The public consultation of the Antitrust Guideline for Automotive Industry (draft for comments release on 23 March 2016 by the NDRC, “Guideline”) and the Administrative Measures on Automotive Sales (draft for comments released on 6 January 2016 by the MOFCOM, “Sales Measures”) has been finished in the first half of 2016. The official versions are expected to be promulgated later this year.
Once the new measures are promulgated, the antitrust legal landscape in the Chinese automotive industry will be corner-stoned mainly by the Guideline, the Sales Measures and the measures on disclosure of automotive repair technical information (“Information Disclosure Measures”). Such structure indicates the dedicated antitrust rules and industrial administrative measures involving competition issues will NOT be integrated in the recent future. As further indicated by NDRC, amendment to existing industrial regulations (e.g. the 3R Provisions) conflicting with automotive antitrust rules might be placed on the regulative agenda in future.
Coping with the new automotive antitrust legal regime: business practices of OEMs
Under the new automotive antitrust regime, some business practice used to be popular among automotive OEMs may be exposed to high antitrust risks, which may result in not only administrative fines, but also costly coping measures with potential antitrust investigations and subsequent civil procedures.
Hereby below are some typical restraints on dealers, repairers and upstream suppliers of theOEMs caught and regulated by the Guideline and the Sales Measures:
Resale price maintenance (“RPM”)
Vertical price fixing arrangement, including OEM’s unilateral instruction and business arrangement, is illegal per se under the new automotive antitrust regime. However, the following conducts may be exempted according to the Guideline:
- Recommended price, indicative price and maximum price requirement not resulting in resale-price maintenance;
- RPM in given circumstances (promotion of new energy vehicles, “middleman sales”, government procurement and online sales.
“Safe Harbor” for certain vertical restraints
Though there is no block exemption rule for general vertical restraints in the Chinese antitrust law, the Guideline provides a safe harbor for OEMs with a market share of less than 25% or at maximum 30% in the relevant market. The OEMs meeting this threshold would be deemed as having no “significant market power”, and as such vertical restraints on region or customers by these OEMs are not exposed to serious antitrust risk except for restraints on passive sales.
Restraint on cross-sales of CBU and auto parts, one of the practices most concerned by companies in automotive industry, is particularly addressed under the Guideline as one of non-pricing vertical restraints. Under the Guideline, the antitrust risks of different cross-sales arrangements as follows:
- Restraints on cross-sales of auto-parts: HIGHRISK;
- Restraints on cross-sales of CBU among the OEM’s authorized dealers: HIGHRISK;
- Restraints on cross-sales of CBU between authorized dealers and independent dealers:LESSRISKY.
OEMs’ restraints on repairers (both authorized and independent repairers)
- On procurement and use of auto-parts
If an OEM has dominant position (Due to the “lock-in” effect in the aftermarket, automotive brand will be an important factor in determining relevant aftermarket, and the aftersales service market for the CBU of single brand may be defined as an independent relevant market.) in the relevant aftermarket, the restraint on the procurement of matching quality parts or on the procurement of OEM parts from other channels (e.g. parallel import) would be exposed to HIGH antitrust risk. As an exemption, the requirement of using OEM parts and matching quality parts within the OEM’s authorization system in order to safeguard the consumers’ benefit would be generally permissible and not challenged by antitrust enforcement authorities.
In term of restraints imposed by OEMs through warranty terms, the following practices of OEMs would be exposed to comparatively HIGH antitrust risk irrespective of their market positions:
- Limitation of repair and maintenance works outside warranty only to authorized repairers;
- Requirement of OEM parts to be used for repair and maintenance outside the scope of warranty.
- Restraints on after-service for parallel-imported vehicles without any justifiable reason.
- On supply of information and facilities for repair and maintenance work OEM’s restraints on supply of repairing tools/instruments/equipment to dealers and repairers would be exposed to HIGH antitrust risk. However, the risk for non-disclosure of technical information which is not required by Information Disclosure Measures would be LOW.
OEM’s Restraints on auto parts suppliers
In case an OEM has dominant position in the relevant aftermarket, the restraints imposed by such OEM on parts manufacturers to use its own marks/codes on initial assembly parts may faceHIGH competition risk. The so-called “OEM Agreement” (i.e. the OEM provides essential and unique IP, technology equipment or tools (Such essential and unique IP/technology/equipment/tools shall be a must with uniqueness for auto parts manufacture, i.e. neither owned nor able to be reasonably obtained by the parts manufacturer.), and the parts manufacturer produces auto parts upon entrustment of theOEM) however is generally permissible.
To cope with the new automotive antitrust legal regime, the OEMs should thoroughly examine their existing business practices. Meanwhile, establishment and implementation of a complete set of internal antitrust compliance rules will be the key task for OEMs in order to cope with regular antitrust investigations in the future.