This article appeared in the 3rd edition of The International Comparative Legal Guide to Cartels and Leniency 2010; published by Global Legal Group Ltd, London(www.iclg.co.uk)
You can aslo download a bookmarked PDF version of this guide book at the following link:
http://www.iclg.co.uk/index.php?area=4&show_chapter=3380&ifocus=1&kh_publications_id=128
1 The Legislative Framework of the Cartel Prohibition
1.1 What is the legal basis and general nature of the cartel prohibition, e.g. is it civil and/or criminal?
The principal legal basis for cartel prohibition is the Anti-Monopoly Law (AML) and the Price Law (Price Law). At the time of writing, two of China’s antitrust enforcement authorities—the State Administration for Industry & Commerce ( SAIC) and the National Development and Reform Commission (NDRC)—have also promulgated a series of implementing regulations for public comments: the Draft of the Regulations on Prohibiting Monopoly Agreements (SAIC) and the Draft of the Regulations on Prohibiting Price Monopoly (NDRC).
In China, violation of cartel prohibition carries administrative as well as civil liabilities. No criminal liability is provided for cartels in China.
1.2 What are the specific substantive provisions for the cartel prohibition?
Article 13 of the AML provides “The following monopoly agreements among undertakings in competitive relationship shall be prohibited:
(1) fixing or changing the price of commodities;
(2) limiting the outputs or sales volume of commodities;
(3) allocating the sales markets or the raw material purchasing markets;
(4) restricting the purchase of new technology or new equipment or restricting the development of new products;
(5) jointly boycotting transactions; or
(6) other monopoly agreements determined by the Anti-Monopoly Law Enforcement Authority under the State Council.
Article 14 of the Price Law provides “Undertakings must not engage in the following unjustified price conducts:
(1) to act in collaboration to control market price to the detriment of the legitimate interests of other undertakings or consumers…”
Article 4 of the Draft of the Regulations on Prohibiting Price Monopoly provides that “the price monopoly agreement under this regulation refers to written or oral agreement, decision or other parallel behaviour among more than two undertakings, which excludes or restricts competition in price”.
Article 5 of the Draft of the Regulations on Prohibiting Price Monopoly provides that “the following elements can be considered in ascertaining existence of parallel behaviour:
(1) Whether the pricing conducts of the undertakings are similar. Similarity can be identified where the undertakings fix or change prices for similar types of commodities by virtue of identical or similar standards or margins.
(2) Whether the undertakings have engaged in communication.
In ascertaining parallel behaviour, the fact finder shall also consider whether the similarity in the prices of the undertakings have justifications in the context of the market structure and change.
Article 6 of the Draft of the Regulations on Prohibiting Price Monopoly provides “undertakings in competitive relationship are barred from reaching the following price monopoly agreements:
(1) fixing or changing the price of commodities
(2) fixing or changing the margin of price change
(3) fixing or changing fees and discounts that influence price
(4) using uniform price as basis to negotiate with third parties
(5) agreeing on standard formula for the calculation of price
(6) agreeing that no price can be changed without approvals of other undertakings
(7) fixing or changing price by agreeing to limit production quantities or divide sales or purchase market
(8) other monopoly agreements determined by the Anti-Monopoly Law Enforcement Authority under the State Council.
Article 9 of the Draft of the Regulations on Prohibiting Price Monopoly provides that “trade associations are barred from engaging in the following conduct:
(1) formulating and publishing rules, decisions and notifications to fix or change price
(2) assembling undertakings operating in the industry to discuss and formulate agreements, resolutions, minutes and memorandums to fix or change price
(3) facilitating undertakings to reach price monopoly agreement
(4) other monopoly agreements determined by the Anti-Monopoly Law Enforcement Authority under the State Council
Article 5 of the Draft of the Regulations on Prohibiting Monopoly Agreements provides “the following monopoly agreements among competing business operators shall be prohibited:
(1) Limiting output or sales of products, including limiting total output and sales by limiting or ceasing production or hoarding goods, or limiting output or sales of a certain product type or model;
(2) Allocating sales market or raw materials supply market, including dividing region for the sales of products, targets of sales or categories of products for sale, and dividing purchasing regions and suppliers of raw materials and etc. Raw materials include materials, semi-finished goods, parts and components, related equipment, etc,. necessary for the production and operation of an undertaking;
(3) Limiting the purchase of new technologies and equipment or limiting the development of new technologies and products, including limiting investment, development, use of new technologies, new equipment or new products and the leasing of new equipment, etc.;
(4) Jointly boycotting transactions, including jointly refusing to provide or sell products to certain business operators, jointly refusing to purchase or sell the products of certain business operators, and jointly demanding certain business operators not to conduct transactions with competing business operators;
(5) Collusive bidding, including agreements made among bidders to decide a bid winner, win the bid in turn and conduct collusive actions regarding matters other than the quotation price; and
(6) Other monopoly agreements determined by the State Administration for Industry and Commerce.
1.3 Who enforces the cartel prohibition?
In China, NDRC enforces prohibitions against price-related monopoly agreements. The SAIC enforces prohibitions against non-price related monopoly agreements. For example, prohibiting price cartels belong to the jurisdiction of NDRC, while SAIC has jurisdiction to combat market division agreements. In addition, China’s courts also have jurisdictions to hear civil cases involving cartels.
1.4 What are the basic procedural steps between the opening of an investigation and the imposition of sanctions?
At the time of writing, only SAIC has promulgated specific procedural rules on conducting investigation of monopoly agreements and abuse of market dominance. Otherwise, the proceedings to conduct cartel investigation are governed by general rules provided in the Administrative Penalty Law of PRC. In the context of the SAIC rules, known as “the Regulation on Investigating Monopoly Agreements and Abuse of Market Dominance by SAIC Agencies”, the basic procedural steps include:
First, SAIC may decide to carry out investigation by itself. It may also delegate the investigation power to SAIC agencies at provincial level if the cartel takes place in the province in question.
Second, SAIC may take the following investigatory measures:
(1) Enter the operation site or other sites to investigate;
(2) Question the investigated undertakings, interested parties or any other relevant undertakings or individuals and demand them to offer explanations;
(3) Survey and make copies of documents, agreements, accounting books, fax and emails and electronic data and etc. of the investigated undertakings, interested parties or any other relevant undertakings or individuals;
(4) Seal up and seize relevant documents
(5) Check into bank accounts of the undertakings
In addition, SAIC may also order the investigated undertakings to produce such documents in writing as it may deem necessary for the investigation.
Third, the investigated undertakings may request to suspend the investigation by making commitments that the effects of the conducts in question be eradicated within the time period endorsed by SAIC. After the request is granted, the investigated undertakings shall make report in writing on how the commitments are implemented.
Finally, if the undertakings object to the administrative penalties imposed by SAIC, they may request for administrative review or bring actions to court.
1.5 Are there any sector-specific offences or exemptions?
According to AML, it doesn’t apply to the alliance among or concerted actions by farmers and the farmers’ economic organizations in connection with the production, processing, sales, transportation and storage of agricultural products ad other business activities related to agricultural products.
1.6 Is cartel conduct outside [Country] covered by the prohibition?
Yes, AML has extraterritorial jurisdiction over cartel conducts when they have eliminative or restrictive effects on competition in the domestic market of the People’s Republic of China.
2 Investigative Powers
2.1 Summary of general investigatory powers.
Please use an “*” after your “yes” answer to indicate that a power can, as a general rule, only be exercised with external authorisation (i.e. with the authorisation of a court or independent supervisory body).
Table of General Investigatory Powers
|
Investigatory power |
Civil / administrative |
Criminal |
|
Order the production of specific documents or information |
Yes |
|
|
Carry out compulsory interviews with individuals |
Yes |
|
|
Carry out an unannounced search of business premises |
Yes |
|
|
Carry out an unannounced search of residential premises |
Yes |
|
|
· Right to ‘image’ computer hard drives using forensic IT tools |
Yes |
|
|
· Right to retain original documents |
Yes |
|
|
· Right to require an explanation of documents or information supplied |
Yes |
|
|
· Right to secure premises overnight (e.g. by seal) |
Yes |
|
Please Note: * indicates that the investigatory measure requires the authorisation by a Court or another body independent of the competition authority
2.2 Specific or unusual features of the investigatory powers referred to in the summary table.
The “yes” answers are applicable to administrative investigations only. Under AML and SAIC’s procedural rules, reports must be made to the head of the antitrust enforcement authorities. Approvals are also necessary for exercising the above investigative powers. For civil procedures, however, no private parties may take the above measures or without a Court’s authorization. For example, when there is a risk that evidence may be destroyed, lost or would be difficult to obtain later on, the parties must apply to the court for evidence preservation. The court can also order evidence preservation on its own initiative.
2.3 Are there general surveillance powers (e.g. bugging)?
No.
2.4 Are there any other significant powers of investigation?
No.
2.5 Who will carry out searches of business and/or residential premises and will they wait for legal advisors to arrive?
According to AML, it is the antitrust enforcement authorities who have the investigative power, including carrying out searches of business and/or residential premises. Specifically, SAIC and NDRC are charged with, among other things, investigating cartels.
There are no general or specific rules that require the arrival of legal advisors before searches of business and/or residential premises can be carried out.
2.6 Is in-house legal advice protected by the rules of privilege?
No.
2.7 Other material limitations of the investigatory powers to safeguard the rights of defence of companies and/or individuals under investigation.
According to AML, the investigated undertakings and the interested parties have right to make statement. In addition, the investigating authorities and their staffs must keep the trade secrets learnt in the course of investigation confidential.
According to the Administrative Penalty Law of PRC, which provides general rules on administrative penalty proceedings, the investigated party also has a right of defence. Besides, no penalties shall be levied without notifying the investigated parties of the facts, reasons and proofs on which the penalty decisions are based.
2.8 Are there sanctions for the obstruction of investigations? If so, have these ever been used?
The antitrust enforcement authorities may order the perpetrators of obstructions to correct its behaviour. In addition, a fine less than RMB20,000 can be levied on an individual and less than RMB200,000 on entities. Where the obstructions are serious, a fine in the range of RMB 20,000 and RMB100,000 can be levied on an individual and a fine in the range of RMB200,000 and RMB one million can be levied on an entity. Obstruction of investigations may also be criminally prosecuted when they constitute crimes.
To the best of our knowledge, the sanctions have not been used in cartel investigations, due to the limited number of investigations actually carried out so far.
3 Sanctions on Companies and Individuals
3.1 What are the sanctions for companies?
The antitrust enforcement authorities shall order the undertakings to stop such illegal act, confiscate their illegal gains and impose fines of more than 1% and less than 10% of their sales in the preceding year. If the Monopoly Agreement has not been implemented, fines less than RMB 500,000 may be imposed.
3.2 What are the sanctions for individuals?
There are no special sanctions for individuals. The above sanctions applicable to companies will also apply to individuals.
3.3 What are the applicable limitation periods?
There is no special limitation period for the prosecution of cartels. According to the Administrative Penalty Law of PRC, illegal act can be prosecuted within two years after it is perpetrated. However, if the conduct is of continual or continuous nature, the limitation period will be counted from the date when the conduct terminates.
3.4 Can a company pay the legal costs and/or financial penalties imposed on a former or current employee?
There are no special provisions on this issue in AML or any other relevant regulations. To the best of our knowledge, in real practice, where a company elects to do so, it can pay the legal costs and/or financial penalties imposed on a former or current employee.
4 Leniency for Companies
4.1 Is there a leniency programme for companies? If so, please provide brief details.
As a general provision, the AML provides that the antitrust enforcement authorities may have the discretion to reduce or exempt defendants’ penalties if they volunteer to report cartels to the authorities and provide key evidence. So far, SAIC has also issued the Draft of the Regulations on Prohibiting Monopoly Agreements that spells out detailed rules on leniency programme.
According to the Draft, SAIC may grant exemption of penalties to the first whistleblower who makes the voluntary move to report the cartel and provide key evidence. Key evidence is the one that can trigger investigation or is dispositive in establishing the cartel.
For other whistleblowers, SAIC has discretion to reduce penalties. The decision is based on a comprehensive set of factors, i.e., the sequence of whistle blowing, the significance of the evidence proffered, circumstances of the cartel agreements and the level of cooperation. Specifically, the second voluntary whistle blower is reduced by 50% of the penalties; the third voluntary whistle blower is reduced by 30% of the penalties.
Under no circumstances can SAIC grant reduction or exemption of penalties to the undertakings that organize, initiate or coerce others to carry out the cartel agreements.
4.2 Is there a ‘marker’ system and, if so, what is required to obtain a marker?
No.
4.3 Can applications be made orally (to minimise any subsequent disclosure risks in the context of civil damages follow-on litigation)?
Neither AML nor the SAIC’s draft regulation specifically requires that the applications must be made in writing. We are inclined to believe that applications for leniency can be made orally.
4.4 To what extent will a leniency application be treated confidentially and for how long?
Neither AML nor the SAIC’s draft regulation addresses the issues.
4.5 At what point does the ‘continuous cooperation’ requirement cease to apply?
Neither AML nor the SAIC’s draft regulation addresses the issues, although according to the latter draft regulation, the level of cooperation is a factor considered by SAIC to decide whether exemption or reduction of penalties should be granted.
4.6 Is there a ‘leniency plus’ or ‘penalty plus’ policy?
Judging from SAIC’s Draft of the Regulations on Prohibiting Monopoly Agreements, “leniency plus” policy seems to be available. But since the draft regulation hasn’t been officially enacted, no definitive answer can be given. There are no “penalty plus” policy under the AML.
5 Whistle-blowing Procedures for Individuals
5.1 Are there procedures for individuals to report cartel conduct independently of their employer? If so, please specify.
No.
6 Plea Bargaining Arrangements
6.1 Are there any early resolution, settlement or plea bargaining procedures (other than leniency)?
No.
7 Appeal Process
7.1 What is the appeal process?
According to AML, undertakings levied administrative penalties can request administrative review or bring actions to court. The review request can be made within sixty days after the undertaking is notified of the penalty levied. The undertakings may bring actions to court within three months after it is notified of the penalty levied.
7.2 Does the appeal process allow for the cross-examination of witnesses?
According to the judicial interpretation rendered by the Supreme People’s Court, with court’s approval, the parties and their representatives may cross-examine witnesses. However, the cross examination must bear relevance to the facts. Misleading, coercive or derogatory languages or methods must not be used.
8 Damages Actions
8.1 What are the procedures for civil damages actions for loss suffered as a result of cartel conduct?
Firstly, the plaintiff files the complaint with a people’s court with jurisdiction. There are two types of jurisdictions in relation to civil actions: (1) territorial and (2) hierarchical jurisdiction. The general rule with regards to territorial jurisdiction is that civil proceedings can be brought to the courts where the defendants have domiciles or where the tortious acts take place. Where multiple defendants are involved, any of those courts can hear the case. As far as hierarchical jurisdiction is concerned, four levels of courts exist in China: basic courts, intermediate courts, high courts and the Supreme Court. It is still unclear which level of court has proper jurisdiction to hear civil suits brought under the AML. However, the few private actions brought so far under the AML’s prohibition of abusing market power in China are heard by intermediate courts as trial court.
Secondly, where necessary, the plaintiff can request for interim remedies under the Civil Procedure Law of PRC, including the preservation of evidence and preservation of properties. When a risk exists that the evidence may be destroyed, lost or will be difficult to obtain later on, the parties can apply to the court to preserve evidence. The court can also take initiative to do so. As far as property preservation is concerned, where the enforcement of a judgment is against a particular property, and where such enforcement may be impossible or difficult because of the acts of either party or for other reasons, the court may order to preserve the property at the request of the plaintiff, or do so of its own volition. In granting property preservation measures, the court may require the applicant to provide a security to cover any losses that the respondent may suffer as a result of the preservation measures.
After weighing the evidence submitted by both parties, a court will decide on the liability and damage issues of defendants. To date, there have not been any AML cases going through the whole process of civil proceedings. However, since claims brought under the AML are of tortuous nature, it is expected that remedies such as cessation of infringements and damages will be available.
8.2 Do your procedural rules allow for class-action or representative claims?
Yes, the Civil Procedure Law of PRC provides representative action. It applies where a joint action has a large number of parties and the multiple plaintiffs or defendants elect to be represented by representative plaintiff(s) or defendants to litigate on their behalf. There are two types of representative actions: (1) representative litigation in which the number of litigants can be determined at the time the case if filed; (2) representative litigation in which the number of litigants can not be determined at the time the case is filed. In such cases, the court may issue a public notice and claimants can “opt in” by registering with the court. The court’s decision is binding on all those who register with the court, and on those who do not register with the court but bring similar claims within the limitation of period.
8.3 What are the applicable limitation periods?
Claims brought under AML are subject to two-year limitation period. It commences when the claimant knows or should know his or her right has been infringed.
8.4 What are the cost rules for civil damages follow-on claims in cartel cases?
Litigation fee charged by court for hearing cases is undertaken by the party losing the case. As for other costs, such as lawyer fee and witness fee, the general rule is that the party who uses the services will undertake the fees. However, in real practice, China’s courts may award reasonable amount of lawyer fee and witness fee to the winning plaintiff.
8.5 Have there been any successful follow-on or stand alone civil damages claims for cartel conduct?
No.
9 Miscellaneous
9.1 Provide brief details of significant recent or imminent statutory or other developments in the field of cartels and leniency.
Noteworthy are the two drafts of administrative regulations published by SAIC and NDRC for public comment: the Draft of the Regulations on Prohibiting Monopoly Agreements (SAIC) and the Draft of the Regulations on Prohibiting Price Monopoly (NDRC).
In terms of cartels and leniency, both regulations supplement and elaborate on the scope of cartel agreements provided under the AML. They also provide guidance for identifying parallel behaviours and specify the prohibited cartel conducts carried out through trade associations. However, only SAIC’s draft regulation provides detailed rules on leniency program, while NDRC’s draft regulation merely makes a reference to Article 46 of AML, which is a general provision on cartel leniency.
Both SAIC and NDRC are charged with, among other things, combating cartels. They are now in the process of revising and updating the two draft regulations. Their enactments will mark the milestone in China’s effort of fighting cartelistic conducts in collaboration with other members of the international community.