With the passing of China's Anti-Monopoly Law ("AML") on August 30 this year, effective as of August 1 next year, discussions about the impact of this statute on foreign companies that do business either with or in China are getting heated, especially among the business circles of expatriates in China. Few statutes enacted by China's top legislature over the past few years have received so such attention, so many comments and, at times, criticisms, with the possible exception of the revised Enterprise Income Tax Law that came into force as of January 1 this year.

In this article, I will first give a brief introduction to the legislative background and sum up the main features of this statute. Then I'll discuss certain key issues that may be of particular concern to foreign businesses with China connections, which will then be followed by some general advice. At some point, I may point out some popular misinterpretations of this law.

Legislative background
The AML is a work product of 13 years' legislative effort. Since the Ministry of Commerce ("Mofcom"), the then Ministry of Foreign Trade and Economic Cooperation, began the drafting of the AML in 1994, controversies have arisen and continued until after its enactment. While public concern at home is focused on the restraint of the monopolistic conduct of large state owned enterprises ("SOEs") and the so-called administrative monopoly, i.e. the abuse of governmental powers to exclude or restrict competition, the foreign businesses appear to be more concerned about provisions on such issues as concentration review and restriction of the abuse of intellectual property rights. The draft law had been released to the public for review and two official comments have been submitted by three sections of the American Bar Association in 2003 and 2005 respectively to the relevant Chinese authorities, which is rare.

Main features of the AML
The promulgated version of the AML is organized into 8 chapters, of which the most pertinent to foreign businesses may be the second, third and fourth chapters that respectively deal with three types of monopolistic conduct, i.e. monopoly agreements, abuses of a dominant market position and the control of concentrations. Chapter 1 provides for the general principles while Chapter 5 deals with the administrative monopoly. Chapter 6 addresses the investigation of suspected monopolistic conduct, which is followed by provisions regarding legal liabilities under Chapter 7 and miscellaneous clauses under Chapter 8.

Chapter 2 defines the monopoly agreements as agreements, decisions or other concerted behavior that eliminates or restricts competition (Article 13), which effectively extends the prohibited zone to any monopolistic conduct without any formal agreements. The monopoly agreements are divided into two categories as those between competing undertakings (Article 13) and those between the parties to a transaction, usually sellers and buyers (Article 14). While Article 14 bans the agreements that fix the resale prices or provide for a minimum resale price, Article 13 prohibits monopoly agreements that (i) Fix or change prices of products; (ii) Restrict the output volume or sales volume of the products; (iii) Allocate the sales market or the raw material procurement market; (iv) Restrict the purchase of new technology or new facilities, or the development of new technology or new products; or (v) Jointly boycott transactions. These monopoly agreements, however, may be exempted if the undertakings involved can prove the agreements are entered into to improve product quality or technology, increase efficiency, protect the environment, or reduce the impacts of economic depression, so long as they will not materially restrict the competition in the relevant market and will enable the consumers to share the relevant benefits. If the agreement is to protect the lawful interests in international trade, the test of material restriction of competition will not apply (Article 15).

Both articles have a catch-all clause that grants the AML enforcement authorities ("Enforcement Authorities") under the State Council the power to determine "other agreements" as monopoly agreements. Some critics have argued that this leaves room for abusing the granted powers by the Enforcement Authorities. While this argument may appear plausible in a sense, it is more of a reflection of lack of reasonably good knowledge of Chinese law and legislation. This kind of catch-all clause is not uncommon in the statutes of many countries in the world, including China, where dramatic economic and social changes force the law to leave greater room for future changes. Based on the tradition and practice of China's legislation which is characterized by statutory law, such clauses are invariably limited by the provisions of the general principles of the same statute and judges will usually look to such principles in the interpretation of a specific clause. From a PRC lawyer's perspective, I would treat this clause as preventive in nature and expect the Enforcement Authorities, which are relatively inexperienced in such areas, to be very prudential in exercising such powers of determination by referring to the general principles under Chapter 1.

Chapter 3 deals with the abuses of the market dominant position and prohibits such acts as sale or purchase of goods for unfairly high or low prices and, without good cause, sale below the cost, refusal to transact, tying, discriminative pricing or restriction of the opposite party's right to trade with others(Article 18). An undertaking is presumed to be in a dominant market position if its market share accounts for 1/2 of the relevant market, or 2/3 together with another undertaking, or 3/4 with two other undertakings. However, an undertaking with a market share of less than 1/10 will be exempted and the presumed market dominator(s) is granted the right of rebuttal against such characterization (Article 19). This article, together with Article 17 that defines the market dominant position, raises the long-standing concern about the recognition of so called "shared monopoly" which as a theory has been controversial and much criticized ever since its introduction in the US in 1960s. Questions may be raised about the status of an undertaking which holds a market share of more than 1/10 but less than 1/2 of the total, which may not necessarily act in concert with other undertakings in the form of "shared monopoly". As with many other Chinese laws, the AML only lays a framework and needs to be fleshed out with the implementing rules to be made pursuant to this law. We expect this issue to be addressed by the implementing rules of the AML.

Chapter 4 provided for the review process, standards and certain exemptions to the notification obligations with respect to concentrations of undertakings by way of consolidation, equity or assets purchase, or change of control by contractual arrangements. Exemptions are made to concentrations that occur among the subsidiaries of a single undertaking or among an undertaking and its subsidiaries. The threshold of the notification obligation, however, is absent. The absence is due to debates among the lawmakers over whether the threshold in the earlier draft is too high or too low. In the earlier draft, the notification obligation is limited to concentrations whereby the participating undertakings have a combined annual turnover over RMB 12 billion (USD 1.57 billion) worldwide and one of the participants has an annual turnover over RMB 800 million (USD 104 million) in China. The passed AML leaves this issue aside and authorizes the State Council to make detailed requirements as to such threshold. Currently, the guideline for such anti-monopoly review for foreign investors is the Measures on the Merger and Acquisition of Domestic Enterprises by Foreign Investors ("M&A Rules"), which went effective in September last year and a filing guide promulgated by Mofcom early this year. The M&A Rules, which is a continuation of its earlier provisional version released in 2003, provided for notification threshold based on factors like the annual turnover, market share and the number of enterprises acquired. We expect this guideline will continue to apply until a unified review procedure and criteria are made in the implementing rules of the AML.

Shared system of enforcement
As against the calls for a unified enforcement authority, The AML authorizes the State Council to set up an Anti-Monopoly Committee to guide and supervise the AML enforcement while leaving the enforcement to the Enforcement Authorities under the State Council. This kind of enforcement system means more than one government agency will be participating in the enforcement of the AML, a concession to the current administrative regime. During the legislative process of the AML, at least three government agencies are said to have scrambled for the authorization of enforcement powers under the AML, i.e. Mofcom, the State Administration of Industry and Commerce ("SAIC") and the National Committee of Development and Reforms ("NCDR"). All of them are expected to enjoy the powers to enforce the AML while their borders are yet to be clearly marked out in the implementing rules. The upside of such a shared enforcement is that it will not undermine the present, ministry-based law enforcement system and create either power vacuum or major shuffle of the government regime as a result of the creation of a new, super-ministerial authority. This system may also ensure the coherence and predictability of law enforcement. The downside is that the AML, together with the Anti-Monopoly Committee, will likely face the risk of falling short of the public expectation for the AML, especially of the restraint of the administrative monopoly and the large SOEs like the petroleum giant Sinopec. This again highlights the importance and imperativeness of the creation of the implementing rules of the AML.

A law in the context
A closer look into the AML may find that it is not independent of, but rather, intertwined with a variety of other laws like the Pricing law, the Contract law and the laws about intellectual properties. For instance, certain provisions regarding the price-fixing under Chapter 2 and the abuse of dominant market position under Chapter 3 can be found equivalent or similar provisions in the Pricing Law or the Anti-Unfair Competition Law, respectively. It is therefore necessary to bear in mind that the introduction of the AML will not necessarily supersede other laws in respect of the corresponding portions. Rather, reference must be made to such other laws to understand the AML. For instance, Article 16 of the AML prohibits the sale of goods below cost without good cause as an abuse of the dominant market position. Similarly, such an act is also found illegal under Article 11 of the Anti-unfair Competition Law, without the requirement of a market dominant position. The law enforcers under the Anti-unfair Competition Law, the SAIC and its local branches, may well be able to refer to this provision to punish such an act which may not fall under the AML even after the law goes into force. Another example is the concept of national security under Article 31, which requires an additional, separate national security review of a proposed concentration involving foreign investors that concerns national security. There is concern among some foreign investors and even lawyers that the absence of a clear definition of this concept may be abused by the reviewing authority to discourage undesired concentrations by foreign investors. National security review of concentration proposals is nothing new. As said, while such a concept in itself may be as difficult to define as the concept of public policy, it is not entirely without of source of reference in the anti-monopoly laws of many countries, including that of the US. China’s National Security Law, passed in 1993, together with its implementing rules, has defined 10 types of activities, such as the stealing of national secrets, as detrimental to national security, most of which are of political in nature. In economic terms, the Guideline of Foreign Investment in China relating to Industry Sectors, promulgated by Mofcom and NCDR, has already provided for certain industry sectors relating to national economic security as restricted or prohibited areas for foreign investment. When concentrations occur in or in connection with certain such sectors, it won't be surprising that national security review will be triggered. Unless and until the AML implementing rules or other pertinent laws make further categorization or clarification in the future, there is no need to panic and adhering to the current laws and regulations mentioned above will be a sound choice.

Conclusion
In conclusion, the AML will have impacts on both foreign and domestic enterprises, despite the fact that they may have different concerns. Although the law still needs to be fleshed out with the implementing rules to clarify certain key issues, it is not created out of nothing and therefore should be read in the context of the relevant Chinese laws and regulations. Otherwise, misinterpretation or unnecessary panic may arise.

We strongly urge foreign businesses with China connections to do a thorough compliance audit of their corporate policies, contracts and business activities during the period between now and its going into force in August next year so as to avoid any of the same, or any portion thereof, being found illegal. Reading an English translation of the AML and this short article here alone is far from enough.