ANTI-MONOPOLY LAW OF THE PEOPLE'S REPUBLIC OF CHINA HAS PASSED!!!

On August 31, 2007, the National People's Congress, China's top legislature, passed the Anti-Monopoly Law, which comes into effect on August 1, 2008.

We here at antitrustchina.com are extremely excited about this milestone event and were among one of the first sites on the net to report this revelation. Thanks to the hard work of our staff, we are proud to introduce the first on-line interactive bi-lingual version of the Anti-Monopoly Law of the PRC (中华人民共和国反垄断法). We also would like to thank American Chamber of Commerce for translating the third draft of the law, which enables us to use it as reference and makes this translation available on line in a record time.

Internal Price Fixing Arrangement

The AML defines two types of monopoly agreements, agreement (i) between the competing undertakings (“Horizontal Monopoly Agreement”); and (ii) between the undertaking and certain transaction party (“Vertical Monopoly Agreement”). The Horizontal Monopoly Agreement is deemed as a core cartel in the market, which is prohibited and should be investigated. The finding of Vertical Monopoly Agreement shall be reviewed by the Anti-monopoly Enforcement Authorities (“AEA”) and made on a case-by-case basis.

As a part of business practice, some international brands or multi-national companies would have their subsidiaries conclude special internal arrangements as a way for developing its own brand or controlling cost. While such an arrangement does not run fault against the Competition Law of China, upon the coming into effect of the AML, there is a possibility that AEA could view this arrangement as meeting the criteria for finding a Vertical Monopoly Agreement. In order to mitigate the aforementioned risk, companies should take measures to ensure those agreement is for reasonable commercial purpose and does not cause harm the market competition. For such purpose, companies should focus on providing and preparing evidences proving the fixed purchase price or required minimum price (i) does provide sufficient profitability to the subsidiaries; (ii) is made based on reasonable value of the products; and (iii) only applies to the subsidiaries or affiliates under one group or one brand system. Companies should also take advantage of the consultation mechanism available under the current Takeover Provision for Domestic Enterprise by Foreign Parties and the AML to ensure those arrangements are in full compliance.

Conspiracy within Industry Associations

Price fixing is the typical type of monopolistic conduct targeted by the AML. Per our consultation with the official of MOFCOM, any conspiracy on price fixing among the companies that are in the competing market or industry will no doubt be deemed as illegal. Thus, managements of companies from the same or competing industries should be careful about discussing pricing matter or information that is directly concerning the value and price of products or services during commercial activities. Additionally, any indirect discussion or agreement on factors relating to the product or service price could also be deemed as activities masking a price fixing arrangement by the enforcement agencies.

Every year, there are many commercial activities, seminar or periodically meeting among members held by certain industry associations, which take active role in organizing and coordinating industries, such as food, beverage, steel making, medical instruments and automobiles. Though the AML has not yet come into effect, the State Development and Reform Committee, which should be part of the AEA, has actively disclosed and punished price fixing activities held or encouraged by various industry associations in China, such as instant noodle association. The special punishment provided in the AML targeting industry association was finally added upon the final review by the People’s Congress, which reflected the attention by Chinese government on punishing obvious conspiracy conduct led by industry associations.

The enforcement of conspiracy will sure not be limited to those obvious monopolistic conduct per speech made by officials in several AML seminars and conferences. The AEA will pay special attention to those indirect conspiracy or agreement on controlling the price and eliminating competition in the market place. Those same officials also emphasized that meeting involving management, sales representatives or marketing officials of member companies shall not, in any manner, touch the topics of controlling costs or expenses, impact of increasing the prices of raw materials, average labor compensations or seasonal price floating. What this means for international companies is that they should continuously alert their representatives in various public activities of any improper discussion or announcement relating to price fixing.

Criteria for Notification of Concentration

The current AML does not clearly provide the criteria of exemption to those concentrations that may not require notification to the AEA. It is confirmed that the AEA will issue detailed criteria of the notification qualifications in the coming implementation rules. Based upon on our resources within the government, “Sales Amount”, “Assets” or “Market Margin” is likely to be adopted as a major part of the criteria for exemption, which has already been defined in the existing pre-merger notification requirements issued by MOFCOM. It should be noted that due to the great number of multi-national companies investing in China, criteria for exemption for domestic companies and international companies could be different. The AEA is also considering setting the different criteria for various of industries.

Articles

China Joined World Antimonopoly Club
Excellent article with a basic analysis of the new Anti-Monpoly Law of the PRC. It will be a good starting point for someone who is not familiar with this new law.

Impact of AML on Foreign Companies
Excellent article on two issues directly impact foreign companies under the AML

Antitrust Experts

Click here to contact the Antitrust Experts in China who can help to interpret and implement the new Anti-Monopoly Law of the PRC.

The passing of the new law also means a total transformation of this site, and you may still access this version until the new site is finished. While the new site will take some time to develop, such offers an unique opportunity for our user to submit articles on the new law to be published on the new site. Please contact services@antitrustchina.com for more information.

antitrustchina.com

ANTITRUST UPDATE

On March 8. 2007, the Ministry of Commerce issued the Guideline on Filing of Anti-Monopoly Notification （反垄断申报指南）, and together with the Provisions on Takeover of Domestic Enterprise effective as of April 2003, set forth procedures relating to the Chinese government’s review of the antitrust impact of both international and domestic mergers and acquisitions. We are proud to be the first site to offer the English version of the Guideline on Filing of Anti-Monopoly Notification（反垄断申报指南）.

According to the Guideline, the Ministry of Commerce has appointed the Antitrust Review Office for handling all Antitrust related matters.

We have written an article below capturing the essence of the current antitrust review of China.

China Premerger Notification Rules

Current Anti-Trust Policies of the People's Republic of China

At the present time, for certain sectors of the PRC, they remain under the regulatory power of the PRC government, thus created the so called administrative monopolies. For foreign investors, they should not be fooled into thinking that, simply due to the non-effectiveness of the Anti-Monopoly Law of the PRC, China does not address this issue.  Quite to the opposite,  the "Provisions on the Takeover of Domestic Enterprises by Foreign Investor" has long been promulgated for addressing this issue.  Moreover, the said provision not only impacts M&A activities within China, but also that of outside of China.  In particular, Chapter V of the said provisions sets forth details regarding the procedures for anti-trust review. 

Step-by-Step Flow Chart of Anti-Trust Compliance in China and the Relevant Documents Required

The compliance for anti-trust varies depending on the nature of the merger, whether it is by way of stock or assets. We have taken the liberty of creating a flow chart not only capturing each step but also the documents required for those steps of the current anti-trust compliance for reference only, and you should consult the staffs of this site for consultation prior to implement such flow chart as some of the information may be updated in the Guideline on Filing of Anti-Monopoly Notification （反垄断申报指南).

Step-by-Step Flow Chart

Documents Required for Each Step of Step-by-Step Flow Chart

Common Questions relating to Compliance of Anti-trust at Present Time

1. Whether a foreign party is required to notify the proper authority of the acquisition of a target company in China?  Answer

2. In case a transaction is notified, does the closing of the transaction need to be suspended pending the receipt of the approval of the Chinese merger control authorities?  Answer

3. What are the potential adverse consequences of a decision not to notify? Answer

Articles

Is Covenant Not to Sue Feasable in PRC without Any Anti-trust Impact?

Event

WTO Rules and Anti-monopoly Legislation of China
WTO 规则与中国反垄断立法研讨会
Hosted by WTO Research Committee
Time: September 1 & 2, 2007
Location: Beijing, China