Chad: China's And Japan's Antitrust Enforcement Agencies Warm Up To Each Other

Although China and Japan have very different histories regarding their antitrust laws, antitrust enforcement officials from the two countries have recently taken steps to open a formal dialogue. This is a welcome development for Chinese and Japanese companies, as well as for foreign companies that do business in China and Japan, and it continues the trend of increased communication, cooperation and coordination among national enforcement agencies. There remains an open question, however, as to how convergence among Asian antitrust enforcement agencies will affect possible convergence with agencies in the United States, the European Union and the rest of the world.

Japan's first anti-monopoly law has been developing for 70 years since it was adopted in 1947. Recently, the Japan Fair Trade Commission (JFTC) has been taking steps to enhance its authority and bring greater clarity to potentially anticompetitive conduct that will draw the JFTC's attention. For example, Japan's Code of Criminal Procedure was amended recently to introduce a plea bargaining system that creates an incentive to report antitrust violations committed by others.1 Also, in February 2016 the JFTC organized a research group to work on what would be a watershed amendment to Japan's Antimonopoly Act by, among other things, empowering the JFTC to impose fines on corporations for cartel activities based on sales made outside of Japan. For many years, Japan has worked with other countries on competition issues; for example, the United States and Japanese antitrust authorities have had relationships for many years, began annual consultations in 1976, and signed a bilateral antitrust cooperation agreement in 1999.2

China's history of competition law is much briefer; it did not enact the Anti-Monopoly Law until 2007 and since then Chinese law has developed rapidly. The State Council, as well as China's enforcement agencies—the National Development and Reform Commission (NDRC), the Ministry of Commerce (MOFCOM), and the State Administration for Industry and Commerce (SAIC)—have been taking steps to explain the kinds of potentially anticompetitive conduct that will draw their attention and how they analyze such conduct.3 An important development is China's recent initiation of procedures to monitor the conduct of its enforcement agencies through its Fair Competition Review System ("FCRS").4 China, like other countries, also has been seeking international cooperation on antitrust law development and enforcement. For example, in 2011 China signed aMemorandum of Understanding on Antitrust and Antimonopoly Cooperation between China and the United States to further cooperation between the two countries.5

Recognizing the benefit dialogue, on October 13, 2015, the JFTC and the NDRC signed a Memorandum of Understanding on Antimonopoly Cooperation ("MOU"),6 which has a term of two years and is renewable.7 The MOU provides for the NDRC and the JFTC to meet at least once a year to discuss and exchange ideas, at both the technical level and the working level, regarding important enforcement matters and specific case information.

This first meeting took place a few weeks ago. The NDRC reported that, at the JFTC's invitation, Zhang Handong, Director-General of the Price Supervision and Anti-monopoly Bureau at the NRDC, led a delegation to Japan for four days of meetings, from Sept. 12-16, 2016, to discuss competition policies and anti-monopoly issues. 8 Mr. Zhang met with JFTC Commissioner Takashi Yamamoto and other officials. The two sides exchanged views on recent developments in anti-monopoly enforcement, the implementation of competition policies, China's Fair Competition Review System, and how to strengthen anti-monopoly cooperation. Mr. Zhang also visited the JFTC's Chubu Office, and had in-depth discussions with local anti-monopoly enforcement officials on enforcement organization structuring, relationships between central and local law enforcement organizations, cartel investigations, and other issues. Mr. Zhang also held a symposium with the Japan Business Federation (one of the three largest Japanese business associations), Sony, Toshiba, Nippon Telegraph and Telephone Public Corporation, Bank of Tokyo-Mitsubishi, and Nomura Securities. In these meetings, he explained China's implementation of competition policies and its enforcement of anti-monopoly laws.

Although no further details were publicly available about the recent visit, both countries—and, of course, foreign businesses—could benefit in a variety of areas from further communication between the Chinese and Japanese enforcement agencies. However, it is important to keep in mind that although convergence generally is encouraged, there remains a broader concern regarding convergence in Asia on policies and principles that may be inconsistent with the antitrust policies and agency priorities in the United States and European Union.

  • Intellectual Property Rights. Application of antitrust laws to the exercise of intellectual property rights can have an enormous impact on innovation. Convergence in this area is important because many Japanese technology companies have large patent portfolios and, of course, China manufactures a huge number of goods that are sold in China, Japan and countries around the world. Greater dialogue on issues such as the application of antitrust laws to FRAND licenses, abuse of intellectual property rights, and remedies (e.g., compulsory licenses and royalty rates) may promote convergence and moderation of antitrust enforcement to the benefit of companies doing business in China and Japan.
  • Cartels. In the area of cartels, the Chinese enforcement agencies are playing catch up with other enforcement agencies such as the United States Department of Justice and the European Commission. The JFTC, like other enforcement agencies, is beginning to flex cartel muscles. This is another area of potential cooperation and convergence between China's and Japan's enforcement agencies.
  • Merger Control. Merger control has become an international minefield for thousands of mergers and acquisitions every year, and companies and their counsel spend countless hours preparing regulatory filings to obtain clearance in multiple jurisdictions. One can hope that future coordination between China's and Japan's enforcement agencies will facilitate obtaining clearance for acquisitions and mergers at least from those agencies. Again, however, convergence in Asia on principles and policies that differ significantly from principles and policies in other areas of the world could be counterproductive.
  • Restraint. Taking steps to ensure the government restrains its interference in the economy is another area that could benefit from discussions between the agencies. In June 2016, China published its Opinions of the State Council on Establishing a Fair Competition Review System during the Development of Market-Oriented System. The FCRS is designed to moderate administrative authorities' issuance of regulations and minimize the government's interference in China's economy. The NDRC, which will play an important role in providing guidance on fair competition review efforts, might benefit from learning about the JFTC's experience in similar efforts. For example, the JFTC has been working for years to limit the government's interference in Japan's economy. One such effort is the JFTC's issuance of Guidelines Concerning Administrative Guidance under the Antimonopoly Act, which were adopted in June, 1994, and revised on January 1, 2010. The guideline provides, among other things, "In order to help maintain and promote fair and free competition, freedom of entry and/or withdrawal should be guaranteed, and administrative organs should take special care to see that any administrative guidance which is not based on any specific provision in law or regulation not be apt to restrict or inhibit fair and free competition." The Chinese enforcement agencies may be able to benefit from the JFTC's experience.
  • Consistency. Finally, China splits its competition enforcement among three agencies; MOFCOM for mergers and acquisition, NDRC for price-related conduct, and SAIC for non-price dominant firm conduct. Although China makes efforts to coordinate the agencies' enforcement policies, there remains a concern that they are not entirely consistent. In Japan, the JFTC handles all three areas of enforcement, and China might benefit from discussing with the JFTC how to ensure clear delineation of authority and consistency in the agencies' enforcement priorities and efforts.

The memorandum between China's and Japan's antitrust enforcement agencies, and their inaugural meeting last month, are first steps in improving coordination and cooperation between those agencies. This generally is a positive development, but antitrust practitioners around the world will look forward to seeing whether this leads to convergence between the approaches of China's and Japan's enforcement agencies, and, equally important, how any such convergence bears on convergence with enforcement agencies in the United States, the European Union and other areas of the world.

Footnotes

1. "Buckle Up for Japan's New Plea Bargaining!," available at http://blogs.orrick.com/antitrust/2016/06/27/buckle-up-for-japans-new-plea-bargaining/?shareadraft=baba791_576d70821435b.

2. "United States and Japan Sign Bilateral Antitrust Agreement," available at https://www.ftc.gov/news-events/press-releases/1999/10/united-states-and-japan-sign-bilateral-antitrust-agreement.

3. "E.g., Provisions of the State Council on the Thresholds for Filing Applications for Concentration of Business Operators (State Council 2008); Measures for the Declaration of Concentration of Business Operators (MOFCOM 2009); Guidelines of the Anti-Monopoly Committee of the State Council on Defining Relevant Markets (Anti-Monopoly Committee of the State Council 2009); Provisions on the Procedures for the Administrative Organs for Industry and Commerce to Investigate Cases Concerning Monopoly Agreements and Abuses of Dominant Market Positions (SAIC 2009); Provisions on Anti-Price Monopoly (NDRC 2010); Provisions for Administrative Authorities for Industry and Commerce on Prohibiting Conclusion of Monopoly Agreements (SAIC 2010); Provisions for Administrative Authorities for Industry and Commerce on Prohibiting Abuses of Dominant Market Positions (SAIC 2010); Provisions for Administrative Authorities for Industry and Commerce to Prevent Abuses of Administrative Powers to Exclude or Restrain Competition (SAIC 2010); Provisions on Prohibiting the Abuse of Intellectual Property Rights to Exclude and Restrain Competition (SAIC 2015).

4. "China's Fair Competition Review System: China Takes Another Significant Step Eight Years After Enacting the Anti-Monopoly Law," available at http://blogs.orrick.com/antitrust/2016/07/01/chinas-fair-competition-review-system-china-takes-another-significant-step-eight-years-after-enacting-the-anti-monopoly-law/.

5. "FTC and DOJ Sign Antitrust Memorandum of Understanding with Chinese Antitrust Agencies," available at https://www.ftc.gov/news-events/press-releases/2011/07/federal-trade-commission-department-justice-sign-antitrust.

6. "Deputy Director Hu Zucai Met JFTC Commissioner Takashi Yamamoto and Signed the Memorandum of Understanding on Antimonopoly Cooperation between the Two Countries", available at http://www.sdpc.gov.cn/fzgggz/jgjdyfld/jjszhdt/201510/t20151013_754531.html .

7."Memorandum of Understanding on Antimonopoly Cooperation between the NDRC and the JFTC," available at http://www.jftc.go.jp/kokusai/kokusaikyoutei/nittyuu.files/151013MOU2.pdf.

8. "Director-General Zhang Handong of the Price Supervision and Antimonopoly Bureau at the NRDC Led A Delegation to Visit Japan for Communication Activities on Competition Policies and Antimonopoly Issues", available at http://jjs.ndrc.gov.cn/gzdt/201609/t20160918_818687.html.

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