This law in many ways reflects the structure and shape of more established antitrust regimes, in particular that of the European Union (EU). Nevertheless, a number of important carve-outs, caveats, discretions and lacunae, coupled with institutional confusion and question-marks over effective judicial review, raise fears that the AML may lead to quite different decisional outcomes in practice from the outcomes that could be predicted under the EU rules and that it could be applied as a tool of Chinese industrial policy (raising protectionist fears).
The drafting of the AML draws heavily on influences from the EU competition regime, at least in part a result of the EU-China competition policy dialogue initiated in 2003. The final text of AML is replete with concepts and structures that are closely modelled on the relevant provisions of the EU competition rules.
The AML has all the constituent elements of a full-service competition law regime, in particular:
- the prohibition of ‘monopoly agreements’, for example agreements or concerted practices between undertakings or decisions of associations of undertakings which prevent or restrict competition, unless an exemption is available;
- the prohibition of abuse of a dominant market position by one or more undertakings;
- the establishment of a merger control system which abolishes the distinction between ‘onshore’ and ‘offshore’ transactions in favour of effects-based criteria. Mergers and the acquisition of control/decisive influence which trigger certain (as yet undetermined) thresholds will be subject to a mandatory and suspensory two-stage review process similar to the EC Merger Regulation system; and
- the penalties for infringement are broadly the same as those available under the EU competition rules. Undertakings found to have entered into ‘monopoly agreements’ or to have engaged in abuse of dominance, are liable for the confiscation of illegal gains in addition to the imposition of fines between 1% and 10% of turnover. Fines of up to RMB500,000 (£33,000) can be imposed for entering into illegal concentrations and the merging parties may be required to divest or take any other measures necessary to restore competition. Finally, the AML envisages civil liability in damages.
While the main elements and framework will be very familiar to antitrust specialists in the EU, a closer look identifies many ‘red flags’, which will be a cause for concern to EU businesses considering investing in China unless and until enforcement policy sets such concerns aside.
The Anti-Monopoly Enforcement Authority and the Anti-Monopoly Committee (referred to here collectively as the Authority) is afforded a very wide discretion in applying the AML prohibitions, wider by some margin than the equivalent discretion enjoyed by the European Commission under the EU competition rules. For instance, the AML lists seven (non-cumulative) bases for an exemption for anti-competitive agreements, the sixth being “safeguarding the legitimate interests in international trade and foreign economic cooperation”.
Unlike the first five criteria — all of which are related to economic benefits and require that consumers share in such benefits — the sixth criterion is not subject to the requirement that consumers share in the benefit. In addition, the seventh exemption criterion is “other circumstances as stipulated by the law and the State Council”.
In the area of merger control, the AML lists a number of factors that should be taken into account by the Authority in reviewing a notifiable concentration; in particular, the concentration’s effect on “the development of the national economy”. The Authority may approve a concentration if the merging parties can prove either that the merger’s positive effects on competition outweigh the negative effects or that the merger is otherwise “in the public interest”. Finally, where a merger involves the acquisition of Chinese enterprises by foreign investors, the merger is also subject to a national security review “where national security is involved”.
It remains to be seen how these provisions will be enforced in practice, in particular whether they will be used as a response to perceived protectionist scrutiny of takeovers of US firms by Chinese firms (for example, the failure of China National Offshore Oil Corporation to acquire Unocal in 2005, largely due to political opposition in Washington based on national security concerns).
As regards intellectual property (IP) rights, the AML says it will not apply to “practices of undertakings in exercise of their IP rights” but that it can apply to “practices of undertakings that prevent or restrict competition by abusing their IP rights”. The interplay between IP law and competition law is a contentious area also in the EU and the
However, given the international reputation of China as a jurisdiction which affords lax protection of IP rights (for instance, China was the source of more than half the counterfeit goods intercepted at European borders in 2005), the explicit inclusion in the AML of a basis for challenging reliance on IP rights as abusive, with no explicit presumption to the contrary (as exists under the EU competition rules pursuant to established ECJ case law) is a grave cause for concern, particularly to EU businesses which are heavily technology-reliant and are contemplating investing in China.
A more general cause for concern stems from the fact that the success of AML in introducing an effective antitrust regime to China is likely to depend on the efficiency and effectiveness of the enforcement structures and on the existence of an independent and transparent judicial review system with the powers — and willingness — to ensure the rules are enforced effectively and to accord private undertakings (irrespective of place of establishment) full respect for their procedural rights.
The AML’s institutional structure is confusing, conferring on the State Council the role of overseeing an Anti-Monopoly Committee which, in turn, will oversee an Anti-Monopoly Enforcement Authority, which can delegate power down to government agencies acting at a provincial, regional and even municipality level.
The ability to challenge certain regulatory decisions may be constrained by a lack of transparency. For instance, only decisions prohibiting concentrations or clearance decisions subject to remedies are explicitly required to be published and there is no explicit duty to publish decisions finding the existence of monopolistic practices.
Regarding the judicial review system, the AML provides for interested parties to apply for administrative review of the Authority’s decisions, with the ability to file a further administrative action before the Chinese courts. The European experience over the past 20 years shows that the effectiveness and predictability (in terms of decisional outcomes) of the system will be profoundly impacted by the willingness of the courts to challenge Authority decisions on substantive and procedural grounds.
In conclusion, the adoption of AML has stimulated widespread debate, much of which has centred on the lack of certainty as to AML’s implementation. It would be naive to expect the same level of predictability and transparency that exists in jurisdictions that have had established competition regimes for decades. However, while the basic concepts underpinning AML are very similar to equivalent concepts under the EU competition rules, concerns about enforcement policy will only be allayed by the Authority demonstrating (hopefully already in the guidelines currently being formulated) that its enforcement policy, as in the EU, will be motivated chiefly by consumer welfare aims and not by more politicised aims.
Diarmuid Ryan is a competition partner at
