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The new Chinese Anti-Monopoly Law and Foreign Business in China By Blake Dawson Waldron Shanghai, China Office Presenters: Robin Gerofsky Kaptzan, Senior.

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Presentation on theme: "The new Chinese Anti-Monopoly Law and Foreign Business in China By Blake Dawson Waldron Shanghai, China Office Presenters: Robin Gerofsky Kaptzan, Senior."— Presentation transcript:

1 The new Chinese Anti-Monopoly Law and Foreign Business in China By Blake Dawson Waldron Shanghai, China Office Presenters: Robin Gerofsky Kaptzan, Senior Lawyer Michael Jacobs, Consultant

2 The New China 3 Tips: How to Understand China’s Maturing Legal System Most of China’s laws are new and were enacted in the past 10 -15 years (i.e.: Labour Contract Law 2008, Mergers & Acquisitions 2006, Anti-Unfair Competition Law 1993) There is no precedent that could assist the drafters Every new body of law is built from ground up from careful research, global advisors and extensive discussion and debate about similar laws in other countries balanced with China’s needs and goals

3 What Happens After Enactment Uneven implementation of the law from one jurisdiction to another without decisions or results being recorded in a central reporting location Implementation Rules are passed as guidelines and to fill the gaps in the law– usually, but not always, before enactment Interpretation Rules are passed pertaining to a specific point on the law – usually years after enacted and with an aim to create equal enforcement throughout China

4 The process Drafting of a comprehensive law began in 1994 Picked up steam with WTO accession in 2001 But still took twice as long as the second longest drafting process (securities) WHY?

5 The Drafters' Dilemma Five Big Problems Had to Be Addressed 1. Draft a modern statute 2. Deal in some way with SOEs 3. Respond to "administrative monopoly" 4. Sell it to the public and business sectors 5. Create an effective scheme of administration

6 A Modern Statute The easiest problem to solve in a sense Three pillars are covered – agreements that restrain trade; abuse of dominance; merger control; Some abuses are specified Problems remain, e.g., "crisis cartels", "unfairly high" prices of a "dominant" firm; and "national security review" of mergers

7 State-Owned Enterprises In the early 1990s, when drafting of AML began, SOEs accounted for a big part of the economy; entry tightly controlled, consumers had no choice. Bloated profits in some cases and enormous losses in others. But NOT competitive. Ad hoc measures introduced: multiple SOEs competing against one another – telcoms broken up, for example. But not much competition ensued: "competing" landline telcos, China Netcom and China Telecom have agreed to divide the market into north and south.

8 SOEs remain in "Strategic Sectors" As of 2006, 80% of SOE assets were in 8 strategic sectors Petroleum, natural gas, telecoms, electricity, coal, civil aviation, waterway transport, and national defence In other slightly less important sectors, Government wants to maintain "strong influence" – auto, steel, high-tech

9 SOEs are specially regulated Separate sectoral regulators exist in each area Not necessarily incompatible with more competition, but opening all or almost all to competition regulation is seen as a risk Consequently, in the AML, Article 7 provides that "the State" shall control the operations, prices and services of the SOEs, "protect their legitimate business activities" and "safeguard the legitimate interests of consumers"

10 Administrative Monopolies Result from administrative measures – local, provincial, national laws and regs – intended to restrict competition or compel anti-competitive conduct: In 1999, Civil Aviation Bureau issued an order prohibiting airlines from discounting their prices. The role of tobacco factories in Yuxi Hundreds of thousands of these on the books THE domestic problem of interest

11 Common Types of "Administrative Monopoly" Statutes mandating use of local products or services – pictures w/marriage licenses Blocking market entry Taxing outside firms; over-inspecting them; Referred to collectively as "regional blockage" But what to do?: "The mountain is high and the emperor is far away"

12 The AML and Administrative Monopolies: A Compromise AML lists a slew of anti-competitive practices. That shows the public that the government is aware of the problem and wants to address it. But it leaves enforcement in the hands of the local officials and their regional and provincial superiors. This is a pragmatic decision but has been greeted with skepticism by the public, and may not work well or at all.

13 Selling the law to the Public: Addressing Perceived "Problems" "Excessive competition" "Unfairly high prices" "the multi-national invasion" These are not nearly the most serious competition problems facing the country, But they make for good publicity and can galvanize some additional support for the law

14 Who will administer the law? The Act is unclear, and leaves the decision to the State Council (the Cabinet), which has yet to decide. So, which? SAIC? NDRC? MofCOM? Some combination? And what will the enforcement priorities be? And how long will it take before some level of national regulatory competence is achieved?

15 Three substantive problems 1. Foreign-initiated mergers and "national security" review – Shanghai Stock Exchange study 2. "Crisis cartels" and trade associations – the instant noodle boys, and the problem of "excessive competition" 3. "Unfairly high prices" – big multi- nationals and dominant IP holders. Not to mention IP licensing issues

16 Stay Tuned "The longest journey begins with a single step"

17 BLAKE DAWSON WALDRON International Lawyers Suite 628 Shanghai Centre 1376 Nanjing Road West Shanghai 200040 China Tel: (86-21) 6279-8069 Fax: (86-21) 6279-8109 Australia: Brisbane ~ Canberra ~ Melbourne ~ Perth ~ Sydney International Offices: Shanghai, China ~ Papa New Guinea Associate Office: Jakarta, Indonesia

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