Against Antitrust Functionalism: Reconsidering China’s Antimonopoly Law

[Salil Mehra is Professor of Law at Temple University Beasley School of Law and Meng Yanbei is Associate Professor at Renmin (People’s) University in Beijing, China]

Thanks to the Virginia Journal of International Law and Opinio Juris for hosting this discussion. Since this is our first time doing a blog posting for an article, apologies for any failure we may have to strike an appropriately bloggy tone.

Our article sets forth a somewhat contrarian take on China’s newly applicable, and first comprehensive, competition law, the Antimonopoly Law (AML). During the decade-plus of the AML’s drafting, many outside and internal observers were quit pessimistic about the law’s likely impact. First, some observers questioned the substantive provisions of the act. In particular, provisions aimed at so-called administrative – that is, state-bolstered – monopolies seemed an ill fit in a general antitrust law. See Mark Williams, Competition Policy and Law in China, Hong Kong and Taiwan. Additionally, many held doubts about the practical enforceability of the AML. After all, despite its stunning economic growth, China remains in many respects a transitional economy with a significant heritage of state intervention in the economy. To create an enforceable competition law in such an environment requires facing a tough challenge: how to regulate the regulators?

We provide some reasons for optimism about the AML. We believe that to view the AML as merely “China’s Sherman Act” is to take too narrow a view. The AML also addresses inefficiencies that, in the U.S. would be subject not to antitrust law, but to Dormant Commerce Clause analysis – the kind of state action that is also covered under EU competition law. In particular, a significant source of inefficiency in China stems from regional and local government administrative monopolies that in some industries effectively balkanize an otherwise huge market. There are a couple of reasons to believe that the AML could reduce these inefficiencies. First, there is the possibility that central government enforcement will be able to rein in regionally-created monopolies. But also, drawing on the repeated prisoner’s dilemma model of international trade among sovereign states under such agreements as the GATT and The Treaty Establishing the European Community, the adoption of a clearer conduct standard plus the possibility of improved information about compliance with it could yield a cooperative equilibrium even in the absence of binding enforcement mechanisms. Additionally, on a more abstract level, even without strong enforcement mechanisms, AML institutions could help spark a dialectic about the benefits of competition out of which a “competition law” culture could develop. This is particularly important given the low level of consciousness in the business community about what competition law did exist in China prior to the AML.

That is not to say that we believe that the AML is perfect; it is far from a panacea. However, we would not pronounce it doomed in its infancy.