The Public Interest-Defense in Cartel Offenses and Chinese Antimonopoly Law

1. The Public Interest-Defense in Cartel Offenses and Chinese Antimonopoly Law Xu LIU University Heidelberg

2. Structure • The cartelregulation in AMLC • Cases: • The ruleof an assosiationforcompanieseliminatingvarmints on maintaining a Minimum Price in Shenzhen • Price fixingforthenewlypublishedbooks • StructuralCrisisCartels in theindustrieswithovercapacityandpollution • Export Cartelofsolar panels • Conclusion& Perspectives

3. Multiple Aims of AMLC • Aims (Art. 1 AMLC) • preventing and restraining monopolistic conducts, • protecting fair competition in the market, • enhancing economic efficiency, • safeguarding the interests of consumers and social public interest, • promoting the healthy development of the socialist market economy. • perfects macro-control and advances a unified, open, competitive and orderly market system with the competition rules in accordance with the socialist market economy (Art. 4 AMLC)

4. The cartelregulation in AMLC : European principleswithGerman exceptions • Art. 13 and Art. 14 AMLC similar to Art. 101 I TFEU • Definition of monopoly agreements：agreements, decisions or other concerted actions which eliminate or restrict competition. (Art.13 II AMLC) • Prohibitedmonopoly agreements: • horizontal: • fixing Price, limiting the output or sales, dividing the markets, • restricting the purchase or developmentof new technology, boycott (not hard core cartels in EU Competition Law) • vertical: fixing or maintaining the resale price; • others: determined by the Anti-monopoly Authority under the State Council (up to now none)

5. The cartelregulationin AMLC : European principleswith German exceptions • Art. 15 I AMLC (like Art. 101 III TFEU but with exceptionsfromtheoldversionof German Act Against Restraints of Competitionbefore 6. amendment): • Efficiency defense : (1) R & D; (2) agreementsfor rational productionandspecifications (§ 5 , § 5a GWB old version) (3) coorperation between small and medium-sized business operators; (like § 5b GWB old version) • (4) for the purpose of achieving public interests such as conserving energy, protecting the environment and relieving the victims of a disaster and so on; • (5) for the purpose of mitigating serious decrease in sales volume or obviously excessive production during economic recessions; (§ 4GWB old version) • (6) for the purpose of safeguarding the justifiable interests in the foreign trade or foreign economic cooperation; (§ 6, § 7 GWB old version) • (7) other circumstances as stipulated by laws and the State Council. (§ 8GWB old version) • Art. 15 II AMLC （ONLY）for items1 through 5 ：the business operators must additionally prove that the agreement can • enable consumers to share the interests derived from the agreement, and • will not severely restrict the competition in relevant market. • Article 56 AMLC ExemptedAgreements in agriculture (like Council Regulation (EC) 1184/2006) This Law does not govern the ally or concerted actions of agricultural producers and rural economic organizations, e.g. production, processing, sales, transportation and storage of agricultural products.

6. The cartel regulation in AMLC implementedby public and private enforcement • Public enforcement in competitive context: • Price-relevant Agreements: Bureau fortheImplementation of AMLC in NDRC (National Development and Reform Commission) andtheirlocalbureaus in provinces; • Other Agreements: Bureau forthe Implementation of AMLC SAIC (State administrationforIndustryand Commerce) andtheirlocalbureausin provinces; • Private enforcements: • litigationsin localcourts, whilethereformfortheindependceofthelocalcourtsfromtheprovicialgovernmentsis still just atthebeginning.

7. Case: The ruleofan assosiationforcompanieseliminatinginjuriousinsectsandotherorganismsin Shenzhen The facts: • In mostofcities in south China thecitizenshavetheobligationofpayingthefeesforeliminatinginjurious insects and other organismstheirbuildings; • The guidingpriceforeliminatingvarmintscalculatedbythegovernmentofShenzhen in 1997= 0.1 Yuan/m2 • Ruleof an association: unfair competition, ifthepriceofservicesofitsmembers <0.1 Yuan/m2 *80% • The plaintiff: thisruleviolatedtheAMLC

8. Case: The ruleof an associationforcompanieseliminatingvarmints on maintainingMinimum Price in Shenzhen The judgmentofthecourtoffirstinstanceconfirmedbythecourtofsecondinstance: • Eliminatingvarmintsisnecessaryforthesafeguardofthepublichealthandenvironmentaspublicinterest; • Whilethecostsfortheworkershavebeenincreasingsince 1997 -> ifprice <0.1 Yuan/m2 *80% -> unfair competition -> badserviceharmsthepublicinterest; • The membersofthisassociationare 268 companies, 32% of838 companieseliminatingvarmints in Shenzhen (population10 mil.) -> not severely restricting the competition in the relevant market

9. Case: The ruleof an assosiationforcompanieseliminatingvarmints on maintaining a Minimum Price in Shenzhen The questions: • Ispricefixingnecessaryforguaranteeof a goodservice? • Was theguidingpricecalculatedbythegovernmentofShenzhen in1997 market-oriented, e.g. takingthedevelopmentofmoreeffectiveinsecticideandthedifferent scalesofbuildingsandscaleeffectofthebigconmpaniesintoaccount? • Whatisthemarketshareofthe268 membersofthisassociation? • Didothercompaniesoftheotherassociation on thismarket follow theguidingprice？ • Isthebigsumofcompaniesin the relevant marketin Shenzhen a signforlowerintensityofcompetitionbecauseofmaintaining a Minimum Price?

10. Case: Price fixingfornewlypublishedbooks 2010, theassociationsofthepublisherandbookshopsmade a self-discipliningruletogiveupdiscountsforthenewpublishedbookswithinfirstyear, whereastheministryof press andpublishingsupportedthem. • Reactionof NDRC: orderedtheseassociationstostoptheapplicationoftheirrule, but withoutpublishingofficialannouncementofthepunishmentfortheseassociationsandtheirmemberswhohavefollowedthisrule In 2012, based on Art. 15 AMLC theseassociationshaveappliedfor an exceptionfortheagreementbetweenthepublisher, bookshopsand online sellersofbookstorestricttheresalediscountsofthebookswithinthefirstyear after publishing in ordertoguaranteevariety in publications • Reactionofthe NDRC: • haveresearchedtheenglish, germanand EU Law, • but havenopublicofficialannouncementontheirreactiontothisapplication, meanwhile, thereisnoindicationfortheimplementationofthisagreement. ItsuggestedNDRC hasdeniedtheapplication.

11. Structural Crisis Cartels in the industries with overcapacity and pollution Background: • The real estatebubblesburst in smalland medium-sizedcities in China • The promotionoflocalgovernorsdependsmainly on theincreasing GDP oftheirprovinces, • Weaksupervision in enviromentalprotectionandstateaidsoverthelocalgovernmentswhichhavebiginfluence on thestate- orprovince-ownedbanksandcangivetherightsofusageoflandsatlowprice • The pressurefromthecentralgovernmenton themanufacturingindustriesforenergyconservationandpollutionreduction, especiallySO2, CO2 ,NO2andveryfinedust (PM 2.5/PM 10)

12. Structural Crisis Cartels in the industries with overcapacity and pollution • Cementcartel in ProvinceLiaoning • In 2010 theassociationofcementindustry in ProvinceLiaoningmade a self-discipliningrule: • StopproducingcementfromDecembertoFebruary; ifproductioncontinues, just fortheconsumers outside ofProvinceLiaoning • Price fixingtocomplementthelossbecauseoftheir break in wintertoensurethat all oftheirmemberscanaffordthecostofchangingthefacilitiestomeettherequirementsofenviromentalprotection.（from 260 Yuan/t increasedto 380 Yuan/t ） • ReactionbyAdministationforIndustryandComerce in ProvinceLiaoning • This ruleaspriceandquantitycartelviolatedthe Art. 13 I Nr. 1 and Nr. 2 AMLC, whereasit was goodforprotectingtheenvironment; did not meettherequirementsofArt. 15 II AMLC, restrictedthecompetitionseriouslyandharmedtheconsumers. • Fine: 16.37 Mil. Yuan • FromDecember 2012 to April 2013 cementproducers in threeprovinces (includingLiaoning) in thenortheast China stoppedtheirproductionagain • Reactionby NDRC: has not punished“sincethisanticompetitiveagreementlastedshortlyandthesecompanieshadlowincomein 2012 becauseoftheovercapacity.“ (answerbythespeakerof NDRC forjournalist) • In 2013 theapplicationbased on Art. 15 AMLC bythe Chinese AssociationofCementIndustryfor an exceptionfortheagreementamongtheirmemberstomaintainpricewithreductionoftheproduction • deniedbyNDRC

13. Structural Crisis Cartels in the industries with overcapacity and pollution • Coal-Electricitysyndicatesinsteadofthecartelsofsellersandbuyers inProvinceShanxi • Before 2013: Becauseoftheovercapacity in coalindustry in Shanxi after thatthe private companiescanminesince 2003, thecoalsellershavenegotiatedeveryyeartogetherwiththegroupofmainelectricitycompaniesasbuyer; • 2013: The governmentofProvinceShanxipromotedthe 4 groupsofbankruptminingcompaniestoestablishjointventureswiththemainelectricitycompaniesrespectively. • The capacity trade-off betweenthesteelmanufacturers on different relevant geographicmarkets Trade between Chongqing Steel Groups corp. in mid-west China andHebei Steel Groups corp.in east China withcapacity, but promotedbylocalgovernments

14. Export Cartelof solar panels • An company in USA, Solyndra, which filed for bankruptcy last year, filed an antitrust suit against three Chinese solar companies — Suntech Power Holdings, Trina Solar, and Yingli Green Energy — charges include price fixing, predatory pricing, and a conspiracy to monopolize, U.S. District Court in San Francisco • A DirectorofSuntechAmericastold Bloomberg that the allegations are “baseless.” This suit is at least an alarm for the interpretation of the exception for the anti-competitive agreements in international trade Art. 15 I Nr. 6 AMLC, even they will be good for the environment and can help them to overcome the overcapacity, but thepricefixingwhichharmedthecompetition in overseamarketscouldleadtodistortionofthecompetitionbetween Chinese competitorsanddistortionoftradingresultsbyChinese financialinstitutions, thus, thecasewouldbecomepolitical, iftheclaimedconducts was true.

15. Conclusion on thepracticesof Chinese authoritiesandcourts in thecartelcaseswithpublicinterestdefense • ApprovalbyChinese authorities: • noexceptionforpricefixing in mostofthecaseswith “publicdefendse“, e.g. protectionofenvironment, overcomingthestructuralcrisis • Critics: • divisive inplementationof AMLC bythe different authoritiesandcourts • lesstransparency • shortageofguidancefortheundertakings on theinplementationofArt. 15 AMLC andclearlydistinguishthepublicinterestfromtheeconomicinterestsoftheparticipants in thecartel • shortageofusingeconomicsmethods • Experimental alternative forthecartelswithpublicinterestdefense: • verticalintergation • horizontal cooperationbased on overcapacitytrade-off

16. Perspectives:WhatcanbelearnedfromACM? • Making procedurestransparent; • Usingmoreeconomicapproach; • Takingtheinfluenceoftheexception on the international tradeandtheforeign potential competitors´ influence on thedomesticconsumersintoaccount; • Comparingtheeffectsofthecartelswiththeeffectsofthefusions, especiallyjoint-ventures, whicharethe alternatives fortheparticipants in cartels.

17. Thank you very much for your attention！