By Mei Xinyu

Foreign enterprises must respect China’s anti-trust law

he author is an op-ed ontributor to Beijing eview and a researcher ith the Chinese Academy f International Trade and conomic Cooperation

Right at the start of 2013, the National Development and Reform Commission(NDRC) fined six overseas companies,including South Korea’s Samsung and LG, for rigging prices for LCD panels, calling attention to foreign companies who try to undermine China’s anti-monopoly law.

As the world’s biggest home appliance producer, exporter and sales market, China is also the biggest victim of price manipulation by companies like Samsung and LG. Therefore,punishing those companies is just ifiable.

All overseas companies that intend to do business on the Chinese mainland must realize that even actions taken outside China are within the jurisdiction of Chinese economic laws should they have a large enough impact on the Chinese market.

International practice

Is China getting in over its head to punish price manipulators outside China? Certainly not. The principle of extraterritorial jurisdiction—or the ability of a government to exercise authority outside of its national boundaries—in the antimonopoly field is an international practice, and most countries with anti-monopoly laws have adopted the principle. Many countries and regions have included mergers and acquisitions(M&As) between overseas enterprises whose headquarters are abroad into anti-monopoly review. All these countries practice extraterritorial jurisdiction when behaviors of foreign companies adversely impact domestic companies.

Article 2 of China’s Anti-Monopoly Law says the law “shall apply to the monopolistic conduct outside the territory of the People’s Republic of China that has the effect of eliminating or restricting competition on the domestic market of China.”

Even if a country claims extraterritorial jurisdiction, it must also be capable of exercising such power. China is the world’s second largest economy and second largest importer.The huge domestic market has enabled the Chinese Government to stand up to foreign companies that ignore China’s economic laws,and any company with global ambitions cannot afford to lose the Chinese market.

Extraterritorial jurisdiction applies to not only price manipulation but also the consolidation of business operators, or M&As. Any M&A between two or more foreign companies must be reported if it reaches the threshold set by the Chinese Government.

In fact, the Ministry of Commerce(MOFCOM) has taken the first step in implementing extraterritorial jurisdiction regarding M&As. Since the conditional approval of the Belgium-based brewer InBev of American brewing giant Anheuser-Busch in 2008,the MOFCOM has reviewed more than 300 anti-monopoly cases involving extraterritorial jurisdiction. Most of the cases got unconditional approval, but some 10 cases were either approved subject to conditions or rejected, such as Google’s acquisition of Motorola Mobility,Western Digital’s acquisition of Hitachi Global Storage Technologies and a joint venture between Henkel Hong Kong and Tiande Chemical Holdings.

The necessity

Many foreign companies are unaware of China’s extraterritorial jurisdiction power, so it is necessary for China to exercise its authority.

BHP Billiton and Rio Tinto announced on June 5, 2009 a plan to set up a joint venture to operate their iron ore businesses in the state of Western Australia. On the same day, Colin Barnett, premier of Western Australia, told the media that he hoped Aluminum Corporation of China would invest in Rio Tinto instead of there being an alliance between Rio Tinto and BHP Billiton, because he feared all the iron ore in Pilbara would be controlled by one company.However, he did not mention China’s ability to exercise its extraterritorial jurisdictional authority on the alliance between Rio Tinto and BHP Billiton.

According to Barnett, a successful alliance of the two mining giants needs the approval and support of the Australian Foreign Investment Review Board, the Australian Competition and Consumer Commission, the Western Australia state government and parliament. Internationally it needed at least the approval of the European Union (EU) and the U.S. Department of Justice. But he did not mention that China and other big Asian steel-producing nations have a say in the case.

In fact, China, Japan and South Korea are among the world’s biggest steel producers and iron ore importers and are more qualified than the United States and the EU to exercise extraterritorial jurisdiction over this case, because the possible alliance would impose a greater influence on the three Asian countries. Particularly, 70 percent of the 270 million tons of iron ore output by BHP Billiton and Rio Tinto in that year were exported to China. As the iron ore giants’ largest customer, China’s authority to examine and approve the case should be greater than that of the United States and the EU.

Fair environment

To emphasize China’s extraterritorial jurisdiction when it comes to international anti-monopoly law does not mean China’s business environment will deteriorate.

In the LCD price-manipulation case, the companies involved were fined 353 million yuan ($56.3 million). Although it is the severest penalty imposed by the Chinese Government for price fixing, but it is much lower than the penalties imposed by other countries in the same case. The United States ordered a fine of $1.22 billion, the EU fined 648 million euros($864.73 million) and South Korea fined the LCD panel producers for 194 billion South Korean won ($183.49 million).

Although China pledges to punish any violation of the law, the purpose of China’s antimonopoly law is to establish a normal market order but not bring about the demise of any company.

Since 2010, the Chinese Government has made flat panel screens a strategic emerging industry. By the end of 2011,the LCD panel production capacity on the Chinese mainland had accounted for 20 percent of the world’s total. For years, producers from countries and regions such as Japan,South Korea and Taiwan had conquered over 90 percent of the global market share,with Samsung, LG, AU Optronics, Chimei and Sharp ranking as the top five LCD panel producers, accounting for 80 percent of the world’s output and sales.

NEW MODEL: A salesperson in Suzhou, Jiangsu Province, demonstrates the use of a new Samsung LCD TV

Punishment by the United States, the EU,South Korea and China on these long-standing giants will benefit domestic producers on the Chinese mainland. But if the aim was simply to erode the competition of overseas rivals and support the development of domestic companies, the Chinese Government should have imposed much bigger fines on these LCD panel producers.

In the face of global economic competition, growing operation costs in China has been an irreversible trend. China has been unable to maintain an advantage of low production costs, forcing China to enhance international competitiveness. A predictable legal environment is one of the components of such an environment, and China’s policy makers and implementers are believed to fully understand this.

The astronomical fines by the United States and the EU in anti-monopoly cases are often based on the global sales of the involved companies, plundering the wealth of other countries, especially developing countries and regions. Anti-monopoly laws in developed countries are more advanced than in the developing world, putting the latter in an unfavorable position to exercise extraterritorial jurisdiction.

Most of the international cartel cases that have been punished are present in both developed countries and developing countries, but in developing countries with weak competition laws, monopolies by Western multinationals are particularly serious. In other words, international monopoly enterprises are plundering developing countries.

But in the anti-monopoly practice, developed countries have been investigating transnational monopolies and collecting fines for years. According to WTO figures, in the 1990s, a total of 39 hardcore cartel cases were launched in the world, involving 31 countries,including eight developing countries. However,most of these cases were investigated and fined by the United States and the EU. Except for Brazil, no other developing country had any anti-monopoly act in place, although they were seriously affected.

Developed countries, however, were calculating their fines based on global sales and seized funds that should belong to developing countries to aid their development, thereby further intensifying global income disparity. ■