Jonathan S. Gowdy
Nearly 14 years after the People’s Republic of China (PRC) began efforts to enact a comprehensive competition law, the Standing Committee of the PRC National People’s Congress passed the Anti-Monopoly Law (“AML”) on August 30, 2007. The AML will become effective on August 1, 2008, and has several key implications:
The following is a summary of the AML’s key provisions.
Scope of Application
The AML prohibits agreements, decisions or other concerted behaviors that eliminate or restrict competition, but allows for limited exceptions.
Prohibited Agreements include agreements:
An exemption to these prohibitions is available if the undertakings can prove such agreements are:
Regarding the foregoing circumstances (1) to (5), the undertakings have additional burden of proof that the agreements will not substantially restrict competition and will enable consumers to share the benefits.
Abuse of Dominant Market Position
Dominant PositionWhen determining dominant market position, the following factors must be considered:
In particular, a business operator or several business operators may be deemed to have a dominant market position if the market share of one business operator reaches 50% or more, the combined market share of two business operators reaches 2/3 or more, or the combined market share of three business operators as a whole reaches 75% or more in the relevant market. However, any business operator with a market share below 10% is not deemed to have a dominant market position. In addition, business operators will not be considered to have a dominant market position if evidence proves otherwise.
Abusive ConductBusiness operators having market dominant position are prohibited from the following acts of abuse its dominant market position:
Concentration Control - Mergers & Acquisitions
Anti-Monopoly ReviewConcentrations include mergers, the acquisition of voting shares or assets, and obtaining controlling power by contract or otherwise. Certain limited exceptions apply, for example, concentrations involving related companies.
Concentrations that meet certain thresholds are subject to anti-monopoly review by the State Council. However such thresholds are not provided in the AML, consequently:
The AML establishes a two-step review process for all concentration reviews. The AEA will conduct a preliminary review within 30 days after receipt of full submission of application documents. For concentrations that need additional review after the preliminary review, the AEA will take another 90 days to finish its second-step review.
National Security ReviewPursuant to the AML, where national security is involved when a foreign investor participates in the concentration of business operators by merging or acquiring a domestic enterprise or by any other means, the transaction will be subject to national security examination, in addition to the anti-monopoly review.
This is not a new requirement, as national security review has already been mentioned in the 2006 Provisions on Take-over of Domestic Enterprises by Foreign Investors and in the 2006 Plan for Utilizing Foreign Investment during the Eleventh Five-year Plan Period (a policy statement from the National Development and Reform Commission). However, the national security review requirement aroused intense media attention upon the passing of the AML, due to concern over the uncertainty regarding how the national security review will be implemented, whether it will be restricted to several key industries or not, and what would be the criteria and procedures applicable.
Abuse of Administrative Power
Perhaps the most significant aspects of the AML (and an area with great potential for reform) are the limitations imposed on the conduct of administrative agencies and other organizations empowered by law or regulation. Specifically, the AML prohibits these administrative entities from abusing their public affairs or administrative power to do any of the following:
Likewise, in industries controlled by the state-owned economy or relevant to the national security, the AML requires SOEs to supervise and control the business operations in a manner that protects consumers and facilitates technological progress. These SOEs must also not harm consumer interests by taking advantage of their controlling or exclusive status.
Enforcement Authorities and Powers
The AML provides for two enforcement authorities under the State Council:
Investigatory PowersThe AEA has the authority, after obtaining written approval from the head of the AEA, to investigate suspected monopolistic conduct through inspections; questioning of business entities, individuals and third parties; examination and duplication of business documents and records; and the seizure of evidence. The AEA is required to keep confidential any business or trade secrets it receives as part of its enforcement activities.
The AEA has the authority to impose the following penalties:
In addition, civil remedies are available to injured private parties.
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