Draft for Public Comment of Three Anti-Monopoly Law Provisions

Issuing Body: State Administration for Industry and Commerce
Issuing Date: May 25, 2010

Since China's Anti-Monopoly Law took effect in August 2008, the State Administration for Industry and Commerce (SAIC), which is responsible for enforcing provisions related to monopoly agreements and the abuse by companies of a dominant market position, has moved slowly to draft regulations implementing and enforcing those portions of the landmark law. On May 25, 2010, the SAIC took another step forward, issuing the Draft for Public Comment of Three Anti-Monopoly Law Provisions Including the Draft Provisions for Prohibiting the Abuse of Dominant Market Position.

The Anti-Monopoly Law, which was enacted in August 2007, attempted for the first time to systematically define and regulate antitrust law and antitrust law enforcement throughout China. Three government agencies share responsibility for enforcing the Anti-Monopoly Law: the SAIC; Ministry of Commerce, which is responsible for merger control; and the National Development and Reform Commission, which monitors price fixing.

Of the three draft provisions released by the SAIC in May, the ones related to monopoly agreements and the abuse of dominant market position are based on earlier versions released by the SAIC in 2009. The portions pertaining to the abuse of administrative powers are completely new. All three were open for public comment until June 7, 2010.

The SAIC has issued procedural rules for the investigation and handling of cases involving monopolistic agreements, the abuse of dominant market position, and the abuse of administrative powers. They have been in effect since July 1, 2009.

China Law Update summarized the Provisions on Procedures for Investigating and Handling Cases of Monopolistic Agreements and Abuses of Dominant Market Position as well as the Provisions on Procedures for Prohibiting the Elimination and Restriction of Competition via Abuses of Administrative Power in our July 2009 issue.

Monopoly Agreements Draft

The recently released draft rules related to monopoly agreements make only make minor changes and adjustments from the 2009 version, mostly in wording.

The 2010 draft defines a monopoly agreement as any agreement, decision or cooperative behavior between or by two or more undertakings that has the effect of eliminating or restricting competition. The 2010 draft covers written or oral agreements or decisions. The coordination of behavior should also be deemed a monopoly agreement if it has the effect of eliminating or restricting competition.

The monopoly agreements draft also details what will be regarded as a horizontal monopoly agreement, as provided for in Article 13 of the Anti-Monopoly Law. For example, a horizontal monopoly agreement that "restricts output or sales" includes agreements to restrict or suspend manufacturing, to demand overstocking, or to restrict the output and sale of a certain commodity.

In addition to prohibiting agreements that fix resale prices or set a minimum resale price—as set forth in Article 14 of the Anti-Monopoly Law, under vertical agreements—the 2010 draft rules add new conditions, prohibiting businesses from reaching agreements that involve bid-rigging, or that restrict resale regions or partners of downstream dealers without a legally valid reason.

This draft also authorizes the SAIC and its branches to impose fines on businesses that violate laws and regulations. Fines range from 1 to 10 percent of a company's sales revenue for the previous year if the monopoly agreement has been carried out, and a maximum of RMB500,000 if the agreement has not come to fruition.

Abuse of Dominant Market Position Draft

The 2010 draft version of the SAIC rules related to dominant market position provide details regarding what will be considered an abuse of dominant market position, as defined in Article 17 of the Anti-Monopoly Law. For example, tie-in sales are defined as the binding of two or more separate commodities in a unit for sales, or making the purchase of any commodity in a single unit so expensive as to exclude competitors from, or hinder them from entering into, the relevant market.

This draft authorizes the SAIC and its counterparts to impose fines ranging from 1 to 10 percent of sales revenue for the previous year on an enterprise that violates the law.

Abuse of Administrative Powers Draft

The proposed SAIC rules covering the abuse of administrative powers detail seven abusive activities and behaviors that administrative authorities and organizations with the power to administer public affairs (Authorized Organizations) are prohibited to undertake. For example, Authorized Organizations must not restrict or prevent business undertakings from outside the region from investing there, or from establishing branches. Authorized Organizations are likewise prohibited from influencing normal business operations by treating enterprises unfairly in terms of market threshold, taxes, access to facilities, and the like.

Business operators, on the other hand, are prohibited from engaging in monopoly agreements or activities that abuse a dominant market position based on administrative restrictions, administrative authorization or administrative rules and regulations due to the abuse of administrative powers by administrative authorities or Authorized Organizations.

The SAIC and its provincial counterparts may make recommendations to an administrative authority or Authorized Organization that violates Anti-Monopoly Law provisions regarding the abuse of administrative powers. The SAIC and its provisional counterparts are empowered to halt monopolistic activities by a business conducted in accordance with the decisions of such administrative authorities and/or Authorized Organizations.