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New China anti-monopoly law draws cheers, concerns

Competition

China’s landmark anti-monopoly law finally comes into force on Friday, but uncertainty about how it will be implemented is raising concerns about how it will affect Western firms.

Business groups and legal experts generally welcome the long-awaited law, passed last August after years of debate, saying it is basically in line with international practice and should help promote fair competition. But authorities have yet to clarify which government body will be responsible for enforcing the law or to publish the implementing regulations needed to flesh out its relatively broad language, causing some worries about whether it will be fairly and evenly applied.

For one, splitting enforcement duties among the Commerce Ministry, the National Development and Reform Commission (NDRC) and the State Administration for Industry and Commerce (SAIC), as state media have said will be the case, would complicate matters. “This parceling out of enforcement authority invites serious risks of inconsistency within the interpretation of the law,” said Nathan Bush, an antitrust lawyer with O’Melveny & Myers in Beijing.

The American Chamber of Commerce in China and EU Chamber of Commerce in China both welcomed the law, noting that authorities had allowed for input from a range of foreign stakeholders. But AmCham-China said it hoped for clarification on rules against anti-competitive conduct, procedures for reviewing deals on competition and national security grounds, enforcement mechanisms and defining abuses of intellectual property rights. “We sincerely hope China’s competition authorities will focus on modern economic principles and prevailing international practices when applying the new law,” James Zimmerman, chairman of AmCham-China, said in a statement.

ALL A BIT BLURRED

The European Chamber urged authorities to publish implementing guidelines soon. It said in a statement that its members were concerned among other things about how provisions related to intellectual property rights (IPR) would be applied. “Its current wording leaves room for unfair application of provisions against IP rights holders,” it said. “The Chamber hopes that the above uncertainties will be clarified by the implementing guidelines to be issued as soon as possible.”

Mergers are another area where the law’s impact is yet to be seen. Under the provisions, a merger between two foreign firms could be subject to review by Chinese authorities if they both have substantial revenue in the country. That means a potential tie-up between Microsoft Corp and Yahoo Inc or BHP Billiton and Rio Tinto Ltd might theoretically have to get Chinese approval in addition to that from other governments.

One worry is that in conducting merger reviews, authorities could be influenced by other national policy priorities. “There is a concern that compulsory licensing as a remedy for anticompetitive conduct or commitments to licensing as a term of approving mergers may be used as a back door to reinforce broader industrial policies aimed at promoting indigenous innovation or the emergence of Chinese national champions,” Bush said.

Gregory Louvel, a lawyer with Norton Rose in Beijing, pointed to additional questions about merger reviews: whether authorities will do them quickly enough, and whether they will guard the confidential information that firms will need to hand over. “That’s something that the Chinese government must guarantee to foreign companies,” Louvel said. “Otherwise, it’s not going to work, because it’s a trust system.” Overall, the law will contribute to the development of the Chinese legal system, in part because it will add to the accumulation of a body of case law, Louvel said. “It may not be 100% satisfactory for foreigners, but they will find a balance between the interests of foreign corporations, the interests of Chinese corporations and of the Chinese government,” he said. (Reuters)

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