In the past two years, the Chinese anti-monopoly enforcement authorities launched probe against companies in the motor vehicle sector. There is a call for regulations specifically dealing with this industry sector. After 9 months preparation, the National Development and Reform Commission (“NDRC”) released the long-awaited Antitrust Guidelines for Motor Vehicle Sector (Draft Version)(“Draft Guidelines”) for soliciting public opinions during the period from 23 March 2016 to 12 April 2016. According to media reports, the final version of the Guidelines is planned to be presented to the Anti-monopoly Commission of the State Council for approval in May. We set out certain key highlights of the Draft Guidelines as follows:
1. Vertical Restrains
a) Price-related Restrictions
(1) Exemptions for Resale Price Restrictions In accordance with Article 15 of the PRC Anti-monopoly Law (“AML”), under certain circumstances, the undertakings have the possibility to apply for an exemption in an individual case for resale price fixing and minimum resale price fixing (“RPM”), provided that such resale price restrictions do not appreciably affect competition and will also benefit consumers. The Draft Guidelines provides for four types of RPM agreements which may fall within the scope of application of exemption.
- resale price fixing and minimum resale price fixing during a promotion period (up to 9 months) of new energy motor vehicles;
- resale price restrictions in a distribution arrangement under which the distributor merely acts as intermediary to coordinate the sales process whereas the sales price is mutually agreed by the motor vehicle supplier and the designated third party/end user;
- resale price restrictions in government procurement; and
- resale price restrictions on e-commerce platforms through which the motor vehicle supplier concludes the sales with the end users and merely engages the distributor as an intermediary to provide assistance in the sales process, such as delivery of motor vehicle, collection of payment and issuance of invoice.
(2) Price Suggestions The practice of recommending a resale price, providing guided price, requiring the reseller to respect a maximum resale price is considered by the Draft Guidelines as having the effect of realising efficiencies, provided that it does not amount to minimum or fixed sale price as a result of pressure from, or incentives offered by, any of the parties. Unlike EU competition law, the Draft Guidelines do not introduce a threshold which the market share of each of the undertakings shall not exceed in any of the above-mentioned practices. It remains to be seen whether a market share threshold will be added in its final version.
b) Restrictions on Territory and Customer
In terms of vertical restrains, the AML prohibits resale price fixing, minimum resale price fixing and so-called “other monopoly agreements”. Before the release of the Draft Guidelines, it was not crystal clear whether and to which extent restrictions on territory and customers are legally permissible. For the first time, the Draft Guidelines sheds light on this topic.
Under the Draft Guidelines, Restriction on Territory means that the supplier agrees to supply to one or several distributors in a particular territory and, at the same time, such distributor(s) undertake not to conduct their sales activities in other territories. Restriction on Customer means that the supplier requires the distributor(s) to resell the products only to, or not to a particular group of customers. Restrictions on Territory and Customers are considered as usually creating anti-competitive effect.
(1) Presumed Exemption
If an undertaking does not have appreciable market power, usually it is permissible for such undertaking to:
- limit a distributor to conduct sales activities in its own business premises, but no restriction of passive sales or cross-supplies between distributors;
- restrict active sales by a distributor to a territory or a specific group of customers which has been exclusively allocated to another distributor;
- restrict wholesaler from conducting direct sales to end users; and
- restrict distributors from selling spare parts to specific customers who will use such spare parts to manufacture the products same as those of the motor vehicle supplier.
In evaluating the market power, a safe harbour clause is introduced by the Draft Guidelines, i.e. if an undertaking has less than 25% to 30% market shares in the relevant market, it is possible to be deemed not to have appreciable market power.
(2) Hardcore Restrictions
The above presumed exemptions do not apply to agreements which contain any of the following hardcore restrictions:
- restrictions of passive sales by distributor;
- restrictions of cross-supplies between distributors;
- restrictions of the sales of spare parts by distributors and repairers to the end users which use those parts for the repair and maintenance of a motor vehicle; or
- restrictions, agreed between a manufacturer of motor vehicles and a supplier of spare parts, repair tools or diagnostic or other equipment, of the supplier’s ability to sell those goods to distributors, repairers or end users, with the exception of those stipulated in the Original Equipment Manufacturer (“OEM”) agreements.
c) Conditional Warranties
According to the Draft Guidelines, the warranty of the motor vehicle supplier shall not be made conditional on the end user having engaged the authorised repairer to provide repairing and maintenance work or used original spare parts which are not covered by the scope of warranties. Further, the motor vehicle supplier shall not impose restrictions of provision of repairing and maintenance services by authorised repairers to parallel imported motor vehicles.
The Draft Guidelines consider that tying, i.e. the motor vehicle supplier requires the distributors or repairers to purchase tied products, may result in an exclusive purchase obligation for tied products. Further, forcing the distributors or repairers to accept unreasonable sales target and stock requirements may also result in an exclusive purchase obligation for the relevant products. In addition, forcing the distributors and repairers to engage designated suppliers or purchase through designated supply channels and purchase designated third party brand products for their business premises decoration is considered to give rise to anti-competitive effect in the relevant market and indirectly increase the cost in distribution and aftermarket chains.
2. Abuse of Dominant Market Position
The Draft Guidelines mainly deal with abuse of a dominant market position in the aftermarket. Except for the spare parts produced under OEM agreements, a manufacturer of motor vehicles with a dominant market position shall not restrict a manufacturer of original spare parts for initial assembly of motor vehicles, without due reasons, from placing its trademark, logo, component code on those parts. Furthermore, the manufacturer of motor vehicles with dominant market position shall not, without due reasons,
- restrict distributors and repairers from purchasing original spare parts and “matching quality” spare parts from a third party;
- restrict suppliers of the spare parts from selling the spare parts bearing its own brand in the aftermarket except for the spare parts produced under OEM agreements;
- restrict cross-supplies of spare parts in the aftermarket between distributors, between repairers as well as between distributors and repairers;
- restrict distributors and repairers from selling to end users the spare parts necessary for the repairing and maintenance of motor vehicles; and
- restrict the accessibility of its technical information, testing instrument and maintenance tools.
The Draft Guidelines shed light on some previous uncertainties on recognition of anti-competitive behaviours, and will cause the players in the supply, distribution and aftermarket chains of the motor vehicle sector to review and adjust their current market practices to adapt to such antitrust guidelines.