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China Commits to Modify Enforcement of Anti-Monopoly Law

On December 19, trade officials from the United States and China wrapped up a three-day trade conference in Chicago. As attendee and U.S. Trade Representative Michael Froman stated, the 25th annual Joint Commission on Commerce and Trade (“JCCT”) produced “concrete results.”

U.S. Secretary of Commerce Penny Pritzker remarked of the conference: “The JCCT is the time and place for the U.S. and China to address issues of mutual concern so we can get more business done between our two countries . . . This year we sought to ‘reimagine’ the JCCT to engage businesses from both countries in a dialogue about how to strengthen the trade and investment relationship between the world’s two largest economies, and we made significant progress.”

One aspect of that progress was an agreement concerning China’s Anti-Monopoly Law (“AML”). The AML, introduced in 2008, imposes significant financial penalties on corporations that run afoul of its rules which, among other things, require government review and approval of certain mergers and foreign acquisitions within China, restrict monopoly agreements, and prohibit abuse of a company’s dominant market position. Historically, foreign companies have complained of unpredictability, unfairness, and a lack of transparency in China’s enforcement of its competition law, with China favoring domestic corporations at the expense of potential foreign competitors. Major foreign companies like Audi, BMW, Daimler, Microsoft, and Qualcomm were all subject to anti-monopoly investigations in 2014. China fined a group of 10 Japanese auto-part makers $200 million for violations under the AML. Critics of Chinese enforcement of the AML suggested that investigations like these were part of a strategy to force foreign companies to lower their prices in China.

In August and September 2014, the U.S. Chamber of Commerce, the U.S. China Business Council, the European Union Chamber of Commerce in China, and the America Chamber of Commerce in China all lodged complaints about unfair treatment under the AML. The U.S. Chamber of Commerce, in its report, asserted that China’s enforcement policy “arguably violates commitments that China undertook when it acceded to the World Trade Organization.” Chinese officials flatly denied that foreign companies received disparate treatment. At the time, officials pointed out that numerous Chinese companies, in far larger numbers than foreign companies, had been investigated and fined.

At the recent JCCT, China pledged to apply the law equally to foreign and domestic companies. The exact steps that Chinese regulators will take to accomplish such equality, however, were not clearly articulated. One concrete change coming out of the JCCT is that foreign companies will be permitted to have legal counsel, and to consult with counsel, during investigative proceedings (foreign companies had previously complained that foreign companies were discouraged or prohibited from seeking legal representation in the face of AML investigations).

Moving toward increased transparency, China also agreed to publish the results of its investigations on the National Development and Reform Commission website. Officials will also give parties advance notice of its rulings following investigations, and, where possible, will articulate to affected parties the reasoning for its enforcement decisions.

It is unclear what, if any, additional revisions Chinese regulators intend to make in its enforcement of the AML. U.S. corporations and foreign commerce organizations will no doubt be watching China with great interest for signs of change.