More pricing compliance work for companies

Referring to Article 7 of the new provisions, which prohibits price-fixing between companies in a competitive relationship, he said that it should not be interpreted as being too simple : “The [compliance] review has to be comprehensive enough to include agreements signed by the company and any purchaser for the supply of commodities.” He noted that this compliance review is particularly necessary for those FIEs, including Sino-foreign joint ventures (JVs).

A foreign company and a Chinese company may be competitors in the broad sense, but for specific types of business, the two companies may set up a JV and agree on common pricing policies for the sale of products to customers either directly or indirectly through the foreign company, particularly in overseas markets. Zhang pointed out that Article 7 is not clear whether the JV scenario should be
treated as an exception to the general
rule.

“Strictly speaking, this rule should not apply because the foreign company and the Chinese company are cooperating rather than competing, at least with respect to the business of the JV,” he said.

Article 9, by operation of Articles 5 and 6(ii) may instil some reform in the conduct of executive managers: They would have to be more cautious in commercial activities, because the new rules prohibit any conduct that could perceivably result in a monopoly.

According to Zhang, the implication is that any discussions between executives of competing companies in public places, such as at meetings of industry associations and local chambers of commerce, might lead to a suspicion of reaching monopoly pricing agreements.

“The term 'monopoly pricing agreement' under the new regulation extends to oral communication,” said Zhang. “A precaution could be to have a PRC-qualified lawyer supervising the discussion, serving as a witness and signing any minutes of the meeting which record such discussion.”

One more example of uncertainty lies in Article 8, which prohibits price-fixing arrangements between a company and a purchaser for re-sale to any third parties. Whether or not a Sino-foreign JV's price-fixing arrangement with its affiliates of the JV (including the JV's shareholders) are covered by Article 8 is unclear.

“The price-fixing agreement with its affiliates should be treated as an exception because of the proper need for consistent pricing policies within the affiliates' group,” said Zhang.

Although a penalty is imposed for violating the rules, commentators worry that a monetary fine from the NDRC is not enough of a deterrent. Some suggest that judicial enforcement would be more effective as judicial bodies possess greater resources and manpower, and are better placed to preserve neutrality.

Although Article 50 of the PRC Anti-monopoly Law (中华人民共和国反垄断法) (AML) provides the right to institute civil proceedings, observers noted that there haven't been any successful litigations since the AML's inception in mid-2008.