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An Overview on the Proposed Amendments to the PRC Anti-Monopoly Law




CMS, China

An Overview on the Proposed Amendments to the PRC Anti-Monopoly Law

Dear Sir or Madam,

On 23 October 2021, the National People’s Congress (“NPC”) of China launched a consultation on the proposed amendments to the PRC Anti-Monopoly Law (“Amended AML”). It is expected that the final version will be approved by the Standing Committee of the NPC in the first quarter of 2022. Through the Amended AML, China intends to strengthen the antitrust enforcement. Please find below an overview of the major amendments to the Amended AML.

Kind regards,
CMS, China

On 23 October 2021, the National People’s Congress (“NPC”) of China has launched a consultation on the proposed amendments to the PRC Anti-Monopoly Law (“Amended AML”). It is expected that the Amended AML will be approved by the Standing Committee of the NPC in the first quarter of 2022.

Please see below an overview of the major amendments to the Amended AML for your reference. It is not clear yet, whether the amendment will be passed as drafted and quite likely that there will be further amendments.

1. Resale Price Maintenance and Minimum Resale Pricing

According to the newly added paragraph in Article 17 of the Amended AML (Article 14 of the AML), if an undertaking can prove that a vertical monopoly agreement containing resale price maintenance and/or minimum resale pricing clauses does not have the effect of eliminating or restricting competition, such vertical agreement shall not be prohibited.

We understand that this is different from the “Prohibition + Exemption Principle” towards monopoly agreements stated in the current AML. It remains to be seen whether this newly added paragraph will still be kept in the Amended AML, and if yes, how it can be differentiated from the “exemptions” stated in Article 20 of the Amended AML (Article 15 of the AML).
   
2. Safe Harbor System

According to the newly added Article 19 of the Amended AML, should the market share of the undertakings meet the standards to be established in the future by the PRC competition authority, horizonal monopoly agreements, vertical monopoly agreements, as well as hub and spoke conspiracy shall not be prohibited by the Amended AML. In other words, the so called Safe Harbor System will apply to them.

However, Article 19 of the Amended AML also stipulates that the Safe Harbor System shall not apply, if there is evidence proving that the monopoly agreements entered into by the undertakings eliminate and/or restrict competition.

Thus, our understanding is that the Safe Harbor System is not a mere verification standard for assessing the legality of the concerned monopoly agreements. In other words, even if the Safe Harbor System is kept in the Amended AML and the undertakings have met the market share standards to be established in the future by the PRC competition authority, there might still be non-compliance competition risks if the competition authorities have evidence proving that the concerned monopoly agreements eliminate or restrict competition.
   
3. Abuse of Dominant Market Positions by Undertakings in the Field of Platform Economy

According to the newly added paragraph in Article 22 of the Amended AML (Article 17 of the AML), the following activity of an undertaking which holds a dominant market position shall be prohibited because it constitutes an abuse of dominant market position: setting an obstacle by using any data, algorithm, technology, platform rules in order to impose any unreasonable restriction on another undertaking.

Ever since the Anti-Monopoly Guidelines of the Anti-Monopoly Commission of the State Council on Platform Economy (“Platform Guidelines”) took effect on 7 February 2021, the PRC competition authorities have been considering undertakings in the field of platform economy as one of the law enforcement focuses.

The Platform Guidelines provide for scientific and effective rules that help competition enforcement authorities unify enforcement standards and improve enforcement transparency. However, they are only guidelines but not law.

Therefore, on national level, the Amended AML provides a legal basis that an undertaking with a dominant market position in the field of platform economy shall be prohibited from using new technologies and/or new business models to exclude or restrict competition.
   
4. Merger Control Filings
 
   
a) Under the AML, a concentration that meets either of the following notification thresholds shall be notified to the Anti-Monopoly Bureau for prior merger control clearance:
 
   
(1) The total worldwide turnover of all the parties to the transaction exceeded RMB 10 billion (around EUR 1.3 billion) in the previous financial year and the turnover in China of each of at least two of the parties to the transaction in the previous financial year exceeded RMB 400 million (around EUR 52 million); or
   
(2) The combined turnover in China of all the parties to the transaction exceeded RMB 2 billion (around EUR 0.26 billion) in the previous financial year and the turnover in China of each of at least two of the parties to the transaction in the previous financial year exceeded RMB 400 million (around EUR 52 million).
 
 

According to the newly added paragraph in Article 26 of the Amended AML (Article 21 of the AML), where a concentration does not meet the merger control notification thresholds in Item 4 a) above, but there is evidence proving that the concentration has or may have the effect of excluding or restricting competition, the PRC competition enforcement authority shall conduct an investigation pursuant to PRC law.

Thus, even if the merger control notification thresholds in Item 4 a) above are not triggered, under certain circumstances, the PRC competition authorities ex officio will still have the power to investigate into the intended concentration.

 

 

b) According to the newly added Article 32 of the Amended AML, should any of the following circumstance occur, the PRC competition authority shall have the power to decide that the clock for calculating the review period shall stop running, i.e. pause. The PRC competition authority shall notify the concerned undertakings in writing about its decision.
 
   
(1) Failure of the undertakings to submit any requested documents or materials, resulting in the fact that the review work cannot be conducted;
   
(2) Occurrence of any new circumstances or new facts which have a material impact on the review of the concentration and which will need to be verified; or
   
(3) The restrictive conditions to be imposed on the concentration need to be further evaluated and such arrangement has also been agreed by the undertakings.
   
  The clock for the review period shall resume to run for the remaining period on the date when the relevant circumstance(s) above do/does not exist anymore. The PRC competition authority shall also notify the concerned undertakings in writing.

In practice, the Stop-the-Clock System might be helpful since the PRC competition authority might avoid requesting the notifying parties to withdraw the reviewed case in the first place (and the notifying parties will re-submit the case later) in order to meet the statutory review timeline. Further, in order to avoid that the Stop-the-Clock System is adopted, the notifying parties under a specific concentration shall submit the requested documents and information as much/soon as possible.
   
5. More Serious Legal Consequences

Compared to the AML, the relevant legal consequences stated in the Amended AML in case of violations are more serious.
 
   
a) Please see below a table containing the fines to be imposed by the PRC competition authority in case that the concerned undertakings violate the relevant provisions of the AML and the Amended AML, respectively, regarding the prohibition of reaching and/or implementing monopoly agreements:

  AML Amended AML
Undertakings reaching and implementing monopoly agreements

(i) confiscation of the illegal gains; and

(ii) a fine from 1% to 10% of the total sales volume from the previous year

(i) confiscation of the illegal gains; and

(ii) a fine from 1% to 10% of the total sales volume from the previous year

(In case there was no sales volume from the previous year, a fine of less than RMB 5,000,000.)
Undertakings reaching but not implementing monopoly agreements a fine of less than RMB 500,000 a fine of less than RMB 3,000,000
If the circumstances are very serious no legal provisions an additional fine of between twice and five times of the fines which have already been imposed
   
b) Please see below a table containing the fines to be imposed by the PRC competition authority in case that the concerned undertakings violate the relevant provisions of the AML and the Amended AML, respectively, regarding the concentrations which have been implemented illegally:

AML Amended AML
a fine of less than RMB 500,000 If the concentration has the effect of eliminating or restricting competition: a fine of less than 10% of the total sales volume from the previous year.
If the concentration does not have the effect of eliminating or restricting competition: a fine of less than RMB 5,000,000.
   
c) Personal liabilities of such natural persons as the legal representative, major person in charge or any directly responsible person of an undertaking, etc., have been newly added to the Amended AML:

AML Amended AML
Fines If the legal representative, major person in charge or any directly responsible person of an undertaking was personally liable for the concluded monopoly agreement, a fine of less than RMB 1,000,000 may be imposed on that natural person.
Criminal liabilities Where a violation of the Amended AML by a natural person constitutes a criminal offense, criminal liability shall be pursued according to PRC law.
   
6. Conclusion

Considering the major changes to the Amended AML on monopoly agreements, abuse of dominant market positions in the field of platform economy, merger control filings as well as more serious legal consequences faced by undertakings and/or their management in case of violations, it is suggested that undertakings should pay close attention to the Amended AML, review comprehensively their business practices, correct any possible misconducts, establish proper compliance scheme and provide relevant trainings to their employees after the Amended AML takes effect in 2022.
 
     

In case you have questions or for further information, please contact the author of this newsletter:

CMS Aiping Bao
Counsel
CMS, China


T+86 21 6289 6363
E Aiping.Bao@cmslegal.cn
   

 


This information is provided for general information purposes only and does not constitute legal or professional advice. Copyright by CMS, China.

CMS, China
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