By Susan Ning, Chai Zhifeng, Gong Ting, Zhang Tianjie King & Wood Mallesons’ Commercial & Regulatory Group
R
egulated by Chapter V of the Anti-monopoly law (“AML”), abuse of an administrative monopoly is interpreted as a kind of abuse of administrative powers to grant favourable conditions to preferred enterprises at the expense of others. Up to now, the National Development and Reform Commission (“NDRC”) has published 6 cases about the antitrust enforcement against administrative monopoly. The most recent case concerns the Gansu Provincial Department of Transport affiliate, Gansu Provincial Transport Bureau, for its alleged abuse of administrative power to restrict competition. The local transport regulator was found to have appointed China Satellite Navigation and Communication as the sole supplier of vehicle terminals for the platform, and set the price of the terminals. The typical alleged abuses involved in these cases include exclusive dealing in favour of a locally owned enterprise or imposing discriminatory requirements for non-local enterprises.
Although the Chinese antitrust regime has been continuing to gain momentum with increased enforcement over the past eight years, we still see a comparatively limited number of cases against administrative monopoly. This may partly due to the reason that the local governments enjoy extensive legislative powers and have issued some local rules or industrial policies, the applicable scope, methods and impact of which may not appear to be consistent with the spirit of the AML.
The extensive scale of administrative monopoly in China and the difficulties in preventing them drove the State Council of China to design a new program within the competition law regime. In March 2015, the State Council released its opinions on deepening the reform of systems and mechanisms to be speed up the implementation of an innovation-driven development strategy[1]. As part of this document, the fair competition review program came into the public domain for the first time. This new program, introduced by NDRC, aims to establish a prior review mechanism for any future government measures. As we understand it, these measures include governmental grants, tax relief, low interest loans and state guarantees. It is reported that the mechanism requires the government at different levels to take into account the competitive effects when issuing policies concerning market entry, investments or regulations. This means all sorts of future industrial and investment policies issued by the government must be made consistent with fair competition.
As a concrete step in establishing the fair competition review mechanism, the Shanghai Zhangjiang Competition Policy and Antitrust Research and Consulting Centre was set up in Shanghai in February 2016. Li Qing, the Deputy Director–General of NDRC’s Price Supervision and Anti-monopoly Bureau, gave a speech at the centre’s opening ceremony. She said that the proposal for establishing a fair competition review mechanism has been submitted to the State Council. She also emphasised that NDRC will focus mainly on establishing the review mechanism during 2016 in order to reinforce antitrust law enforcement against competitive restraints by administrative monopoly.
Several major antitrust jurisdictions, such as the EU and US, have established relevant review systems to curb administrative monopoly. In the EU, there is a systematic rule regarding government subsidies. Article 107(1) of the Treaty on the Functioning of the European Union (“TFEU”) provides: “any aid granted by a Member State or through state resources in any form whatsoever which distorts or threatens to distort competition by favoring certain undertakings or the production of certain goods shall be incompatible with the internal market.” Based on this article, the European Commission establishes a prior notification mechanism for most new aids before they can be put into effect.
Apart from this, in consideration of the necessity of the government intervention in some extreme circumstances, Article 107(3) stipulates certain permissible state aids, and some recognised categories of aid do not need to be notified at all. To ensure the notifications and the exceptions are applied equally in each of the member states, the European Commission is entrusted with strong investigative and decision-making powers. Each notification will lead to a preliminary investigation by the Commission. After examining all the relevant information, the Commission will make a decision within two months, although more complicated cases are referred to a more detailed and lengthy investigation. This mechanism has proved effective in preventing governmental interference in free trade across the whole of the European single market.
Conclusion
There is an increasing awareness in China about the importance of the fair competition review. Although the details of the NDRC proposal regarding the fair competition review mechanism are still unknown at the stage, it is expected that the proposed mechanism will include two main parts. The first is that the competition authority has the power to assess whether a government regulation will bring about anticompetitive effects or is consistent with the AML. If the regulation is found to be anticompetitive, the authority may be entitled to nullify the anticompetitive legislation. Second is the prior review mechanism, which is to supervise all government support to undertakings. Undoubtedly, the EU state aid rules may serve as a good reference in this regard.
Note:
[1] Opinions on Deepening the Reform of Systems and Mechanism to be Speed up the Implementation of Innovation-driven Development Strategy 《关于深化体制机制改革加快实施创新驱动发展战略的若干意见》。