NDRC Releases Guidelines Regulating Price-Related Behaviours by Trade Associations
Introduction On 20 July 2017, China's National Development and Reform Commission (NDRC) issued the Guidelines for Price-Related Behaviours of Trade Associations (the Guidelines). The Guidelines address the extent to which trade association activities may infringe both the Antimonopoly Law (AML) and the Price Law. The Guidelines suggest that the exchange of pricing information through and by trade associations is high risk, both under the AML and the Price Law. What This Means For You Businesses in China that regularly participate in trade associations should carefully and urgently review the activities of the association in light of these Guidelines. The Guidelines also represent a useful starting point for trade and industry associations in developing compliance programmes and training. A Risk-Based Approach The Guidelines group categories of conduct by risk, from risk free to very high risk, as set out in the table below.
Activities deemed "risk free" • Reporting to price supervision departments and other government regulators
• Assisting trade association members in defending themselves in price supervision inspections and antitrust enforcement
Activities where the risk is minor (generally competition neutral) • Encouraging members to mark prices clearly and use electronic price labelling
• Disclosing available services provided by members
• Informing members not to exchange price information, costs information and coordinate pricing policy and taking actions to stop members when they engage in such conduct
• Taking actions such as warning, publicly condemning and circulating a notice of critiques within the relevant industry
High-risk activities • Organising price fixing amongst the members
• Exchanging pricing information amongst members or competitors
• Releasing price guidance, base prices, reference prices and recommended prices
• Publicising price calculation formulae
• Organising coordination through unified preferential terms or time limits
• Formulating rules, decisions, notices, and criteria that could exclude or limit price competition
Extremely High Risk Activities • Fabricating or disseminating false price or cost-increase information
• Organising or directing members to cause artificial price fluctuations (e.g. through excessive purchasing of products in short supply)It comes as little surprise that direct and indirect price fixing (including organising price fixing, publishing recommended prices or price calculation formulae or taking measures that would otherwise restrict price competition) are classified as high-risk activities. These types of behaviour have been routinely sanctioned under the AML in the past. For example, in July 2017, NDRC's Zhejiang branch revoked a trade association's licence and fined 17 companies a total of CNY 7.78 million (USD 1.14 million) for colluding to fix the price of whiteboard sheet rolls through the association. Since 2010 when the State Administration for Industry & Commerce of China (SAIC) started to apply the AML in its enforcement, 15 of the 24 monopoly agreement cases SAIC made public involved trade associations. NDRC is also active in enforcing against trade associations. Since 2010, NDRC has penalized 8 trade associations in 9 cases. Specific Guidance on the Release of Pricing Information The Guidelines consider releasing price information by trade associations as a practice with relatively high risk. The Guidelines identify two kinds of legal risks with the conduct. Firstly, that the release may impact the price expectations of the public and cause disorder of the market price, which will violate the Price Law. Secondly that the release may lead to a price monopoly agreement (in effect, price fixing), which will be a violation of the AML. The Guidelines list a number of factors to assess whether releasing price information by trade associations will be problematic.
Potential Violation of the Price Law? Potential Violation of the AML?
• the less public access to the relevant information, the greater impact the release will bring to market price order; • the more stable the production and operating costs are in the industry, and the higher the market concentration, the greater the potential for the exchange of pricing information;
• the higher the market concentration is, the greater impact the release may bring to the market price order; • whether the pricing information released is current or future (future pricing information is more likely to lead to the formation of a price-fixing agreement);
• the less demand elasticity of the related commodities is, the greater impact the releasing may bring to the market price order; • the market shares of the parties involved in the information sharing, and the power of the trade association to control the industry (the greater the market shares, the greater the risk);
• the more power trade associations have to control the businesses in the industry, the greater impact they will have on the price expectations of the public. • where the information concerns a cost input (ie in an upstream market), the closer the connection between the cost input and the downstream product, the greater the risk of the formation of a price-fixing agreement.Whilst separate factors are listed for each legal risk, it is easy to see how the NDRC may read across both provisions, particularly when ascertaining breaches of the AML. By analogy with the EU's Horizontal Guidelines, the degree of public access to pricing information is an important factor in determining whether its exchange will infringe competition law. Some of the factors listed are interesting, in that they appear to suggest subtle differences when the Guidelines are compared with the approach taken by other competition law enforcement agencies. For example, the EU Horizontal Guidelines specifically state that information sharing may raise risks regardless of the market shares of the parties. However, the Guidelines suggest that the NDRC will consider as a relevant factor the market shares of the association members. Whilst the Guidelines may be read as suggesting that pure information exchange on its own will not lead to a violation, unless this leads to price fixing, it seems likely that the NDRC will easily infer an understanding to align prices where, in particular, future pricing is shared. For example, in July 2016, the NDRC sanctioned suppliers of Estazolam-based drugs for an illegal concerted practice in circumstances where intended pricing was shared, but where the regulator could not find evidence of an explicit price-fixing agreement.