People’s Republic of China Passes Comprehensive Anti-Monopoly Law

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Nearly 14 years after the People’s Republic of China (PRC) began efforts to enact a comprehensive competition law, the Standing Committee of the PRC National People’s Congress passed the Anti-Monopoly Law (“AML”) on August 30, 2007. The AML will become effective on August 1, 2008, and

has several key implications:

The AML is similar in many ways to the laws of other jurisdictions that prohibit anticompetitive agreements (e.g., price fixing, group boycott and market allocation

arrangements) and monopolistic conduct by dominant firms (e.g., tying, predatory pricing). Thus, companies doing business in China will likely have little difficulty understanding how to comply with these familiar restrictions on competitive activity.

On the other hand, there are also some aspects to the AML that address unique issues that China faces as it transforms from a centrally planned to a market-oriented economy. For instance, the AML places restrictions on the conduct of state-owned enterprises (SOEs) and

prohibits administrative agencies from using governmental power to restrict or eliminate competition.

Furthermore, the AML clearly departs from international norms of competition policy in some areas. For example, the AML prohibits a dominant firm from selling products at “unfairly” high or low prices, and outlaws unilateral refusals to deal and discriminatory trading practices

that are not justified by a valid cause. Any future enforcement actions in these areas are likely to be controversial and generate concerns that the AML is being used to protect individual competitors rather than competition or consumer welfare.

Firms doing business in China will continue to face uncertainty in the near future about the AML’s scope and potential application. The law does not clearly define the precise meaning of certain prohibited practices.

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