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China and the United States signed a memorandum of understanding regarding cooperation in anti-trust and anti-monopoly investigations in Beijing on July 27. China’s National Development and Reform Commission(NDRC), Ministry of Commerce(MOFCOM) and State Administration for Industry and Commerce (SAIC) signed the document with the U.S. Department of Justice and Federal Trade Commission(FTC).
The document is a long-term framework that will allow law enforcement agencies in both countries to coordinate in investigating anti-trust cases through information exchanges, training programs and workshops, and providing comments on rulemaking, according to the memorandum.
The document will have a profound influence on future exchanges and cooperation between the two countries looking to improve relevant policies, curb anti-competition practices, safeguard consumers’ rights and interests, and boost economic growth, said Zhong Youping, Vice Minister of SAIC.
“China is America’s largest trading partner and we signed the memorandum with China shortly after it enacted its AntiMonopoly Law,” said FTC Chairman Jon Leibowitz.
Coordination and disputes
China enacted the Anti-Monopoly Law on August 1, 2008, but didn’t introduce supporting laws and rules until 2009. Antitrust legislation has been around for about a century in the United States, with its first antitrust law enacted in 1890 with the Sherman Antitrust Act.
The U.S. FTC and Department of Justice have offered constructive suggestions for SAIC to adapt to international anti-monopoly standards while drafting the Anti-Monopoly Law and supporting rules, and sent experts to lecture the SAIC officials on related subjects, said Zhong.
Both sides also sent delegations to carry out exchange visits and communicate over a wide range of topics.
China’s Anti-Monopoly Law targets the global market like its U.S. counterpart law.
MOFCOM announced conditional approval for the merger between Russian potash fertilizer producers Silvinit and Uralkali in June 2011, requiring Uralkali to continue to supply China with potash fertilizer.
In 2009, MOFCOM required Pfizer to hand off its China operation of swine mycoplasmal pneumonia vaccine to an independent third party purchaser before it completed its$68-billion acquisition of Wyeth.
General Motors was required to procure parts from multiple sources on a non-discriminatory basis and not impose unreasonable conditions that may favor Delphi over its competitors as a condition for General Motors’ acquisition of auto parts manufacturer Delphi.
MOFCOM also blocked Coca-Cola’s bid to buy China’s top juice maker, Huiyuan, that year.
Currently, MOFCOM is investigating several anti-monopoly cases, including Yum Brands, Inc.’s application to acquire catering business Little Sheep Group Ltd. and Nestle’s proposed deal to buy a 60-percent stake in candy maker Hsu Fu Chi International.
By the end of May 2011, China’s antimonopoly agencies had handled more than 140 cases, of which one was blocked, seven won conditional approval and the rest were approved. A majority of these acquisitions involved only Chinese companies, including mergers and acquisitions between large stateowned enterprises.
While the Chinese Government carries out investigations at home, Chinese companies’overseas acquisitions are subject to similar investigations, too. Two U.S. companies, Animal Science Products Inc. and Ranis Co., sued four Chinese vitamin C producing pharmaceutical groups in 2005 for jointly manipulating both vitamin C prices and quantities on the global market. This was the first anti- monopoly lawsuit against Chinese exporters.
The same year, 17 Chinese manufacturers and exporters of magnesite and relevant products, like China Minerals Corp., were accused of violating U.S. anti-trust laws.
Chinese companies became defendants for anti-trust violations in the United States, which reflected they, who had to accept prices set by others before, have gained a larger say in deciding prices of their own products on the global market, and indicated antitrust lawsuits against Chinese companies will grow in numbers. All Chinese players on the global market could be subject to these investigations overseas, said Mei Xinyu, an associate research fellow with the Chinese Academy of International Trade and Economic Cooperation.
There were few anti-trust disputes between China and its trading partners in the past because made-in-China products used to take up a small portion of the global commodity market, and Chinese exporters had to accept prices set by others and were seldom able to decide prices themselves. But China’s rise as one of the world’s major manufacturers has allowed it a stronger pricing power, making anti-trust disputes inevitable.
Chinese companies accused of violating U.S. anti-trust laws share some common features: their exports to the United States should either have required quotas or be reviewed and approved by China’s various chambers of commerce for imports and exports in terms of contracted prices before being declared at the
customs, said Mei.
Such an institutional arrangement was meant to prevent exporters from slashing export prices and thus causing anti-dumping lawsuits, but the agreed-upon prices set by companies in each trade through negotiations organized by these chambers, called the minimum prices for exporters, are easily associated with the practice of export pricefixing like most cartels, he said.
Most of U.S. anti-trust lawsuits against Chinese companies focus on price-fixing cases, which usually involve commodities that can only be differentiated by prices, he said. Anti-trust lawsuits often took place in industries where prices increase much faster than the inflation rate, and in vital industries to the national economy, such as products and services in medicare and computing technology industries, he said.
At the memorandum signing ceremony, Leibowitz said they are keeping a watchful eye on the medicare, pharmaceutical and hi-tech industries for possible anti-trust violations.
Advising caution
The United States has similar memorandums with the European Commission and nine other nations—Japan, Germany, Russia, Canada, Brazil, Israel, Mexico, Chile and Australia.
China and the United States have worked on the memorandum for nearly two years and pledge to maintain extra-communications when merger and acquisition cases arise between Chinese and U.S. companies, the document said.
The memorandum will help China beef up its legislation efforts to promote competition and prevent monopolies, said Song Hong, Director of the International Trade Section of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences.
China hopes to contain monopoly and anti-competitive practices by large multinationals in China while promoting free competition in the domestic market, said Song.
The United States has many severe measures targeting illegal monopoly practices by
large corporations, as it upholds the principle of laissez faire, but China, which began to introduce laws for a market economy since the early 1990s, is facing more challenges to iron out proper policies and regulations.
As they grow in both economic sizes and profits, large multinationals, and big Chinese companies as well, tend to orient their investments to monopoly practices, and the memorandum will help China establish a complete framework of anti-monopoly policies, Song said.
It will also promote Sino-U.S. trade and investment and demand transparency in such business practices, otherwise, relevant punishment may ensue, he said.
But some analysts are not optimistic about the prospects of Sino-U.S. anti-monopoly cooperation, and said Chinese enterprises should take the initiative, focus on prevention and minimize losses from possible anti-trust lawsuits.
Zhang Yichi, a lawyer with the Beijingbased DeHeng Law Offices which defended China’s vitamin C producers in the 2005 anti-monopoly lawsuit, advised Chinese companies to learn more about relevant laws in importing countries.
The first step to avoid expensive lawsuits is to consult local lawyers because antimonopoly lawyers will provide professional advice for Chinese companies to conduct marketing activities legally at overseas markets, Zhang said.
“It is not only legal consulting, but also offers preventive measures conducive to adjusting, or filling up loopholes in, their business strategies,” he said.
Zhang advised prudence in handling details like wording for product brochures, advertisements and statements. “It is not difficult to do, but will help you avoid lots of troubles and may serve as important evidence that lawyers need to help you win a lawsuit,”he added.
The document is a long-term framework that will allow law enforcement agencies in both countries to coordinate in investigating anti-trust cases through information exchanges, training programs and workshops, and providing comments on rulemaking, according to the memorandum.
The document will have a profound influence on future exchanges and cooperation between the two countries looking to improve relevant policies, curb anti-competition practices, safeguard consumers’ rights and interests, and boost economic growth, said Zhong Youping, Vice Minister of SAIC.
“China is America’s largest trading partner and we signed the memorandum with China shortly after it enacted its AntiMonopoly Law,” said FTC Chairman Jon Leibowitz.
Coordination and disputes
China enacted the Anti-Monopoly Law on August 1, 2008, but didn’t introduce supporting laws and rules until 2009. Antitrust legislation has been around for about a century in the United States, with its first antitrust law enacted in 1890 with the Sherman Antitrust Act.
The U.S. FTC and Department of Justice have offered constructive suggestions for SAIC to adapt to international anti-monopoly standards while drafting the Anti-Monopoly Law and supporting rules, and sent experts to lecture the SAIC officials on related subjects, said Zhong.
Both sides also sent delegations to carry out exchange visits and communicate over a wide range of topics.
China’s Anti-Monopoly Law targets the global market like its U.S. counterpart law.
MOFCOM announced conditional approval for the merger between Russian potash fertilizer producers Silvinit and Uralkali in June 2011, requiring Uralkali to continue to supply China with potash fertilizer.
In 2009, MOFCOM required Pfizer to hand off its China operation of swine mycoplasmal pneumonia vaccine to an independent third party purchaser before it completed its$68-billion acquisition of Wyeth.
General Motors was required to procure parts from multiple sources on a non-discriminatory basis and not impose unreasonable conditions that may favor Delphi over its competitors as a condition for General Motors’ acquisition of auto parts manufacturer Delphi.
MOFCOM also blocked Coca-Cola’s bid to buy China’s top juice maker, Huiyuan, that year.
Currently, MOFCOM is investigating several anti-monopoly cases, including Yum Brands, Inc.’s application to acquire catering business Little Sheep Group Ltd. and Nestle’s proposed deal to buy a 60-percent stake in candy maker Hsu Fu Chi International.
By the end of May 2011, China’s antimonopoly agencies had handled more than 140 cases, of which one was blocked, seven won conditional approval and the rest were approved. A majority of these acquisitions involved only Chinese companies, including mergers and acquisitions between large stateowned enterprises.
While the Chinese Government carries out investigations at home, Chinese companies’overseas acquisitions are subject to similar investigations, too. Two U.S. companies, Animal Science Products Inc. and Ranis Co., sued four Chinese vitamin C producing pharmaceutical groups in 2005 for jointly manipulating both vitamin C prices and quantities on the global market. This was the first anti- monopoly lawsuit against Chinese exporters.
The same year, 17 Chinese manufacturers and exporters of magnesite and relevant products, like China Minerals Corp., were accused of violating U.S. anti-trust laws.
Chinese companies became defendants for anti-trust violations in the United States, which reflected they, who had to accept prices set by others before, have gained a larger say in deciding prices of their own products on the global market, and indicated antitrust lawsuits against Chinese companies will grow in numbers. All Chinese players on the global market could be subject to these investigations overseas, said Mei Xinyu, an associate research fellow with the Chinese Academy of International Trade and Economic Cooperation.
There were few anti-trust disputes between China and its trading partners in the past because made-in-China products used to take up a small portion of the global commodity market, and Chinese exporters had to accept prices set by others and were seldom able to decide prices themselves. But China’s rise as one of the world’s major manufacturers has allowed it a stronger pricing power, making anti-trust disputes inevitable.
Chinese companies accused of violating U.S. anti-trust laws share some common features: their exports to the United States should either have required quotas or be reviewed and approved by China’s various chambers of commerce for imports and exports in terms of contracted prices before being declared at the
customs, said Mei.
Such an institutional arrangement was meant to prevent exporters from slashing export prices and thus causing anti-dumping lawsuits, but the agreed-upon prices set by companies in each trade through negotiations organized by these chambers, called the minimum prices for exporters, are easily associated with the practice of export pricefixing like most cartels, he said.
Most of U.S. anti-trust lawsuits against Chinese companies focus on price-fixing cases, which usually involve commodities that can only be differentiated by prices, he said. Anti-trust lawsuits often took place in industries where prices increase much faster than the inflation rate, and in vital industries to the national economy, such as products and services in medicare and computing technology industries, he said.
At the memorandum signing ceremony, Leibowitz said they are keeping a watchful eye on the medicare, pharmaceutical and hi-tech industries for possible anti-trust violations.
Advising caution
The United States has similar memorandums with the European Commission and nine other nations—Japan, Germany, Russia, Canada, Brazil, Israel, Mexico, Chile and Australia.
China and the United States have worked on the memorandum for nearly two years and pledge to maintain extra-communications when merger and acquisition cases arise between Chinese and U.S. companies, the document said.
The memorandum will help China beef up its legislation efforts to promote competition and prevent monopolies, said Song Hong, Director of the International Trade Section of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences.
China hopes to contain monopoly and anti-competitive practices by large multinationals in China while promoting free competition in the domestic market, said Song.
The United States has many severe measures targeting illegal monopoly practices by
large corporations, as it upholds the principle of laissez faire, but China, which began to introduce laws for a market economy since the early 1990s, is facing more challenges to iron out proper policies and regulations.
As they grow in both economic sizes and profits, large multinationals, and big Chinese companies as well, tend to orient their investments to monopoly practices, and the memorandum will help China establish a complete framework of anti-monopoly policies, Song said.
It will also promote Sino-U.S. trade and investment and demand transparency in such business practices, otherwise, relevant punishment may ensue, he said.
But some analysts are not optimistic about the prospects of Sino-U.S. anti-monopoly cooperation, and said Chinese enterprises should take the initiative, focus on prevention and minimize losses from possible anti-trust lawsuits.
Zhang Yichi, a lawyer with the Beijingbased DeHeng Law Offices which defended China’s vitamin C producers in the 2005 anti-monopoly lawsuit, advised Chinese companies to learn more about relevant laws in importing countries.
The first step to avoid expensive lawsuits is to consult local lawyers because antimonopoly lawyers will provide professional advice for Chinese companies to conduct marketing activities legally at overseas markets, Zhang said.
“It is not only legal consulting, but also offers preventive measures conducive to adjusting, or filling up loopholes in, their business strategies,” he said.
Zhang advised prudence in handling details like wording for product brochures, advertisements and statements. “It is not difficult to do, but will help you avoid lots of troubles and may serve as important evidence that lawyers need to help you win a lawsuit,”he added.