Ad-Hoc Expert Group on the Role of Competition Law and
Ad-Hoc Expert Group on the Role of Competition Law and
Policy in Promoting Growth and Development
Geneva, 15 July 2008
Should Developing Countries Worry About Abuse of Dominance?
A Perspective from China by
Xu Shiying
East China University of Politics and Law
The views expressed are those of the author and do not necessarily reflect the views of UNCTAD.
Brief Introduction
AML Originated from the 7th National
People’s Congress Council (1987-1992)
Adopted by 29 session of Standing
Committee of National People’s Congress of
PRC in August 30 2007
AML Will be effective in August 1, 2008
The Main Concern during Legislation of AML:
Does Dominant Position exist in recent market of China?
Does Abuse of Administrative power need to be prohibited by competition law?
Is anti-monopoly law able to make effect in regulating abuse of administrative power?
The Main Concern during Legislation of AML
Abusing Dominant by Administrative power
( administrative monopoly)
Administrative monopoly can be defined as:
Anti-competitive conducts by government and its subsidiary departments that abuse their administrative power to eliminate or restrict competition.
Key issues to Address the Questions are :
The understanding of the nature of abusing administrative power
The legislation choice of Regulating on abusing administrative power in China.
The implementation on administrative monopoly of China’s AML
Ⅰ
. The understanding of the nature of abuse of administrative power
1. The nature of Abuse of administrative dominant is different from traditional administrative conducts
2. Administrative monopoly is the combination of public power and private interests
3. Administrative monopoly should be regulated by competition law
Different from Traditional Administrative conducts
Administrative monopolies can be summarized as:
The anti-competitive conducts by the government and its subsidiary departments or public organizations with administrative function authorized by law and regulation abuse administrative power
Different from Traditional Administrative
Conducts
1.
to force making business with certain operators designated by them.
2. regional monopolies which limit the inflow of products into the local market or the outflow to other regions.
3.reject participants from other regions in local economic activities through enumerated abusive means
Different from Traditional Administrative
Conducts
4.department and industry monopolies that limit business operators from entering a particular market and eliminate or restrict with competition.
5. the compelling of businesses to take actions to eliminate or restrict market competition
6. enactment of rules with contents which eliminate or restrict competition.
The combination of public power and private interests
Regional monopoly :
The local government uses the administrative power, such as tax, pricing, credit, business control, quality control, measurement management, hygiene inspection, energy supply, material supplies, etc. to divide the market and set up obstacles.
The combination of public power and private interests
With administrative power of the government largely entering into the market, the administrative intervention used to be unbeneficial to enterprises for not making their own decisions in business is now become a local safeguard to them.
Abusing administrative power is the source of forming the market monopoly.
The combination of public power and private interests
Section monopoly:
Government organs or departments restrict business activities between departments or within single department by undertaking the power of investment, resource management, finance, business management, etc.
As a result, enterprises supported by them can achieve monopoly power and reap high profits in the shelter of the government departments .
The combination of public power and private interests
The administrative act tightly combined with the market forces.
Administrative monopoly power formed by the mixture of administrative power and economic power
The combination of public power and private interests
Case 1:
2007 China Tele and Net Tele conspired to divide the market as north part and south part.
They promised not entering the market controlled by the other from March 1 st .
After then the price of their products raised up from 120 RMB/month to 188RMB/month.
The combination of public power and private interests
Case 2
In 2001, China‘s State Council passed document: two oil groups ( Sinopec and China Petroleum
Group) monopolize the retail franchises of oil products.
After then the prices raised up all over the country.
There is no difference to the consumers’ harms from the market monopoly could bring to.
The combination of public power and private interests
Case 3
Old automobile recovery market monopoly in
Shanghai
Government passed document in the name of regulating competition order to eliminate all existing enterprises and approved one favored company to monopolized the used car market.
The company supported by government was able to make great profit yearly.
The combination of public power and private interests
The short conclusions:
1. The administrative acts infiltrate into market which can not be deterred by simple administrative orders, and it also can not be eliminated through market competition mechanism.
A law with the purpose of maintaining market competition mechanism -- the modern competition law to regulate the system has practical significance.
Should be Regulated by Competition Law
Question the function of anti-monopoly law in regulation administrative monopoly:
The emergence of administrative monopoly
The attributes of the Administrative monopoly
The Main bodies of administrative monopoly.
Should be Regulated by Competition Law
The Emergence of administrative monopoly is the inevitable phenomenon in modern market economy.
governmental intervention into the socio-economic life fully and deeply has brought its opposite results.
The development of the economization of administrative behaviors needs legal regulations.
It is more series in transition economies in abusing administrative power to interfere free competition.
Should be Regulated by Competition Law
The trend to prohibit private monopolies relating to government abusing administrative power through applying anti-monopoly law to eliminate or restrict competition.
Expanding the subject of anti-monopoly law from economic body to administrative body.
¾
¾
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Should be Regulated by Competition Law
(Developed Countries)
US:
Changed the view of “ all the acts of state sovereignty will be immune from the anti-trust law".
Federal Supreme Court took the municipal authorities as the subjects under the anti-trust law.
Calculates three kinds of restraint conduct involving government public power. They are:
Restrict conduct executed by government after being enticed by private;
Restrict policies and system formulated by government organs;
Restrict conduct executed by private under the government approval.
Should be Regulated by Competition Law
(Developed Countries)
Japan:
Fair Trade Commission deemed the governmentbidder collaboration event in a construction project was "restricting or eliminating conduct in manipulating the bidding process",
The Mayor was demanded to adopt measures to prevent the conduct involving competition restriction in accordance with "the Anti-Monopoly
Law"
Should be Regulated by Competition Law
EU:
Member States can not take any measure departing from the EC Treaty, especially the EC competition policies on the state-owned enterprises or other enterprises authorized by special and exclusive rights.
Member States must not take advantage of the national resources to preferentially treat any individual firms or production departments to harm the fair competition of the community market.
Should be Regulated by Competition Law
WTO:
International society suggests establishing competition rule under the framework of the WTO proposal and requires using the competition law to constrain the abuse of the combination of government power and private power to restrict competition.
The proposal to hold negotiation on competition rules in the WTO framework is the response to this trend
Should be Regulated by Competition Law
The regulations of administrative monopoly under the Anti-monopoly law embodies the trend of legal development.
The legislation of China on administrative monopoly is “modern anti-monopoly law ”.
Ⅱ
.
The legislation choice of Regulating on
abusing dominant in China.
Different legislative tradition and culture decides different regulation modes for administrative monopoly in different countries
There are two kinds of modes of regulation of administrative monopoly:
Unified regulation model
Specifically regulation model
The legislation choice of Regulating on abusing administrative power in China.
Unified regulation mode
Specifically regulation mode
China’s choice
Unified Regulation Model
Do not distinguish market dominant resulted by administrative power or market power
Applying exemption rule as an adjustment tool rather than regulating specifically on administrative monopoly.
Take administrative organ as the same subject as economic one when it abusing the administrative power to eliminate or restrict competition.
Unified Regulation Model
If government is considered as a market participator it cannot be exempted by antimonopoly law due to the administrative sovereignty.
A firm is “any entity participating in economic activities”. There is nothing to be considered to define a firm, and no relationship between legal form or investment way and a subject of antimonopoly.
Specifically Regulated Mode
Provisions in the monopoly law are specially designed for regulating administrative monopoly, which regulate abstract administrative behaviors
(statutes) and concrete administrative behaviors of administration restraining competition.
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Russia
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Ukraine
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Hungary
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China
Specifically Regulated Mode
Russian:
Prohibit federation administration, federation departments, municipal governments issuing statutes or taking actions that results in restriction of the freedom of economic entity, discrimination, or preferential to certain entities and leading or possibly leading to the destruction of competition or the interests of economic entity and people.
China’s Choice: Making Compromise
controversy:
most people holding that it is necessary to specifically regulate administrative monopoly since it is the biggest obstacle for China in realizing free market competition.
Some scholars say: It will give administrative monopoly a special treatment from other monopoly conducts.
China’s Choice: Making Compromise
Anti-monopoly law is the most direct system can be used to protect competition and be against administrative monopoly.
“While legislators are not certain about where to place the rules of abuse of administrative power, putting it into anti-monopoly law may be the best solution”--- Professor Eleanor Fox
Ⅲ、
The Implementation on Administrative
Monopoly in China’s AML
Determine on applicable scope of AML
Liability of abuse administrative power
judicial review for abstracted administrative behavior Civil compensation for the damages causing by abusing administrative power
Determine on Applicable Scope of AML
1. Relation between administrative conduct and natural monopoly. it is hard to differentiate between administrative monopoly and market monopoly. (Article 7 AML)
State -owned industry can be exempted
The state supervise and control their operation activities.
Natural monopolistic industries are within the aforementioned scope of exemption. most of these industries have mixed governmental and enterprise functions.
Determine on Applicable Scope of AML
2. Relation between administrative conduct and trade associations. it is hard to differ the administrative monopoly from market monopoly.
(Article 11 AML)
Most Chinese trade associations have government function or have numerous ties with government.
It should be treated as organizations to which laws and regulations grant rights to administer pubic affairs.
If is abuse administrative power to expel operators to engage the monopolistic activities that are prohibited.
Legal Liability of Abuse Administrative Power
AML does not empower the enforcement authority to impose punishment to administrative monopoly
But adopts a liability-based form of self-regulation within the administrative system.
The body which abusing administrative power should be ordered to correct its conduct by the superior authority
the chief officer and other staffs directly responsible impose administrative penalty.
Legal Liability of Abuse Administrative Power
Enforcement Authority may give recommendations on disposal of activities to the relevant superior entity.
AML Enforcement Authority have power to make suggestion of punishment
Should apply other stipulations if there are relerant one concerning the disposal of activities.
Liability of Abuse Administrative Power
According the supplement of the Law of PRC against
Unfair Competition:
The implementing authority has the power to punishing the beneficiaries so as to deter business operators from gaining disproportionate profit by relying on transactions designated by administrative power, with result of stopping administrative monopoly and maintaining market order.
Judicial Review for Abstract Administrative
Conduct
AML lacks of legal relief measures of judicial review for abstracted administrative behavior.
The regulation is not able to correct illegal rulemaking activities
No remediation for damage of citizens and corporations or other organizations caused by abusing administrative power
Civil Compensation for the Damages Caused by
Abusing Administrative Power
AML lacks of clear provisions.
Where the operators implement monopolistic conducts and cause loss to others, the operators shall be responsible for the civil liabilities in accordance with the laws.( Article 50)
The injured party should be entitled to claim for compensation from administrative bodies.
Compensative principle applies to government compensation lawsuit.
.
Concluding remarks
In recent China the most serious situation of abusing administrative is territorial market barrier. The local government will promulgating lawful documents to promoting the development of certain regions.
Some favored enterprises will be protected by these documents and the officials will benefit either economically or politically.
Concluding remarks
So abuse of administrative power to eliminate and restrict competition can be viewed an
“competition-restricting agreement” concluded between government officials and private groups.
This is the phenomenon that existing in many developing countries.
Concluding remarks
The AML of China has raised a high tide of attention on monopoly in our society. One important aspect is the prevalence in the culture of competition.
If it lacks the common recognition on the competition culture the abusing administrative power will not be restraint or reduced.
Many thanks!
Xu Shiying
East China University of Politics and Law
Email:xsying @ vip.sina.com
Tel: +86 21 6225 0616
