Case Report: First Published Case Relating to Anti-Monopoly Enforcement by the State Administration of Industry and Commerce

Issuing Body: State Administration of Industry and Commerce
Issuing Date: January 26, 2011

The State Administration of Industry and Commerce (SAIC), which shares responsibility for enforcement of China's Anti-Monopoly Law (AML), has for the first time published a press release reporting the results of an enforcement action by the agency. The report, which was published on the SAIC website on January 26, 2011, describes sanctions imposed on a local construction materials and machinery association in Lianyungang City, Jiangsu Province, and its 16 members for entering into a monopoly agreement. This is the first publicly released enforcement decision by the SAIC relating to the AML since the law's enactment on August 1, 2008. It is also the first known instance in which the SAIC is reported to have delegated enforcement powers to its provincial counterpart, in this case the Administration of Industry and Commerce of Jiangsu Province (the Jiangsu AIC), which in turn investigated the allegations and imposed sanctions.

Background

In accordance with China's Anti-Monopoly Law, three government agencies share power for implementing and enforcing this landmark legislation. The Ministry and Commerce is responsible for cases involving merger control. The SAIC is responsible for AML enforcement related to monopoly agreements and abuses of dominant market position (not including price-related monopolistic activity). And the National Development and Reform Commission handles price-related infringements.

Also, according to the AML (Article 10) and the Procedural Rules of the Administration of Industry and Commerce Regarding the Investigation and Handling of Cases Related to Monopoly Agreements and the Abuse of Dominant Market Position, which took effect on July 1, 2009, the SAIC may, where necessary, delegate to provincial AICs authority for anti-monopoly law enforcement with regard to monopoly agreements and abuses of dominant market position.

Facts

This case came to the attention of the Administration of Industry and Commerce of Lianyungang City, Jiangsu Province, in early June 2009, through complaints by local construction companies. The companies alleged that the concrete-manufacturing group within the Association of Construction Materials and Construction Machinery Industry, an industry trade group, had, through the association's Concrete Committee, convinced its 16 concrete-making members to enter into an agreement that prohibited any member from selling concrete to local construction companies without first obtaining approval of the Concrete Committee. The construction companies had been forced to suspend certain construction projects in Lianyungang City due to this agreement. The Jiangsu AIC, after a preliminary investigation, submitted the case to the SAIC. The SAIC's Anti-Monopoly and Anti-Unfair Competition Enforcement Bureau then discussed the case and determined that the alleged agreement might restrict competition and warranted a full investigation. As a result, the SAIC delegated power to the Jiangsu AIC to open an AML-related case.

The Jiangsu AIC formed a special investigative group consisting of ten officers, who interviewed employees of the Concrete Committee and concrete manufacturers, conducted on-site inspections of more than 20 construction sites, and collected some 150 pieces of evidence in an investigation that lasted more than six months.

Following that investigation, the Jiangsu AIC concluded that on March 3, 2009, the Concrete Committee organized its 16 concrete manufacturer members to enter into an agreement dividing market shares in Lianyungang City based on the manufacturers' product lines and equipment, and requiring the concrete manufacturers to report their daily project volumes and file sales contracts with the Concrete Committee. The Concrete Committee also conducted inspections of members and punished some for violations of the agreement, the investigative committee found.

Sanctions

The Jiangsu AIC ruled the Concrete Committee had violated the AML by entering into a monopoly agreement that divided market share and restricted competition in the local concrete market. According to Article 46 of the AML, if an industry association successfully organizes a monopoly agreement among business operators in its industry, a fine not exceeding RMB 500,000 may be imposed on the violating association. But the Jiangsu AIC also held that since the Concrete Committee actively cooperated with the AIC investigation, a reduced fine of RMB 200,000 should be imposed. The Jiangsu AIC also ordered the Concrete Committee to cease the illegal conduct.

The 16 manufacturers were held to have entered into a monopoly agreement that divided sales markets, which is in violation of AML Article 13. As these manufacturers actively cooperated with the investigation and ceased infringement in a timely manner, the Jiangsu AIC only imposed a fine on five of the 16 manufacturers, pursuant to Article 46 of the AML. It is not clear whether the remaining 11 members were granted leniency or if there was insufficient evidence to penalize them. The SAIC press release did not specify the exact amount of the fines imposed on the five manufacturers.

Conclusion

This case signals SAIC's intent to actively enforce the AML. It also provides an example of the investigation process and delegation of enforcement authority. Though there is still no guidance on the calculation of fines or application of leniency, one point that is clear is that cooperation with SAIC's investigations can be a mitigating factor when the AICs impose sanctions.