Sample Paper on Competition Ordinance in China and Australia

Competition Ordinance in China and Australia: A Comparison

Introduction

Background information

Competition laws across the globe promote effective competition between related businesses. While there are competition laws that govern business within country boundaries, the laws also exist to govern business dealings across boundaries in bilateral trade agreements. Although the positive impacts of these ordinances on businesses cannot be ignored, they also have the potential of resulting in negative impacts in Third World countries since these countries may not be able to sustain business in the wake of competition laws.[1]

Competition ordinances are closely related to laws for the deregulation of access to markets, state subsidies and aids, and the privatization of assets, which have been formerly state owned. The purpose of competition ordinances is to protect against the fixation of prices, limitation of production sharing of supply sources, and application of significant partnerships. Each of these purposes is achieved by competition ordinances in various countries, and served differently depending on the country of enactment. Although the competition ordinances vary from country to country, their provisions are generally the same, aimed at achieving the objective of maintaining fair competition in the markets.[2]

The specific provisions of competition ordinances across countries include prohibition of undertaking of dominance in positions, and the imposition of unfair trade terms either directly or indirectly. In the prohibition of dominance positions in trade, businesses are protected against monopolistic undertakings. These are the general provisions of the competition ordinance across countries. However, the specifics of the ordinance vary from country to country. The salient features of the competition ordinance also have some general properties across various countries.[3]

For instance, the competition act in various countries enables the creation of a conducive environment for trade competition. This is through allowing competition across the trade divide, while prohibiting measures that tend to make competition unfair. In addition, this feature becomes known in the competition laws’ ability to prevent monopolistic trade dealings. Secondly, the competition ordinances prohibit trade agreements that discourage competition. This is through the consideration of the provisions of the competition Act, which compel businesses to compete productively.[4]

In addition to this, the competition ordinances prohibit the abuse of trade dominance. This refers to cases where a particular organization or business outlet enjoys dominance over a particular market. The business in question is prohibited from using its dominance to gain unjust preferences in the market. The prohibition of the abuse of dominance also extends to corporations operation in global markets over trade in products, which have no major competition. In such cases, the corporations are not encouraged to take advantage of their dominant positions by engaging in competition stifling activities such as control of product pricing.

Moreover, the competition laws also regulate business combinations such as acquisitions and mergers. The aim of this regulation is to prevent business organizations from creating combinations that result in unfair trade terms to other organizations or those that stifle competition among various traders. The competition laws also ensure that such mergers and acquisitions are only carried out based on positive projected impact.[5]

While general information regarding the competition ordinances is available, particular information on the specific countries’ competition ordinance is limited. It is predicted that the similarities between the competition ordinances of China and Australia are far more than the differences between the two countries. It is based on a background that this study seeks to compare the provisions and objectives of the competition ordinance in the two countries. The major objective of the present study is to determine what the competition ordinance entails in China and Australia and to compare and contrast the two.

In order to achieve this general objective, the specific objectives that will be addressed by this study include:

  • To determine what the competition ordinance entails in China
  • To find out what the contents of the competition ordinance are in Australia
  • To find out the similarities and differences between the competition ordinance in China and the competition ordinance in Australia

In order to address accomplish these objectives, the following research questions will be used to guide the study:

  • What does the competition ordinance in China entail?
  • What does the competition ordinance in Australia entail?
  • What are the similarities between the competition ordinance in China and that in Australia?
  • What are the differences between the competition ordinance in China and in Australia?

Research Scope

The present study covers the details of the competition ordinance in China and Australia. The details that will be considered in this study include the objectives of the competition ordinance in both countries, the provisions of the competition ordinance in both countries, the legal application of the competition ordinance in both countries and the relationship between market access deregulation laws and the competition ordinance in both countries. In addition to this, the study will also compare and contrast these details in the two countries. The study will not cover any other details out of these.

Literature Review

Competition Ordinance in China

According to Pang and Liu, the competition ordinance in China was enacted in 2012 and the Competition Commission established under the competition ordinance. The commission was established as a statutory body to enforce the provisions of the competition ordinance and to ensure full adherence to it.[6] The competition ordinance deters and prohibits undertakings in every sector from the adoption of anti-competitive acts with the aim of restricting, preventing, or distorting competition within China. The ordinance comprises of three conduct rules, which guide the behavior of entities in trade within China. The first rule prohibits undertaking of agreements that encourage the adoption of restrictive, preventive, or distortive actions with respect to competition in China. With respect to this first rule, even decisions that tend to affect the competition environment in a negative way are prohibited.[7]

The second rule in the competition ordinance is that it prohibits entities with significant dominance over the market from engaging in conducts that restrict, prevent, or distort competition in the country. This includes multi-national corporations operating in China. The third rule regards the formation of mergers that restrict competition in China. This rule is however limited to the telecommunications ordinance, particularly to carrier licenses issued under this ordinance.[8]

Yeung asserts that the competition ordinance in China is a comprehensive system held under the Republic’s Anti- Monopoly Law (AML). The application of the AML depends on the implementation of various guidelines and rules by undertakings. Initially, the objective of the AML was to control mergers. The focus has however shifted, particularly in the last 2-3 years where there has been increasing investigations on anti-competitive behavior by suspected undertakings. This increase has provided a clear indication of a seemingly proactive approach to anti-competition regulations.[9]

The Anti-Monopoly Law[10] in China was enacted on 30th August 2007and became effective as the country’s economic constitution on 1st August 2008. The AML was the first pro-competition law in China and was put in place as a state machinery to prevent monopoly. By giving mechanism for the prevention of undue market power concentrations gained through mergers and acquisitions, to penalize monopolistic conducts in markets, reviewing, and to enforce empowerment measures for private entities, which have experienced harm through the monopolistic conducts of other undertakings.[11]

The specific objectives associated with the AML in China are to safeguard the order of competition in the market as well as to protect the market competition conditions; to enhance the efficiency of the economy through the enforcement of a robust competitive market system; to preserve the interests of the consumers in the republic by preventing anti-competitive conducts; to protect the interest of the public with regards to trade; and to promote the development of a healthy socialist market. These objectives are all applicable to the control of monopolistic conduct in the Chinese market.[12]

In the enforcement of China’s AML, three anti monopoly enforcement agencies have been put in place by the Chinese law provisions. The enforcement agencies are required to practice with transparency, non-discrimination, fairness, and non-objectiveness.[13]

Competition Ordinance in Australia

In Australia, the competition ordinance was enacted under the Competition and Consumer Act (CCA) of 2010[14]. The competition law is contained in part IV of the CCA. Besides the contents of Part IV of the Act, certain prohibitions have also been created to enhance anti-competitive conduct, particularly in the telecommunications industry. The competition law has been the effective law towards the accomplishment of a competitive end in Australia. In the Competition Policy Reform Act 1995 (Act 88), it is well articulated that the objective of the act is to up keep the welfare of the citizens through encouragement of competition in trade, protection of consumers and fair trading principles. The competition law in Australia prohibits all forms of cartel act. This refers to all activities that involve price fixation, restriction of the market, rigging of bids, and market division.[15]

In addition to the aforementioned activities, the competition act also asserts that the cartel conduct is also prohibited where agreements and combinations are made with the defined cartel conduct activities given priority.[16] In this regard, the competition act asserts that where such agreements exist and at least two of the parties to the agreement are competitors, the agreement aims at restricting competition.

Section 45 in the CCA of 2010 also prohibits arrangements, contracts, or agreements whose objectives are to reduce the competition between undertakings. This section also considers joint venture operations in cases where the joint ventures have no objective of lessening the competition. In addition to this, the competition ordinance in Australia also prohibits exemption conducts.[17] According to Mian, this refers to primary boycotts, where the operation of a joint venture is limited despite the fact that it may not have the objective of lessening competition.[18]

The ordinance also prohibits the misuse of market power. This may be through activities such as predatory pricing, which refers to the allocation of lower product prices because of corporation’s position in the market disregarding competitors’ capabilities. It also controls the formation of mergers and other business combinations. Mergers are prohibited in case there is proof that they have the potential of resulting in a substantial reduction in competition within the industry. On the other hand, the competition tribunal authorizes any merger as long as it can be confirmed that its benefits to the public are tremendous. While the CCA prohibits all these conducts, authorization of any of them can be achieved after confirmation that it can beneficial to the public.[19]

When there is need for the enforcement of the competition ordinance, the Australian Competition and Consumer Commission is mandated to carry out measures for the enforcement of the competition act. The ACCC is mandated to identify the need for enforcement of the competition ordinance following a contravening of the act. The Australian Competition Tribunal on the other hand, is tasked with listening to appeals and providing recommendations to ACCC on the next course of action. Following contravention of the CCA, various civil remedies can be given. Some of the remedies include damages, divestiture of mergers, injunctions, and pecuniary penalties, punitive and non-punitive orders.[20]

Methodology

In carrying out this study, the exploratory approach to qualitative study was adopted. The rationale behind this choice of method is that the objectives of the research study require the study to provide theoretical answers to the research questions. Consequently, it is necessary that a theoretical framework be adopted to provide the essential information. An exploratory approach was selected since it provides information that describes the details of a given phenomenon from the theoretical perspective. Exploratory studies answer questions such as what, why, when and how an occurrence took place. Consequently, by adopting the theoretical framework and the related exploratory study approach, it is believed that sufficient information will be obtained regarding the subject of study. During the study, data collection was carried out through a review of relevant literature with specific focus on the study objectives.

Discussion

The competition ordinances in both China and Australia are modified versions of the general competition ordinance. In both countries, the major objective of the competition ordinance is to protect the citizens’ welfare through fair trade. While in China this objective is clearly defined into at least three minor objectives, the major objective in Australia is lone standing and applicable as it is to the implementation of the Competition ordinance. However, the enforcement and the provisions of the competition ordinance follow the same general processes in both countries. What this means that enforcement of the ordinance is likely to yield the same result in both countries.

Apart from the general objectives of the ordinance, another similarity between the two countries is the encapsulation of the competition law into other acts of the law. In China, the Competition act is considered as being comprehensively encompassed in the Anti-Monopoly Law whose initial objective was to control mergers. However, through the AML, anti-competition conducts have been effectively investigated and decisions made as to the course of action to take with reference to restitution.

In addition, the two country’s competition laws are similar in some of their provisions. The competition law in China includes the three rules, which prohibit anti-competition agreements, prohibit the misuse of a market power position and control of mergers to ensure that they are not formed with the aim of stifling competition. In Australia, the provisions of the Competition law also include these three rules in addition to others. First, the Australian CCA provides that any mergers must only be authorized if they show potential for public benefit and if the merger is not aimed at stifling competition between corporations. Apart from this, the competition ordinance in Australia also prohibits agreements that are aimed at discouraging competition. The misuse of market power is also an important point of interest in both countries’ competition laws. These similarities in provisions can be taken to mean that the competition law in China may be suited to a certain degree to some cases that may arise in Australia.

In the enforcement of the competition ordinance in the two countries, similarities are also eminent between the two countries. Some of the remedies that are carried out during the enforcement of the competition ordinances include damages and divestiture. In Australia, several cases have been heard in which there was a need to perform a divestiture on companies that had form unacceptable mergers. The two forms of remedy are the most common in cases related to the contravention of the competition act in the countries. Damages are the most common remedies in most civil cases where potential harm arises. It is also common across countries as well as across statutes. Its application in the competition law enforcement in either country is therefore inevitable. On the other hand, divestiture may only be suitable to the competition law.

On the other hand, the two countries are different in various respects. For instance, while the competition ordinance in China has only three major provisions, that in Australia has provisions for more rules. In the Australian competition law, the additional provisions include the prohibition of cartel conduct, prohibition of retail price maintenance, and the prohibition of mergers and agreements that approve some or all of the actions regarded as cartel conduct. In the provisions, the competition ordinance in Australia clearly outlines the conditions under which authorization of mergers can be issued especially where the mergers had previously been declined. For instance, while the competition ordinance in China only gives the condition that mergers cannot be authorized when observed that they are anti-competition without consideration of the public impact. In Australia, the competition act allows for authorization of a merger based on its purported impact on the public. The problem that may be associated of this consideration of a merger’s impact on the public is the potential for biasness and the temporal variation in impacts. This is because a merger may have a positive impact on the public in the contemporary times yet the impact may be leading to worse future effects yet the enforcement of the competition Act does not apply to futuristic events.

Apart from the provisions of the competition law, the ordinances are also different across the two countries in terms of enforcement. In China, the enforcement agencies are three and they operate serially. On the other hand, the enforcement agencies in the Australian competition are two yet operate in collaboration. However, both enforcement procedures culminate in civil action. In China, the AMLEA comprises of three enforcers within a single body. In Australia, the enforcers are in two different bodies i.e. the ACCA and the Australian Competition Tribunal. The Australian Competition Tribunal works in collaboration with the ACCA by confirming the enforcement decision made by ACCA. The Tribunal also makes recommendations for better enforcement by ACCA. The collaborative enforcement in China can be concluded to be effective since it enables cases to be investigated in depth. The distinction of roles in the Australian competition law enforcement on the other hand, has the potential of resulting into time wastage as cases go back and forth between the tribunal and the ACCA.

Application of the competition law

In the recent past, the competition law has been applied to significant extents in both China and Australia. In China, one of the landmark cases in which the competition ordinance was invoked was the Huawei v IDC[21] in which IDC was accused of abusing a dominant market position. In the final judgment, IDC was required to pay Huawei RMB 20 million for the abuse of intellectual property right instead of the filed complaint. The case however can be described as involving the abuse of dominant market position. Only in regards to this, the position held was in respect to intellectual properties. The restitution was however deserved as was ruled by the court.

In Australia, the ACCC v Flight Center Limited case[22] also attracted lots of attention. ACCC having filed a suit against Flight Center Limited for planning to collude with others in order to fix flight prices was fined $ 100 million. This fine was deserved since Flight Center had breached the competition act by planning to form a merger, which was likely to result in harm to the public. In this case, even the public interest consideration required that the defendants be fined.

Also in another case of ACCA v Air New Zealand[23], the defendants were accused of price fixing. The case was dismissed due to ACCA’s failure to demonstrate satisfactorily that Air New Zealand had colluded to fix prices. In China, the case of Ruibang v Johnson & Johnson[24] was also decided against the plaintiff on the basis of limited evidence. The plaintiff had sued J& J for withdrawing Ruibang’s distributorship rights.

Conclusion

The study has been effective in achieving its objectives. The initial objectives of the study were to determine what the competition ordinance in China and in Australia entails and to find out the similarities and differences between the competition ordinance in China and in Australia. While the major provisions are common between the two countries, there are also differences since the Australian competition law has more rules compared to the China competition ordinance. In addition to this, the enforcement of the competition ordinance is also different between the two countries.

 

 

 

 

 

 

 

 

Bibliography

ACCC, ‘Reinvigoration Australia’s Competition Policy’. (2014) Australian Competition and Consumer Commission.

Diana Pang, and Jing Liu, ‘Outline of the competition ordinance and the competition commission’. (2014) Competition Commission.

Giulia Piombi, ‘China and India competition Laws: a comparison’. (2008) Retrieved from http://works.bepress.com/cgi/viewcontent.cgi?article=1000&context=giulia_piombi

Jeremy Waterman and Sean Heather, ‘Competing interests in China’s competition law enforcement: China’s anti-monopoly law application and the role of industrial policy’. (n.d) US Chamber of Commerce

Natalie Yeung, ‘Competition law in China’. (2015) Slaughter and May

Ross Jones, ‘The role of the ACCC in the Australian competition policy’. (2002) The Australian Economic Review, 35(4), 430,437.

Qaiser Mian, ‘Does competition ordinance result in consumer protection?’(n.d) Retrieved from  http://www.pja.gov.pk/system/files/Does_Competition_Ordinance_Result_In_Consumer_Protection_0.pdf

Primary Sources

ACCA v Air New Zealand [2014] FCA 1157.

ACCC v Flight Centre Limited (No 2) [2013] FCA 1313.

Anti Monopoly Law of China 2008.

Competition and Consumer Act (CCA) 2010.

Huawei v IDC  [2011] SIC 857.

Ruibang V Johnson & Johnson [2013] SHC 63.

 

[1] Ross Jones, ‘The role of the ACCC in the Australian competition policy’ (2002)  35 AER, 4: 430,437.

[2] Jeremy Waterman and Sean Heather ‘competing interests in China’s competition law enforcement: China’s anti-monopoly law application and the role of industrial policy’. US CoC.

[3] Waterman and Heather ‘Competing interests in China’s competition law enforcement: China’s anti-monopoly law application and the role of industrial policy’ (n 2)

[4] Jones, ‘The role of the ACCC in the Australian competition policy’. (n 1) 430 – 437.

[5] Natalie Yeung ‘Competition law in China’ (2015). SM.

[6] Diana Pang and Jing Liu ‘Outline of the competition ordinance and the competition commission’. (2014) CC.

[7] Pang and Liu ‘Outline of the competition ordinance and the competition commission’. (n 6)

[8] Pang and Liu ‘Outline of the competition ordinance and the competition commission’. (n 6).

[9] Yeung ‘Competition law in China’. (n 5).

[10] Anti-Monopoly Law 2008.

[11] Waterman and Heather ‘Competing interests in China’s competition law enforcement: China’s anti-monopoly law application and the role of industrial policy’ (n 2)

[12] Giulia Piombi ‘China and India competition Laws: a comparison’.

[13] Waterman and Heather ‘Competing interests in China’s competition law enforcement: China’s anti-monopoly law application and the role of industrial policy’ (n 2)

 

[14] Competition and Consumer Act (CCA) 2010

[15] Qaiser Mian, ‘Does competition ordinance result in consumer protection?’

[16] Jones, ‘The role of the ACCC in the Australian competition policy’ (n 1) 430 – 437,

[17] ACCC, ‘Reinvigoration Australia’s Competition Policy’. (ACCC 2014).

[18] Mian, ‘Does competition ordinance result in consumer protection?’ (n 15)

[19] Jones, ‘The role of the ACCC in the Australian competition policy’ (n 1) 430 – 437,

[20] Jones, ‘The role of the ACCC in the Australian competition policy’ (n 1) 430 – 437,

[21] [2011] SIC 858.

[22] [2013] FCA 1313.

[23] [2014] FCA 1157.

[24] [2013] SHC 63.