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29 November 2018
On 5 November 2018 the newly established State Administration for Market Regulation (SAMR), China's top market regulator, embarked on its first major overhaul of procedural rules by publishing the draft Interim Provisions on Administrative Penalty Procedures in Market Regulation (the draft procedural provisions) and the related Interim Measures for Administrative Penalty Hearings in Market Regulation (the draft hearing measures) for public comment. As the SAMR explained in the accompanying notice, the draft rules are both:
Unsurprisingly, market observers and practitioners promptly examined the draft documents in an attempt to deduce any changes to the intended-to-be-repealed State Administration for Industry and Commerce (SAIC) rules.(1)
The draft procedural provisions comprise 81 articles spread across the following chapters:
The Jurisdiction chapter aligns legal provisions with practice. The current SAIC rules allow cases to be accepted by either county-level or city-level agencies, but most cases are accepted only by county-level agencies. Article 6 of the draft procedural provisions grants county-level agencies with sole jurisdiction over cases within their territories with the limited exception that significant and complicated cases be accepted by city, provincial or state-level agencies within the respective territory.(2)
Notably, Article 77 of the draft procedural provisions creates an exception for antitrust procedural rules by stating that:
administrative penalty proceedings for violations of the Anti-monopoly Law shall be conducted in accordance with special provisions of the State Administration for Market Regulation. Where special provisions are not applicable, these Provisions shall apply.
This bifurcation in jurisdiction is due to the special treatment traditionally accorded to enforcement authorities by the antitrust statute. Compared with the generally applicable Administrative Penalty Law, the Anti-monopoly Law is more stringent with respect to penalties (see, for example, the paragraph below on the consequences of non-cooperation). Further, while the SAMR succeeds the former SAIC, the State Food and Drug Administration and the General Administration of Quality Supervision, Inspection and Quarantine, it integrates the antitrust functions previously undertaken by the SAIC, the State Development and Reform Commission and the Ministry of Commerce into a single anti-monopoly bureau. In consequence, the Procedural Provisions on Cases of Monopolistic Agreements and Abuse of Market Dominance promulgated by the former SAIC (the SAIC antitrust procedures) presumably still apply and jurisdiction over antitrust administrative cases has been retained by the SAMR anti-monopoly bureau, which may delegate its jurisdictional power only to its provincial branches.
The Regular Proceedings chapter enumerates the channels through which market regulators may learn of illegal conduct (ie, on agencies' own initiative, on reporting or whistleblowing by private parties or following a transfer from other agencies or an assignment by higher-level agencies). Complaints by private parties have notably been deleted from this section. Strictly speaking, 'complaints' – as a legal term of art – means grievances arising from disputes between private parties, following which the regulatory agencies may only mediate for a non-binding resolution. Conversely, 'reporting' gives agencies the power to investigate and commence formal proceedings, which may result in the imposition of an administrative penalty. A minor textual change signifies a major shift in the regulators' legal thinking in this regard.
Article 17 of the draft procedural provisions addresses certain mutual obligations of agencies and investigated parties towards each other. Investigated parties will be notified of the legal consequences of falsifying, concealing or destroying evidence and giving false testimonies to law enforcement officers. Case handlers, on the other hand, must keep state secrets, trade secrets and personal privacies learned over the course of an investigation confidential. This is a welcome provision because the Anti-monopoly Law requires antitrust authorities to keep only trade secrets confidential.
However, the draft procedural provisions do not specify the consequences of refusing to cooperate with case handlers or obstructing investigations. This is due to the lack of an express provision in this regard in the Administrative Penalty Law, on which the draft procedural provisions are based (see Article 1). It is therefore notable that the Anti-monopoly Law and the SAIC antitrust procedures provide for a penalty of up Rmb1 million for entities and Rmb200,000 for individuals that refuse or obstruct investigations. In August 2018 the Guangdong Provincial National Development and Reform Commission (NDRC) imposed the first such penalty in China on individuals who had unplugged memory disks and disconnected computers under inspection from the power and internet supply. The persons charged (two senior executives at a car dealership) were fined Rmb12,000 and Rmb8,000, respectively. Therefore, the antitrust procedural rules appear to have more clout in cases of manifestly defiant non-compliance.(3)
Aside from these general provisions, special consideration should be given to the following provisions concerning administrative proceedings.
A number of changes strive to reinforce the procedural safeguards of the substantive rights of market entities:
A number of other amendments concern evidence collection issues posed by the rise in electronically stored information (ESL) and the conduct of multinational companies:
Although the regulators' attempt to harmonise and improve an array of existing procedural rules is laudable, a few uncertainties remain, which may be addressed during the public consultation process. The draft procedural provisions propose to delete Article 19 of the SAIC rules, which requires agencies to notify reporters or complainants of a decision not to commence formal proceedings. Although Article 15 of the draft procedural provisions limits the period for deciding whether to start proceedings to 30 days and expiration of the 30-day period can be interpreted as an indication that the agency has declined to accept the case, notification of the decision to the reporter will provide more certainty and transparency about the agencies' decision-making process.
An ambiguity arises under Article 21, which stipulates that investigated parties and witnesses will be interviewed separately. Whether 'separately' means that the parties will be interviewed as separate entities or persons is unclear from the text. Moreover, whether counsel may be present at the interviews, which has long been advocated for in legal circles, remains to be answered.
Finally, as discussed above, Article 77 attempts to bifurcate jurisdiction over general cases and antitrust cases. However, since the SAMR has not promulgated special antitrust procedural rules, the final rules must clarify whether:
Overall, the draft procedural provisions and hearing measures are part of the SAMR's endeavour to upgrade law enforcement practices under the rule of law and protect the legitimate rights of market entities. Comments may be submitted no later than 5 December 2018 via:
For further information on this topic please contact Hao Zhan, Ying Song, Stephanie Wu Yuanyuan or LV Hongjie at AnJie Law Firm by telephone (+86 10 8567 5988) or email (email@example.com, firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The AnJie Law Firm website can be accessed at www.anjielaw.com.
(1) The SAIC used to be China's major market regulator, alongside the State Food and Drug Administration and the General Administration of Quality Supervision, Inspection and Quarantine, whose functions have now been combined under the SAMR. These entities had their own procedural rules. For ease of explication and in light of the broader applicability of SAIC regulations, this article focuses on the draft SAMR proposals and the SAIC rules.
(3) Administrative Penalty Decision by the Guangdong Development and Reform Commission, Yue Fa Gai Jia Jian Chu  7, available here.
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