We understand from press reports that the China Automobile Dealers Association (CADA) has complained that a large automobile manufacturer has allegedly been imposing unreasonable restraints on its distributors, including determining a minimum resale price and allocating territory. There has been some suggestion in the press that the conduct allegedly undertaken by the automobile manufacturer is in breach of the Anti-Monopoly Law (AML).
This article identifies the AML provision governing such vertical restraints; and also outlines how certain vertical restraints in relation to the motor industry are being dealt with in Europe.
Article 14 of the AML prohibits business operators from fixing the prices (including minimum resale prices) of distributors. The objective of Article 14 is to prohibit suppliers from imposing vertical restraints on distributors, to the detriment of competition in the relevant market. [For more on the operation of Article 14 of the AML, please see our article Rules Governing Resale Price Maintenance in China Conduct is exempted from Article 14 of the AML, only if these fall into one of the exemption categories pursuant to Article 15 of the AML. Article 15 of the AML lists out categories of conduct which are exempt from Article 14, including efficiency or other public benefit type considerations.
We note that certain vertical co-operative arrangements between entities in the automobiles sector (and in fact in most high-capital intensive sectors) may be justified – in order to keep suppliers and distributors efficient and competitive. Specifically, certain types of vertical cooperative arrangements improve economic efficiency by facilitating better coordination between the participating entities (in particular these may lead to a reduction in transaction and distribution costs and/or an optimization of their sales and investment levels).
It is for the above reasons that the European Commission has, in place, a block exemption in relation to certain categories of vertical agreements and concerted practices in the motor vehicle industry (See Commission Regulation 461/2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices in the motor vehicle sector). The following are some salient points which characterize the EC block exemption on motor vehicles:
- this block exemption focuses on very specific types of vertical restraints, including the purchase, sale or resale of spare parts; restraints to do with the repair and maintenance services for motor vehicles and concerted practices relating to the conditions under which businesses may purchase, sell or resell new motor vehicles;
- the block exemption does not cover hard core restraints such as minimum resale price maintenance; and
- the block exemption exempts conduct from the prohibition against anticompetitive agreements but does not exempt conduct in relation to an abuse of dominance.
In China, we do not have a block exemption regime. However, at an AML conference recently, an official from the National Development and Reform Commission (NDRC) (the antitrust authority in charge of enforcing price-related breaches of the AML) said that the NDRC was currently looking into the possibility on granting exemptions in respect of certain sectors, including the automobile industry. However the NDRC official did not go into detail into whether individual exemptions or block exemptions are being contemplated or the breadth or scope of these exemptions. The NDRC official also did not disclose a timeline in which the NDRC anticipated setting up such an exemption regime.
It will be interesting to monitor developments on the CADA complaint front.