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Tuesday, October 6, 2009

China’s Antimonopoly Law—One Year Down

Posted by Wentong Zheng

Part 1: General Overview

First, I would like to thank Dan and Shubha for inviting me to guest blog here on the Chinese antitrust law.  It has been a year (or a little more than a year, to be accurate) since China’s new Antimonopoly Law (“AML”) went into effect on August 1, 2008.  Adopted in August 2007 after a nearly thirteen-year drafting process, the AML is China’s first comprehensive antitrust legislation and has been hailed as a milestone in China’s march towards a market economy.

So what does the first year of the AML tell us about the future of the Chinese antitrust law?  That will be the subject of my guest-blogging here.  In today’s post, I will provide an overview of the AML and a summary of the developments in the past year.  In the next five or six posts, which will be uploaded at approximately one to two week intervals, I will take up issues such as the direction of China’s merger and dominance law, the allegedly protectionist bent the AML has taken on, the “dual-track” antitrust regime that begins to emerge in China, the interaction between the AML and China’s industrial policies and economic development goals, the special problem of “administrative monopolies” (meaning anticompetitive conducts by government agencies), and the problems with the enforcement of the AML.

What’s in the AML?

Much has been written about the content of the AML elsewhere and I won’t be reinventing the wheel here.  To just give a quick summary, the AML has all major elements of the antitrust laws of the Western countries: prohibition of horizontal agreements, prohibition of abuse of market power, and a merger review regime.  In the meantime, the AML also has elements that are not typically found in the antitrust laws of the Western countries.  Those unusual elements include, inter alia, provisions on the special status of State-Owned Enterprises (“SOEs”) and provisions on the so-called “administrative monopolies” (anticompetitive conducts by government agencies). 

What Has Changed?

It is not an exaggeration to say that The AML has brought sweeping changes to China’s antitrust regime.  Prior to the AML, China had some laws and regulations that served certain antitrust functions.  Those laws and regulations were ad hoc in nature, and the antitrust functions they served were quite limited.  For instance, the 1993 Anti-Unfair Competition Law prohibits tying arrangements, predatory pricing, and bid rigging.  The 1997 Price Law prohibits price fixing, predatory pricing, and price discrimination.  But prior to the AML, there was not one law that banned all forms of horizontal agreements and all forms of abuse of market power.  The AML changed all that.  In addition, prior to the AML, China had a merger review regime that applied only to foreign companies acquiring Chinese companies.  Now under the AML, China’s merger review regime applies to both foreign and domestic companies.

What Has Not Changed?

Despite the accomplishments of the AML, there are certain things that the AML has not changed.  First, the AML remains ambivalent towards China’s SOEs.  Second, the AML does not provide an effective remedy for administrative monopolies, the most prevalent form of monopolies in China.  Finally, the AML has preserved China’s tripartite antitrust enforcement structure that predated the AML.  I will have more to say about each of these issues later.

What Has Happened Since Last Year?

The first year of the AML’s existence has seen a slew of regulations aimed at implementing the AML. On August 3, 2008, two days after the AML went into effect, the State Council (China’s cabinet) issued a decree on the thresholds that would trigger merger notification requirements under the AML. The three government agencies charged with enforcing the AML—the Ministry of Commerce (“MOFCOM”), the State Administration of Industry and Commerce (“SAIC”), and the National Development and Reform Commission (“NDRC”)—all issued regulations or proposed regulations in their respective enforcement areas.  In May 2009, the State Council’s Antimonopoly Commission, an inter-agency coordinative body on antitrust policies established under the AML, issued a guideline on how to define “relevant market” in cases brought under the AML.

With the exception of MOFCOM, which is tasked with merger review, the antimonopoly enforcement agencies seem to be taking a leisurely pace when it comes to carrying out specific enforcement actions.  Since the AML went into effect, there has not been one single enforcement action against any individual or entity for engaging in horizontal agreements or abuses of market power.  MOFCOM is the only enforcement agency that seems to maintain a busy schedule.  In August 2009, MOFCOM released official statistics showing that as of the end of June 2009, MOFCOM received more than one hundred merger notifications under the AML and accepted fifty-eight of them for official review.  Of the cases for which review had been concluded, forty-three were approved without any conditions, two were approved with conditions, and one was blocked.  The only one case blocked by MOFCOM, the proposed acquisition of Huiyuan Juice Group by Coca-Cola, caused a great amount of stir  both in China and in the international community.  I will have more to say about the Coca-Cola/Huiyuan case later.

Since the AML went into effect, private citizens of China have been more aggressive than the antimonopoly enforcement agencies in seeking remedies against what they perceive as monopolies banned by the AML.  On the very first day of the AML becoming effective, three lawsuits were filed against the telecommunication giant China Netcom, the General Administration of Quality Supervision, Inspection and Quarantine, and the municipal government of Yuyao City, Zhejiang Province respectively.  Many more lawsuits were subsequently brought against state-owned companies such as China Mobile and China Construction Bank.  The courts, however, have been a bit reluctant to take up antimonopoly cases.  Many antimonopoly cases were dismissed by the courts, and of those that were accepted, none has reached a conclusion so far.  I will have more to say about the enforcement of the AML later.

In my next post, I will discuss China’s new merger review regime under the AML.  Stay tuned.

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Comments

This is an important area of development in antitrust. Look forward to your future posts on this topic.

Posted by: Anonymous | Oct 8, 2009 2:06:33 PM

This is important area and it has huge impact on internatinal business as well. As relected in Pfizer's selling its certain unit in China to Hayao, any international company cannot ignore the influence of China's Antimonopoly Law.

Posted by: Dr Zhaofeng Zhou | May 31, 2010 7:05:20 PM

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