NDRC should Further Improve the Transparency of Administrative Law Enforcement on Price Monopoly.

Abstract: Five Shanghai gold retailers fined for price manipulation because although they were supposed to be competing with each other, the retailers conspired to fix the price, which constitutes as a horizontal monopoly, a clear violation of the Anti-Monopoly Law. The reason behind the five gold retailers’ fines is that their practices of horizontal monopoly caused more severe harm to consumer’s legal interest and social orders than that of previous vertical monopoly on limitation of resale prices made by Mao Tai, Wu Liang Ye, and six milk powder manufacturers. However, what is puzzling about this fine is that the punishments for this horizontal monopoly violation made by the NDRC were inferior to that of vertical monopoly violation.

 

(By You Yunting) According to media reports, recently, the China’s National Development and Reform Commission (the “NDRC”) has ordered Shanghai Price Bureau to issue anti-monopoly punishment for Shanghai Gold & Jewellery Trade Association (the “GJTA”), and five Shanghai gold retailers by virtue of conspiratorial price manipulation, which harm the legitimate interests of other business operators and consumers: GJTA was fined RMB 500,000 and five gold retailers were fined a combined total of RMB 10.0937 million, or one percent of their previous year’s sales volume.

After looking at the above news, when compared with the punishments handed out for vertical monopoly on limitation of resale prices made by Mao Tai, Wu Liang Ye, and six milk powder manufacturers including Biostime, the author believes that the NDRC’s punishments for illegal monopoly have had positive impacts on consumer protection and maintaining social orders. However, further transparency of the administrative law enforcement for the NDRC is an area for first improvement. A more open and transparent punitive process may result in improving fairness and rationality of the punishments. Regarding the punishment in this case, we have several questions:

I. Should the amount of anti-monopoly punishment be calculated based on the sales volume or the relevant sales volume?

Pursuant to Article 46 of the Anti-Monopoly Law: In the case where an operator entered into and implemented a monopoly agreement, the anti-monopoly law enforcement authorities shall confiscate illegal earnings, and impose a fine of between of between 1 and 10 percent of the previous year’s sales volume. Since the NDRC’ punishments on Mao Tai, Wu Liang Ye and six milk powder manufacturers including Biostime relied on the operators’ previous year’s sales volume, why was the base of anti-monopoly punishment handed to Shanghai five gold retailers’ calculated by the “relevant sales volume”?

To the author’s understanding, the gold retailers sell not only golden jewelry and platinum jewelry, but also sell some standard price products including jewelries and jades, which cannot be calculated by the standard price to unify retail price maintenance. In author’s opinion, since products including jewelries and jades may not be involved in the price monopoly, when handing down the discussion. the Shanghai Price Bureau may take consideration on “relevant sales volume”, but not calculated by the “sales volume”. Even though such consideration is rational, what Chinese laws prescribe is the “sales volume”, just the same standard used in prior punishments on Mao Tai, Wu Liang Ye and six milk powder manufacturers. Legal standards shall be uniformly applied in litigation, even though there is a rationality which should be given for explanation.

II. Why was the punishment for horizontal monopoly inferior to that of a vertical monopoly?

The five gold retailers were fined because despite being competitors of the same market, they conspired to manipulate the price of gold, which constitute as a horizontal monopoly, in violation of the Anti-Monopoly Law. The five gold retailers were fined because their practices of horizontal monopoly were worse serious and harmful to consumer protection and social orders than that of the vertical monopoly on limitation of resale prices made by Mao Tai, Wu Liang Ye and six milk powder manufacturers. The excessive damaged caused by the horizontal monopoly is a general knowledge in the theoretical anti-monopoly legal circle. In the prior Johnson’s vertical monopoly case, decision made by the Shanghai Higher People’s Court clearly stated that vertical monopoly has less negative impact than that of a horizontal monopoly.

Therefore, the author is a bit confused with regards to the fines imposed by the NDRC of 1 percent of the sales volume. When compared with the NDRC’s punishment released last week, the six milk powder manufacturers were imposed a fine of between of between 3 percent and 6 percent of the previous year’s sale volume. Comparing this to the punishment handed down on the five gold retailers of 1 percent of previous year’s sales volume, there is a significant difference. Since every case is different and the degree of enterprises’ cooperation with the investigation varies, such a sharp difference between milk manufacturers and gold retailers’ punishment indeed requires a reasonable interpretation. In addition, what’s more puzzling is that, for example, why were the illegal earnings not confiscated as regulated in the Anti-Monopoly Law? Why was the GJTA not dissolved for breaking the law?

With regards to such questions and puzzles, we believe that the NDRC shall have its own reasons for such decision. However, due to a lack of relevant information, the underlying reasons remain unknown until now. This lack of transparency is not without its problems. For example, foreign anti-monopoly experts and Medias doubt that such heavy anti-monopoly punishments of foreign corporates raise suspicion of trade protectionism in China. On the other hand, this lack of transparency for handing out punishment is not conducive to improving the NDRC’s law enforceability. If this situation continues, the punished corporations could one day file administrative lawsuits against the punishment. If the punished corporations win their cases, the authority of the NDRC as regulators will be negative affected.

Therefore, it is imperative that the NDRC further improve the transparency of administrative law enforcement on anti-monopoly, and pay more attention on thoroughly explaining and providing the reasons for anti-monopoly punishment. Unfortunately, the transparency of enforcement is on the decrease. In Mao Tai and Wu Liang Ye vertical pricing monopoly case, the local NDRC in Guizhou province and Sichuan province published the full text of punishment on its official websites. Following the milk powder manufacturers’ monopoly case, the NDRC issued the full text of punitive announcement on its official websites. But as to these gold retailers’ fines, neither the NDRC nor the Shanghai NDRC reported any related information on their relevant official websites.

 

This paper is first published on the Beijing News.

Lawyer Contacts

You Yunting86-21-52134918  youyunting@debund.com/yytbest@gmail.com

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