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Focus: SAIC rules on implementing the Anti-Monopoly Law

3 July 2009

In brief: The PRC's State Administration of Industry and Commerce recently released two procedural rules on implementing the Anti-Monopoly Law, which took effect from 1 July 2009. Partner Campbell Davidson (view CV), Senior Associate Wayne Wang and Lawyer Crystal Zhang report on their key provisions.

How does it affect you?

  • The Procedural Rules for Investigating and Dealing With Cases Involving Monopoly Agreements or Abuse of Market Dominant Status and the Procedural Rules on Preventing Conduct Involving Abuse of Administrative Powers to Exclude or Restrict Competition (collectively referred to as the Rules) clarify that the State Administration of Industry and Commerce (the SAIC) has authority to investigate monopoly agreements, abuse of dominant market status, and abuse of administrative powers to exclude or restrict competition, other than monopoly price conduct.1
  • The Rules set out the SAIC's detailed procedure rules on handling monopoly cases and, notably, confer extensive investigation powers on the SAIC.

Background

China's Anti-Monopoly Law (the AML) came into force on 1 August 2008. (For details on the AML, please see our Focus.) Following promulgation of the AML, an Anti-Monopoly Commission was established under the State Council, which is responsible for coordinating the enforcement of the AML by the following authorities:

  • the Ministry of Commerce (the MOC), which is responsible for the review of business concentration;
  • the National Development and Reform Commission (the NDRC), which is responsible for regulating monopoly price conduct; and
  • the SAIC, which is responsible for monopoly conduct other than business concentration and monopoly pricing.

Following the release of the Rules, the SAIC now has detailed procedural guidance on the performance of its role under the AML, and it is significant that it has broad discretion and extensive investigation powers.

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Initiation of investigation proceedings

Under the Rules, the national SAIC is the competent authority for investigation. It may delegate its powers to provincial SAIC branches, but the provincial SAIC branches must not further delegate powers to their subordinates. The SAIC may initiate investigation proceedings through:

  • its own initiative;
  • reports filed by organisations or individuals alleging anti-monopoly conduct;
  • information received from other authorities; and
  • instructions given by higher authorities.

Regardless of whether the relevant information is received by the national SAIC or provincial SAIC branches, the national SAIC must make the final decision on the initiation of investigation proceedings. It may carry out an investigation itself or delegate the investigation to provincial SAIC branches.

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Investigation powers

Under the Rules, the SAIC has powers to:

  • enter the office or other premises of a suspect operator and conduct an inspection;
  • make enquiries of the suspect operator, interested parties, or any other relevant organisations or individuals, and require them to explain the situation;
  • check and copy relevant documents and materials, including vouchers, agreements, financial statements, correspondences and electronic data of the suspect operator, interested parties, or any other relevant organisations or individuals;
  • seize or detain relevant evidence; and
  • examine the bank accounts of the suspect operator.

The SAIC may also require a suspect operator, interested parties or any other relevant organisations or individuals, to provide the following in writing:

  • their basic details, including corporate form and structure, names, contact details, copies of business licences or identity cards;
  • their operation status, annual sales, taxes paid, agreements and dealings with the counterparties, offshore investment details, and share dividends for the past three years;
  • where the suspect operator is an industrial association, its articles, policies, business plans and implementation details, meeting minutes and documents;
  • their responses to questions asked by the SAIC; and
  • any other documents required by the SAIC.

A suspect operator or an interested party is entitled to express their views, clarify facts, provide reasons and submit evidence in the course of the investigation.

Anyone who fails to provide information, destroys evidence, or otherwise impedes the investigation, may be subject to fines imposed by the SAIC or may be found guilty of a criminal offence.

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Suspension and termination of investigation

A suspect operator may apply to suspend the investigation by submitting a written application to the SAIC and by undertaking to take specific measures to eliminate the effects caused by its conduct, within the timeframe prescribed by the SAIC.

The relevant SAIC shall consider the nature, period, effect and social impact of the suspect operator's conduct in determining whether to suspend the investigation.

If the investigation is suspended, the suspect operator shall rectify its conduct and submit written reports to the relevant SAIC according to its undertaking. The SAIC shall supervise the progress of the rectification and is entitled to terminate the investigation if it is satisfied that the suspect operator has performed its undertaking and rectified its conduct.

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Penalties

Upon completion of an investigation, if the SAIC takes the view that the suspect operator has carried out monopoly conduct, including entering into monopoly agreements or abusing market dominant status (excluding monopoly price), it may, according to the AML, impose administrative penalties on the operator. Such penalties include orders to cease illegal conduct, forfeiture of illegal gain, and fines (being 1-10 per cent of the turnover of the operator in the preceding year).

According to the Rules, the SAIC has discretion to order mitigation or remission of the severity of penalties if the operator reports, on its own initiative, the monopoly agreement and other relevant information and provides important evidence to the SAIC. However, these provisions do not apply to operators who initiated the monopoly agreements.

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Abuse of administrative powers to exclude or restrict competition

Under the Rules, if an administrative authority, or any other organisation with similar administrative functions, abuses its powers to exclude or restrict competition (excluding monopoly price conduct), its superior authorities may order it to rectify its conduct, and the responsible officials of such authority or organisation may be subject to administrative penalties.

The SAIC (at both national or provincial level) is entitled to make recommendations to the relevant superior authorities on how to deal with such monopoly conduct.

Business operators must not carry out monopoly conduct on the grounds of being authorised, designated, or obliged by administrative authorities, or any other organisations with similar administrative functions, to do so.

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Conclusion

Although it remains to be seen how the SAIC will, in practice, enforce the Rules, companies operating in China should be aware that under the Rules it has extensive investigative powers. In addition, the implementing rules under the AML for the MOC and NDRC have been circulated for public comment.

Footnotes
  1. The National Development and Reform Commission has authority to regulate and sanction monopoly price conduct.

Published 3 July 2009

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