By Susan Ning and Liu Jia
Two and half years after the enactment of the Anti-Monopoly Law (AML), the anti-trust authorities in China (i.e. the National Development and Reform Commission (NDRC) and the State Administration for Industry and Commerce (SAIC)) issued detailed rules prohibiting abuse of dominance within their respective remit.
Specifically:
- On 4 January 2011, NDRC issued rules titled the Rules on Anti-Price Monopoly (the NDRC Anti-price Monopoly Rules), providing further guidance on prohibition of price-related abuse of dominance, among other things, under the AML (see our article entitled "Rules on Anti-Price Monopoly – effective 1 February 2011"); and
- On 7 January 2011, SAIC issued rules titled the Rules in relation to Conduct amounting to Abuse of Dominance (the SAIC Abuse of Dominance Rules) (see our article entitled "3 rules which shed light on non-price violations of the Anti-Monopoly Law – effective 1 February 2011"), providing further guidance on prohibition of non-price-related abuse of dominance under the AML.
This article lists the major issues addressed by the two sets of rules and outlines the similarities and difference between them.
Issue |
the NDRC Anti-price Monopoly Rules |
the SAIC Abuse of Dominance Rules |
Comments |
1. What is dominance? Article 17 of AML Dominance refers to that a business operator is able to control the prices, quantities or any other conditions of transaction in the relevant market or is able to block or affect the entry of other business operators into the relevant market. |
The NDRC rules provide explains on other conditions and to block or affect the entry of other business operators into the relevant market under Article 17 of the AML.
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The SAIC rules also provide explains on other conditions and to block or affect the entry of other business operators into the relevant market" under Article 17 of the AML.
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The explanation given by the NDRC rules and the SAIC rules are basically the same. – Other conditions refers to factors, other than the price and quantity of products, which can substantially affect market transactions – To block or affect the entry of other business operators into the relevant market refers to (1) exclude or delay the entry of other business operators into the relevant market or (2) significantly increasing their cost of entry so that they cannot effectively compete with existing business operators. |
2. How to find whether a business operator has dominance? Article 18 of the AML Determination of dominance shall be based on the following factors: (1)the market share of the business operator in the relevant market and the status of competition in the relevant market; (2)the ability of the business operator to control the sale market or the procurement market for raw materials; (3)the financial strength and technological conditions of the business operator; (4)the extent of reliance by other business operators on transactions with the business operator; (5)the level of ease or difficulty for entry by other business operators into the relevant market; and (6)any other factors relating to the determination of dominant market position of the business operator. |
The NDRC rules merely repeat Article 18 of the AML. |
The SAIC rules provide further guidance on each of the first 5 factors listed under Article 18 of the AML. For example, with regards to “the extent of reliance by other business operators on transactions with the business operator, the SAIC rules provides that the factors to be considered include trading volume, the duration of trading relationship and the difficulty of switching to other trading partners. |
Though the NDRC rules give no guidance on Article 18 factors, the explanation given by the SAIC rules may shed some light on how NDRC may interpretation the Article 18 factors. |
3. What business operators may be presumed of dominance? Article 19 of the AML: (1) a business operator with more than 50% market share; (2) two business operators with a combined market share of more than 66%; (3) three business operators with a combined market share of more than 75%. A business operator with less then 10% market share shall not be presumed to have dominance. |
The NDRC rules merely repeated the AML provisions. |
The SAIC rules also merely repeat the AML provisions. |
Neither NDRC rules nor the SAIC rules offer further guidance on the controversial collective dominance issue. |
4. How to rebut presumption of dominance Article 19 of the AML provides that where a business operator which is presumed to have dominance is able to prove that it does not have dominance, it shall not be found to have dominance. |
The NDRC rules merely repeat Article 19 of the AML. |
The SAIC rules provide the following guidance on this issue: Presumption of dominance is rebutted, if the business operator is able to prove that it is not able to control the price, quantity or other transaction conditions in relevant market, nor to block or affect the entry by other business operators into the relevant market, in light of the factors listed under Article 18 of the AML. |
Though the NDRC rules give no further guidance on how to rebut presumption of dominance, the guidance given by the SAIC rules may shed some lights on how NDRC may consider the rebuttal issue. |
5. What are specific conducts prohibited Article 17 of the AML explicitly prohibits the following conducts of a business operators with dominance: (1)selling at unfairly high prices or buying at unfairly low prices; (2) selling below costs without valid reason; (3) refusal to transact without valid reason; (4) exclusive dealing or designated dealing without justification; (5) tying or bundling, or attaching other unreasonable trading terms without valid reason; (6) discriminating equivalent trading partners without valid reason; |
The NDRC rules targeting at abuse of dominance by means of price.
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The SAIC rules targeting at abuse of dominance by non-price-related means. |
Whether there is a price component in the means of abuse is the watershed between the jurisdiction of the NDCR and the jurisdiction of the SAIC. |
6. What are valid reason defenses? The AML is silent on what may constitute valid reasons. |
The NDRC tries to provide guidance on "valid reasons" under almost each category of price-related abuse of dominance. For example, it provides that reducing the price of fresh or live commodities, seasonal commodities, expiring commodities or overstocks can be considered as one of the valid reasons for selling a commodity at a price lower than its cost.
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The SAIC rules do not distinguish valid reasons for different categories of non-price-related abuse, instead it provide for two following factors for finding valid reasons across the board: – Whether relevant actions are taken by the undertaking on the basis of the undertaking’s normal operating activities and its normal benefits. – The impact of relevant actions on the economic operation efficiency, social public interests and economic development. |
It is encouraging to see that both the NDRC rules and the SAIC rules provide certain guidance on "valid reasons". However, the guidance on "valid reasons" provided in the SAIC rules are very general in nature; therefore, in practice, SAIC has broad discretion in finding "valid reasons" and accordingly in finding abuse of dominance. |
7. What are the penalties for breaches? Article 47 of the AML: The anti-monopoly enforcement agency shall – order the business operator to stop the illegal act; and – confiscate the illegal income; and – a fine of 1% to 10% of the sales amount of the preceding year shall be imposed. |
The NDRC rules merely refer back to Article 47 of the AML. |
The SAIC rules reiterate the penalty provisions of the AML and makes two additions: – Business operators who stop breaching conducts on their own initiatives may be granted mitigation or exemption of penalty. – The mitigation or exemption of penalty referred to in the SAIC rules is only limited to monetary fine.
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Under the SAIC rules, only monetary fine is exemptible or mitigatable. While, it’s unclear under the NDRC rules what kind of penalty is exemptible or mitigatable, or whether all types of penalty stipulated by the AML are exemptible or mitigatable. The discretion of the SAIC to mitigate or exempt penalty (monetary fine, to be specific) for business operators who stop breaching conducts on their own initiatives could be understood as an embodiment of the Article 49 of the AML, which provides that the enforcement agencies may decide the specific amount of monetary fine in light of the nature, severity or duration of the breaching conduct.
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Comments:
There are some common issues addressed by the NDRC rules and the SAIC rules, such as the definition of dominance, factors to find dominance, presumption of dominance and rebuttal of dominance. The ideal scenario would be that the Anti-Monopoly Commission of the State Council (the supervising body of the 3 anti-monopoly enforcement agencies NDRC, SAIC and Ministry of Commerce) issue unified guidance on these cross-agency common issues to avoid discrepancy and inconsistency in enforcement practices by NDRC and SAIC.