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2008-07-23 | All chapters

China Draws Criticism on New Antitrust Law
Andrew Batson, 23rd July 2008, page A10

BEIJING -- China's fledgling antitrust legislation is being hobbled before it even takes off.

With just days left before its antimonopoly law takes effect on Aug. 1, China's government is still hashing out, behind closed doors, how to enforce new prohibitions against cartels, price fixing and other anticompetitive behavior. Government agencies, reluctant to yield their powers, are divided over how the law will be enforced and by whom, lawyers and scholars say.

Foreign companies in China are worried continued infighting will lead to inconsistent enforcement of a law that gives regulators broad powers over business.

At the same time, domestic advocates of a robust competition policy fear the new law will do little to liberalize Chinese markets controlled by large, state-owned companies.

Until the passage of the new law last August, China was one of the few major economies not to have full-fledged antitrust legislation. While most global companies have systems for complying with competition rules in the different countries in which they operate, they haven't needed those in China.

"There's been a free ride on antitrust in China for a long time," says Peter Corne, who chairs the legal working group of the European Union Chamber of Commerce in China. "Multinationals have got to audit themselves to find out whether they will be in compliance with the new antimonopoly law. That's very challenging."

There are three major government bodies already involved in antitrust activities that have been negotiating how to enforce the law since it was passed a year ago. Although the government's final plan hasn't been published, antitrust lawyers say they have been told to expect a three-pronged structure, with each of the agencies retaining significant powers.

To many, it sounds like a recipe for trouble. "There will certainly be conflicts," says Wang Xiaoye, an antitrust scholar in Beijing. Ms. Wang is an advocate of competition laws -- she calls them an "economic constitution" for today's market-driven China -- and had argued for a single, strong enforcement agency. She says she is disappointed with the likely outcome.

The Ministry of Commerce, the National Development and Reform Commission and the State Administration for Industry and Commerce each oversees some part of China's current hodgepodge of antitrust-related policies: respectively, merger reviews, price fixing and unfair competition.

The most likely scenario, lawyers say, is for each of these agencies to continue with those specialties under the new antimonopoly law. A new government commission is to coordinate work among the agencies, but how it will be put together hasn't been decided. The agencies declined to answer questions about the law before it takes effect.

Since the government wrangling has delayed publication of specific guidelines on rules against practices such as price fixing, the best companies can do is extrapolate from experience elsewhere. Given the Chinese system's debt to the European antitrust model, some lawyers suggest if something is illegal in the EU, it would likely be illegal in China.

The initial burden of compliance could fall more heavily on foreign companies, but many domestic companies haven't experienced much antitrust enforcement before, and some of their practices would be unlikely to survive scrutiny.

Industry associations, many of which are remnants of government agencies from the planned-economy era, could be vulnerable. It is still common for their member companies to jointly make decisions about prices and business practices. A prosecutor might call that collusion. "The actions of industry associations are often clearly anticompetitive," says Jun Wei, a partner with Hogan & Hartson LLP in Beijing.

Last year, instant-noodle makers coordinated a price increase after their costs for grain and oil shot up -- though they endured a wave of negative publicity and were later sanctioned by regulators.

Ms. Wei, however, is skeptical that Beijing's divided antitrust enforcers will be willing or able to rein in most industry associations, which continue to have good government relationships and a strong voice in policy making.

Large state companies are also likely to have little to fear from antitrust enforcers. The antimonopoly law gives broad discretion to the government not to apply its provisions to "industries that are controlled by the state and connected to the lifelines of the national economy and national security."

The new law will expand regulators' ability to examine merger deals that touch on business in China, some of which the government has already been reviewing for competition concerns. For instance, BHP Billiton PLC says it has started the process for Chinese authorities to review its proposed takeover of Rio Tinto PLC -- just as it has with antitrust agencies in several other countries. Chinese steelmakers and other companies are some of the biggest customers for both mining giants, and some local officials have argued that the combination would have too much power to set prices for iron ore and other key materials.

Source: http://online.wsj.com/article/SB121677707391675921.html