Monday, April 30, 2012

Healthy competition: China v/s India

Suzanne Rab, a partner at King & Spalding in London, has experience in proceedings before the UK’s competition and regulatory authorities, and the European Commission. 

Excerpts from China Business Law Journal
April 30, 2012

Comparisons between the stellar growth and potential of two of the world’s biggest economies, China and India, become increasingly irresistible as both these Asian super-giants compete internationally and are prospects for foreign investment. Against this background, it’s timely to examine where the two countries stand on their recent adoption and enforcement of modernised competition laws.

China introduced its Anti-Monopoly Law (AML) on 31 August 2007, with effect from 1 August 2008. India’s new competition law  under the Competition Act 2002 (Indian Competition Act) has been implemented in two stages with powers to regulate agreements and commercial practices effective from 20 May 2009, while merger control followed two years later on 1 June 2011. Although both of these laws borrow from the competition laws in the EU and US, their detailed application and policy drivers differ; both between the two Asian countries and their counterparts internationally.

Similar, and not so similar

Few would deny the ascent of China and India as leading world economies, and their respective narratives make for the most compelling business stories of the 21st century.  Both face a consumer revolution where addressing increasing consumer demands requires supplying more of the right quality of goods, improving quality and enhancing value for money.  There are associated challenges in terms of re-engineering the supply chain and improving capital allocation so that funds can be used efficiently, stimulating improvements in productivity and allowing the local economy to access the expertise and investment of global investors.

Improvements in logistics also become imperative as productivity increases, and to improve access between suppliers and consumers.China and India may be similar from a macroeconomic perspective, but the similarities tend to break down when seen against their respective size, pace of development, culture and
trade policies. A recent article from The Economist highlighted that despite the apparent convergence, quite stark differences remain in terms of the speed and extent of economic development. India’s income per capita was about US$3,200 in 2009, yet China reached that level nine years earlier. The relative lag
in social development is much longer with reports that the likelihood of a child surviving past their fifth birthday in India today is comparable to the position of China in the 1970s.

Mapping the landscape

India opened its market to competition with liberalisation in the early 1990s. By that time, the antiquated Monopolies and Restrictive Trade Practice Act, 1969 was seen as inappropriate for the needs of international economic development and the impetus shifted from curbing monopolies to promoting competition.

However, the passage, adoption and implementation of the new Indian Competition Act were not smooth. The Competition (Amendment) Bill, 2007 brought about further changes following the filing of a writ before the Supreme Court.The objectives of the Indian Competition Act are sought to be achieved through the new competition authority, the Competition Commission of India (CCI). The CCI consists of a chairperson and
six members appointed by the central government. The Indian Competition Act (as amended) also established the Competition Appellate Tribunal (CAT) to consider appeals in relation to competition law matters.

One of the key concepts underpinning Indian competition law is the notion of an “appreciable adverse effect” (AAE) on competition in India. This concept underpins whether a restrictive agreement, commercial practice or combination will be permitted under Indian competition law. However, the definition of what is
appreciable has not been developed under the guidance of the CCI, and it is not clear to what extent it may be interpreted differently from “substantial”.......

A Rounded perspective

It  may  be convenient   to question whether  the adoption of competition  laws   in China and  India may   reflect  a  further breaking down of barriers to business opportunities internationally.  It is true that both face similar challenges as they begin to chart their way in what is for them the new territory of modern competition law.  However, despite the apparent similarity, treating India and China in the same way would be an error of judgment.

The adoption of modern competition laws in both nations is a milestone. The real test, however, will be how these legislative landmarks can bring about a perceptual and practical shift in situations involving the same facts that need to be examined under different laws. The international antitrust community has had input in
the formulation of the competition laws in India and China over the years, with varying degrees of receptiveness. The process of adoption of the India Competition Act (and amendments) involved significant engagement with the international antitrust community including regulators, the International Competition Network, the American Bar Association, the International Bar Association, and practitioners.

Critics claim that there is more room for improvement in China, where the implementation of competition law has been dragged down by accusations of protectionism. But there are signs of progress. For example, in October last year US antitrust officials signed a co-operation agreement with Chinese agencies including MOFCOM, NDRC and SAIC. However, the proposed arrangements do not guarantee co-operation, since both sides need to decide that co-operation is in their best interests before working together.

It is hoped that the recent engagement between Chinese competition agencies and their international counterparts in the area of merger control will be a prelude to further interactions, and also in the area of monopolistic practices, where there is less transparency.  In the meantime, while few generalisations between the competition laws of China and India would be valid, no international business in any industry can
afford to neglect both, or fail to recognise their growing importance.  Companies have scope to justify their behaviour where they fall within the scope of relevant exceptions or exemptions.  However, since this assessment takes place against a background of uncertainty, and where the agencies have significant
enforcement powers, investment in global compliance systems and training of employees whose activities may produce local  effects must remain at the forefront of company risk management strategy.

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