Trade associations in spotlight
Draft guidelines on trade association pricing activities
According to a press release published on the National Development and Reform Commission's (NDRC's) website on July 10 2017,(1) the Zhejiang Provincial Price Bureau(2) recently concluded its investigation into a cartel organised by a local trade association.
In this case, 17 paper manufacturers reached and implemented a horizontal monopoly agreement under the organisation of the Fuyang Paper Manufacturers Association, the local trade association in Hangzhou. The manufacturers were fined a total of Rmb7.78 million, accounting for 1% of their 2016 sales value. Further, the price bureau ordered the Fuyang Paper Manufacturers Association, which had played a leading role in organising and facilitating the conspiracy, to be deregistered for its wrongdoings.
This is the first time that a Chinese antitrust authority has invoked Article 46(3) of the Anti-Monopoly Law to deregister a trade association.
On October 28 2016 the Paper Manufacturers Association organised a meeting, which the aforementioned 17 paper manufacturers attended. At this meeting, the manufacturers agreed to raise the price of whiteboard sheet rolls collectively. In particular, they agreed to:
- implement the adjusted price;
- increase the price in stages, starting with an increase of Rmb200 per ton; and
- supervise each other and report any non-compliance to the Paper Manufacturers Association, which would undertake an inspection and impose penalties in accordance with the so-called 'self-discipline' rules.
From January to October 2016, the price of whiteboard sheet rolls was relatively stable at Rmb2,470 per ton. However, in November 2016 – just after the meeting – all of the cartel members raised the price of whiteboard sheet rolls, as agreed, forcing the average price to rise to Rmb2,640 per ton. In December 2016 the manufacturers consistently increased the price, causing the monthly average price to rise to Rmb3,049 per ton – a 23% increase compared with the pre-collusion price.
The price bureau held that the 17 paper manufacturers, as independent market participants that should have been competing with each other, had violated Article 13(1) of the Anti-monopoly Law by reaching and implementing a horizontal price-fixing agreement. Additionally, it found that the Paper Manufacturers Association had breached Article 16 of the Anti-monopoly Law by organising the market players to arrive at a monopoly agreement.
In accordance with Article 46 of the Anti-monopoly Law, the 17 companies were fined 1% of their 2016 whiteboard sheet roll sales, which totalled Rmb7.78 million. The penalty was relatively light, as the price bureau considered:
- the cooperative attitude of the companies during the investigation;
- the short duration of the monopolistic activity (ie, two months); and
- the companies' willingness to rectify the situation.
In contrast, the price bureau levied the severest penalty available against the Paper Manufacturers Association – namely, deregistration. Such punishment was the result of the association's recidivist conduct; six years ago the NDRC levied a fine against it for monopolistic behaviour of a similar nature.
In early 2011 the Paper Manufacturers Association organised a similar meeting with the same aim as the present case. After the meeting, the price of whiteboard sheet rolls was increased from Rmb200 to Rmb300 per ton. At that time, the NDRC launched an investigation into the Paper Manufacturers Association's misconduct and fined it Rmb500,000 for its leading role in the price-fixing collusion, the highest monetary penalty that can be levied against a trade association in accordance with the Anti-monopoly Law. Moreover, the penalty was the first to be published by the NDRC after the Provisions on Anti-Price Monopoly took effect. Regardless of this, the Paper Manufacturers Association clearly failed to learn its lesson.
The market share of Fuyang's whiteboard sheets plays a pivotal role in China: there are more than 1,300 paper manufacturing companies in the city. However, this fierce competition is not a justifiable excuse for monopolistic behaviour. Perhaps the previous penalty did not deliver a critical blow to the Paper Manufacturers Association; hence, it arranged another meeting to coordinate increasing the price of paper and followed through by significantly raising the price, again. This time, the price bureau ordered the association to be deregistered on the basis of Article 46(3) of the Anti-monopoly Law, which provides that the applicable administrative department may cancel a trade association's registration following a serious violation of the law.
Trade associations in spotlight
As of the date of this case's disclosure, the NDRC had published 17 cases relating to horizontal monopoly agreements, five of which were against trade associations. These cases involved a variety of industries, including insurance, paper manufacturing, property management and gold jewellery. Of these, two cases involved trade associations that received maximum fines of Rmb500,000. Additionally, in 2017 the NDRC fined two trade associations in one month. These active enforcement practices demonstrate that the NDRC has been more aggressive in monitoring and investigating the anti-competitive conduct of trade associations. In future, trade associations should diligently prepare to meet the NDRC's stringent compliance challenges.
Guidelines on trade association pricing activities
On July 20 2017 the NDRC published its Guidelines on the Pricing Behaviour of Trade Associations. The guidelines aim to promote sound industrial development and fair competition and protect consumer rights and interests. They create red tape for cartels and regulate trade associations and their activities. The guidelines advise trade associations on the possible legal risks of various pricing behaviours with regard to the Price Law, the Anti-monopoly Law and other relevant laws and regulations. They also assist trade associations in self-assessing the legitimacy of their pricing behaviour.
Although trade associations are not directly involved in market participation, they are capable of organising monopolistic activities. In accordance with Article 16 of the Anti-monopoly Law, trade associations cannot coordinate business operators in respective industries to engage in monopolistic acts. This is the first case where a trade association has been forced to deregister. Antitrust authorities – including the NDRC and the State Administration for Industry and Commerce – may now increase their surveillance of anti-competition appearance. Therefore, trade associations should enhance their awareness of antitrust law and improve their compliance systems. Further, the promulgation of the guidelines will provide guidance for trade associations and have certain regulatory effects on their pricing activities. Most importantly, during an antitrust investigation, trade associations should cooperate with the enforcement authority in order to reduce the potential administrative penalties. In any event, trade associations should not attempt to repeat any penalised behaviour or begin to engage in such conduct. Otherwise, a serious violation of the Anti-monopoly Law could result in their deregistration.
For further information on this topic please contact Michael Gu or Sihui Sun at AnJie Law Firm by telephone (+86 10 8567 5988) or email ([email protected] or [email protected]). The AnJie Law Firm website can be accessed at www.anjielaw.com.
(1) The original press release can be found on the NDRC's website.
(2) The Zhejiang Provincial Price Bureau, a local counterpart of the NDRC, governs anti-monopoly matters in Zhejiang Province.