On 18 December 2014, U.S. Secretary of Commerce, Penny Pritzker, announced that China has agreed to improve enforcement of its Anti-Monopoly Law (AML) to provide more predictability, fairness, and transparency for foreign companies operating in China. Specifically, Chinese antitrust regulators vow to (1) enforce the AML fairly and equally; (2) publish the results of their administrative proceedings; and (3) permit foreign companies to be represented by counsel during administrative proceedings.
Chinese antitrust commitments in JCCT
The announcement was made following a meeting between Secretary Pritzker, U.S. Trade Representative Michael Froman, and Chinese Vice Premier Wang Yang during the U.S.-China Joint Commission on Commerce and Trade (JCCT) held in Chicago on 16-18 December. The JCCT is a forum for high-level dialogue on bilateral trade issues between the United States and China.
The Chinese government made several commitments that will affect foreign industry concerns. Most importantly, China will allow local counsel to participate in meetings with the antitrust enforcement agencies without restriction. Qualified international counsel will also be allowed to participate subject to approval by the relevant enforcement agency, “which shall be granted as normal practice.” To a large extent replicating existing rules in China, the Chinese side also stated that before imposing any penalties, the antitrust enforcement agencies will “notify the parties of the facts, grounds, and basis according to which the administrative penalties are to be decided, notify the parties of the rights that they enjoy in accordance with the law, and provide the parties with the right to state their cases and to defend themselves.” In addition, all penalty decisions “will be provided in writing to the party and include the facts, reasons, and evidence on which the decision is based.” Finally, China committed that any antitrust remedies would “address the harm to competition” rather than “impose enforcement measures designed to promote individual competitors or industries.”
As part of the JCCT deliverables, China also agreed to pay special attention to the pharmaceuticals and medical device industries, promising less red tape and faster entry to market for new products. IP rights will also be better protected and more fairly treated, with China promising to develop a new trade secrets law and better promote the sale of foreign IP-protected goods and services.
These commitments in the JCCT framework have come amid increased criticism from U.S. officials that China is disproportionately targeting its enforcement of the AML against foreign-owned businesses. Many large foreign companies have been fined millions of dollars for their alleged violations of the AML. President Obama reportedly raised this issue during his visit to China in November 2014, and the head of the U.S. Department of Justice Antitrust Division, Bill Baer, has encouraged other countries to “commit to making enforcement decisions based solely on competitive effects and consumer benefits.” Most pointedly, the Federal Trade Commission’s Maureen Ohlhausen expressed her concern directly in a recent speech for “what appears to be a significant ramp-up in Chinese antitrust enforcement, including against Western companies, which has brought into stark relief many differences between the Chinese regimes and others in the world.”
The U.S. push for commitments at the JCCT level is illustrative of a broader trend within the U.S. government to raise antitrust issues in fora higher than bilateral dialogue between U.S. and Chinese antitrust agencies. Indeed, the push in recent months to bring antitrust on the bilateral U.S.-China agenda on a more political level may have in part been driven by U.S. trade officials. The meeting at the WTO for China's trade policy review in July 2014, in which the U.S. and other countries asked a number of pointed questions about China’s enforcement of the AML, shows that the U.S. side increasingly sees a relationship between antitrust enforcement and trade issues.
Unlike the WTO, however, commitments made within the JCCT framework are not subject to an international dispute settlement mechanism. Hence, while China's JCCT commitments on antitrust enforcement are certainly welcome, it remains to be seen how they are implemented in actual administrative practices in China. Given the high publicity of the commitments, the Chinese authorities may find it hard not to follow through. In any event, it is likely that companies involved in Chinese antitrust procedures to refer to the JCCT commitments.
In the coming months and years, we can expect the U.S.-China interaction in the antitrust field to continue, both through high-level dialogues at the antitrust agency level.
China has a different legal, administrative and judicial system than the United States, and we therefore cannot expect an antitrust procedure before a Chinese antitrust authority to mirror a U.S. procedure. Even after the AML has been in force for six-and-half years, progress in China will be gradual.
Nonetheless, the increasing level of government-to-government interaction can only be of benefit for the companies doing business in China, as antitrust enforcement will remain in the spotlight, and such interaction can lead to better understanding and learning on both sides.