Chinese Competition Law Reform: Wise Guidance from the George Mason University Global Antitrust Institute

Alden Abbott —  14 December 2015

China’s Anti-Monopoly Law (AML) was enacted in 2007, and a stock-taking exercise is now appropriate.  Recently, the Chinese University of Political Science and Law released a questionnaire soliciting public comments on the possible revision of the AML.  On December 10, 2015, George Mason University Law School’s (GMULS) Global Antitrust Institute (GAI, ably managed by FTC Office of International Affairs alumna Koren Wong-Ervin, with academic input from GMULS Professors Douglas Ginsburg, Joshua Wright, and Bruce Kobayashi), submitted a very thoughtful response to the solicitation, recommending that China reform the AML by:

  • Deleting References to Use of Non-Competition Factors in Competition Analysis.  The GAI recommended that references to non-competition goals such as “promoting the healthy development of the socialist market economy,” be deleted, explaining that competition law and policy is most effective when it focuses exclusively upon competition and consumer welfare rather than attempting to achieve simultaneously multiple goals, some of which may be in conflict with others.
  • Deleting Exemptions for State-Owned Enterprises (SOEs). The GAI recommended that SOEs be fully subject to the AML, including liability and fines, explaining that conferring upon SOEs privileges and immunities that are not available to their privately-owned competitors, or based on superior performance or efficiency, distorts competition in the market between state-owned and privately-owned rivals, and that SOEs generate increased agency problems relative to privately owned firms.
  • Recognizing that Vertical Restraints are Generally Procompetitive or Benign and As Such Should Be Analyzed Under an Effects-Based Approach. The GAI recommended that, given the state of economic learning regarding the competitive effects of vertical restraints (i.e., that they rarely harm competition and often benefit consumers by reducing price, increasing demand, and/or creating a more efficient distribution channel), reliance on theoretical models alone to infer competitive harm should generally be insufficient to satisfy the heavy burden on the plaintiff to prove that a particular restraint is anticompetitive.
  • Deleting the Prohibition on Charging “Unfairly High” or Purchasing at “Unfairly Low” Prices. The GAI recommended that this prohibition be deleted in its entirety or, at the very least, revised to explicitly provide an exception for matters involving intellectual property rights.  Among other things, the GAI explained that price regulation risks punishing vigorous competition, and that government-imposed prices that are too high or too low encourage misallocation of resources, soften incentives to engage in efficient conduct, reduce incentives to innovate, and distort markets.  In addition, excessive pricing cases are considered to be among the most difficult and complex cases for competition authorities in terms of standards for assessment, analysis of data, and the design and implementation of suitable remedies.  These difficulties create a substantial risk of both Type I (false positives) and Type II (false negatives) errors.
  • Limiting the Prohibition on Refusals to Deal to Conduct that Creates or Maintains a Monopoly. The GAI explained that, without such a limitation, the prohibition could be interpreted to impose an antitrust-based duty to deal on firms, to micromanage the terms of trade between firms, and to require courts and agencies to administer a burdensome remedy with substantial risk of causing more harm to competition and to consumers than benefits.
  • Deleting the Presumptions Concerning Collective Dominance. The GAI explained that such a presumption may harm rather than promote competition and discourages more rigorous effects-based economic analyses in favor of relying upon easier to apply but less accurate forms of analysis.
  • Clarifying the Definition of Concentration of Undertakings and Exempting Transactions From the Mandatory Premerger Approval Process That Do Not Have a Material Nexus with China. Among other things, the GAI recommended clarification of the terms “control over other undertakings and the ability capable of exerting a decisive influence . . . by virtue of contract or any other means.”
  • Deleting Provisions That Limit AML Enforcement Against Administrative Agencies or Organizations. The GAI recommended the deletion of the provision that grants “superior government agencies,” as opposed to the AML agencies, the authority to remedy anticompetitive conduct by administrative agencies and seemed to except administrative agencies from fines or other AML remedies.  Among other things, the GAI noted the robust economic evidence that regulation often benefits producers and harms consumers and results in efficiency losses from rent-seeking efforts by market participants to influence regulation.
  • Limiting the Requirement that Disgorgement or a Minimum Fine Be Imposed Upon a Finding of an AML Violation and Limiting Fines to Sales Directly Obtained in the Relevant Product and Geographic Market in China Affected By the Violation.
  • Limiting Disgorgement to Naked Price-Fixing Agreements Among Competitors or, In the Case of Unilateral Conduct, to Conduct that Has No Plausible Efficiency Justification.
  • Specifying that the Legitimate Use of Intellectual Property Rights Includes the Right to Exclude.

Alden Abbott

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I am a Senior Legal Fellow at the Heritage Foundation. I write on antitrust, domestic and international regulatory policy, and law and economics. I am an Adjunct Faculty Member at George Mason Law School.