operators to enter the relevant market.
- Competition in the relevant market is relatively sufficient.
- The business operator has no ability to control the prices, quantities of commodities or other trading conditions, or to obstruct or affect the entry of other business operators into the relevant market.
A business operator with a dominant market position is prohibited from the following:
- Reducing, restricting or interrupting existing transactions with the trading counterparties or refusing to engage in new transactions with the trading counterparties without justifiable cause (refusing, reducing, restricting or interrupting transactions with the transaction counterparties under the same trading conditions may be deemed as lacking justifiable cause)
- Requiring trading counterparties to conduct deals exclusively with the business operators or the parties designated by the business operators without any justifiable cause
- Implementing tie-in sales or imposing other unreasonable trading conditions without any justifiable cause
- Applying discriminatory treatments on trading quantity, quality grade, condition of payment, condition of delivery, after-sale service or other trading conditions to their trading counter parties with same status in equivalent transactions without any justifiable cause
Lastly, the draft regulations provide that the SAIC may delegate its enforcement authority under the AML and the Monopoly Agreement Regulations and DMP Regulations to its subordinated regional authorities.
As noted above, the deadline for submission of comments on these draft regulations is 31 May 2009.
MWE China Law Offices has translated the two draft regulations into English. The translations are available here:
Regulations for Prohibiting Monopoly Agreements (Draft for Comments)
Regulations Prohibiting Abuses of Dominant Market Position (Draft for Comments)