China Issues Draft Industry Association Guidelines

China Issues Draft Industry Association Guidelines

On On 15 May 2023, China's State Administration of Market Regulation (SAMR) announced that it had issued draft guidelines (available on its website for downloading) looking at the potential conflicts between the activities of industry associations and the ethos of the PRC Anti-Monopoly Law.

Article 6 of the draft makes it clear that horizontal monopoly agreements are also of concern, and expressly states that “Industry associations shall not organize competing operators in the industry to enter into monopoly agreements prohibited by Article 17 of the Anti-Monopoly Law, including but not limited to” price fixing, sales restrictions, market divisions, third party supplier restrictions or boycotts. Article 17 of the Anti-Monopoly Law essentially outlines the same prohibitions, regarding price fixing etc, as between competitors.

Article 7 confirms that the prohibitions for vertical monopoly agreements as outlined in the Anti-Monopoly Law (price fixing for resale, as well as the fixing of minimum 
prices) also apply to industry associations, but sets out a defence, in that it states that “if the industry association or the business operator can prove that the agreement does not have the effect of eliminating or restricting competition, it shall not be prohibited. Operators who can prove that their market share in the relevant market is lower than the standard stipulated by the State Council's anti-monopoly law enforcement agency and meet other conditions stipulated by the State Council's anti-monopoly law enforcement agency shall not be prohibited.”

Article 11 confirms that monopoly agreements reached by industry associations organized by business operators in the industry that meet the circumstances and conditions stipulated in Article 20 of the Anti-Monopoly Law shall not be prohibited. Article 20 of the Anti-Monopoly Law states that:

“Where undertakings can demonstrate that a monopoly agreement concluded has one of the following circumstances, the provisions of Article 17, Article 18, paragraph 1, and Article 19 of this Law do not apply:

(1) to improve technologies or to research and develop new products;

(2) to improve product quality, lower cost, or increase efficiency by unifying the specifications or standards of products or by implementing specialized division of labor;

(3) to increase the operating efficiency of small and medium-sized undertakings or to increase their competitiveness;

(4) to achieve energy conservation, environmental protection, disaster relief, and such other public interests;

(5) to mitigate the sharp decline in sales volume or obvious overproduction due to an economic recession;

(6) to safeguard the legitimate interests in foreign trade or in foreign economic cooperation;

(7) other circumstances prescribed by laws or the State Council.

Where the provisions of Article 17, Article 18, paragraph 1, and Article 19 of this Law do not apply in the circumstances under items (1) through (5) of the previous paragraph, the undertakings shall additionally demonstrate that the agreement concluded will not seriously restrict competition in the relevant market and that it will enable the consumers to share in the resulting benefits.”

The draft then goes on to suggest how industry associations and their members, can implement best practices to ensure that they do not engage in activities or arrangements that contravene the Anti-Monopoly Law. Industry associations would be wise to take note of the suggestions laid out in the draft, when building or updating association risk management guidelines, as such materials could be used in defending against allegations of contravention of the law.

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