On 23 March 2016, China’s National Development and Reform Commission (“NDRC”) published the Auto Sector Draft Antitrust Guidelines (“Guidelines”), which are open for public consultation until 12 April 2016. The Guidelines provide guidance for evaluating diverse common industry practices in the sector, mostly relating to the vertical relationship between automakers, auto parts manufacturers, distributors and after-sales services providers. The Guidelines provide a series of exemptions and outline NDRC’s views on practices it considers anti-competitive. In this insight, we highlight a few key aspects of the Guidelines.
Cooperation Agreement between Competitors
The Guidelines acknowledge that certain types of cooperation agreements between competitors can be pro-competitive, and that such agreements can range from joint R&D agreements, to specialisation, standardisation, joint production or joint procurement agreements. Cooperation agreements between competitors to research and develop new energy cars is seen under the Guidelines as a good example of an agreement that is eligible for an individual exemption under Art. 15 of China’s Anti-Monopoly Law (“AML”), and thus will not be prohibited.
Resale Price Maintenance
Setting a resale price or minimum resale price (“RPM”) is prohibited under Art. 14 of the AML. NDRC’s enforcement records in the past few years have repeatedly reinforced this prohibition. The Guidelines provide four scenarios whereby an RPM arrangement can benefit from an individual exemption, which include:
- promotion of the sales of new energy cars;
- sales via dealers who function as intermediaries;
- sales in the context of public procurement; and
- sales via e-commerce platforms.
Territorial Restriction and Customer Restriction
The Guidelines consider the following four types of restrictions as substantially anti-competitive and in general, will not be allowed:
- restriction of passive sales by dealers;
- restriction of cross-supply between dealers;
- restriction of auto spare parts sales to end-customers by dealers and auto repairers; and
- restriction of sales of auto spare parts and other equipment by the suppliers to dealers, auto repairers and end customers, except in case of OEM contracts.
Exemption is possible only on a case-by-case basis.
The Guidelines introduce a market share threshold of 25–30 percent below which there is as a sort of safe harbor. The following four types of restrictions, when satisfying the above thresholds, are considered under the Guidelines as being eligible for an exemption under Art. 15 AML, when proven to yield efficiencies and when justified:
- territorial restrictions that do not restrict passive sales or cross-supply;
- restriction of active sales into non-allocated regions;
- restriction of direct sales to end-customers by wholesalers; and
- restriction of auto parts sales by dealers to customers who use such auto parts to manufacture the same products as the auto suppliers.
Branding of and Access to Spare Parts
The Guidelines prohibit automakers with dominant market positions from, among other things, restricting auto parts suppliers from placing their own trademarks or logos on spare parts; restricting dealers or repairers’ access to spare parts of “equivalent quality” or their ability to purchase original spare parts from alternative channels (eg, parallel imported spare parts); restricting dealers or repairers’ ability to sell spare parts; and restricting the access to technical maintenance information.
Other Restrictions in the Repair and Servicing Market
The Guidelines lists a few “unreasonable” vertical restraints in the auto repair and servicing market such as maintenance by authorised repairers, use of original spare parts, maintenance of parallel imported cars, and other obligations imposed on the dealers in terms of tie-in products, unreasonable sales and stocking targets, promotional expenses, and choice of facilities service providers, among other things.
The Guidelines took shape after rounds of storming antitrust investigations in China’s auto sectors over the last few years. The Guidelines went in depth to address industry practices that have been distorting competition in the market. The views expressed in the Guidelines, when finalised and promulgated, will have wide and profound implications for other industry sectors, too. The Guidelines introduce, for the first time, a safe harbor threshold for evaluating certain types of vertical restraints. They also introduce the concept of “active sales” and “passive sales” adopted from European competition law to provide a differentiated approach towards territorial restrictions.