NDRC cracks down on anti-competitive behaviour

Under the Pricing Law, the penalty is up to five times the illegal gain, under the AML, it is between 1% to 10% of the turnover. Despite the potential for a higher fine under the AML, that Law has more scope for leniency and has more exempted circumstances.

“It has not been settled whether turnover means worldwide turnover or just the turnover in China. The NDRC could easily take the view that it will be worldwide, as done in Europe. China would probably take the same attitude, but it is not absolutely clear in the law,” explains Frank Schoneveld, an anti-monopoly partner at MWE China Law Offices in Shanghai.

Waha told China Law & Practice that there have been a number of cases where the infringing conduct has taken place after the AML came into effect and was still investigated under the Pricing Law.

Practitioners attribute this to the possibility that enforcement agencies feel more confident operating under the Pricing Law. Officials are expected to enforce more under the new Law as they become accustomed to the provisions and how they should be applied in practice.

Clarification needed

In the NDRC's public statement, the commission claimed to have discovered during its investigation that the conspiring participants had 53 meetings in Taiwan and South Korea between 2001 and 2006 to discuss the illegal conduct involved.

Article 2 of the Pricing Law stipulates that jurisdiction is only granted over “pricing acts that are carried out within the PRC”. It has been suggested that since the meetings took place outside the PRC, the NDRC did not have the basis to apply the Pricing Law to this case.

“The NDRC would not have accepted a proposition like that. The Commission has taken the approach that it is where the pricing behaviour occurs and not where the agreement was made that matters,” said Schoneveld.

The issue of limitation periods under the PRC Administrative Penalty Law (中华人民共和国行政处罚法) has also raised confusion. It is not clear from the NDRC's press release when the limitation period began or when the investigation had officially begun.

“There seems to be a misconception of the limitation period,” said Schoneveld. Under the Administrative Penalty Law, the statute of limitations for violations under the Pricing Law or AML is two years.

It seems that if the NDRC has not taken action for two years, then the case would have disappeared. However, the NDRC has its own interpretation as the wording of the translation essentially says that if within two years of the illegal conduct, it has not been discovered, then the regulator cannot take action.

“At least in other legal systems, when one speaks of a two year limitation period you are talking about a four year maximum period. That is how it would work in other jurisdictions, but the rules are not clear in China,” said Waha.

Warning sign

Throughout 2012, records indicate that the NDRC had imposed sanctions totalling a mere $3 million for the entire year. This is a stark contrast to the single fine that has been imposed on the LCD price-fixing cartel. Compared with other Asian jurisdictions, China has been known to be lax on enforcement of monopolistic practices.

“If you just compare India, which started enforcing more or less around the same time China did, in the last two years of enforcement, you can see there had been more than $1.4 billion in fines imposed,” said Waha.

The landmark fine indicates a new era of strict enforcement and companies operating in China should take this as a sign to be more cautious. Multinationals need to review their China antitrust policy and ensure their Asia operations follows global antitrust policies.

The case shows administrative agencies are becoming strict on anti-competitive practices. However, more transparency and guidance on the thought process involved when assessing anti-competitive behaviour is needed, especially as China struggles with this new concept.

By Nickie Yeung

Further reading:

Anti-monopoly Law under scrutiny as key case goes to Higher Court

MOFCOM's review processes explained

PRC Anti-monopoly Law (中华人民共和国反垄断法)

PRC Pricing Law (中华人民共和国价格法)