Hao Qian, Apr 16, 2013
Trade associations present a peculiar issue in China’s competition law, due to their unusual origin and development. No voluntarily established business associations were possible or necessary in the era of central planning, when the Chinese economy was based on state-ownership and bureaucratically managed by the government. Only when China embarked on a new course to embrace a market economy in the early 1980s did trade associations begin to emerge, but they were far from representing the small and gradually expanding private sector. To facilitate the still on-going government restructuring during the past three decades, most of China’s trade associations were created primarily to take over redundant/retired officials and take on the regulatory functions that reorganized administrative agencies had to divest. As of today, even though they are in theory “social organizations,” trade associations still must obtain the endorsement and supervision of certain government authorities in order to register and operate legally. The government explicitly acknowledges that trade associations have yet to unhook their connections with administrative agencies.
The inherent semi-government role of trade associations in China often enables them to exert a greater influence on the market competition than their counterparts in mature market economies. Except in a few state monopolized industries, Chinese enterprises are generally of small size and with low competitive capacity. However, trade associations are capable of initiating and orchestrating concerted action among their members. In many cases, they do so to implement government policies that are not necessarily consistent with fair competition. But even when they pursue their own self-interest, for example through various measures motivated by local protectionism, trade associations possess enhanced abilities to detect and punish any deviation by members; abilities which are essentially buttressed by their government affiliations. Additionally, the fragmented structure of the Chinese market often makes it easy for even small trade associations to organize anticompetitive activities among members, thus effectively monopolizing relatively closed and isolated local markets.
For the above reasons, trade associations have figured largely in China’s competitive landscape. In the drafting process of the Anti-Monopoly Law (“AML”), cartels orchestrated by trade associations already posed a major concern regarding private monopolies. Open price-fixing maneuvers in 2007 by the China branch of the “International Ramen Manufacturers Association” not only rallied additional support for the AML draft during the last stage of the bill, but also in great part enabled the insertion of three provisions specifically on trade associations into the final legislation.
Since the AML entered into force in August 2008, trade associations have remained in the spotlight in enforcement activities. Of the seventeen investigations that the State Administration for Industry and Commerce (“SAIC”) had initiated by November 2012, sixteen cases involved activities organized by trade associations. Similarly, most of the major price monopolies handled by both the National Development and Reform Commission (“NDRC”) and its local counterparts have been those arranged by trade associations.
However, at the same time, not many private antitrust suits have been brought against trade associations. In fact, Article 50 of the AML generally states that a business operator “shall bear civil liabilities” if its monopolistic conduct causes losses to aggrieved parties. In the Provisions on Several Issues concerning the Application of Law in the Trial of Civil Dispute Cases Arising from Monopolistic Conduct (“Judicial Interpretation”) published in May 2012, the Supreme People’s Court further lists “articles of association in violation of the AML” as a cause of civil action against trade associations.
These provisions would seem to have paved the way for private parties to bring a civil lawsuit against trade associations violating the AML. Yet they also leave much room for interpretation and point to general issues in civil law and procedure, the application of which in relation to the AML remains largely unexplored. In contrast to administrative sanctions on trade associations pursuant to Article 46(3) of the AML (the legal basis for NDRC and SAIC enforcement activities) it is unclear in the law whether, or to what extent, in a civil lawsuit a trade association should be held liable for losses caused by monopolistic conduct of its members but organized by the association.
As a result, to date, private antitrust suits against trade associations have not appeared to be a desirable option. On the other hand, the limited number of antitrust cases in which a trade association was sued for civil damages sheds important lights on how the courts have tackled ambiguities in the law. This paper examines some of the major issues that the courts have addressed in several reported court judgments of such cases, in the context of both the AML and relevant laws, in order to analyze the emerging legal rules applicable in civil suits against trade associations for AML violations.