The role of SAIC in enforcement of the Anti-monopoly Law

Before the AML, the first regulation to address anti-monopoly issues was the Tentative Provisions on the Takeover of Domestic Enterprises by Foreign Investors (Tentative Provisions). Within the framework of the Tentative Provisions, Mofcom will accept, investigate and decide the notification regarding a concentration with SAIC. In practice, Mofcom played a prevailing role in determining a concentration. Mofcom frequently exchanges information with foreign counterparts, including the Federal Trade Commission and European Commission. Mofcom has a large responsibility over foreign investment and inbound and outbound trade, which easily allows the public to link Mofcom with AML enforcement. This is especially true due to the most prominent misunderstanding that the AML primarily focuses on the actions of foreign entities.

After studying the AML carefully, one begins to recognise that SAIC will act as the indispensable and fundamental AML regulatory organisation.

First, as per the power allocation regulation, SAIC retains responsibility over AML affairs related to monopoly agreement(s), abuse of dominance and administrative monopoly(s), though this excludes price-related monopoly behaviour.

The scope of monopoly agreement, abuse of dominance and administrative monopoly is so wide that almost every market power will fall within the grasp of the regulation. Price fixing, restriction of output, market division, restriction of development and purchase of new technology/products, boycott(s), monopoly high prices above fair market levels, predatory pricing, refusal to trade, tie-in sales, discriminative treatments, and so on, are typical monopoly agreements (cartels) and what would be categorised as an abuse of dominance. Thus, large domestic and international companies must take caution when embarking upon specific market strategies.

Secondly, triggering SAIC action lies in the hands of the general public. Mofcom under normal circumstances cannot forwardly investigate monopoly behaviour except where a business operator is directly involved in a concentration, or where they are notified of the presence of a concentration. For SAIC, the initiation of investigation proceedings is triggered by wider sources, including claims from the public, information forwarded by administrative departments and other SAIC information channels. The public in China, including consumers, is generally unsatisfied with the presence of monopoly powers and market dominators; this tendency will in turn provoke the action of SAIC.

Lastly, the administrative monopoly is a unique phenomenon in China and a serious obstacle to free, fair and equal market competition. Administrative monopolies are often entangled with localism and sectionalism, resulting in the distortion of prices, resource allocation and the administrative system in general.

In accordance with the AML, administrative monopoly includes: using administrative power to limit entities or individuals to the business operation, purchasing or using of commodities provided by business operators designated by it, blocking free commodity circulation among different regions, or rejecting or restricting the participation of non-local business operators in local tendering and bidding activities by imposing discriminatory qualification requirements or assessment standards or by failing to publicise information according to the law.

Before the AML, the presence of unreasonable support from within the local government and sector regulatory organisations made enforcement extremely difficult. Now market competitors and consumers will be able to utilise and benefit from SAIC, although, compared with the singular function of Mofcom, SAIC will face greater challenges from different sectors and levels. Such challenges must be resolved by SAIC in order for it to undertake active and authentic responsibility over AML enforcement.

The first issue faced by SAIC is retaining an appropriate degree of manpower. According to permission from the State Council, SAIC has established a specific bureau to cope with monopoly behaviour, though its manpower is far from adequate to deal with nationwide cases. Based on the provisions of the AML, SAIC may empower its provincial subsidiaries to help resolve specific cases. However, the questions of how to prevent localism and how to guarantee strict compliance with the AML present a challenging answer.

The question of how to balance relations between administrative departments remains unanswered. Under the State Council, there are a number of ministries, general bureaus and commissions which are at the same level as SAIC and some of which truly represent the interests of their specific sectors. The end result is a conundrum.

Even for some state-owned enterprises, there are competitors in the relevant market, though their management is decided by regulatory departments – perhaps even by the State Council. In order to punish certain administrative departments and some state-owned enterprises, SAIC should take account of factors both within and outside the legal realm. The practical solution is for SAIC to give proposals to administrative departments regarding their violation of the AML and then suggest how to correct the prohibited actions.

Finally, the absence of specific procedures for enforcement of the AML is another problem for SAIC. Fortunately, SAIC has recognised this and has begun to draft an investigation procedure. It is hoped we will be able to read a detailed investigation procedure early in 2009.