Supplier Terms and Pricing Issues Under Asian Legal Systems

Supplier terms and pricing issues under Asian legal systems

Introduction What is the basic position under The majority of the legal systems in Asia that the active Asian systems have a competition law regime include regarding resale price provisions similar to Article 101 TFEU maintenance (RPM)? encompassing vertical restraints. Such Typically, under Asian systems, RPM occurs provisions are typically based on – or operate in where a manufacturer or supplier establishes a a manner similar to – the EU competition law fixed or minimum resale price which a system. However, there are some important distributor or retailer must observe when differences, most notably in Singapore, where reselling the contract goods or services. RPM absent dominance, vertical arrangements can be achieved directly or indirectly. RPM is benefit from a broadly worded exemption from typically viewed as a serious infringement of the prohibition on anti-competitive agreements. competition law in most Asian systems, leading to a restriction of competition in the At the time of publication, the following Asian downstream market. For example, China, jurisdictions are amongst those that have Hong Kong, Indonesia, Japan, Taiwan and provisions regarding vertical restraints that Korea all treat RPM practices as a serious operate in a similar manner to those in the EU: competition law infringement. China, Hong Kong, Indonesia, Taiwan, Thailand, Malaysia, Philippines, Myanmar and Vietnam. Japan and Korea also have provisions relating to vertical restraints. 02 HERBERT SMITH FREEHILLS

As with the EU, in most of the active Asian systems, recommended retail prices (RRP) and maximum resale prices will generally be permitted provided they do not amount to a de facto minimum or fixed resale price (for example, through an upstream supplier threatening stock availability or offering incentives to a downstream distributor).

What do recent cases and investigations tell us about the Asian position on RPM? There has been recent enforcement action taken by various Asian competition authorities which suggests a continued focus on RPM How are online sales What is the approach and recent practices. In China, the Shanghai branch of the restrictions treated? cases relating to discounts and NDRC imposed a fine of RMB201 million (approximately US$29 million) on Shanghai Are Platform restrictions permitted? rebates in Asia? General Motors for the maintenance of resale Platform restrictions have not yet been As is the case under EU competition law, price on certain types of its cars in December examined in Asian competition law systems. under most Asian systems, certain types of 2016. The fine represented 4% of the We expect that a similar approach to that rebates could amount to the abuse of a company's sales revenue from said products in taken in the EU would be taken in those dominant position. We consider that the EU China in the previous year. regimes based on the EU competition law approach is likely to be indicative of the types system, but of course, a different approach of rebates that could be considered Also in China, the NDRC imposed a fine of cannot be ruled out. problematic in Asia (also bearing in mind the RMB118.5 million (approximately US$17 Chinese State Administration of Industry and million) on Medtronic (Shanghai) A limited number of the competition law Commerce's ("SAIC") approach in Tetra Pak, Management Co. in December 2016, Ltd. for systems in Asia draw a distinction between discussed below). Accordingly, exclusivity fixing the resale price of medical apparatus active and passive sales (for example, China in rebates and loyalty inducing rebates are likely and instruments. its draft Guidelines on Auto Sales and also to be problematic. Japan). We expect that most Asian systems In Hong Kong, in May 2015, an association of would tend to follow the EU system in terms of In Tetra Pak, the SAIC found that, in the sale of 300 cosmetic and beauty product companies the treatment of online sales as passive sales, its materials, Tetra Pak had offered its announced plans to scrap industry wide although again a different approach cannot be customers: retroactive rebates and practices that potentially violated the Hong entirely ruled out. personalised sales target-related discounts. Kong Competition Ordinance, including Tetra Pak also offered "special discounts" or certain RPM practices. More recently, in June What about online pricing restrictions? "exceptional discounts" in the sale of its 2017, the then Chief Executive of the Hong materials. The SAIC acknowledged that Tetra Kong Competition Commission stated that the Dual pricing structures have not yet come Pak's dominant position meant that a regulator still held the view that RPM could under scrutiny in Asian competition law significant proportion of market demand had constitute a hardcore restriction of systems. We expect that, in most Asian to be fulfilled by Tetra Pak. However, competition law. competition law regimes which are based on competition between Tetra Pak and other the EU system, a similar approach would be competitors could still have occurred for the We expect that, for those Asian competition taken to that in the EU. market demand outside of this law systems based on the EU regime, we will non-contestable portion, but Tetra Pak's see an uptick in cases involving vertical Some regulators in Asia (e.g. Singapore) have loyalty discounts and the specific restraints (including RPM) in the not too already started considering the role and use of circumstances of the market made the distant future. In particular, the use of pricing pricing algorithms and we suspect that Asian contestable portion of the market demand algorithms being used as a means of regulators interest in online pricing restrictions essentially non-contestable. facilitating RPM could come under scrutiny will increase in the future. given that this is something that the We expect that other competition law systems Competition Commission of Singapore has in Asia would be guided by the principles in the already commented on (albeit in the context of Intel judgment and European Commission cartel behaviour). guidance (and possibly to a lesser extent the SAIC's Tetra Pak case). We note that a number of Asian competition law systems already follow the EU approach in their published guidance on abuse of dominance (for example, Hong Kong and Singapore). SUPPLIER TERMS AND PRICING ISSUES UNDER ASIAN LEGAL SYSTEMS 03

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