The deadline for submission of comments on the new draft regulations is 7 June 2010.

On 25 May 2010, China’s State Administration for Industry and Commerce (SAIC) issued the revised draft Regulations for Prohibiting Monopoly Agreements (New MA Draft) and Regulations for Prohibiting Abuses of Dominant Market Position (New DMP Draft), collectively referred to as the New Draft, for the second round of public comments. The deadline for submission of comments on the New Draft regulations is 7 June 2010.

The SAIC had issued the first-round draft regulations (collectively referred to as the Old Draft, and respectively referred to as the Old MA Draft and the Old DMP Draft) in April 2009. Click here to read MWE China Law Offices’ article on the Old Draft.

New MA Draft

New Element to Determine a Concerted Action

According to the Old MA Draft, two factors shall be considered in the determination of a concerted action for a monopoly agreement: whether the concerned actions are consistent, and whether the actions are identical or similar without justifications.

The New MA Draft adds one new element in the determination of a concerted action: whether there are conspiracies or information exchanges between undertakings. By this element, a mere similarity or consistency in action would not be sufficient for the determination of a concerted action. In other words, the government authority will have to review the intention of actors for “conspiracies” or intention-related factors such as “information exchanges”.

Collusive Bidding as Monopoly Agreement

In the Old MA Draft, collusive bidding, regardless of being horizontal or vertical, was provided as a prohibited monopoly agreement. In the New Draft, such provisions were deleted.

A collusion in bidding, although an anticompetitive action, is more suitable to be continuously regulated under the Anti-Unfair-Competition Law (AUCL), Article 15, than under the Anti-Monopoly Law. The deletion is reasonable.

Removal of Some Vertical Monopoly Agreements

Article 6 of the Old MA Draft specifically provided three types of vertical agreements:

  • Monopoly agreements between the tenderee and the tenders in a bidding process
  • Agreements by which a business operator restricts its transaction counterparties to operate within a designated regional market without justification (Territory Restriction)
  • Agreements by which a business operator restricts its transaction counterparties to transact with the business operator itself or other entities that the business operator designates without justification (Exclusive Transaction Arrangement)

The three specific agreements in the Old MA Draft were deleted from the New MA Draft. The New MA Draft provides a generic clause (Article 8) instead, by which a business operator is prohibited from concluding a monopoly agreement with its transaction counterparties with the effect of eliminating or restricting competition and harming the interests and rights of consumers.

As above analysed, it makes sense to delete the collusive bidding as a monopoly agreement. It seems too early to say whether the SAIC will remove the practices of the Territory Restriction and Exclusive Transaction Arrangement from the blacklist of monopoly agreements.

The New DMP Draft

Provisions for Justifications

The most exciting part of the New DMP Draft is Article 8, which provides for “safe harbors” for the abuse of dominant market position. Under the safe harbors, when determining whether or not there is an abuse of dominant market position, SAIC shall take into account the following factors:

  • Whether relevant practices are conducted on the basis of commercial customs, ordinary operating activities and ordinary profits
  • Whether relevant practices will have the effect of eliminating or restricting competition or harming consumers’ interests
  • How relevant practices will affect economic efficiency, public interests and the development of economy

It is not clear what constitutes “commercial customs”, “ordinary operating activities”, “public interests” and certain other terminologies. However, these terminologies, though ambiguous, are absolutely alleviating factors for dominant market players or suspect dominant market players in determination of their market positions.

Detailed Clarifications on Each Type of Prohibited Practice

The New DMP Draft, compared with the Old Draft, provides for the same practices as abuses of dominant market position: refusal to transact, transaction restrictions, tie-in sales or other unreasonable trading conditions, and discriminatory treatment. Furthermore, the New DMP Draft provides for additional practices:

  • Refusal to transact through restrictive conditions, such as a business operator restricting its transaction counterparties from dealing with the competitors of the business operator
  • Imposing unreasonable transaction conditions, such as unfavourable contract terms, payment methods or delivery methods
  • Applying different rebates to different transaction counterparties under the same conditions

In brief, the New Draft is friendlier than the Old Draft to those subject to the Anti-Monopoly Law. It is believed that the finalised regulations will be issued soon after 7 June 2010, the deadline for submission of the second-round comments.

Click here to view two comparison forms for Regulations for Prohibiting Monopoly Agreements and Regulations for Prohibiting Abuses of Dominant Market Position.