NDRC Circulates Draft Guidelines for Determining Punishment under AML

On 17 June 2016, the National Development and Reform Commission (“NDRC”) circulated for public comment the Notice on Soliciting Public Opinions on the “Guidelines on Recognising the Illegal Gains Obtained by Business Operators from Monopolistic Acts and Determining the Amount of Fines” (Draft for Comments) 2016. These represent the latest in a series of draft guidelines circulated by the NDRC and China’s other competition regulators in relation to the Anti-Monopoly Law of the People’s Republic of China 2007 (“2007 AML”).

The draft presents an analytical framework to help regulators and business operators determine the amount of illegal gain and the corresponding fines for violations of Arts. 46 and 47 of the 2007 AML, which prohibit monopoly agreements and the abuse of a dominant market position, respectively.

Specifically, the draft guidelines:

  • Broadly define “illegal gain” as the additional gain obtained as a result of monopolistic conduct determined by measuring changes in pricing, sales volumes, market share and profit margins (Arts. 5 and 6).
  • Introduce the key terms for use as comparative tools for measuring increased income, reduced expenses or both (Art. 7).
  • Identify certain situations where monopolistic conduct violates the 2007 AML, but where the conduct does not result in illegal gain (Art. 13).
  • Provide a basis for adjusting the fine due to the presence of aggravating or mitigating circumstances (Arts. 20–23, 25–27).

Market Reaction

Adrian Emch, Partner, Hogan Lovells, Beijing

“The AML requires antitrust authorities to impose fines and disgorge illegal gains, but specifies only a broad range of fines and provides no guidance for determining illegal gains. Not surprisingly, the calculation of fines and illegal gains has been a thorny topic for companies unlucky enough to be involved in a Chinese antitrust investigation, with only past, often inconsistent cases for guidance. The draft guidelines generally represent a welcome step towards more transparency and predictability. Of course, there is still quite some room for improvement, and hopefully the authorities will take on board the response of the business community to the government’s call for stakeholder feedback.”

Action Items

While none of the draft guidelines circulated in recent months by China’s competition regulators have been officially promulgated or taken effect, General Counsel for companies with arrangements that could be deemed to restrict competition or with a market position that could be regarded as dominant should become familiar with the development of these drafts. If a situation presents a significant risk, counsel should seek specialist advice and consider approaching the relevant regulator to discuss the facts on a named basis.