The Making of an Antitrust Law: The Pending Anti-Monopoly Law of the People's Republic of China

Article excerpt

I. INTRODUCTION

Though many jurisdictions have adopted competition laws in recent decades, none of these laws has engendered the level of interest sparked by China's proposed Anti-Monopoly Law ("AML"). Several factors have combined to inspire an unprecedented flow of commentary and consortia on each iteration of China's draft AML. These factors include the sheer scale and astounding growth of China's markets, the vast amounts of foreign capital recently invested in China, the burgeoning sales of Chinese goods abroad, the substantial growth in the participation of Chinese firms in foreign markets, and a recognition of the significant challenge posed by the establishment of free market competition in China's socialist market economy. To China's great credit, the State Council,1 the Ministry of Commerce ("MOFCOM"),2 the National Development and Reform Commission ("NDRC"),3 and the State Administration for Industry and Commerce ("SAIC")4 have solicited and studied numerous sets of comments from public and private organizations, companies, and academic experts around the world. The language of the draft AML pending before the National People's Congress ("NPC") has incorporated many of these useful comments.

However, concerns about the current draft remain. Broadly speaking, China's economy presents three principal features raising competition concerns: so-called local blockage or regional monopolies;5 sectoral monopolies by Chinese firms, including state-owned enterprises ("SOEs"); and a perception of alleged abuses of dominant positions by some foreign multinationals. Earlier drafts of the proposed AML contained a chapter prohibiting so-called administrative monopolies, which are typically large "local champions" protected from competition by local and regional government bodies. The elimination of that chapter from the November 11, 2005 Draft AML ("Current Draft AML" or "November 2005 Draft AML")6 essentially exempts such anticompetitive conduct from the reach of the Anti-Monopoly Law.

Another recent revision to Article 2 of the Current Draft AML has subordinated the Anti-Monopoly Law to administrative laws and regulations that cover specific industries or sectors of the economy. A related revision to Article 38 of the AML gives sectoral and industrial organs of the State Council the initial authority to investigate and apply special sectoral regulations to alleged anticompetitive conduct in industries and sectors governed by such special laws and regulations. The revision also allows these organs of the State Council to report the outcome of their investigations to the Anti-Monopoly Law Enforcement Authority (the "Anti-Monopoly Authority," "Anti-Monopoly Law Enforcement Authority," or "Authority").7 Only in the event that such organs fail to conduct an investigation may the Authority initiate an investigation. Even under these circumstances, the Authority must consult with the relevant sectoral and industrial organs of the State Council. These changes pose a severe impediment to applying the Anti-Monopoly Law to many significant industries and economic sectors of the Chinese economy.

As a consequence of these revisions, enforcement efforts will, at least initially, likely focus on foreign companies. The insulation of broad swaths of the Chinese economy from equal application of transparent competition rules risks depriving Chinese consumers of the benefits of market competition and may disincentivize continued foreign investment in China.

Certain substantive provisions in the Current Draft AML appear to be inconsistent with international norms of competition law. Foremost among these is a vague article stating that an "abuse" of intellectual property ("IP") rights resulting in the elimination or restriction of competition is subject to sanctions under the law. The absence of any definition of what conduct may constitute such an abuse of IP rights, and the possible imposition of compulsory licensing as a remedy, have engendered expressions of great concern, especially from foreign high technology companies with substantial operations or sales in China. …