On August 30, 2007, the Standing Committee of the People's Republic of China National People's Congress enacted a new, comprehensive competition statute, the Anti-Monopoly Law (AML), which will become effective August 1, 2008. This article briefly summarizes the key provisions of the AML and potential implications for firms doing business in China.

Similarities with Other Laws
The AML is similar in many ways to the antitrust and competition laws of other jurisdictions; indeed, it is modeled in large part after European Union and German law. For example, the AML prohibits anticompetitive "monopoly agreements" among competitors, such as price-fixing agreements, group boycotts, and market allocation arrangements. Agreements to fix or limit the resale price of commodities are also prohibited.

The AML also bans firms from abusing a dominant market position by engaging in certain acts, such as selling below cost or entering into tying arrangements that condition the sale of a dominant product on the purchase of another product. Furthermore, mergers or acquisitions that "have the effect of eliminating or restricting competition" in China may be prohibited or subject to "restrictive conditions to reduce the adverse effects of the concentration."

Unique and Controversial Provisions
Despite these similarities, certain aspects of the AML address issues that are unique to China as it moves from a centrally planned to a more market-oriented economy. For instance, the AML places restrictions on the conduct of state-owned enterprises (SOEs) and prohibits administrative agencies from using governmental power (e.g., discriminatory taxes, fees, or licensing requirements) to restrict or eliminate competition.

The AML also contains some restrictions and exceptions that are likely to be controversial and that vary from the standards and policy goals of U.S. law. For example, the AML prohibits a dominant firm from selling products at "unfairly" high or low prices, and outlaws unilateral refusals to deal and discriminatory trading practices by dominant firms that are not justified by a valid cause. Similar provisions in other jurisdictions have been criticized because such practices may not actually result in harm to competition or consumers (as opposed to individual competitors) and could potentially have pro-competition benefits.

Furthermore, the AML contains several "block exemptions" that could permit Chinese enforcement agencies and courts to allow otherwise anticompetitive agreements or unlawful conduct to go unpunished. For instance, if a Chinese enforcement agency or court determined that an agreement or conduct serves the "public interest" or promotes "fair" competition or "legitimate interests in foreign trade or foreign economic cooperation," then a seemingly per se unlawful agreement or restraint could be deemed lawful.

Likewise, although SOEs and administrative agencies are technically subject to the AML, the Chinese antitrust enforcement agency will not have authority to control or limit their activities; indeed, "legitimate activities" of SOEs are expressly protected in the AML. Instead, the Chinese antitrust agency will merely have the power to make proposals to the state authorities having authority over an agency or SOE that is violating the AML in some fashion. Any future reliance on such exceptions is likely to generate concerns that the AML is being used to protect China's SOEs or other industrial or foreign policy goals (rather than competition or consumer welfare).

Uncertainties
While companies doing business in China are likely to be familiar with some of the AML's restrictions on competitive activity, firms will continue to face uncertainty in the near future about the AML's scope and potential application. The law does not clearly define the precise meaning of certain prohibited practices, and while the AML calls for the creation of a new enforcement agency, it is unclear what steps that agency will take to promulgate regulations or enforce the law. Companies will need to monitor the level and type of enforcement and continually evaluate whether legal developments in this area warrant any changes to their ongoing business practices.