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Shanghai Pilot Free Trade Zone: Interpretation of Exemption Rules for Monopoly Agreements

China Insight - Competition


The PRC Anti-Monopoly Law (“AML”) provides certain general exemption rules in its Article 15 under which an agreement may not be considered as a monopoly agreement. However, lack of detailed interpretations leaves great uncertainties in the application of those rules. On 23 September 2015, the Shanghai Pricing Bureau promulgated the Guiding Opinions on Exemption of Monopoly Agreement between the Medium and Small Sized Enterprises in China (Shanghai) Pilot Free Trade Zone (Trial Version) (the “Trial Opinions”). The Trial Opinions have a validity period of two years.

  1. The Trial Opinions follow the principle of exemption rules under Article 15 of the AML, i.e. the following agreements shall not be considered as monopoly agreements in the context of the AML:(1) agreements for the purpose of technology improvement and research and development of new products;(2) agreements to standardise product specifications or implement production specialisation in order to improve product quality, reduce production costs and increase production efficiency;(3) agreements to improve competition strength of small and medium size business operators (“Improvement of Competition Strength”);(4) agreements for the purpose of public interests such as energy saving, environment protection or disaster relief;(5) agreements to mitigate a severe decrease in sales or excessive over-production during a period of economic downturn;(6) agreements to protect the legitimate interests in foreign trade and economic cooperation.provided that the undertakings concerned are able to prove that these agreements would not lead to severe restriction of competition in a particular market (“No Severe Restriction”) and consumers may benefit from such agreements (“Benefit to Customers”). The burden of proof rests on the undertakings invoking the benefits of the exemption rules.
  2. The Trial Opinions also provide interpretations of certain terms such as “Improvement of Competition Strength”, “No Severe Restriction” and “Benefit to Customers”.(1) Improvement of Competition StrengthUndertakings can prove that an agreement improves their competition strength by presenting the facts that (a) their operation costs have been or will be reduced; (b) their profits have been or will be increased without increase of the sales prices; (c) their product/service quality have been or will be improved; or (d) other relevant circumstances.(2) No Severe Restrictions“No Severe Restrictions” can be explained from the following aspects:(a) The restrictions on undertakings do not go beyond what is imperative to achieve the purpose(s) set out in Article 15 of the AML;(b) The agreement does not rule out the possibility of the involved undertakings to participate in the competition in respect of the substantial part of the products concerned;(c) The market shares of the involved undertakings are relatively low; or(d) other relevant circumstances.(3) Benefit to Customers“Benefit to Customers” are interpreted as the benefits brought to the customers in the forms of (a) lower price with the same product/service quality; (b) better product/service quality at the same price; (d) more convenience in transactions; and (b) other relevant circumstances.
  3. Since the issuing authority is the Shanghai Pricing Bureau, the Trial Opinions are only applicable to agreements with price–related competition concerns. In addition, such agreements shall be concluded between small and medium sized enterprises with at least one of them being registered in the Shanghai Pilot Free Trade Zone and the relevant geographic market affected thereby is Shanghai. We can see from the Trial Opinions that the Chinese anti-monopoly regulators are further evolving the competition laws. Despite its limited scope of application, the interpretations given by the Trial Opinions are likely to be taken as reference by the counterparts of the Shanghai Pricing Bureau in other locations in their enforcement activities.
China Insight - Shanghai Pilot Free Trade Zone: Interpretation...
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Kevin Wang, LL.M.
Jie Lin, LL.M.