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Mon, Jul 28, 2008 - Page 10 News List

Anti-monopoly law is confusing

POWER China’s much anticipated new law changes will allow those in charge to carry out spot inspections, question business operators and check bank accounts


Beijing’s anti-monopoly act takes effect this week but its introduction, which experts say will change how business is done in China more than any other recent law, remains surrounded by confusion.

The law, which comes into force on Friday after more than two decades in the making, calls for national security reviews for foreign investments, protects key Chinese industries and grants authorities substantial discretion.

But the government has yet to say who will enforce the law, which covers mergers, price fixing and day-to-day business agreements.

“This is a problem and everyone knows it,” said Cheng Yuan, a Beijing-based antitrust lawyer at the firm Linklaters.

Passed last August, the act overhauls a mix of laws and regulations covering pricing, foreign investment and anti-competitive practices.

While multinationals previously had to meet strict competition rules in other countries, they faced little scrutiny in China. In mergers, foreign companies had few filing requirements and Chinese companies almost none at all.

The new law changes the situation dramatically, but aside from broad outlines, the government has yet to announce how the rules or new institutions will work in practice, Cheng said.

Whoever enforces the law will wield significant powers, including the right to carry out spot inspections, question business operators and check bank accounts.

Penalties include fines of up to 10 percent of sales revenue for making anti-competitive agreements or abusing a dominant position.

Penalties of up to 500,000 yuan (US$73,000) — large for Chinese law — will be handed to companies that fail to follow merger rules or industry associations that behave like cartels.

Most expect the new requirements to be handled by the Ministry of Commerce, the National Development and Reform Commission and the State Administration for Industry and Commerce who currently oversee mergers, pricing and unfair competition respectively.

“I think the authorities know this is not realistic because these areas are all linked,” Cheng said. “You can’t really separate them.”

“There will be conflicts, there will be different views and that will not provide good guidance for business,” he said, adding responsibility might eventually be vested in a single authority, but it could take years.

Factors such as the Olympics and the Sichuan earthquake may be behind the delays, but lawyers said a flurry of guidelines could come soon after the law takes effect.

Details of how security measures will work, guidance on abuse of dominant market positions and specifics on what sorts of agreements must be reviewed are expected soon, said Martyn Huckerby, a lawyer at Clifford Chance who shuttles between London and Shanghai.

“Many of our clients are looking for clarity on how the new enforcement structure will operate,” Huckerby said.

The lack of guidelines could actually help companies by buying more time to ensure practices comply with the law, he said.

The law’s aim is to meet international standards, but how it will be enforced against state-owned companies is unclear, Huckerby said.

It gives the government discretion not to apply it to companies linked to the “lifelines of the national economy and national security.”

“There’s one suggestion that state-owned enterprises will be exempt, another suggestion is the law will apply equally to state-owned enterprises and in fact the government will ensure that state-owned enterprises comply,” he said.

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