Nathan Bush

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Marshalling competitors in trade associations poses tremendous antitrust risks. Even if formal agendas steer clear of collusion, casual chatter among participants can easily stray into unlawful coordination and information exchange. On March 24, 2017, the National Development and Reform Commission (NDRC) released the Guidelines on the Pricing Acts of Industry Associations (Draft for Comments) (Guidelines), highlighting the antitrust limits on Chinese trade associations amid renewed economic reforms.

Patina of past power

Trade associations played pivotal roles in China's past command economy, often coordinating pricing and production among units controlled by various branches of the state. Some evolved during the reform era into business advocacy groups akin to foreign trade associations, but others retained quasi-regulatory oversight, permitting, or coordination functions. Indeed, the Chinese government's assertions that trade association directives on export pricing and output carried the force of state policy ultimately proved fatal to a U.S. class action alleging collusion among Chinese Vitamin C exporters in a 2016 ruling by the U.S. Court of Appeals for the Second Circuit. The PRC Anti-monopoly Law (AML) took effect in 2008, explicitly forbidding trade associations from organizing “monopoly agreements” among members—effectively prohibiting the commercial coordination that had long been the core mission of many trade associations. Most “monopoly agreement” investigations under the AML have targeted cartels orchestrated by trade associations in products ranging from rice flour to insurance.

China's leadership resolved in 2013 to give market forces a “decisive” role in the allocation of resources, reinvigorating economic reforms. In July 2015, the State Council announced plans to phase out the administrative functions of many trade associations; in November 2015, the CPC Central Committee and State Council, Several Opinions on Promoting the Reform of the Pricing Mechanism mapped out comprehensive pricing reforms across many sectors. In 2016, the central government launched a “fair competition review” mechanism to pare back anti-competitive government regulations in key sectors. The draft Guidelines articulate antitrust limits for trade associations recast as industry advocates rather than tools of state policy.

Collusion & market manipulation

The Guidelines admonish trade associations not to facilitate cartels by: organizing members to coordinate directly on price or other sales terms; guiding industry pricing by publishing reference prices, benchmark prices, or industry cost or price data; implementing other measures to restrict price competition; or using trade association disciplinary mechanisms to enforce cartel agreements. The Guidelines also warn trade associations against publishing misleading or fabricated market data to manipulate market prices in violation of the PRC Pricing Law, noting that consumers are vulnerable to manipulation where independent access to information is limited, pricing policies of key industry leaders in concentrated sectors are published, or trade associations exert strong influence over their members.

Information exchange & publications

The Guidelines flag the “very high risk of leading industry business operators to reach price monopoly agreements or even manipulation of market price” by disseminating data on pricing and other industry indicators to members and the general public. The Guidelines warn that more comprehensive and detailed data entails greater antitrust risks, and that these are heightened when releasing data on concentrated markets with stable costs, on the planned pricing of industry leaders, or on pricing in closely linked upstream and downstream markets. The lawfulness of specific data releases will depend on a case-specific assessment of “multiple factors including the impact and control of the industry associations on their members, the market concentration status, the industry competition status, and the ability of members or other enterprises within the industry to obtain price information through other channels.” Although the Guidelines do not prescribe specific standards for compiling market data, the NDRC's approach comports with common safeguards such as publishing only historic data; publishing only aggregate results of data from multiple companies rather than company-specific data; restricting access to raw data; and entrusting an independent third party to compile and analyze data.

Trade war preparedness?

The Guidelines also invoke the state's exhortation to Chinese companies to “go out” into the global economy through foreign trade and investment. “In regard of import and export trade, foreign economic affairs, trade frictions and other matters, industry associations can play a role that functions to coordinate, guide, consult and service, safeguarding the legitimate interests of the Chinese enterprises and industries in the foreign trade and foreign economic cooperation.” Such “trade frictions and other matters” may allude to the common roles of trade associations (in China and other countries) in petitioning for the imposition of antidumping, anti-subsidy, or safeguard duties on competing imports, or organizing the defense against trade remedy investigations actions in export markets. However, Article 15 of the AML also lists “safeguarding the legitimate interests of the Chinese enterprises and industries in the foreign trade and foreign economic cooperation” as a justification for restraints of competition, raising concerns about state-sanctioned export cartels. Given recent upheavals in the global trading system following Brexit and the U.S. withdrawal from the Trans-Pacific Partnership, many Chinese trading associations may focus on foreign trade challenges as their roles in domestic commerce wane.