Monetary Penalties in China and Japan

Abstract

Recent solicitations for comments on monetary penalties in China and Japan highlight opportunities to improve the deterrent effect of antitrust law by more closely aligning penalties with economic theory and evidence. When monetary penalties are not based upon economic analysis and clearly linked to identified harms, they are likely to generate costly errors, either by overdetering welfare-enhancing behavior or underdetering anticompetitive behavior.

On June 17, 2016, China’s Anti-Monopoly Commission of the State Council requested comments on Draft Guidelines issued by the National Development and Reform Commission (NDRC) for the calculation of illegal gains (disgorgement) and setting of fines issued. On July 13, 2016, the Japan Fair Trade Commission (JFTC) requested comments on introducing flexibility into their administrative surcharge system, developing a settlement program, and reforming due process in conjunction with surcharge reform.

Both proposed monetary penalty systems would benefit from a deeper grounding in economics. The NDRC’s Draft Guidelines provided only for the optional use of economic analysis in calculating illegal gains and appear to create a presumption that disgorgement would apply in addition to fines in nearly all cases. The JFTC’s consultation acknowledged that the current inflexible surcharge system could give rise to “unreasonable or unfair” surcharges, but did not require economic analysis to determine appropriate monetary penalties. In both countries, monetary penalties are applied broadly and are not based upon identified harms, although the JFTC’s consultation invited comments on whether differentiation by type of infringement was necessary.

Keywords: antitrust, antimonopoly, cartels, competition, disgorgement, due process, economic theory, illegal gains, mitigation, monetary penalties, settlement, surcharge

JEL Classification: K21