Sweeping changes expected as China unifies antitrust authorities

21 March 2018 12:51pm
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15 March 2018. Analysis by Eliot Gao.

China's legal and business communities are preparing for big changes in coming months following the government's announcement of a dramatic move to combine the country's three antitrust agencies into one, with expectations widespread that it will usher in a new era in competition-law investigation and enforcement. 

While many details have yet to be announced, such as the exact government ranking and management structure of the new antitrust authority, domestic and multinational businesses will need to ramp up their efforts to ensure compliance with the Antimonopoly Law because they may face more stringent scrutiny and stiffer penalties in the future.

In the almost 10 years since the law went into effect, different aspects of antitrust enforcement in China has been overseen by the Ministry of Commerce, or Mofcom, the National Development and Reform Commission, or NDRC, and the State Administration for Industry and Commerce, or SAIC.

A new super-regulator taking all their roles will shake up the regulatory regime, strengthen antitrust law enforcement, and lead to improved and more consistent law enforcement, local legal observers said.

With calls by the leadership of China's central government to break up administrative monopolies and prevent market monopolies, antitrust enforcers are expected to approach their task with greater confidence and may become more robust in their enforcement and merger-review decision-making.

“It is foreseeable that the establishment of a unified Antimonopoly Law enforcement agency will help improve the efficiency, authority and stability of competition law enforcement, thereby further reducing the cost of administrative enforcement and the compliance costs of enterprises,” said Scott Yu, a partner at Zhonglun Law offices, in an alert.

Dawn of a new era

Zhang Mao, the minister of SAIC, said the move to a single authority fits with China’s development of a market economy, and is of great importance to the modernization of the country's governance. He said the past practice of having multiple regulatory agencies dealing with market supervision issues meant that even small problems couldn't be properly dealt with because of coordination problems.  

As MLex reported on March 13, China’s State Council, the country's cabinet, announced a raft of institutional reforms, among them the plan to establish a new State Administration for Market Supervision, which will unify the current three antitrust authorities and absorb a number of other current administrations.

The new agency is expected to be more independent, and to be a technical body made up of professional, expert enforcers drawn from the three existing agencies.

Spotlight on leadership

Among the key developments that will be keenly watched is who will be appointed as minister of the State Administration for Market Supervision, what ranking the antitrust authority will have in China's governing hierachy, who will be appointed as the antitrust chief as well as part of the top antitrust leadership team. 

There are also questions about the size of the new authority's staffing. Currently, the three agencies each have about 20 to 30 officials, of whom only around 10 are designated as case handlers. Antitrust lawyers frequently complain that tight staffing levels at Mofcom, for example, have caused delays in merger reviews.

The legal and business communities will be closely watching what happens to key players in the current antitrust agencies.

Hu Zucai is the vice chairman in charge of antitrust work at the NDRC, while Zhang Handong is the director-general of the NDRC’s Price Supervision and Antimonopoly Bureau.

At Mofcom, Wu Zhenguo has been the director-general of the Antimonopoly Bureau since 2016. He reports to Vice Minister Fu Ziying, who is also China’s international trade representative.  

At SAIC, Vice Minister Wang Jiangping oversees antitrust work. Since last August, Yang Hongcan, former head of consumer rights protection, was appointed as the director-general of SAIC's Antimonopoly and Anti-unfair Competition Enforcement Bureau.

One Shanghai-based antitrust scholar hopes that the government will increase the staffing level of the new authority to over 100, which would help strengthen the enforcement personnel at the level of central government.

But the most immediate challenge will be how to bring together the experienced enforcers from the existing three agencies, lay out the structure of the new one and define the case-handling divisions. Some observers worry that veteran antitrust enforcers may choose not to join the new agency.

A period of transition

An adviser to the State Council’s Antimonopoly Commission said he hopes transition will be expedited and that the new authority will be able to substantially integrate institutional and personnel resources so that they can share enforcement experiences.

“The whole transitional process will take a lot of time. We don't know how it will play out, but overall it’s big progress,” said a leading antitrust lawyer in Beijing, adding that a lot of pending cases may be put on hold until the new authority is in place. “The most important impact is that it will complicate everything for us,” he said.

The importance of the change depends on the ranking of the new super agency, the authority it will be given and who its antitrust chief and top team will be, he said. It will also be critical to know how important antitrust policy and enforcement will be within the larger State Administration for Market Supervision.

He added that over the next couple of weeks, it will be important to watch out for the existing three agencies deciding to quickly issue decisions on pending cases ahead of the new authority's opening.

Priorities in the first year

In its first year of operation, the new agency is expected to seek to make its mark quickly by launching some high-profile investigations. Some pending cases include the closely watched scrutiny into multinational pharmaceutical companies, the lengthy investigation by SAIC into Microsoft and a recent probe by the NDRC into chemical giant DowDuPont.

In terms of top enforcement targets, local legal sources point to the priority sectors named by both the NDRC and SAIC, such as pharmaceuticals, medical devices, industrial materials, high-tech and patent licensing practices, and industries that are close to people’s livelihoods, such as the supply of gas, water and electricity.

Elsewhere, the country's fair-competition review mechanism is set to rank high on the new regulator's agenda. Last year, both the NDRC and SAIC increased their enforcement efforts targeting administrative monopolies.

Under the current system, the NDRC is in charge of price-related investigations, while SAIC administers non-price related antitrust matters. It will take considerable efforts for the new authority to unify and establish its own principles for case handling and procedures.

The current three-agency enforcement regime has caused a lot of inconsistency in enforcement in the past and led to a waste of enforcement resources. There is an overlap, for example, between the NDRC and SAIC. Sometimes, when SAIC investigates a case, the NDRC also launches investigations. And sometimes, the two regulators adopt different rules and reasoning in their enforcement.

A general counsel for a large Chinese firm said it’s notable that the State Administration for Market Supervision will be a super-authority, because the government's restructuring plan combines under one roof multiple functions such as market supervision, antitrust, IP, the supervision of food and drug quality and safety, as well as standards-setting. These functions used to be governed by multiple ministries and agencies.

He said the new super-authority raises hopes for more improved market supervision in China, with its counterparts including a number of agencies such as the US Fair Trade Commission, the Department of Justice, the Food and Drug Administration, and the Patent and Trade Office.

Moreover, the new State Administration for Market Supervision also combines the State Intellectual Property Office under its roof, putting the enforcement of intellectual property rights law into the administration, a third lawyer said.

He said such an arrangement should prove conducive to the protection of IP rights, and will also help prevent abuse of IP rights, which is also a focus of antitrust enforcers.

With the enforcement functions of the AML, the Anti-Unfair Competition Law and relevant intellectual property rights laws under one roof, local legal sources said the shake-up will move the country’s law enforcement more towards that of market supervision and help deepen market reform of the economy — moving regulatory functions away from industrial policy toward competition policy.

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