• China Targets Auto Industry for Anti-Monopoly Investigations
  • October 2, 2013
  • Law Firm: Dentons Canada LLP - Toronto Office
  • In August, international news outlets reported that the National Development and Reform Commission (NDRC), the Chinese governmental authority that regulates price monopoly activities in China, has been working with the China Automobile Dealers Association (CADA) to collect data regarding the pricing behavior of foreign auto manufacturers. It is believed that this data will be used by the NDRC to determine whether the manufacturers have required their distributors and retailers to resell products at a minimum price. This practice, commonly referred to as resale price maintenance (RPM), may violate China’s Anti-Monopoly Law (AML)1. Although the NDRC has not officially acknowledged the investigations into the auto industry, market watchers believe that these NDRC investigations are underway and that more are on the horizon.

    Officials from both the NDRC’s Anti-Monopoly Bureau and the State Administration of Industry and Commerce (SAIC) have recently stated that they have been reviewing pricing information with respect to various industries, including the automobile industry2. In July, the NDRC reportedly invited in-house counsel from more than 30 multinational companies (including GE, Siemens, Samsung, Microsoft, Volvo, IBM, Michelin, Intel, Tetra Pak, Qualcomm, Arris and Dumex) to a private meeting in Beijing. Representatives from the Ministry of Commerce (MOFCOM) and SAIC were also in attendance.3

    It is not uncommon for the NDRC to solicit opinions and collect data from local trade associations before initiating a formal investigation against industry players. Thus far, research conducted by the CADA has included questionnaires sent to foreign auto manufacturers. The questionnaires require the manufacturers to disclose sensitive business information, including sale prices, profit margins, profit rates, costs and customs duties that are required to be paid in different jurisdictions.4 The questionnaires also request disclosure on whether the companies required downstream distributors to set minimum resale prices and/or prohibited distributors from selling products outside authorized areas, etc.5 To our knowledge, some foreign auto manufacturers have already responded to the questionnaire.

    According to the AML and the regulations issued by the NDRC6, the NDRC may investigate alleged price-related violations of the AML at its own discretion7. The NDRC has authority to inspect a company’s operations, including the location of its businesses, transaction parties, relevant agreements, accounting books, correspondence and even information related to its bank accounts8. The company subject to investigation must, in turn, cooperate with the NDRC9. If an investigated company voluntarily admits to wrongdoing and provides material evidence of anticompetitive agreements, the NDRC has the discretion to mitigate or exempt the company from any punitive action.10 Furthermore, if the investigated company remedies its illegal conduct, the NDRC may suspend or terminate the investigation altogether.11

    It is clear from the recent reports and other evidence that the risks associated with the AML for foreign auto manufacturers are increasing. Foreign auto manufacturers should be prepared for further investigative actions from the NDRC, either directly by way of on-site audits or indirectly through questionnaires from the NDRC or relevant trade associations. Foreign auto manufacturers and other companies engaging in RPM practices would be well advised to seek professional legal advice on how to prepare for and respond to the NDRC’s enforcement actions.

    1 See http://www.reuters.com/article/2013/08/13/us-china-autos-prices-idUSBRE97C08S20130813
    2 See http://www.bingham.com/Alerts/2013/08/Car-makers-May-be-the-Next-Target-of-Chinese-Regulators-Anti-Monopoly-Investigations
    3 See http://www.reuters.com/article/2013/08/22/us-china-antitrust-idUSBRE97K05020130822
    4 See http://www.reuters.com/article/2013/08/13/us-china-autos-prices-idUSBRE97C08S20130813
    5 See http://finance.ifeng.com/a/20130821/10483380-0.shtml
    6 See Anti-Pricing-Monopoly Provisions and Provisions on the Administrative Procedures for Law Enforcement against Pricing Monopoly, which set out the standards and procedures of the NDRC’s enforcement actions.
    7 See Article 38 of AML, Articles 2, 3, 4 and 5 of Provisions on the Administrative Procedures for Law Enforcement against Pricing Monopoly
    8 See Article 39 of AML
    9 See Article 42 of AML
    10 See Article 14 of Provisions on the Administrative Procedures for Law Enforcement against Pricing Monopoly
    11 See Article 45 of AML