Revision of China’s Anti-Monopoly Law to close “loopholes” in anti-cartel enforcement

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[co-author: Jingwen Hou]

Companies doing business in China need to anticipate stricter anti-cartel enforcement in the near future. Recently released legislative plans suggest an amendment of the Anti-Monopoly Law is on its way. The published draft amendment – prepared by State Administration for Market Regulation, the China’s top antitrust agency – contains important changes relating to anti-cartel enforcement.

On 11 June 2021, China’s cabinet – the State Council – released a circular elaborating its legislative work plan to submit the Anti-Monopoly Law (“AML”) – China’s main competition law – for deliberation and amendment by the National People’s Congress Standing Committee (“NPCSC”). A draft of the amended AML (“Draft Amendment”) was drafted by State Administration for Market Regulation (“SAMR”) and released on 2 January 2020. The Draft Amendments contains some significant revisions relevant to cartels.

The Anti-Monopoly Law and its anti-cartel provisions

The AML was originally enacted in August 2007, and continues in effect since August 2008 without changes until today. The AML consists of eight chapters and 57 articles. In the AML, three types of anti-competitive conduct are prohibited – the conclusion of monopoly agreements, the abuse of market dominance, and the anti-competitive M&A.

The articles relating to cartels are largely listed in its Chapters II, VI, and VII, which separately elaborates what kinds of monopoly agreements are prohibited, how the authorities conduct investigation against cartels, and how/which level of the fines will be imposed.

Important changes to regulate hub-and-spoke conspiracies

In Chapter II, a new provision (Article 17) is proposed to be added and a pre-existing provision (Article 16) is scheduled to be amended to regulate indirect conspiracies (for example, hub-and-spoke arrangements).

The new Article 17 prohibits any “business operator” from arranging or helping other business operators to conclude anti-competitive agreements. The key point of the new provision is that it makes it illegal for anyone to orchestrate a cartel, not only the cartelists themselves.

In a parallel development, the Draft Amendment proposes to adjust Article 16 of the AML which prohibits trade associations from setting up cartel arrangements “in their industry” (i.e., among their members). The change proposed by the Draft Agreement is to generalize this prohibition so that trade associations cannot orchestrate cartels for anyone, their members or others.

The amendments, if adopted, would make it easier for SAMR to penalize cartel facilitators. It appears the antitrust authority struggle with this issue in past enforcement cases, as the AML explicitly states that competing business operators are prohibited from engaging in cartel conduct. For example, in the Glacial acetic acid case, in December 2018, three manufacturers of active pharmaceutical ingredients for glacial acetic acid were fined for price fixing. At the same time, a pharmaceutical excipients company, which in fact played very important role in the organization of the price-fixing, got away for free – without a punishment. This was despite having it initiated the communications with the manufacturers regarding the price increase and actually and coordinating the cartel by helping exchange sensitive information, relating to market conditions, sales amount, price, etc.

The proposed amendments are also in line with recent developments in the European Union. On 28 May 2021, the European Commission announced that it had re-adopted its decision against ICAP for facilitating several cartels in the Yen Interest Rate Derivatives trading market by helping information exchange, influencing JPY LIBOR panel banks’ JPY LIBOR submission using its contract with them, disseminating misleading information, etc.

Increase in fines

Another key change proposed by the Draft Amendment is to increase the fines on certain cartel-related behaviour. A unique provision in the existing AML states that a company concluding but not implementing a cartel (or other anti-competitive) agreement receives a lower fine as compared to the situation of a fully implemented agreement. Conclusion without implementation currently exposes the company to a fine of maximum RMB 500,000 (around EUR 65,000). After the amendment, the penalty amount would be raised to RMB 50 million (around EUR 6.5 million). Meanwhile, for trade associations arranging the conclusion of cartel agreements, the amount of the fines is proposed to be lifted from RMB 500,000 to RMB 5 million (around EUR 650,000).

What’s next

Cartels have long been an antitrust enforcement priority in China. There have been numerous investigations against cartels by SAMR and its predecessor authorities since the AML came into effect 13 years ago. Among these investigations, many cartels were orchestrated by trade associations, which were generally also penalized.

That said, there is a relatively commonplace thinking about antitrust regulators in China that the organization of cartels through third parties (other than trade associations) is not, or not sufficiently, regulated in the AML. Against this background, the proposed revision of the AML aims to close a “loophole” by specifically prohibiting and sanctioning hub-and-spoke conspiracies.

The legislative plan is ambitious and moving quickly: as per its 2021 legislative work plan, the NPCSC is scheduled to deliberate the Draft Amendment later in 2021.

Time will tell whether the NPCSC follows the SAMR draft closely. If so, we may see a new impetus on cartel enforcement – including hub-and-spoke- conspiracies – after the amendment is passed.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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