1. China’s Legal Regulation on the Abuse of Market Power by Large Retailers WANG Xianlin Shanghai Jiao Tong University KoGuan Law School St.Petersburg 2016-05-18

2. Introduction In China, disputes between large retailers and suppliers happen from time to time. For one thing, commodity supply exceeds the demand on the whole, so retail channels, especially those provided by well-known large retailers, rather than commodity supply, become scarce resources; for another, the majority of suppliers in China are small in scale and scattered, and there is a high degree of homogeneity among products provided by small and medium-sized suppliers, resulting in fierce competition among suppliers. Thus it is difficult for suppliers to form a coalition to bargain with large retailers. Large retailers are able to enjoy a market power, i.e. a comparatively advantageous position over suppliers, so that they can bully suppliers by abusing such a position. In response, China has introduced some relevant laws and regulations.

3. Administrative Measures for Fair Transactions Between Retailers and Suppliers Issuing authority ： Ministry of Commerce, State Development & Reform Commission, Ministry of Public Security,State Administration of Taxation, State Administration for Industry & Commerce Order No. 17 [2006] of the Ministry of Commerce, National Development and Reform Commission, Ministry of Public Security, State Administration of Taxation and State Administration for Industry and Commerce Date of issuance: 2006.10.13 Effective Date: 2006.11.15

4. In terms of the regulation of the abuse of advantageous positions by large retailers, there are three highlights in the Measures: (1) The necessity to regulate the abuse of advantageous positions by large retailers is affirmed; (2) the concept of “advantageous position” is explicitly introduced and; (3) Main forms of the abuse of advantageous positions by large retailers are summarized. However, the Measures does not provide a detailed interpretation of the three highlights in specific provisions, thus making it difficult to understand the regulation of the abuse of advantageous positions by large retailers:(1) It does not explain what constitutes the abuse of advantageous positions;(2) It does not define the concept of “advantageous position”;(3)It only offers a limited list of major forms of the abuse of advantageous positions.

5. Official Interpretation Q: Some people think that transactions between retailers and suppliers are market behaviors, and there is no need for government intervention. The question is, why the relevant government departments should issue the Measures. A: Normal transactions between retailers and suppliers are ordinary civil and commercial behaviors agreed by relevant parties according to their free will, with no need for government intervention. However, if there are unfair transactions between retailers and suppliers that undermine the market order and cannot be solved by the market alone, such transactions are no longer ordinary civil and commercial behaviors and are within the scope of law about fair transactions. The government should intervene under such circumstances.

6. Under the Contract Law, transactions between a retailer and a supplier should observe the basic principles of free will, equity and fairness, i.e. both parties should define each other's rights and obligations on their own and no party should impose its will on the other; the rights and obligations defined by the two parties should be on equal terms; no party may exempts itself from the liability, imposes heavier liability on the other party, or precludes the other party from its main rights. When a retailer in an advantageous position, due to its possession of outlets for retailing, abuses such position under the guise of the contract to force a supplier to accept the terms of contract proposed by the retailer, one-sidedly favoring its own interests at the cost of the legitimate interests of the supplier, the principles of free will, equity and fairness for contracting have been breached. Thus the principle of freedom of contract no longer apply. The relevant government authorities promulgate the Measures to introduce appropriate administrative intervention against unfair trade practices between retailers and suppliers, in order to safeguard the basic principles of the Contract Law, and maintain a good market order. ——Interpretations of the Administrative Measures for Fair Transactions Between Retailers and Suppliers by relevant officials from the Ministry of Commerce, National Development and Reform Commission, Ministry of Public Security, State Administration of Taxation, and State Administration for Industry and Commerce

7. Administrative Measures for Fair Transactions Between Retailers and Suppliers Article 6 No retailer may conduct any of the following unfair transactions by abusing its advantageous position: (1) It signs with a supplier a contract on the supply of a particular commodity, in which both parties agree to the specifications, type, pattern, etc., but later it refuses to accept the commodity, with, however, the exception where the supplier should be liable for the matter, or the supplier so agrees, and where the retailer will bear the losses incurred therefrom; (2) It requires any supplier to bear the liability for the wasting of any commodity un-stipulated in advance; (3) There is no advance stipulation of conditions for removing any commodity from the shelf or counter, or where the conditions for removing any commodity from the shelf or counter are not met, but the retailer removes the commodity provided by the supplier from the shelf or counter without any justifiable reason, except that the retailer does so under any law, regulation, or under an administrative decision made by the administrative organ; (4) It forces any supplier to refund the sales profit unconditionally, or it sets a certain sales volume as the precondition for return of sales profit, but charges the supplier refund of profit in the case of failure to reach the stipulated sales volume; or (5) It forces any supplier to purchase any commodity it designates or accept any service it designates;

8. Effective DateTitle of Document 2008.03.13 Notice on further strengthening market supervision and maintaining the order of commodity circulation by State Administration for Industry and Commerce (SAIC MD No.19 [2008]) 2009.01.13 Several opinions of State Administration for Industry and Commerce on the implementation of measures by the State Council to invigorate circulation and expand consumption (SAIC SZ No.8 [2009]) 2011.12.19 Notice from Ministry of Commerce, National Development and Reform Commission, Ministry of Public Security, State Administration of Taxation, and State Administration for Industry and Commerce about the issuance of the Work program for straightening out illegal fees charged by large-scale retail enterprises from suppliers (SZF No.485 [2011]) 2012.01 Guidance of Ministry of Commerce on the promotion of development of retail industry during the 12th Five-Year Plan Period (SLTF No.27 [2012]) 2012.06.08 Notice from Ministry of Commerce, National Development and Reform Commission, Ministry of Public Security, etc. about further strengthening out illegal fees charged by large-scale retail enterprises from suppliers 2013.06.19 Notice from Ministry of Commerce, National Development and Reform Commission, Ministry of Public Security, etc. about supervision of transactions between retailers and suppliers (SZH No.356 [2013]) 2015.08.26 Opinions of the State Council about promoting the modernization of domestic trade circulation and the construction of business environment under the rule of law (GF No.49[2015])

9. Contract Law of P.R.C. When a large retailer abuses its advantageous position through a contract, then the validity of the terms of the contract is subject to the Contract Law, especially Article 54 “Contract Subject to Amendment or Cancellation” (when the making of the contract is obviously unfair) and Article 40 “Invalidity of Certain Standard Terms”, etc. However, whether the contract will be determined as “obviously unfair” does not depend on whether the large retailer has an advantageous position as stated in the Measures, but is subject to the principle of fairness in the Contract Law. The validity of certain standard terms of a contract between a retailer and a supplier is also subject to Article 40 of the Contract Law.

10. Anti-Monopoly Law of the P.R.C. Para.1, Article 17: A business operator with a dominant market position shall not abuse its dominant market position to conduct the following acts: (1) selling commodities at unfairly high prices or buying commodities at unfairly low prices; (2) selling products at prices below cost without any justifiable cause; (3) refusing to trade with a trading party without any justifiable cause; (4) requiring a trading party to trade exclusively with itself or trade exclusively with a designated business operator(s) without any justifiable cause; (5) tying products or imposing unreasonable trading conditions at the time of trading without any justifiable cause; (6) applying dissimilar prices or other transaction terms to counterparties with equal standing; (7) other conducts determined as abuse of a dominant position by the Anti- monopoly Authority under the State Council.

11. Anti-Monopoly Law of P.R.C. Para.2 of Article 17 For the purposes of this Law, "dominant market position" refers to a market position held by a business operator having the capacity to control the price, quantity or other trading conditions of commodities in relevant market, or to hinder or affect any other business operator to enter the relevant market. Article 18 The dominant market status shall be determined according to the following factors:(1) the market share of a business operator in relevant market, and the competition situation of the relevant market;(2) the capacity of a business operator to control the sales markets or the raw material procurement market;(3) the financial and technical conditions of the business operator;(4) the degree of dependence of other business operators upon of the business operator in transactions;(5) the degree of difficulty for other business operators to enter the relevant market; and(6) other factors related to determine a dominant market position of the said business operator.

12. The Anti-monopoly Law of course applies to business operators in almost all industries. When a large retailer violates the Anti-monopoly Law, it is on doubt subject to it. The Anti-monopoly Law regulates the abuse of dominant market positions by large retailers; by comparison, the Measures regulates the abuse of advantageous positions by large retailers. However, China’s large retailers often do not have a significant market share, due to fierce competitions in the industry as well as the cooperation and competition between traditional retailers and e-commerce enterprises. Below is the market shares of 10 largest retailers in 4 different regions of China in 2014 and 2015.

13. 四大区 10 大零售商市场份额（金额占比 % ）

14. Anti-Unfair Competition Law (Draft Amendment) Article 6 A business entity in a comparatively advantageous position shall not do the following: (1) without justification, restrict with whom the trading party does business, (2) without justification, designate the products that the trading party should purchase, (3) without justification, make restrictions in the trading terms and conditions that relate to the trading party and the party with whom it is doing business, (4) abusively overcharge or unreasonably demand trading party(ies) to offer other economic benefits, or (5) request other unreasonable trading terms. ‘Comparatively advantageous position’ in this Law refers to an advantageous position in a specific transaction held by an business entity in terms of capital, technology, market access, distribution channel and material procurement, etc. and its trading counterparty depends on such business entity and is difficult to switch to other business entities.

15. The relevant article in Anti-Unfair Competition Law (Draft Amendment) is more general, which, if enacted, will provide a broader regulation of the abuse of comparatively advantageous positions by large retailers. However, since the Draft Amendment offers criteria for determining the comparatively advantageous position, the regulation of the conducts of large retailers will no longer be based on the vaguely defined “advantageous position”, but on the specific analysis of suppliers’ dependence on large retailers. Whether this factor would be detrimental to the application of the article remains a question.

16. conclusion In conclusion, China has taken many measures to regulate large retailers’ abuse of market power, but there are still many problems to be solved, such as how to deal with the relationship between different provisions so as to form a comprehensive regulatory system and ensure the effective application of relevant laws and regulations.

17. Thanks!