*The first issue of Topics in Law and Economics in China from NERA Economic Consulting.
On 30 August 2007, China’s Anti-Monopoly Law (AML) was passed on its third reading before the Standing Committee of the People’s National Congress (NPC). The AML has finally been adopted after almost 14 years of planning, drafting, and debate. It will become effective on 1 August 2008.
The AML reflects many general principles that are largely unobjectionable. For example, the intellectual property (IP) provision at article 55 says "This Law is not applicable to undertakings’ conduct in exercise of intellectual property rights pursuant to provisions of laws and administrative regulations relating to intellectual property rights; but this Law is applicable to undertakings’ conduct that eliminates or restricts competition by abusing their intellectual property rights," which is consistent with the manner in which US antitrust law views the exercise of IP rights. However, the AML also deviates in certain ways from US antitrust principles. For example, the AML provides for exemptions from the law, including one related to the agricultural sector. While there have been some concerns expressed that the AML will be directed primarily against foreign entities, there is little, if anything, in the law itself to support such views. However, how the law will actually be implemented remains to be seen.
The AML articulates broad principles. Important details, such as the notification standards for mergers, are not specified in the law. To make the law functional at a practical level, implementation rules and regulations will need to be written. Typically in China, once a law is passed by the NPC, the implementing agency drafts rules and regulations that are then revised and approved by the State Council. The Ministry of Commerce (MOFCOM) and other agencies of the Chinese government are likely to be heavily involved in drafting the antitrust implementation rules and regulations, although the final word will reside with the State Council. Chinese officials who will be in charge of antitrust enforcement recognize the value of transparency and guidelines. Thus, it is expected that implementation rules, such as merger guidelines, will be drafted and issued over the next few years. Guidance will likely be continually issued and updated, just as in the US.
The AML provides for an Anti-monopoly Enforcement Authority as well as an Anti-monopoly Committee, and these two groups appear to have sole jurisdiction over the AML. The Enforcement Authority will likely be made up of staff from the existing antitrust regulatory agencies, which include MOFCOM, State Administration for Industry and Commerce (SAIC), and the National Development and Reform Commission (NDRC). It is not clear how the responsibilities will be divided between these agencies, although a natural split would be for SAIC to handle all domestic matters, while MOFCOM would handle all foreign matters (including cases involving foreign firms). Since the Anti-monopoly Committee will be chaired by a senior member of the State Council, the Committee is expected to have a high-profile status in the Chinese government.
Prior to the passage of the AML, China’s anti-monopoly provisions were scattered across many different laws and regulations, including the 1993 Law Against Unfair Competition, the 1998 Price Law, and the 2000 Bid and Tender Law. Now that the AML, a comprehensive antitrust law, has passed, the older laws are not expected to be repealed. Where there is conflict with the AML, the general principle of law in China is that the newer law prevails. Thus, the AML will seem to govern except in situations where it is silent. It could be up to the enforcement authority and the courts to decide how to resolve any apparent conflict.
Substantial numbers of personnel are expected to be hired to staff the Anti-monopoly Enforcement Authority, with the State Council in charge of the budget, the level of staffing, and other operational issues. The split between lawyers and economists is unclear at this time. However, Chinese government officials recognize the value of economic analysis. For example, academic economists were involved in the drafting process of the AML and it is expected that economists and economic analysis will play a role in antitrust enforcement in China.
China’s economic growth over the last twenty years has been impressive. It has become an important source of manufactured goods, a large purchaser of natural resource commodities, and a holder of very large foreign exchange reserves. Many foreign companies are interested in participating in its domestic market. With the passage of the AML and its imminent enforcement, China is poised to play a major role in global antitrust governance. Indeed, legal experts are of the general opinion that China will likely become a third crucial merger clearing house, along with the US and the European Union.
NERA economists have been actively following the progress of the AML, participating in conferences and meeting with legal and economic experts and government officials in China. To find out more, please contact one of the members of our China Antitrust Group listed below.
About NERA
NERA Economic Consulting is an international firm of economists who understand how markets work. Our more than 45 years of experience creating strategies, studies, reports, expert testimony, and policy recommendations reflects our specialization in industrial and financial economics. Our global team of more than 600 professionals operates in over 20 offices across North and South America, Europe, and Asia Pacific.
NERA Economic Consulting (www.nera.com), founded in 1961 as National Economic Research Associates, is a unit of the Oliver Wyman Group, an MMC company.
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