Summary of the New Anti-monopoly Law

September 12, 2007 - by Greg

On August 30, 2007, the Anti-monopoly Law of the PRC (the "Law" ) was promulgated by the National People's Congress, to be effective August 1, 2008. The law is designed to protect the public and general interest of society.

Below, we summarize the relevant aspects of the Law:

As per Article 2, the Law regulates monopolistic conduct within the territory of the China, and monopolistic conduct outside the territory of China that has the effect of eliminating or restricting competition on the domestic market.

Monopolistic Conduct

The term "monopolistic conduct" includes:
1. Monopoly agreements reached between business operators;
2. Abuse of dominant market status by business operators; and
3. Concentration of business operators that may have the effect of eliminating or restricting competition.

The term "business operator" refers to a natural person, legal person, or any other organization that engages in the production or business of commodities or provides services.

Anti-monopoly Committee:

The State Council will establish an Anti-monopoly Committee, which will be responsible for organizing, coordinating and guiding the anti-monopoly work and performing the following functions:
1. Studying and drafting relevant competition policies;

2. Organizing the investigation and assessment of overall competition situations, and releasing assessment reports;
3. Formulating and releasing anti-monopoly guidelines;
4. Coordinating the anti-monopoly administrative law enforcement; and
5. Other functions assigned by the State Council.

Monopoly Agreements:

Business operators are prohibited from reaching any of the following monopoly agreements with each other:
1. Fixing or changing the price of commodities;
2. Restricting the production quantity or sales volume of commodities;
3. Dividing the sales market or the raw material procurement market;
4. Restricting the purchase of new technology or new facilities or the development of new technology or new products;
5. Conducting boycott transactions; or
6. Other monopoly agreements as determined by the Anti-monopoly Law Enforcement Agency under the State Council.

Generally, the term "monopoly agreements" refers to agreements, decisions or other concerted behaviours that eliminate or restrict competition.

Exceptions can be obtained in the following situations:
1. For the purpose of improving technologies, researching and developing new products;
2. For the purpose of upgrading product quality, reducing costs, improving efficiency, unifying product specifications or standards, or carrying out professional labor division;
3. For the purpose of enhancing operational efficiency and reinforcing the competitiveness of small and medium-sized business operators;
4. For the purpose of realizing public interests such as conserving energy, protecting the environment and providing disaster relief, etc.;
5. For the purpose of mitigating the severe decrease of sales volume or obviously excessive production during economic recessions;
6. For the purpose of protecting the justifiable interests in the foreign trade or foreign economic cooperation; or
7. Other circumstances prescribed by the law or the State Council.

Dominant Market Position

Business operators with a dominant market status are prohibited from committing any of the following abusive acts of dominant market status:
1. Selling products at unfairly high prices or buying products at unfairly low prices;
2. Selling products at prices below cost without any justifiable cause;
3. Refusing to trade with a trading party without any justifiable cause;
4. Restricting their trading party so that it may conduct deals exclusively with themselves or with the designated business operators without any justifiable cause;
5. Implementing tie-in sales or imposing other unreasonable trading conditions at the time of trading without any justifiable cause;
6. Applying discriminatory treatments on trading prices or other trading conditions to their trading parties with equal standing without any justifiable cause; or
7. Other forms of abusing the dominant market status as determined by the Anti-monopoly Law Enforcement Agency under the State Council.

The term "dominant market status" refers to a market status held by business operators that can control price or quantity of commodities or other trading conditions in the relevant market or can block or affect the entry of other business operators into the relevant market.

The term "relevant market" refers to the commodity scope or territorial scope within which the business operators compete against each other during a certain period of time for specific commodities or services (hereinafter referred to as "commodities"wink.gif.

Dominant market status shall be determined according to the following factors:
1. The market share of a business operator and its competitive situation in the relevant market;
2. The ability of the business operator to control the sales market or the raw material procurement market;
3. The financial and technical conditions of the business operator;
4. The extent of reliance on the business operator by other business operators in the transactions;
5. The degree of difficulty for other business operators to enter the relevant market; and
6. Other factors relevant to the determination of the dominant market status of the said business operator.

Business operators may be presumed to have a dominant market status in the following:
1. The market share of one business operator accounts for 1/2 or more in the relevant market;
2. The joint market share of two business operators accounts for 2/3 or more in the relevant market; or
3. The joint market share of three business operators accounts for 3/4 or more in the relevant market.

Under the circumstance prescribed in Item 2 or 3 of the previous paragraph, if any of the business operators has a market share of less than 1/10, that business operator shall not be considered to have a dominant market status.

Concentration of Business Operators

The "concentration of business operators" refers to any of the following circumstances:
1. Merger of business operators;
2. A business operator acquires control over other business operators by acquiring their equities or assets; or
3. A business operator acquires control over other business operators or is able to exert a decisive influence on other business operators by contract or any other means.

Business operators shall declare in advance a concentration reaching the threshold of declaration prescribed by the State Council to the Anti-monopoly Law Enforcement Agency, and otherwise, they shall not implement the concentration.

To make a concentration declaration to the Anti-monopoly Law Enforcement Agency under the State Council, business operators shall submit the following documents and materials:
1. A declaration paper;
2. Explanations on the effects of the concentration on the relevant market competition situations;
3. The concentration agreement;
4. The financial and accounting reports for the previous fiscal year of the business operators involved in the concentration, as audited by an accounting firm; and
5. Other documents and materials as required by the Anti-monopoly Law Enforcement Agency under the State Council.

The Anti-monopoly Law Enforcement Agency under the State Council shall, within 30 days upon receipt of the documents and materials submitted by the business operators, conduct a preliminary examination of the declared concentration of business operators, make a decision on whether to conduct further examination or not, and notify the business operators of that decision in written form. The business operators shall not implement the concentration until the Anti-monopoly Law Enforcement Agency under the State Council makes such a decision.

Where the Anti-monopoly Law Enforcement Agency under the State Council decides to conduct further examination, it shall, within 90 days from the date of decision, complete the examination, make a decision on whether to prohibit the concentration, and notify the business operators concerned of the decision in written form. If the Anti-monopoly Law Enforcement Agency under the State Council decides to prohibit the concentration, it shall explain the reasons. The business operators shall refrain from implementing the concentration within the period of examination.

The following factors shall be taken into account in the examination of the concentration of business operators:
1. The involved business operators' market share in the relevant market and their controlling power over that market;
2. The degree of market concentration in the relevant market;
3. The impact of the concentration of business operators on the market access and technological progress;
4. The impact of the concentration of business operators on the consumers and other business operators;
5. The impact of the concentration of business operators on the national economic development; and
6. Other factors that may affect the market competition and shall be considered as deemed by the Anti-monopoly Law Enforcement Agency under the State Council.

Where the concentration of business operators will or may eliminate or restrict competition, the Anti-monopoly Law Enforcement Agency under the State Council shall make a decision to prohibit the concentration. However, if the business operators concerned can prove either that the favorable impact of the concentration on competition obviously exceeds the adverse impact, or that the concentration is in harmony with the public interests, the Anti-monopoly Law Enforcement Agency under the State Council may decide not to prohibit the concentration.

Penalties

Penalties for violation of the Law are as follows:

1. Monopoly agreement: stop order of violation, confiscate illegal gains and impose a fine of 1% to 10% of the sales revenue in the previous year. Where the monopoly agreement has not been carried out, a fine of less than RMB 500,000 may be imposed.

2. Abuse of dominant market status: stop order of violation, confiscate the illegal gains, and impose a fine of 1% to 10% of the total sales volume in the previous year on them.

3. Concentration: stop order for concentration, dispose of shares or assets, transfer the business or adopt other necessary measures to restore the market situation before the concentration within a time limit, and may impose a fine of less than RMB 500,000.



1 Comment

  • 1. Anna Lei  |  September 13, 2007, 4:38 pm

    When China's first Anti-monopoly Law was promulgated by NPC after 13 years'of drafting and revising, high attention was paid to the law in domestic and foreign countries. Most people, including economists and consumers, think the law is a landmark one which can prohibit monopolistic conducts and build a fair, uniform and national competition law system that benefits consumers by recognizing and preserving the incentives to compete. And two major foreign chambers, the European Union Chamber of Commerce in China and the American Chamber of Commerce in China hailed the law as a positive step in the country's evolution as a market-based economy. The different points of view, however, also emerged simultaneously, one of which points out that the main monopolistic power in China is the administrative monopolies backed by government, not the economic monopolies brought by market competition, and it is not be prohibited by the law yet. Indeed, it is not hard to see from the Anti-monopoly law, the administrative monopolies, which the consumers have been expecting to be restricted and prohibited, are exempted from restriction in the legal way, such as, Article 7 in the law stipulates that for the undertaking in the state-owned economy controlled industries to which are related to national economic lifeline and state security, and in the industries to which the state grants special or exclusive rights, the state protects their lawful operation. So based on the above provision, the monopolies occurred in the transportation, telecom, electric power, energy and tobacco industries will not be banned, and consumers will not benefit from them in which consumers usually fail to enjoy the really excellent services and lower prices.

Submit Comment

Required

Resident Blawgers