The Public Interest-Defense in Cartel Offenses

and Chinese Antimonopoly Law

Xu LIUUniversity Heidelberg

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Structure• The cartel regulation in AMLC• Cases:

1. The rule of an assosiation for companies eliminating varmints on maintaining a Minimum Price in Shenzhen

2. Price fixing for the newly published books 3. Structural Crisis Cartels in the industries with

overcapacity and pollution4. Export Cartel of solar panels 5. Conclusion & Perspectives

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Multiple Aims of AMLC• Aims (Art. 1 AMLC)– preventing and restraining monopolistic conducts, – protecting fair competition in the market, – enhancing economic efficiency, – safeguarding the interests of consumers and social public

interest, – promoting the healthy development of the socialist

market economy.• perfects macro-control and advances a unified, open,

competitive and orderly market system with the competition rules in accordance with the socialist market economy (Art. 4 AMLC)

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• Art. 13 and Art. 14 AMLC similar to Art. 101 I TFEU• Definition of monopoly agreements： agreements,

decisions or other concerted actions which eliminate or restrict competition. (Art.13 II AMLC)

• Prohibited monopoly agreements:– horizontal:

• fixing Price, limiting the output or sales, dividing the markets, • restricting the purchase or development of new technology, boycott (not

hard core cartels in EU Competition Law)

– vertical: fixing or maintaining the resale price;– others: determined by the Anti-monopoly Authority under the

State Council (up to now none)

The cartel regulation in AMLC : European principles with German exceptions

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The cartel regulation in AMLC : European principles with German exceptions• Art. 15 I AMLC (like Art. 101 III TFEU but with exceptions from the old version of German Act Against

Restraints of Competition before 6. amendment ):– Efficiency defense : (1) R & D; (2) agreements for rational production and specifications (§ 5 , § 5a GWB old version) (3)

coorperation between small and medium-sized business operators; (like § 5b GWB old version)

– (4) for the purpose of achieving public interests such as conserving energy, protecting the environment and relieving the victims of a disaster and so on;

– (5) for the purpose of mitigating serious decrease in sales volume or obviously excessive production during economic recessions; (§ 4 GWB old version)

– (6) for the purpose of safeguarding the justifiable interests in the foreign trade or foreign economic cooperation; (§ 6, § 7 GWB old version)

– (7) other circumstances as stipulated by laws and the State Council. (§ 8 GWB old version)

• Art. 15 II AMLC （ONLY） for items 1 through 5 ：the business operators must additionally prove that the agreement can

• enable consumers to share the interests derived from the agreement, and • will not severely restrict the competition in relevant market.

• Article 56 AMLC Exempted Agreements in agriculture (like Council Regulation (EC) 1184/2006)This Law does not govern the ally or concerted actions of agricultural producers and rural economic organizations, e.g. production, processing, sales, transportation and storage of agricultural products.

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The cartel regulation in AMLC implemented by public and private enforcement

• Public enforcement in competitive context: – Price-relevant Agreements: Bureau for the Implementation

of AMLC in NDRC (National Development and Reform Commission) and their local bureaus in provinces;

– Other Agreements: Bureau for the Implementation of AMLC SAIC (State administration for Industry and Commerce) and their local bureaus in provinces;

• Private enforcements: – litigations in local courts, while the reform for the

independce of the local courts from the provicial governments is still just at the beginning.

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Case: The rule of an assosiation for companies eliminating injurious insects and other organisms in Shenzhen

The facts:• In most of cities in south China the citizens have the

obligation of paying the fees for eliminating injurious insects and other organisms their buildings;

• The guiding price for eliminating varmints calculated by the government of Shenzhen in 1997= 0.1 Yuan/m2

• Rule of an association: unfair competition, if the price of services of its members <0.1 Yuan/m2 *80%

• The plaintiff : this rule violated the AMLC

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Case: The rule of an association for companies eliminating varmints on maintaining Minimum Price in Shenzhen

The judgment of the court of first instance confirmed by the court of second instance:• Eliminating varmints is necessary for the safeguard of

the public health and environment as public interest;• While the costs for the workers have been increasing

since 1997 -> if price <0.1 Yuan/m2 *80% -> unfair competition -> bad service harms the public interest;

• The members of this association are 268 companies, 32% of 838 companies eliminating varmints in Shenzhen (population 10 mil.) -> not severely restricting the competition in the relevant market

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Case: The rule of an assosiation for companies eliminating varmints on maintaining a Minimum Price in Shenzhen

The questions:1. Is price fixing necessary for guarantee of a good service?2. Was the guiding price calculated by the government of

Shenzhen in 1997 market-oriented, e.g. taking the development of more effective insecticide and the different scales of buildings and scale effect of the big conmpanies into account?

3. What is the market share of the 268 members of this association?

4. Did other companies of the other association on this market follow the guiding price？

5. Is the big sum of companies in the relevant market in Shenzhen a sign for lower intensity of competition because of maintaining a Minimum Price?

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Case: Price fixing for newly published books 2010, the associations of the publisher and book shops made a self-disciplining rule to give up discounts for the new published books within first year, whereas the ministry of press and publishing supported them.– Reaction of NDRC: ordered these associations to stop the application of their rule, but without publishing official announcement of the punishment for these associations and their members who have followed this rule

In 2012, based on Art. 15 AMLC these associations have applied for an exception for the agreement between the publisher, bookshops and online sellers of books to restrict the resale discounts of the books within the first year after publishing in order to guarantee variety in publications– Reaction of the NDRC:

• have researched the english, german and EU Law, • but have no public official announcement on their reaction to this

application, meanwhile, there is no indication for the implementation of this agreement. It suggested NDRC has denied the application.

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Structural Crisis Cartels in the industries with overcapacity and pollution

Background: 1. The real estate bubbles burst in small and medium-sized cities in

China2. The promotion of local governors depends mainly on the

increasing GDP of their provinces,3. Weak supervision in enviromental protection and state aids over

the local governments which have big influence on the state- or province-owned banks and can give the rights of usage of lands at low price

4. The pressure from the central government on the manufacturing industries for energy conservation and pollution reduction, especially SO2, CO2 ,NO2 and very fine dust (PM 2.5/PM 10)

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Structural Crisis Cartels in the industries with overcapacity and pollution

1. Cement cartel in Province Liaoning- In 2010 the association of cement industry in Province Liaoning made a self-disciplining rule:

• Stop producing cement from December to February; if production continues, just for the consumers outside of Province Liaoning

• Price fixing to complement the loss because of their break in winter to ensure that all of their members can afford the cost of changing the facilities to meet the requirements of enviromental protection.（ from 260 Yuan/t increased to 380 Yuan/t ）

• Reaction by Administation for Industry and Comerce in Province Liaoning– This rule as price and quantity cartel violated the Art. 13 I Nr. 1 and Nr. 2 AMLC, whereas

it was good for protecting the environment; did not meet the requirements of Art. 15 II AMLC, restricted the competition seriously and harmed the consumers.

– Fine: 16.37 Mil. Yuan– From December 2012 to April 2013 cement producers in three provinces (including Liaoning) in the

northeast China stopped their production again• Reaction by NDRC: has not punished “since this anticompetitive agreement lasted shortly and

these companies had low income in 2012 because of the overcapacity.“ (answer by the speaker of NDRC for journalist)

– In 2013 the application based on Art. 15 AMLC by the Chinese Association of Cement Industry for an exception for the agreement among their members to maintain price with reduction of the production• denied by NDRC

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Structural Crisis Cartels in the industries with overcapacity and pollution

1. Coal-Electricity syndicates instead of the cartels of sellers and buyers in Province Shanxi• Before 2013: Because of the overcapacity in coal industry in Shanxi

after that the private companies can mine since 2003, the coal sellers have negotiated every year together with the group of main electricity companies as buyer;

• 2013: The government of Province Shanxi promoted the 4 groups of bankrupt mining companies to establish joint ventures with the main electricity companies respectively.

2. The capacity trade-off between the steel manufacturers on different relevant geographic markets

Trade between Chongqing Steel Groups corp. in mid-west China and Hebei Steel Groups corp. in east China with capacity, but promoted by local governments

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Export Cartel of solar panels- An company in USA, Solyndra, which filed for bankruptcy last year, filed

an antitrust suit against three Chinese solar companies — Suntech Power Holdings, Trina Solar, and Yingli Green Energy — charges include price fixing, predatory pricing, and a conspiracy to monopolize, U.S. District Court in San Francisco

- A Director of Suntech Americas told Bloomberg that the allegations are “baseless.”

This suit is at least an alarm for the interpretation of the exception for the anti-competitive agreements in international trade Art. 15 I Nr. 6 AMLC,

even they will be good for the environment and can help them to overcome the overcapacity, but the price fixing which harmed the competition in oversea markets could lead to distortion of the competition between Chinese competitors and distortion of trading results by Chinese financial institutions, thus, the case would become political, if the claimed conducts was true.

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Conclusion on the practices of Chinese authorities and courts in the cartel cases with public interest defense

• Approval by Chinese authorities: – no exception for price fixing in most of the cases with “public defendse“,

e.g. protection of environment, overcoming the structural crisis • Critics:

– divisive inplementation of AMLC by the different authorities and courts– less transparency– shortage of guidance for the undertakings on the inplementation of Art.

15 AMLC and clearly distinguish the public interest from the economic interests of the participants in the cartel

– shortage of using economics methods• Experimental alternative for the cartels with public interest defense:

– vertical intergation – horizontal cooperation based on overcapacity trade-off

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Perspectives: What can be learned from ACM?

1. Making procedures transparent;2. Using more economic approach;3. Taking the influence of the exception on the

international trade and the foreign potential competitors´ influence on the domestic consumers into account;

4. Comparing the effects of the cartels with the effects of the fusions, especially joint-ventures, which are the alternatives for the participants in cartels.

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Thank you very much for your attention！

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