Shenzhen Takes Lead in Improving Antitrust Enforcement Transparency

Qu Gangyi

Qianhai Pilot Free Trade Zone (photo © http://qhsk.china-gdftz.gov.cn/

Qianhai Pilot Free Trade Zone (“Qianhai”), an innovative area in Shenzhen, aims to create an effective and more transparent antitrust enforcement mechanism.[1] Qianhai is seeking to serve as a role model for the country by improving the transparency of antitrust investigation. The Guidelines on Anti-monopoly Work (“Guideline”)[2] promulgated by the Qianhai Management Committee (“Committee”) is a big step towards achieving this goal.

This article, divided into five sections, provides an overview of how the Guideline improve antitrust transparency. Section One explains the problem of transparency of antitrust investigation in current laws and practices. The next three sections articulate three important institutional reforms in the Guideline: clarifying investigation authority and the process before investigation, guaranteeing the company’s right to be informed and right to be heard during investigation, broadening disclosure and publicity after investigation. In the end, Section Five concludes that the reform can be replicated nationwide.

1. Overview of Current Law and Practice

a. Transparency

After the integration of the global economy, the principle of transparency has become the basic norm that all legal practices in the international community must follow.[3] In the field of competition policy, the transparency has been attached special emphasis.[4]

Transparency is a common value that not only benefits third parties and the public, but also helps agencies gain credibility and make better decisions. It ensures the public a better understanding of the facts on which the investigation is based, and at the same time helps the agencies to improve their reasoning during investigation. At this stage, if the transparency of China’s antitrust enforcement is improved, the rights of companies under investigation can be fully protected, resulting in a better investigatory system.

b. Laws and regulations

China’s Anti-Monopoly Law (“AML”)[5] promulgated in 2007 establishes China’s basic legal framework of antitrust enforcement. Pursuant to Article 10, the agency stipulated by the State Council to perform anti-monopoly enforcement duties shall be responsible for anti-monopoly enforcement tasks. Antitrust enforcement follows the principle of unification of policy and decentralization of authority before the new round of institutional restructuring on March 13, 2018.[6] To be more precise, under the coordination of the Anti-monopoly Committee of the State Council, there are three agencies in the central government to carry out AML investigation. They are the Ministry of Commerce (“MOFCOM”), the National Development and Reform Commission (“NDRC”) and the State Administration for Industry and Commerce (“SAIC”). After the institutional restructuring in 2018, the antitrust investigation agencies were merged into one agency: State Administration for Market Regulation (“SAMR”).

The antitrust investigation is transparent in two ways: (1) for the interested parties, the right to be heard shall be guaranteed; and (2) for the public, the decision shall be disclosed.[7] AML also tries to make sure the transparency in these two ways. Article 43 of the AML entitles the business operators and interested parties to the right to make a statement and requires the agency to verify the statements. However, it does not specify how those statements should be made and whether the agency is required to respond to those statements. Article 44 stipulates that the agency “may publicize its decision” which deals with the monopolistic conduct. However, there is no publication requirement. All in all, the requirements of transparency under the AML are not obligatory and detailed enough.

In the AML context, the transparency issue has traditionally been an important concern for the legislators and administrative agencies. In some department regulations published by Anti-monopoly Commission[8], MOFCOM[9], NDRC[10], SAIC and SAMR[11], it is explicitly stated that the purpose of publishing these regulations is “in order to improve the transparency of antitrust investigation”.

c. Practices

For the three agencies, the antitrust transparency practices are different. For MOFCOM, the agency publishes all the decisions of conditionally approved and disapproved transactions on its website, as required by Article 30 of AML. For SAIC, the agency opened an anti-monopoly case announcement platform on July 9, 2013, and formally established a long-term and transparent anti-monopoly case disclosure mechanism. For NDRC, the written decisions of administrative penalty to price-related monopolistic behaviors have been published on its website in a comprehensive way.

However, there is still room for improvement. It is reported by the China World Trade Organization Research Association that some decisions are not disclosed in a detailed and timely manner.[12] Take MOFCOM for an example, MOFCOM is subject to almost no obligation of disclosure of unconditionally approved transactions. In practice, for those unconditionally approved transactions, only the decision list is disclosed in a sketchy way on the website of MOFCOM. The Anti-monopoly Bureau of MOFCOM published 128 unconditionally approved transactions on October 10th 2018.[13] For all these transactions, only the parties’ names and the ending date are presented (See Table 1).

Serial number Case name  Operators Conclusion time
1 Malaysian National Petroleum Corporation acquired two companies including Canadian LNG Development Company Petronas Malaysia, Shell Canada Energy Partnership, Korea Gas Corporation, Mitsubishi Corporation, PetroChina Canada, Canadian LNG Project Joint Venture, Canadian LNG Development Company July 2, 2018
2 US Huaping Investment Group acquired the equity of Leyou Co., Ltd. American Huaping Investment Group, Leyou Co., Ltd. July 2, 2018
3 Blackstone Group Limited Partnership acquired some business of Thomson Reuters Blackstone Group Limited Partnership, Thomson Reuters July 2, 2018

Table 1 Part of the Unconditional Approval Case List in Quarter 3, 2018

After the institutional restructuring, transparency appears to be the same as before. At least from the disclosure of Unconditional Approval Case List in Quarter 1, 2019 by SAMR, the information still only covers the parties’ names and the ending date.[14]

d. Qianhai’s innovation

Under these circumstances, the Guangdong Pilot Free Trade Zone, in the process of carrying out the anti-monopoly investigation of business concentration and cooperating with the SAMR, focuses on improving the transparency in an innovative way. [15] The transparency issue is an important aspect of this Guideline. According to the Policy Interpretation of the Guideline (“Policy Interpretation”), [16] Qianhai is exploring an efficient interactive mechanism with MOFCOM, whose antitrust investigation function has been taken over by SAMR. It is important for China to have greater transparency of its antitrust regulations as China is an important global antitrust regulator. [17]

2. Before Investigation: Clarify the Authority and Process

Before an antitrust investigation begins, transparency refers to laws, regulations or legal procedures that can be known. This requirement means that the process and consequences of the law must be immediately understandable. If transparency is improved and business operators are clear about standards and investigation procedures, it will encourage compliance and increase the efficiency of investigation.

a. Define the authority scope

For the AML enforcement agencies, clearly defining the authority scope and the investigation process is an initial and essential premise of establishing an open system.

As mentioned before, there are three agencies in the central government to carry out AML investigation before March 13, 2018. However, the scope of the three agencies’ authorities is not as clear as it seems to be. For example, for some transactions involving both price dispute and non-price dispute, the authorities of the NDRC and SAIC were overlapping sometimes.[18] Now, after the institutional reform, the authority scope is more clear than before, and the antitrust investigation function only belongs to one agency now: SAMR.

This problem has been avoided in Qianhai by only setting up one agency: the Committee.  It is apparent from the Policy Interpretation that the Committee has realized the non-uniformity of the hierarchy and operations on the central level is problematic, so the Guideline intends to clarify it on the local level.[19] Article 4 specifically illustrates the relative authority and responsibility allocation. The authority of the Qianhai Committee includes:

      • accepting anti-monopoly reports and consultations, and handing over anti-monopoly cases or clues (reports) of companies’ potential monopolistic behaviors to the relevant antitrust agencies, including central level, Guangdong provincial and Shenzhen municipal agencies;
      • cooperating with relevant agencies to carry out anti-monopoly law enforcement such as investigation and evidence collection;
      • transferring antitrust-related materials submitted by companies to the relevant agencies;
      • assisting relevant agencies to carry out supervision in process and afterwards;
      • assisting relevant agencies in conducting research, analysis and evaluation of market competition;
      • organizing the promotion and training of anti-monopoly laws, regulations and policies; and
      • other anti-monopoly work.

b. Disclosing the investigation process

Disclosing the precise investigation process is another way to increase the predictability of government’s behavior and enhance knowledge of, and compliance with, the law. For instance, the U.S. Department of Justice(“DOJ”) and the Federal Trade Commission (“FTC”) issued the Horizontal Merger Guidelines on August 19, 2010.[20] Likewise, the European Union Commission(“EUC”) also issued the Commission notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under Commission Regulation (EC) No 802/2004 on October 22, 2008.[21]

In order to be consistent with international standards, Qianhai also refers to these foreign practices and has drafted its own guideline.[22] The Guideline provides specific antitrust implementation process for the Committee. It focuses on designing a complete and consistent process. From Chapter 2 of the Guideline, it can be seen that specific provisions are provided on the identification, notification filing, report acceptance, and post-decision supervision of suspected monopolistic behavior in the Qianhai area.[23]

3. During Investigation: Right to be Informed and be Heard

During investigation, transparency of the process mainly refers to the participation of the parties in the investigation and decision-making process. Only by ensuring the participation of the parties in law enforcement activities can we fundamentally ensure the fairness and results of law enforcement.

At the central level, right to be heard has been provided in the departmental regulations. Take MOFCOM as an example, the Measure for the Undertaking Concentration Examination promulgated by MOFCOM stipulates the hearings procedure in the concentration examination. According to Article 7: during the examination process, the MOFCOM may hold hearings on its own initiative or in response to the request of the relevant parties, making investigations, collecting evidence and listening to the opinions of the relevant parties. Article 8 also provides more detailed procedure of the hearings.

The Guideline likewise seeks to keep the investigation process transparent. For the parties under investigation, the right to be kept informed and the right to be heard has been implemented. Through the Guideline, a convenient bridge has been built in connection with the operator and investigator. Those measures include: receiving and handing over the application materials[24], assisting business operators to submit relevant statements and defense materials to relevant anti-monopoly law enforcement agencies[25], assisting operators to report requests for negotiation to the MOFCOM [26], and actively supporting operators to safeguard their rights through legal assistance and communication[27].

4. After Investigation: Disclose Information and Improve Publicity

a. Information Disclosure  

The degree of disclosure of the information can demonstrate the transparency of antitrust law enforcement. Constructive measures taken by US and EU include timely publishing the detailed information of every case and publishing the decisions. For example, the decision of BAYER/MONSANTO published recently by the EU amounts to 319 pages and some related procedural documents are also available to the public.[28] In comparison, for the same transaction, MOFCOM only published a relatively less detailed decision on its website.[29]

Pursuant to the Guideline, Qianhai has taken a series of measures to disclose more information, mainly reflected from the disclosed content required by the Guideline. As required by Article 14 of the Guideline, the Committee is required to disclose, not only the decision, but also the follow-up supervision report. This is a major step forward compared to the AML’s requirement because the scope of the content released has been materially enlarged. Not only the investigation process, but also the follow-up procedure is under the public spotlight.

b. Improve publicity

In addition to the investigation itself, Qianhai is likewise trying to extend AML publicity within certain free trade areas. According to Article 24 of the Guideline, the Committee would publicize and organize the training of anti-monopoly laws, regulations and policies to improve the legal awareness and investigative capacity. The publicity and training would increase public’s understanding of the agency’s policy and will likely increase voluntary compliance. Under the antitrust investigation mode which is led by government, the public is concerned that agencies act as both a prosecutor and a judge. In this sense, the publicity of antitrust law is helpful to ease the paradox.

c. Concern of confidentiality 

Based on the discussion above, it is highly recommended for the investigation authority to timely disclose information and improve publicity after antitrust investigation. However, the government’s major concern is to protect the parties’ confidential information. Therefore, a delicate balance needs to be reached.

It is helpful to see how foreign jurisdictions reach such balance. In the decision of BAYER/MONSANTO published by EU, it has been explicitly stated in the first page that “parts of this text have been edited to ensure that confidential information is not disclosed; those parts are enclosed in square brackets.” This is a thoughtful way to avoid potential risks of infringing confidentiality.

For the Chinese antitrust investigatory authority, i.e. SAMR, it is necessary to make sure keep business operator’s information confidential in the process of increasing transparency. It requires SAMR to pay high attention to the way of information disclosure.

5. Conclusion

The dimensions of reform must be framed with an eye to the changing commercial practices and urgent need of investment facilitation in the Qianhai area. The Guideline is well-timed in developing and strengthening the capacity of anti-monopoly enforcement by Qianhai and Shenzhen. The above innovative mechanisms are not available in other free trade zones and local anti-monopoly work mechanisms that have been publicly released in China so far. In the future, according to MOFCOM’s opinion on supporting the FTZ, the reform in Qianhai FTZ can be replicable and propagable nationwide, if it is proved practically effective.[30] We hope the antitrust investigation authority SAMR can take a big step forward based on the Qianhai experience.

[1] See Shenzhen Municipal Government, Notice on the Issuance of the Implementation Plan for the Construction of Shenzhen Qianhai Shekou Free Trade Zone, in Article 1, Shenzhen China (Jul. 22, 2015), available at http://www.sz.gov.cn/zfgb/2015/gb933/201508/t20150819_3170357.htm.

[2] See Management Committee of Shenzhen Qianhai Shekou Area of China (Guangdong) Pilot Free Trade Zone, Notice of on the issuance of the “Guidelines on Anti-monopoly Work in Shenzhen Qianhai Shekou Area”, in Article 1, Shenzhen China (Feb. 12, 2018), available at http://www.sz.gov.cn/zfgb/2018/gb1038/201802/t20180212_10787092.htm.

[3] See OECD Competition Policy Committee, Procedural Fairness and Transparency” (Key Points) (Apr. 30 2012).

[4] See Rachel Evans, Transparency is in MOFCOM’s Interests, 28 Int’l Fin. L. Rev. 19 (2009).

[5] See NPC, Anti-Monopoly Law of the People’s Republic of China, Central Government(Aug. 30 2007), available at http://www.gov.cn/flfg/2007-08/30/content_732591.htm.

[6] See Wolters Kluwer, From “Three Carriages” to “Settle on One”——the Influence and Analysis of the Major Adjustment of China’s Anti-monopoly Administrative Enforcement Agencies, available at http://lawv3.wkinfo.com.cn/topic/61000000474/1.HTML.

[7] See Warren Grimes, “Transparency in Federal Antitrust Enforcement”, 51 Buffalo Law Review 937, 944 (2003).

[8] See Anti-monopoly Commission of the State Council, Guidelines of the Anti-monopoly Commission of the State Council on the Definition of a Relevant Market (May. 04 2009), available at  http://fldj.mofcom.gov.cn/aarticle/j/200907/20090706384131.html; See also Anti-monopoly Commission of the State Council, Public Comments Sought by the Office of the Anti-monopoly Commission under the State Council for the Anti-monopoly Guidelines on the Abuse of Intellectual Property Rights (Exposure Draft) (Mar. 23 2017), available at http://fldj.mofcom.gov.cn/article/zcfb/201703/20170302539418.shtml.

[9] See Anti-monopoly Bureau, Notice on Public Solicitation of Opinions on the Interim Measures for the Examination of Concentration of Operators, MOFCOM (Jan. 20 2009), available at http://fldj.mofcom.gov.cn/article/zcfb/200901/20090106011511.shtml. (stating that the main purpose of drafting the Interim Measures is to improve the transparency)

[10] See National Development and Reform Commission, Guidance for Undertakings of Operators in Anti-monopoly Cases (Exposure Draft) (Feb. 2, 2016), available at http://www.ndrc.gov.cn/yjzq/201602/t20160203_774294.html; See also National Development and Reform Commission, Anti-monopoly Guide of the Anti-monopoly Committee of the State Council on Abuse of Intellectual Property Rights (Exposure Draft) (Dec. 31, 2015), available at http://www.ndrc.gov.cn/yjzq/201512/t20151231_770310.html.

[11] See State Administration for Market Regulation, Explanation on the Implementation of the Declaration Form for Anti-monopoly Review of Concentrations of Undertakings (Sep. 29 2018), available at http://qyj.saic.gov.cn/fw/zcjjd/201811/t20181108_278355.html.

[12] See Competition Policy and Law Committee of China World Trade Organization Research Association, China Competition Law and Policy Research Report (2013), Law Press (Dec. 2013) pp. 79-80.

[13] See Anti-monopoly Bureau, Unconditional Approval of the Operator Concentration Case List in Quarter 3, 2018, MOFCOM (Oct. 10, 2018), available at http://fldj.mofcom.gov.cn/article/zcfb/201810/20181002793873.shtml.

[14] See Unconditional Approval of the Operator Concentration Case List in Quarter 1, 2019, SAMR (Apr. 4, 2019), available at http://www.saic.gov.cn/fldj/jyajgs/index.html.

[15] See State Council, Circular on the Issuance of the General Plan of China (Guangdong) Pilot Free Trade Zone, in Article 1, Guangdong Free Trade Zone Qianhai Area (Apr. 20, 2015), available at http://sso.sz.gov.cn/pub/qhglj2017/qhzmq/zwgk/dtxw/dtzx/201504/t20150420_8432982.htm.

[16] See Management Committee of Shenzhen Qianhai SZ-HK Modern Service Industry Cooperation Area, Policy Interpretation on the Guidelines on Anti-monopoly Work in Shenzhen Qianhai Shekou Area, in Question 1, Qianhai Shenzhen (Feb. 15, 2018), available at http://www.szqh.gov.cn/sygnan/xxgk/xxgkml/zcfg/zcjd/201805/t20180516_11915402.htm.

[17] See Antitrust in China – 2018 Year in Review, available at https://www.gibsondunn.com/antitrust-in-china-2018-year-in-review/.

[18] The NDRC mainly governs the price-related dispute and the SAIC mainly governs the non-price dispute.

[19] See Policy Interpretation, Question 2.

[20] See U.S. DOJ and FTC, Horizontal Merger Guidelines, DOJ (Updated Jun. 25, 2015), available at https://www.justice.gov/atr/horizontal-merger-guidelines-0.

[21] See EUC, Commission notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under Commission Regulation (EC) No 802/2004, Access to European Union Law (Oct. 22, 2008), available at https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2008:267:0001:0027:EN:PDF.

[22] See State Council, Several Opinions on Accelerating the Implementation of the Free Trade Zone Strategy, in Article 1 Clause 2, Shenzhen Qianhai (Dec. 17, 2015), available at http://www.szqh.gov.cn/sygnan/qhzx/tzgg/201512/t20151217_8725120.htm.

[23] See Chapter 2 of the Guideline.

[24] See Article 8 of the Guideline.

[25] See Article 11 of the Guideline.

[26] See Article 12 of the Guideline.

[27] See Article 22 of the Guideline.

[28] See EUC, BAYER and MONSANTO, Case: M.8084, Commission Decision (Nov. 4, 2018), available at http://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=2_M_8084.

[29] See Anti-monopoly Bureau, Notice No. 31 of 2018 concerning the approval with additional restrictive conditions of the concentration of Bayer and Monsanto, MOFCOM (Mar. 13, 2018), available at http://fldj.mofcom.gov.cn/article/ztxx/201803/20180302719123.shtml.

[30] See MOFCOM, Opinion on Supporting the Innovative Development of the Pilot Free Trade Zone, in sub-article 24, Shenzhen Qinahai (Aug. 25, 2015), available at http://www.szqh.gov.cn/sygnan/xxgk/xxgkml/zcfg/gjflfg/201510/t20151020_8729642.htm.

 

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