Overview of the Anti-monopoly Law

Since the AML itself leaves room for further interpretation, we will have to wait for more detailed guidelines and implementation provisions to clarify how the AML will be applied in practice.

THE SCOPE OF THE AML'S APPLICATION

Extraterritorial Application

The Anti-monopoly Law Enforcement Agency [AEA] may consider extraterritorial conduct that has the effect of eliminating or restricting competition within the domestic market of China. The extraterritorial application is in line with international norms.

Monopolistic Industries

There are two groups of lawful monopolistic industries that are permitted by the AML:

(1) the industries controlled by the State-owned economy and concerning the lifeline of the national economy and national security, such as telecommunications, power industries, banking; and

(2) the industries implementing exclusive operation and sales according to law, such as petroleum and tobacco.

According to Article 7 of the AML, the State ¡°shall protect the lawful business operations conducted by the business operators in those industries¡±. However, the business operators in those industries ¡°shall not harm the consumer interests by taking advantage of their controlling or exclusive dealing position¡±. The AML implies that there will be corresponding legal liability. However, it remains silent on which government agency will take charge of such enforcement.

Monopoly Agreements

The term ¡°monopoly agreements¡± under the AML refers to agreements, decisions, or other concerted behaviors between firms that eliminate or restrict competition.

The Chinese government has adopted some concepts from Section 1 of the Sherman Act of the United States and Section 81 of the EC Treaty in which the AML divides monopoly agreements into two categories: horizontal monopoly agreements (regulated under Article 13) and vertical monopoly agreements (regulated under Article 14).

Article 15 provides exemption rules that apply to all monopoly agreements. Since both horizontal monopoly agreements and vertical monopoly agreements can be exempted under Article 15, the AML does not, strictly speaking, have a per se rule. For example, if the operators can prove that the concluded agreement's aim was for the purpose improving technologies or researching and developing new products and the agreement will not substantially restrict competition in the relevant market and can enable consumers to share the benefits from the agreement, the monopoly agreement shall be exempt from Article 13 and Article 14.

Abuse of Dominant Market Position

To determine the dominant market position, the term ¡°market¡± must first be defined. According to Article 12 of the AML, the term ¡°relevant market¡± refers to the commodity scope or territorial scope within which the business operators compete against each other during a certain period of time for specific commodities or services. There are three main criteria for determining markets:

(1) commodities/services;

(2) locality; and

(3) time.

Additionally, there are at least two types of markets: commodity markets and geographic markets. The geographic market is not limited to within the territory of China thus making it possible that a market could be defined to be significantly larger.

Once the market has been defined, the next step is to decide whether a competitor has sufficient market power to manipulate or control the market in an anti-competitive manner.

Article 19 of the AML allows a presumption of dominant market position based on the market share. A joint dominant market position exists where two operators jointly account for 2/3 of the market, or three operators jointly account for 3/4 of the market. Thus, two or more operators may be found to be in a joint dominant market position even if there is no coordination of their conduct. However, if any of the business operators has a market share of less than 1/10, that business operator shall not be assumed to have a dominant market position. The purpose of this provision is to simplify the competent authority's assessment and ease its workload. A presumption of market dominance is rebuttable. Thus, a business operator that has been presumed to have a dominant market position may provide evidence to the contrary.

Concentrations of Business Operators

Business operators shall notify the AEA in advance where the concentration of operators reaches the standard of notification prescribed by the State Council. Otherwise, they shall not proceed with the proposed concentration. The AML requires not only business operators to notify in advance, but also domestic business operators if certain thresholds are met.

There is no explicit threshold for declaration set forth in the AML because business operators vary from sector to sector. A single threshold would not suitable for all circumstances. Thus, the AML assigns the State Council to prescribe the threshold of declaration.

The substantive standard used in the examination of the proposed concentration of business operators is to see whether that concentration of business operators actually eliminates or restricts competition or may eliminate or restrict competition. However, if the business operators concerned can prove either that the favorable impact of the concentration on competition obviously exceeds the adverse impact, or that the concentration is in harmony with the public interests, the AEA under the State Council may decide not to prohibit the concentration.

National security review is mentioned in the Chapter IV ¡°Concentrations of Business Operators¡±. It is clear that

(1) national security review and the examination on the concentration of business operators are two separate tiers of review;

(2) the national security review is not regulated in the AML; and

(3) from the procedure prospective, the national security review may parallel the examination on the concentration of business operators.

THE ENFORCEMENT AGENCIES OF THE AML

According to the AML, enforcement of the AML involves three levels of government agencies:

(1) on the State Council level, the establishment of an Anti-monopoly Committee;

(2) on the ministry level, the State Council will designate the Anti-monopoly Law Enforcement Agency (AEA);

(3) on the local level, the AEA may empower corresponding agencies in the governments of the provinces, autonomous regions, and municipalities directly under the Central Government to be responsible for anti-monopoly law enforcement work.

The Anti-monopoly Committee will be responsible for organizing, coordinating, and guiding the anti-monopoly work. The AEA ¡°shall be responsible for the anti-monopoly law enforcement work¡±. It mainly includes the National Development and Reform Commission (NDRC), the State Administration of Industry and Commerce (SAIC); and, the Ministry of Commerce (MOFCOM).

The corresponding local level agencies are indispensable because the relevant market for a specific anti-monopoly case could be a region within a province, autonomous region, or municipality. To effectively and efficiently handle this case, it will be more proper to empower the corresponding agencies in the local government to carry out the investigation.

Penalties and Remedies

The AML mainly prescribes administrative penalties, which for business operators would include:

(1) an order to stop the violations;

(2) confiscation of the illegal gains and imposition of a fine between 1% to 10% of the sales revenue in the previous year; or

(3) a fine of less than 500,000 yuan.

In addition, there is a leniency provision set forth in the AML in which the business operators concerned voluntarily report the conditions on reaching the monopoly agreement and provide important evidence to the AEA. They may be given a mitigated punishment or be exempt from punishment at the discretion of the AEA.

Civil liability

According to Article 50 of the AML, the business operators that implement monopolistic conduct and cause damages to others shall bear civil liability according to law. This provision opens the door for civil litigation against monopolistic conduct. But many issues have yet to be clarified, such as which level of the People's Court has the jurisdiction over anti-monopoly litigation.

Criminal liability

There is no criminal liability for monopolistic conduct under the AML. However, Article 52 provides, ¡°as for the examination and investigation implemented by the AEA, if business operators refuse to submit related materials and information, submit fraudulent materials or information, conceal, destroy or remove evidence, or refuse or obstruct investigation in other ways ... where a crime is constituted, the relevant business operators shall be subject to criminal liabilities¡±.

CONCLUSION

Competition laws are increasingly regarded as a hallmark of a modern economy. The adoption of the AML is a milestone for China's socialist market economy. It appears that the Chinese government will strengthen examination and supervision of monopolistic conduct. After the establishment of the Anti-monopoly Committee and the issuance of relevant guidelines or implementation regulations in the near future, the situation in China will be clearer for foreign and domestic enterprises to estimate anti-monopoly issues before making business decisions. However, without a tradition of anti-monopoly culture and practice, the implementation of the AML will present Chinese authorities and domestic and foreign enterprises with many challenges.