An anti-monopoly law for China-Scaling the walls of government restraints

Antitrust Law Journal

Volumn 75, Issue 1, 2008, Pages 173-194

  Fox, Eleanor M ^a  

^a NEW YORK UNIVERSITY   (United States)

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EID: 59149101795     PISSN: 00036056     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Conference Paper

References (58)

1. Anti-Monopoly Law of the People's Republic of China (promulgated by the Standing Committee of the National People's Congress on Aug. 30, 2007 and effective Aug. 1, 2008) [hereinafter AML]. Unofficial English translation by T&D Associates on file with author. See Yong Huang, Pursuing the Second Best, 75 ANTITRUST L.J. 117 (2008).
2. For an excellent treatment of China's history, politics, and economics, see MARK WILLIAMS, COMPETITION POLICY AND LW INCHINA, HONG KONG AND TAIWAN 95-152 (2005).
3. Bing Song, Competition Policy in a Transitional Economy: The Case of China, 31 STAN. J. INT'L L. 387 (1995).
4. See Xue Zheng Wang, Challenges/Obstacles Faced by Competition Authorities in Achieving Greater Economic Development Through the Promotion of Competition (Jan. 9, 2004), working document CCNM/GF/COMP/WD(2004)16.
5. Duan Hongquing & Hu Qian, New Antitrust Law Spares Government Monopolies, CAIJING MAGAZINE, Sept. 3, 2007, available at http://www.caijing.com.cn/newcn/English/Rule/2007-09-03/28916.shtml.
6. This provision is similar to antitrust case law of the United States and the EU that precludes states from ordering cartels and then purporting to immunize the cartelists. See infra Parts IV and V. The U.S. rule is that state action is no defense to the anticompetitive private action; but the law does not go so far as to chastise the state for ordering or facilitating it. See Schwegmann Bros. v. Calvert Distillers, 341 U.S. 384 (1951).
7. This article could appear extraordinarily broad; but it is expected that emphasis would be placed on the word "abuse" and that "abuse" would not be found where the agency's action served a public interest of China or a non-parochial interest of a provincial or local government. See, as to corresponding European law, infra Part V.
8. See WILLIAMS, supra note 2, at 139-40.
9. For many years, China prohibited administrative monopoly as unfair competition, but the law has gone unenforced. Will incorporation of administrative abuse in the competition law make a difference? Mark Williams believes that it will not, and further he argues that such a provision has no place in a competition law on grounds that competition law is properly confined to removal of private barriers. Id. at 142-43. This article argues, to the contrary, that market-blocking public abuses have a natural home in antitrust.
10. Compare Paolo Cecchini, The European Challenge-1992: The Benefits of a Single Market, THE CECCHINI REPORT (1988). This study assessed the crippling costs of protectionist border barriers in Europe, initiating the famous program to dismantle the non-tariff barriers-1992. See infra Part VII suggesting interpretations and rules that might help harness anticompetitive government restraints.
11. AML, art. 2.
12. Id. art. 12.
13. Bruce M. Owen, Su Sun & Wentong Zheng, Antitrust in China 2006: The Problem of Incentive Compatibility, in POLICY REFORM AND CHINESE MARKETS: PROGRESS AND CHALLENGES 73, 79 (B.M. Fleisher et al. eds., 2007) (forthcoming), available at http://papers.ssrn.com/sol3/papers.cfm?abstract-id=978810.
14. WILLIAMS, supra note 2, at 115.
15. See David E.M. Sappington & J. Gregory Sidak, Competition Law for State-Owned Enterprises, 71 ANTITRUST L.J. 479 (2003).
16. Owen et al., supra note 13, at 80.
17. "[G]ovemment ministries have been converted to industrial associations, [and] the industrial associations often permit or encourage anticompetitive practices by their members." Id. As to medicines and health products, see Eleanor Fox & Dennis Davis, Industrial Policy and Competition-Developing Countries As Victims and Users, in 2006 FORDHAM CORP. L. INST., INTERNATIONAL ANTITRUST LAW & POLICY ch. 8, at 156-57 (Barry Hawk ed., 2007).
18. See Susan A. Creighton, D. Bruce Hoffman, Thomas G. Krattenmaker & Ernest A. Nagata, Cheap Exclusion, 72 ANTITRUST L.J. 975 (2005).
19. I use "restraints" here to signify abusive restraints, unjustified in the case of government by non-parochial public interests, and unjustified in the case of business as a response to the market or a means to get better, cheaper, or more product or services to consumers.
20. See, for an exposition of the harms from public anticompetitive restraints and the importance of an antitrust policy that addresses them, Timothy}. Muris, State Intervention/State Action-A U.S. Perspective, in 2003 FORDHAM CORP. L. INST., INTERNATIONAL ANTITRUST LAW & POLICY ch. 22, at 517-38 (Barry Hawk ed., 2004).
21. See Case 41/69, ACF Chemiefarma v. Commission, 1970 E.C.R. 661 (quinine producers in Europe divided geographic markets).
22. See Creighton et al., supra note 18, at 983-89.
23. Competition laws of several other transitional or newly revitalized antitrust regimes, including Russia, Hungary, and Mexico, also apply to restraints by state and local governments.
24. See West Lynn Creamery, Inc. v. Healy, 512 U.S. 186 (1994) (Massachusetts could not legally impose a tax on all milk and use the revenues from out-of-state sources to subsidize the Massachusetts dairy farmers, who were struggling to compete with the lower-priced out-of-state milk); National Ass'n of Optometrists & Opticians v. Lockyer, 463 F. Supp. 2d 1116 (E.D. Cal. 2006) (California could not legally bar out-of-state optical firms from offering optometrist services in their California eyeglass stores);
25. see also United Haulers v. Oneida-Herkimer Solid Waste Mgmt. Auth., 127 S. Ct. 1768 (2007) (municipalities' waste flow control ordinance that gave preference to in-state waste facilities as part of a project that made environmental protection of the community possible did not violate the Commerce Clause; the program internalized costs).
26. See Costco Wholesale v. Maleng, 2008 WL 223121 (9th Cir. Jan. 29, 2008) (ruling that irreconcilable conflict can be found only where the state orders or facilitates private actors to take conduct clearly illegal under the Sherman Act. State regulations requiring manufacturers and distributors of beer to post and hold their prices for 30 days irreconcilably conflicted with the Sherman Act and were preempted).
27. The states of the United States are not "persons" reached by the U.S. antitrust laws. Parker v. Brown, 317 U.S. 341 (1943). The doctrine "state action exemption" allows private actors following the policy and will of a state of the United States to invoke this defense under narrow circumstances. See Yee Wah Chin, Administrative Monopoly: The State Action Doctrine under U.S. Antitrust Law, Fifth International Symposium on Competition Law and Policy (CASS), Beijing, China (Mar. 11-12, 2007) (on file with author). The state action exemption does not free the state from the reach of the Commerce Clause or the preemption doctrine.
28. City of Lafayette, La. v. Louisiana Power & Light Co., 435 U.S. 389, 400, 403, 407-08, (1978) (plurality opinion; a majority favored some antitrust liability for local governments, but did not agree on the controlling principle). The plurality opinion added: "The [state action] doctrine... preserves to the States their freedom ... to use their municipalities to administer state regulatory policies free of the inhibitions of the federal antitrust laws without at the same time permitting purely parochial interests to disrupt the Nation's free-market goals." Id. at 415-16.
29. For acts of city government and its officials to be exempt, the state must have "delegated to the cities the express authority to take action that foreseeably will result in anticompetitive effects." Town of Hallie v. City of Eau Claire, 471 U.S. 34, 43 (1985) (elaborating on the test in City of Lafayette).
30. Local Government Antitrust Act of 1984, 15 U.S.C. §§ 34-36. Whereas state and local enterprises operating in a commercial capacity are bound by the U.S. antitrust laws, subject to the rules above, the United States Post Office was held not to be "a person separate from the United States" and not subject to the antitrust laws. United States Postal Service v. Flamingo Indus. (USA) Ltd., 540 U.S. 736 (2004).
31. Wal-Mart Stores Inc. v. Rodriguez, 238 F. Supp. 2d 395, 414-15 (D.P.R. 2002), settled and vacated at request of parties, 322 F. 3d 747 (1st Cir. 2003). See infra note 35.
32. See infra note 35.
33. The Puerto Rican court was quoting from Pharmaceutical Research and Manufacturers of America v. Concannon, 249 F. 3d 66, 79 (1st Cir. 2001). The Concannon case is a Constitutional law case, interpreting the Commerce Clause of the U.S. Constitution, Art. 1, § 8, clause 3. The Commerce Clause provides that the U.S. Congress has the power to regulate interstate commerce. The case law interprets the Commerce Clause to prohibit states of the United States from burdening interstate commerce. This negative command is called the dormant Commerce Clause. Under the case law interpreting the dormant Commerce Clause, a state statute that directly controls commerce occurring wholly outside its boundaries "is a per se violation of the Commerce Clause." A statute that discriminates against interstate commerce is "scrutinized under a 'virtually per se invalid rule,' which means that the statute will be invalid unless the state can 'show that it advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.'" Id. at 79. The Supreme Court has said: When a state statute "discriminates against interstate commerce, or when its effect is to favor in-state economic interests over out-of-state interests, we have generally struck down the statute without further inquiry." Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S. 573, 579 (1986). There is a third category. When a statute regulates evenhandedly for a legitimate public purpose but has incidental effects on interstate commerce, "it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits." Concannon, 249 F. 3d at 80.
34. Wal-Mart, 238 F. Supp. 2d at 412. The court continued: In both its effect and purpose, the requirement differentiates between local Puerto Rico growers and out-of-state producers by mandating a quota of local products to be purchased annually. This differential treatment favors the interests of Puerto Rico growers, who are given a guaranteed market for the products sheltered from the usual perils of the market, while shutting out out-of-state growers from the potentially lucrative business relationship with Wal-Mart. Regardless of the quality of their products, the consistency of their supply, or the prices they offer, local growers would have a guaranteed and insurmountable advantage over out-of-state growers. This, in part, violates Wal-Mart's right to engage in interstate commerce. Id. at 415.
35. Id. at 415-16.
36. The parties petitioned the federal appellate court to vacate the federal injunction and related opinion on grounds that they undermined state enforcement powers and violated the federalist abstention doctrine. In the exercise of the federal appellate court's equitable powers, it granted the motion to vacate.
37. E.g., Case 178/84, Commission v. Germany (German Beer), 1987 E.C.R. 1227.
38. Id. See also Case 120/78, Rewe-Zentrale AG v. Bundesmonopolverwaltung fur Branntwein (Cassis de Dijon), 1979 E.C.R. 649. Compare Joined Cases C-267 & 268/91, Keck and Mithouard, 1993 E.C.R. 1-6097 (distinguishing rules that are non-discriminatory and merely set the time, place, and manner of the sale of goods; the latter rules are not prohibited). See generally PETER OLIVER, FREE MOVEMENT OF GOODS IN THE EUROPEAN COMMUNITY (4th ed. 2003) (on European Union's jurisprudence on free movement).
39. Cassis de Dijon, supra note 37. See similarly, Case C-170/04, Klas Rosengren v. Riksaklagaren, 2007 E.C.R. (not yet officially reported), available at http://curia.europa.eu/jurisp/cgi-bin/form.pl? lang=EN&Submit=rechercher&numaff=C-170/04. Sweden could not assign to its alcohol monopoly, Systembolaget, the sole right to import alcoholic beverages, thus preventing consumers from importing alcohol on their own (and at much lower prices), where Sweden failed to show that the restriction was suitable and proportionate to protecting health or life. The Court characterized the Swedish import monopoly as "less a method of limiting alcohol consumption generally than a means of favoring Systembolaget as a channel for the distribution of beverages."
40. See Case C-320/91, Régie des Postes v. Corbeau, 1993 E.C.R. I-2533.
41. Case C-198/01, Consorzio Industrie Fiammiferi (Italian Matches), 2003 E.C.R. I-8055. Compare Joined Cases C-94/04 and 202/04, Cipolla v. Meloni, 2006 E.C.R. I-09521, where Italy set a mandatory minimum fee schedule for lawyers, disadvantaging out-of-state lawyers (among others) in their attempts to compete by discounting. The Court held that the measure did restrain cross-border services, but that it could be justified if it met overriding requirements relating to the public interest, such as protection of consumers and administration of justice, and if it was not disproportionate.
42. *3.
43. WTO Panel Report, Japan-Measures Affecting Consumer Photographic Film and Paper (United Slates v. Japan), WT/DS44/R, adopted April 22, 1998.
44. WTO Panel Report, Mexico: Measures Affecting Telecommunications Services, WT/DS204/R, adopted June 1, 2004.
45. See Eleanor M. Fox, The WTO's First Antitrust Case-Mexican Telecom: A Sleeping Victory for Trade and Competition, 9 J. INT'L ECON. L. 271 (2006);
46. Eleanor M. Fox, The WTO's First Antitrust Case-Mexican Telecoms: Modest World Antitrust, ANTITRUST, Fall 2006, 21.
47. See supra note 43.
48. See Owen et al., supra note 13, at 94.
49. See supra text following note 9.
50. See Cecchini, supra note 10, cataloguing the costs to Europe from the internal market barriers.
51. See, e.g., Case 26/62, Van Gend en Loos v. Nederlandse Administrate der Belastingen, 1963 E.C.R. 3.
52. See Fox & Davis, supra note 17 (defense of Chinese vitamins' producers in the cartel action against them).
53. That is, "Industries controlled by the State-owned economy and relied upon by the national economy and national security or industries implementing exclusive operation and sales in accordance with the law shall be protected by the State to conduct lawful operation by the undertakings."
54. I am grateful to Thomas Cheng for this suggestion.
55. This is the gravaman of Article 86 of the EC Treaty. See, e.g., Case C-41/90, Hofner v. Macrotron GmbH, 1991 E.C.R. I-1979. The question remains whether the antitrust enforcement authorities could apply the AML rules or whether the enforcement must be carried out by the state. An interpretation allowing the former is likely to achieve a more procompetitive solution, but this might not be a plausible interpretation of the text.
56. See Case 13/CR/Feb04, Harmony Gold Mining Limited, Durban Roodepoort Deep Limited and Mittal Steel South Africa Limited, Macsteel International Holdings BV, Competition Tribunal of South Africa (Sept. 6, 2007), available at http://www.comptrib.co.za/list-judgement.asp?jid=97. The decision requires Mittal to remove barriers to competition in flat steel products by prohibiting contract provisions requiring export of excess steel and removing barriers to arbitrage.
57. See http://www.internationalcompetitionnetwork.org. See especially documents posted from each of the six annual conferences thus far held. See, e.g., Advocacy and Competition Policy, Report Prepared by the Advocacy Working Group of the International Competition Network, Naples, Italy (2002);
58. see also Int'l Competition Network, Guiding Principles and Recommended Practices for Merger Notification and Review (Sept. 28, 2002), available at http://www.internationalcompetitionnetwork.org/index. php/en/library/conference.