November 11, 2005
Antitrust in China (and a Fond Farewell)
Posted by geoffrey manne

It is commonly said that, as tariff barriers to trade have fallen around the world, private barriers have become correspondingly more important; as public (tariff) protection on behalf of domestic industry against foreign competition has weakened, private (anticompetitive) protection is likely to surge.   

I think this argument is a little harder to make than its proponents would have it, for two reasons:  First, as tariff barriers to foreign competition fall, it becomes harder, not easier, to maintain domestic monopolies.  Second, antitrust enforcement is not an unalloyed good, and, especially if practiced discriminatorily (favoring, that is, domestic firms over foreign ones), it has the potential itself to stymie rather than expand competition.  Enforcement of antitrust laws may be a far bigger problem than non-enforcement.

With this in mind, I draw your attention to one of the most anticipated developments in global antitrust:  China's Antitrust Law (You'll find the most recent draft (in Chinese), as well as the ABA's joint commentary on it (in English), here).  It's not finalized yet, and its arrival has been impending for several years now, but it's only a matter of time before the face of global antitrust is significantly altered.

I would just point out two interesting aspects of the Chinese law.  First, it provides for significant agency enforcement, with little involvement by the courts.  The problem here, of course, is that, as with most antitrust laws, the substance is in the enforcement, not the law itself.  Antitrust laws tend to be vague and short (see sections 1 and 2 of the Sherman Act).  And if you're worried about abusive enforcement of vague rules, it's obviously problematic to leave discretion in the hands of an insular agency.  The law has the potential to do considerable damage, depending on how it's enforced.

But perhaps this is tempered by the other interesting aspect of the law:  its application to administrative monopolies.  Unlike the US antitrust laws, the Chinese law will apply (assuming, of course, effective enforcement) even to anticompetitive behavior undertaken by or under protection of government entities, including, perhaps, fully-state-owned enterprises.  Private-state involvement (and corruption) runs deep in China.  Vigorous enforcement of the antitrust law against government enterprises might significantly improve the business landscape there.

And, in the end, the adoption, interpretation and enforcement of a US- or EU-style antitrust law in China could induce a pervasive shift in norms (see Harold Hongju Koh, Transnational Legal Process, 75 Neb. L. Rev. 181), perhaps eventually even locking it in to its current (though dramatically desultory) path toward liberalization.

Barring an uncontrollable need to mount my soapbox again tomorrow (and then assuming the continued indulgence of my hosts), this is likely my last post here at the 'Glom.  I've had a rousing good time, and even managed to piss off a few people in the process.  The former was my intention far more than the latter, so my apologies to those in the latter camp.  Many thanks to Christine, Gordon & Vic.  Look for more antics, analysis and a little high dudgeon from me in the blogosphere in the near future.

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Comments (3)

1. Posted by Ann on November 12, 2005 @ 9:21 | Permalink

"Vigorous enforcement of the antitrust law against government enterprises might significantly improve the business landscape there."

Yes, but do we think that there's even one chance in a thousand that this will occur in the next decade or two? This sounds like window-dressing to stop complaints from foreigners. It goes against the very essence of the beliefs of the Chinese Communist Party (and against traditional Chinese beliefs and attitudes). Law is something that those in charge use against others. Applying their own tool against the powerful themselves makes no more sense than choosing guard dogs that are trained to turn and attack their owners.

In the past, it was common for the regulator of a particular industry in China to be one of the State-Owned Enterprises 'competing' in the industry. And one of the sticking points for many years in the WTO rounds was whether China had to get rid of the practice of having secret regulations (i.e. regulations that bound companies in the industry, but those companies weren't allowed to know what the regulations were). In other words, one of your competitors could fine you at any time for violating a regulation, without ever telling you what the regulation was.

We might just as well get excited about the rule against selling the organs of those who are excuted, unless they voluntarily donate them. China insists that they never take body parts without permission, and that it's sheer coincidence that every single person executed in China happens to be patriotic enough to choose to donate on their own (in a culture that highly prizes being buried 'whole', so that eunuchs kept their lost body parts their entire lives in order to be buried with them).

Given the ridiculously wide gap between what they say and what they do, and given that applying the law to powerful government-controlled companies would go against everything the Chinese Communist Party has ever believed in, why should we pretend that there's even a remote chance that this will happen in the foreseeable future?


2. Posted by geoff manne on November 12, 2005 @ 9:48 | Permalink

An excellent point. I have two responses, but fundamentally I agree with you -- "optimism" and "Chinese Communist Party" are concepts foreign to each other.

But first I would note that the mere drafting of this law (largely a result of WTO accession negotiations) exposes the Chinese people (in government as in business) to the concepts it embraces, even if only nominally. It has brought massive foreign attention, and I doubt any other domestic law in any other country has ever been drafted with so much foreign input and attention (maybe some in Iraq). There will be some enforcement (as you say -- law can be a powerful tool), and at some point folks will start to investigate and question how it is being enforced. Eventually the government may be hoist to its own petard, forced to use this law in ways not intended when it was passed as mere "window dressing."

Second -- there are different levels of government, even in China and, more importantly, different levels of rivalry among governors. A tool as powerful as this (in earlier incarnations at least -- I'm not sure about this draft -- some violations were capital offenses, perhaps not surprisingly in China) that can be wielded by levels of governments against each other (say to rein in some "unauthorized" corruption in the provinces) or by rivals against each other, will undoubtedly be used. And, again, eventually the concepts it embraces and the fact of its enforcement may become "internalized" (in Koh's word).

Or maybe not. As I said (and as your comment stresses) there's good reason to be pessimistic.


3. Posted by Ann on November 12, 2005 @ 11:02 | Permalink

I agree with you that there's some hope that things will gradually change (if they don't collapse or explode first). Your point on the different levels of government is good.

I'm just concerned that Americans in general don't appreciate how different China is, and that they focus too much on the window-dressing. I can remember when China announced their policy on eugenics (forced sterilization of those with characteristics deemed undersirable, left to the discretion of local officials who had quotas to fill). When there was a big outcry, they simply changed the (English) name of the policy to something like 'mother and child health policy', and foreigners were happy again.

This is a culture that prides itself on having changed little in the last millenium or so, and yet Americans are quick to read huge permanent shifts into every announcement they make. Their constitution guarantees democracy, so it's not new for there to be a difference between law and practice in the "People's Republic".

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