The new Anti-monopoly Law of China (“AML”) was issued on August 30, 2007, although it will not come into effect until August 2008. During the one year time window, there is no doubt that the existing enforcement system of anti-monopoly will be greatly impacted and amended by this AML. However, it is also very important for general counsels of multinational companies in China to understand how the current anti-monopoly enforcement system might impact the future upgraded system under the AML.
Current Anti-monopoly Related Laws and Regulations
The AML is the first law and milestone of China specialized in anti-monopoly. However, it should be noted that before the issuance of the AML, China has already passed several laws and regulations relating to anti-monopoly and fair competition. The key system includes the Pricing Law, the Anti-unfair Competition Law, the Provisions on Takeover of Domestic Enterprises by Foreign Investor and its Guideline for Filing of Anti-monopoly Notification. These laws and regulations established the initial principles and framework regarding price fixing, monopoly agreement, abuse of dominant position in the market and pre-merger notification.
As part of the enforcement system in detailed industries, the current system also includes specific rules and restrictions against monopolistic conduct and illegal profit of monopoly in various key industries that exist or may exist monopoly activities. These rules are directly or indirectly provided in the Telecommunication Provisions, the Invitation and Bidding Law, Electricity Law, Shipping Law and Securities Law.
Current Enforcement Authorities
Price fixing, unfair competition and concentration are the key areas that the AML is aiming at under its sections of monopoly agreement, abuse of dominant market position and concentration. The current enforcement authorities have already covered these three areas according to their respective authorizations under the relevant laws.
1. Price Fixing
Under the authorization of Pricing Law, State Development and Reform Commission (“SDRC”) is the key supervision and enforcement authority at the central government level. SDRC has the right to formulate national price guidelines and policies, set pricing reference standards in various industries, supervise pricing activities of economy entities and punish any illegal pricing activities. SDRC establishes local pricing bureaus at provincial stage and pricing supervision departments in lower administrative regions. These local pricing authorities are the most important enforcement bodies in daily enforcement of Pricing Law. The SDRC and local pricing bureaus are authorized to issue administrative penalty to illegal pricing activities, including warning and fine.
2. Unfair Competition
The Anti-unfair Competition Law restricts or prohibits various unfair competition activities that might harm or limit the market competition. The State Administration of Industry and Commerce (“SAIC”) as the major corporate registration authority in China acts the most important role in supervising the market’s healthy competition. The Fair Competition Bureau under the SAIC and all local branches of SAIC are the “market policemen” that shoulder the daily supervision work under the Anti-unfair Competition Law. Due to the company registration function of SAIC, it has local branches in almost every city of China. Such wide extension secures the supervision of unfair competition in most basic levels of geographic location and industrial areas. Further, due to the wide scope of unfair competition, it covers most of the basic economy activities except price fixing. Thus, SAIC and its Fair Competition Bureau become the critical body of anti-monopoly system that have wide power and efficient enforcement measures.
3. Pre-merger Notification Filing
One of the hottest area of merger and acquisition in China that impact the business operation of every foreign investor and those multi-national companies is the pre-merger notification requirements issued by Ministry of Commerce (“MOFCOM”). In 2006, several departments of central government led by MOFCOM launched the Provisions on Takeover of Domestic Enterprises by Foreign Investor (“Pre-merger Provision”), which for the first time authorizes the Chinese government authority to review any overseas M&A deals that might affect Chinese market. The Pre-merger Provision, followed by its Guide of Filing of Anti-monopoly Notification issued by Anti-monopoly Review Office of MOFCOM, flagged the intention of Chinese government in establishing a modern anti-monopoly enforcement system. Such intention eventually was proved by the issuance of AML. The Anti-monopoly Review Office becomes the key government body that every corporate M&A deals worldwide has to concern, regardless it takes place in China or not. The setting of thresholds for filing authorizes MOFCOM and its Anti-monopoly Review Office to secure the market competition interest of China through supervising, reviewing, appraising and even rejecting the notification filing by multi-national companies. Without any doubt, Anti-monopoly Review Office covers the market concentration issue that hasn’t been touched by any of the previous laws and regulations.
Impact on Future Enforcement System under AML
The AML requires the State Council to establish an Anti-monopoly Commission as the uniformed body in enforcing the Law. However, due to the existence of SDRC, SAIC and MOFCOM which all act as part of the current enforcement system, the AML seems to compromise on issuing a nominal management power for such Anti-monopoly Commission. As a result, the power of the Anti-monopoly Commission is defined as “organizing, coordinating and guiding” the anti-monopoly enforcement work while the members of this Commission consists of key officials from SDRC, SAIC and MOFCOM. Therefore, once the AML comes into effect in 2008, there will be three major authorities performing their duties under the AML jointly referred to as “Enforcement Authority” . Meanwhile, the AML has not clearly defined the power scope among these major authorities and the current anti-monopoly related laws will still be in force. The following impact might occur based on the above analysis:
- Efficiency of enforcing the new AML in certain complicated monopolistic case might be influenced, if the complexity of the case might trigger more than one of the authorities’ attention and interest.
- Enforcement against such case might find different legal basis other than the AML.
- The existence of natural monopoly by state-owned company in several industries will not be substantially improved by the AML since the economic interest might affect the coordination among the authorities.
- It might be time and cost consuming in indentifying which authority to inquire and report to for the companies that might be involved in any anti-monopoly activities or cases.
- The difficulty increases for multi-national companies to establish a constructive communication with every of the enforcement authorities.
Undoubtedly, the adoption of the current system by the AML has its positive effect that it avoids the mass situation if all authorities have to be reformed and restructured in a short time frame. However, it should be fully recognized that the overlap in jurisdiction and inefficiency in enforcing the AML will be the issue for China to search for solutions and improvement. There is an urgent demand that the legislation should promptly conclude an enforcement rule during the one year window before the effectiveness of the AML, which could clearly define the jurisdiction scope among the current authorities. We do hope and are confident that an efficient, uniformed anti-monopoly enforcement system will be soon established in China and the AML will lead China to a mature market with fair competition and healthy growth.
Senior Legal Consultant