Merger Review in China and South East Asia: Does It Smell of Protectionism?

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K K Sharma, Oct 29, 2014

There was a considerable excitement when two of the fastest-growing economies and most populous countries—China and India—introduced competition law in their respective lands. The competition law in India was enacted in January 2003. However in India, the law, after enactment, remained practically ineffective till as late as May 20, 2009, the day when notification of the partial enforcement powers was declared by the Government. Till that time the provisions of the Competition Act, 2002(“Act”), notified by the Government, permitted the Competition Commission of India (“CCI”) to do little beyond competition advocacy of competition law among different stakeholders across the country.

On the other hand, the time gap between the preparation of the first draft and the actual full enforcement of competition law in China was much smaller. In August 2008, China could actually take pride in having a fully functional competition law regime in place despite having started its journey a little later than India. This speed reflects small costs associated with the types of political system a country follows. In a democracy, everyone is free to raise a different voice, and any legislation can only go through after the voices of dissent have been fully heard and taken care of. Such compulsions do not necessarily overburden the decision-making process in political systems other than a democracy. As we all know, in a democracy, the plurality is not just tolerated but desired. It was for these reasons that the competition law, after enactment, in India, was dragged to courts and made to justify its existence and the form. Chinese law, on the other hand, had to pass through no such rigors.

It may be recalled that during the run up to the full enforcement of competition law in China and India there was a huge interest taken by authorities representing two slightly differing systems of competition law—the United States and the European Union—each desiring to engage the competition bodies of Indian and China and “teach” them the finer nuisances of competition law. To varying degrees, some engagements did take place. India certainly had a Technical Assistance Support Programme (“TASP”) running for some time with the U.S. Federal Trade Commission (“FTC”) and Department of Justice (“DOJ”). And, without getting into levels of engagement, it was certain that exchange visits did take place between China and functional competition law jurisdictions in the region at that time.

Irrespective of the stated objective of engagement of these two styles of competition law, which was merely to assist new competition agencies in different countries, the fact remains that, to give the comfort of level playing field to their domestic industries and constituents—whether it was the United States or the European Union—each one wanted and still wants to create a competition law structure in the new territories which is as nearly a clone of their own competition law back home as possible. Seen from the perspective of the newly established competition agencies, it helps if those who are running competition agencies for some time are available for discussion and guidance without inhibition and at will. To this extent, an engagement of the agencies from these countries with the newly formed competition agencies was a welcome step.

Theoretically speaking, competition issues are not expected to have any nationalistic flavor or boundaries except, in some cases, where on account of historical reasons and in favor of equity, some provisions have been made in the law itself. These include provisions relating to possible harm to any historically oppressed segments of population, or instances where national security can be a consideration in the enforcement of competition law and merger reviews. These do give some leeway to the competition agency.

Competition law is an economic law. Simply stated, this law has to keep in mind and be dependent upon the economy and the economic conditions of the populace. Whether we accept it or not, unfortunately economic conditions of the people in different countries are vastly different. Economic needs and aspirations of the countries and their populations also vary substantially. It is not a border-less and visa-less world. It also does not appear to be the stated aim of any multilateral body or United Nations. That means we have to accept this world, with varying degrees of economic development and the consequential border controls, as a given variable. Among the main reasons behind border controls, in addition to a check on crime, are differing economic levels and, consequently, fear of movement of human traffic looking for a better economic lot in a land other than the land of their birth.

This implies that continuous efforts by nations to preserve and enhance their economic prosperity can be understood and may even be justified. It leads to a natural corollary that different nations do all within their power to support the enterprises which are identified with those countries so as to, in turn, enhance their economies and, consequentially, well being of their populations.

With this background in mind, it should not shock puritanical antitrust folks to find traces (or more) of nationalistic leanings in various aspects of competition law enforcement in the newly established competition law jurisdictions as well. This piece attempts to look at the recent merger review progress in China and South East Asia, from a neutral perspective, without either supporting or opposing such tendencies.