Worldwide: Two Dance Better Than One

The European Commission And China Deepen Their Antitrust Co-Operation
Last Updated: November 23 2012
Article by Christian J. Lorenz

Most Read Contributor in United States, December 2018

On 20 September 2012, the European Commission Directorate-General for Competition and China's National Development and Reform Commission (NDRC) and State Administration for Industry and Commerce (SAIC) signed a memorandum of understanding to increase their co-operation and co-ordination on antitrust matters between the EU and China. Joaquín Almunia said the MOU was "an important step and sign of our commitment to further deepen our already excellent relations with the Chinese antimonopoly enforcement authorities. It will give new impetus to our co-operation with China in the enforcement of our respective competition laws." The MOU provides a framework for co-operation and coordination relating to "legislation, enforcement and technical cooperation regarding cartels, and other restrictive agreements and the abuse of dominant market positions".

Previous dialogue and engagement

The MOU is indeed an important additional step, following years of dialogue between the jurisdictions under the 2004 competition policy dialogue between the European Commission and the Chinese Ministry of Commerce (MOFCOM). (China's Antimonopoly Law delegates competition enforcement authority across these three agencies: MOFCOM is tasked with merger enforcement; the NDRC with enforcement of pricerelated anticompetitive conduct; and the SAIC with non-price related anticompetitive conduct.) MOFCOM has been engaged in its discussions with the European Commission under the 2004 dialogue and, presumably for this reason, did not sign the current MOU. Without MOFCOM as a signatory, the MOU not surprisingly excludes "matters relating to concentrations (or mergers)" from its coverage. The policy objectives of the MOU and the 2004 dialogue, however, are largely the same, probably reflecting the intention to bring the NDRC and SAIC onto an equal footing with their sister agency.

The European Commission is, of course, not alone in engaging with China on the competition front. Indeed, the EU-Sino MOU follows a similar MOU signed in July of last year between the US Department of Justice (DoJ) and Federal Trade Commission (FTC), and the three Chinese enforcement agencies. And the US agencies further supplemented the MOU on 29 November 2011 with specific guidance for co-operation in merger cases. The UK's Office of Fair Trading (OFT) also signed memoranda of understanding with the SAIC and NDRC early last year.

Like the US-Sino MOU, the EU-Sino MOU goes notably further than the previous 2004 dialogue and the UK-Sino MOUs, providing a framework for co-operation between the agencies on specific investigations, including at the staff level. Although the co-operation language leaves much room for discretion, and while the rigour with which the regulators will co-operate remains to be seen, there are reasons to be optimistic. This is now the third major MOU that Chinese regulators have signed in two years. And historically, Chinese regulators have proved their interest in consulting with and gaining from the experience of other longer tenured jurisdictions. In the years leading up to the enactment of the Chinese Antimonopoly Law (AML), Chinese regulators consulted extensively with experts in other jurisdictions, including regulators at the European Commission, the DoJ and the FTC.

Recognising the increasing role China will play in antitrust enforcement and the world economy – indeed, China is Europe's second largest trading partner – Chinese regulators are now taking the same next steps with European regulators as they took with their US counterparts not too long ago. These steps have the potential to increase regulatory efficiency and contribute to the harmonisation of antitrust enforcement.

The benefits will accrue to businesses and regulators alike.

China's rise as an antitrust regulator

Since the 2008 enactment of the AML, China has quickly established itself as one of the major jurisdictions which businesses must take into account when implementing transactions and conducting business. The AML was more than a decade in the making, and though there are some distinctly Chinese elements of the law, such as "promoting the healthy development of the socialist market economy," the law for the most part reflects basic elements of existing antitrust laws around the world.

Though MOFCOM has garnered the most press and seemingly has been more active – China reviewed more than 160 merger notifications in 2011, up from about 120 in 2010 and 80 in 2009 – the NDRC and SAIC have stepped up their enforcement actions too. Rules providing guidance on how the NDRC and SAIC will approach investigations into monopoly agreements and abuse of dominance took effect in 2011. The year also saw the SAIC impose its first ever antitrust fine for market allocation and the announcement of a slew of new investigations, including into suspected price discrimination in the broadband internet market by China Telecom and China Unicom, abuses of dominant position in blood control medications, and abuse of dominance by China's leading search engine, Baidu. The trend has continued. As of August 2012, the SAIC had authorised at least 16 investigations into monopolistic conduct: all but one concern possible cartel agreements.

The importance of co-operation and Convergence

Co-operation agreements are not new to antitrust. The US and EU regulators, as the most prominent example, have been in direct and active co-operation for decades on specific transactions and investigations. The framework for their co-operation is the 1991 and 1998 US/Commission of the European Communities co-operation agreements. While co-operation between regulators is not always visible to the parties involved, let alone to the public, cooperation on specific investigations can be intense behind the scenes.

One notable example of intimate co-operation across jurisdictions is the 2007 marine hose investigations. Regulators from several jurisdictions, including the European Commission, the DoJ and the OFT conducted parallel dawn raids on several companies at various locations. Prompted by leniency applications, the regulators clearly must have cooperated intensely in preparing the visits. Coordinated raids such as these are now becoming increasingly common. And it is possible that coordinated raids in China will now be added to the mix.

For regulators to share confidential business information received from a party with another jurisdiction, a waiver is typically required (ie a waiver of confidentiality duties under the relevant domestic statutes). But even without such waivers (which, for a number of reasons, are unlikely to be forthcoming in a cartel investigation), co-operation and co-ordination among regulators can be valuable and efficient. Clearly it is desirable to have a co-ordinated approach to dawn raids in the cartel context – for example, to surprise suspected cartel participants and reduce the risk of destruction of evidence. But in addition, sharing ideas regarding market definition and theories of harm in cases involving, for example, abuse of dominance and restrictive agreements does not necessarily require the sharing of confidential business secrets and can quickly get regulators up the learning curve, saving time and facilitating more consistent results.

Bilateral agreements do not, of course, ensure co-operation and co-ordination but they do provide the framework within which they may take place. Likewise, co-operation and coordination are not a guarantee against inconsistent rulings. Even the most sophisticated jurisdictions have reached different conclusions in high-profile investigations. Critics have often pointed out differences in the DoJ's and the European Commission's treatment of Microsoft following their respective investigations. And on the merger control side, there were certainly flashpoints around Boeing/McDonell Douglas, GE/Honeywell, and Oracle/Sun. Of course, these and other cases have their own particular features, and effects themselves may vary across jurisdictions. Rather, it is co-operation and convergence in the analysis itself that is desirable.

Co-operation increases the likelihood of consistent and predictable outcomes, clearly desirable for multinational corporations thinking strategically across jurisdictions. And more developed antitrust regimes see co-operation as an opportunity to share their experiences with those newer to antitrust enforcement, thus encouraging some measure of convergence in their respective analysis of conduct and transactions. Put another way, co-operation can be used as a tool for containment. This is not novel. It was indeed an underlying motive for establishing the International Competition Network, as regulators in the more sophisticated jurisdictions were concerned that the proliferation of merger control regimes would stifle international M&A.

What changes following the EU-Sino MOU?

The EU-Sino MOU espouses the same goals as most bilateral agreements in recognising the importance of working together by, among other things, exchanging views on developments in competition law and enforcement, and raising public awareness of competition legislation. Importantly, the EU-Sino MOU follows the USSino and UK-Sino MOUs in providing for direct bilateral co-operation at the working level: "should the two sides pursue enforcement activities concerning the same or related matters, they may exchange non-confidential information, experiences views on the matter and co-ordinate directly their enforcement activities, where appropriate and practicable".

As discussed above, while regulators are of course able to exchange non-confidential information even in the absence of such an agreement, the MOU provides the framework for them to do so and the "tone from the top" encouraging such cooperation. Like many international co-operation agreements, the MOU does not obligate the European Commission or the Chinese agencies to exchange information if it would violate local laws or regulations. In addition, the agencies are not required to exchange information if it would "be incompatible with the interests of that side in the application of its laws". It remains to be seen how the exception could be used in practice; for example, whether it may be employed as a policy tool.

The MOU therefore provides the framework and opportunity for the European Commission, the SAIC and NDRC to progress their co-operation into the next phase. One point worth noting – although hopefully less important as a practical matter – is that in bringing the SAIC and NDRC up to date, MOFCOM's arrangements are no longer equivalent. MOFCOM is not a signatory to the recent MOU and the 2004 dialogue in place between the European Commission and MOFCOM does not include provisions for direct bilateral cooperation at the working level. As discussed above, bilateral agreements are of course not necessary for regulators to exchange non-confidential information – indeed in this regard, the MOU merely reiterates what the regulators are already able to do – but such agreements help in overcoming the inherent inertia in getting two independent agencies to share information.

Looking ahead

With China established as a major player in antitrust enforcement – one whose role is only likely to increase – the MOU has the potential to be an important step further toward increasing regulatory efficiency and harmonising antitrust enforcement. Ever increasing enforcement efforts by the SAIC and NDRC heighten the need for and benefits of co-operation. MOFCOM may have been first out of the blocks but with the 2011 rules providing guidance on the SAIC's and NDRC's approach to investigations into monopoly agreements and abuse of dominance taking effect and the ensuing increase in non-merger investigations, China is realising its goal in establishing itself as a major global player in antitrust enforcement.

Now more than ever, it is important for the EU and China to continue to engage with one another bilaterally and encourage active cooperation, specifically at the working level on actual cases. Co-operation increases the likelihood of consistent and predictable outcomes, while also increasing the chances of resolving any differences early on and minimising regulatory delay. Sharing information and experience also allows regulators to move quickly up the learning curve in their analysis of particular markets, conduct and, as relevant, in the assessment of remedies. Increased co-operation and communication should accrue to the benefit of businesses and enforcers alike.

Originally published in Competition Law Insight, 13 November 2012

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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