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A COMPARATIVE STUDY OF INDIA

AND CHINA

Presented By R. Ganesan FCA Intern with Competition Commission of India, NewDelhi under guidance of Comdt. (JG) MM Sharma, Additional Registrar of CCI, NewDelhi. R. Ganesan, c/o Bhutoria Ganesan & Co., Chartered Accountants, S-9, ThadaramComplex, 209A, Zone I, M.P.Nagar, BHOPAL -462 011Email: [email protected]

JUNE 2008

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PREFACE

The Competition Law or the Anti Trust Law plays a pivotal role in maintaining healthycompetition in business and for economic efficiency and to the larger interest of the

consumer. The Competition Laws of member countries of WTO are made compatiblewith the obligations of the country as a member of WTO.

India and China are the emerging economies of the World. The economic growth of Indiaand China are the highest in the World at present. The two Nations have improved thebilateral trade to greater heights. China has emerged as the largest trading partner of Indiain 2007, surpassing USA. Both the countries have vast domestic market. Like India hasenacted new Act Competition Act 2002 and amended in 2007 to replace MRTP 1969,China has passed a comprehensive Competition Law called Anti Monopoly Law in 2007and is made applicable with effect from 1-8-2008. In view of the growing economicimportance of India and China and the growing bilateral trade between them, a

comparative study on Competition Law may be useful.

As a student of Post Qualification course on International Trade Laws and WTO of theInstitute of Chartered Accountants of India, this study has been made as a part ofpractical training.

I am grateful to the Competition Commission of India for accepting my request to beassociated as an intern.

I am highly indebted to Comdt. M.M. Sharma, Additional Registrar of CCI who is myguide for this study. He has made in depth analysis of the study material. His guidancehas improved the quality and clarity of this study material.

I express my thanks to Shri Vinod K.Dhall, Acting Chairman of CCI, Shri AmitabhKumar IRS, Director General, Shri Augustin Peter, Economic Advisor, CCI for theirvaluable guidance and encouragement.

I am extremely grateful to the Institute of Chartered Accountants of India, who hasprovided me the opportunity to be with the Competition Commission of India and do thisstudy.

New Delhi, CA. R.GANESANJune 23, 2008

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COMPETITION LAW: A COMPARATIVE STUDY OF INDIA AND CHINA

EXECUTIVE SUMMARY

1. Both the laws adhere to the core principles ie Transparency, Non discriminationand Procedural Fairness.

2. There are certain similarities of both the laws like : they extend to goods andservices, Government departments, have extra territorial reach, mandatorynotification requirements in case of combinations beyond threshold limits andhave time bound procedure for orders in case of combinations..

3. The procedure for inquiry is detailed in the Competition Act 2002, but such

procedures are not fully mentioned in the Chinese Anti Monopoly Law.

4. The threshold limits in case of combinations are mentioned in Competition Act2002, whereas the limits will be notified by the State in the Chinese Law.

5. Agricultural producers, rural economic organizations engaged in agriculturalproduces are exceptions to the application of the Chinese Law.

6. Where reasonable use of IPR is exempted in agreements in the IndianCompetition Act, 2002, legitimate use of IPR rights are exception to theapplication to the Chinese Law.

7. In the Chinese Law in context to market dominance, collective dominanceconcept exists.

8. There are certain unique features in the Chinese Law which are not found in theIndian Competition Act 2002 like :

a) National security examination: In case of foreign investor in addition toother tests of combination, national security shall also be examined.

b) There is specific article mentioning support for expansion andcompetition

c) There is a separate Chapter in the Law for prohibition of abuse ofadministrative power to restrict competition.

9. In the Indian Competition Act 2002, we have Appellate Tribunal as an appealforum. Under the Chinese context, there is no such separate forum, theundertakings may prefer administrative reconsideration in certain cases oralternatively bring administrative suit in certain cases.

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10. Small Scale and Medium Enterprises are given preferred treatment in the Chinese

Law in case of agreements.

11. Trade Associations are also brought under the purview of the Chinese Law but

the monetary fine is comparatively less.

12. In the Chinese context the undertakings while proving that agreements are not anticompetitive they should also prove that their act can enable the consumers toshare the benefits. Similarly in case of concentrations if the undertaking provethat the advantages of implementing the concentration exceed the disadvantagesor that the concentration is in harmony with public interest, the Anti EnforcementAuthority may decide not to prohibit the concentration.

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DISCLAIMER

This study report has been prepared by the author as an intern under the internshipprogramme of the Competition Commission of India for academic purposes only. Theviews expressed in the report are personal to the intern and do not necessarily reflect theview of the Commission in any manner. This report is the intellectual property of theCompetition Commission of India and the same or any part thereof may not be used in

any manner, whatsoever, without express permission of the Competition Commission ofIndia.

New Delhi,June 23, 2008 CA. R.GANESAN

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COMPETITION LAW - A COMPARATIVE STUDY OF

INDIA AND CHINA

CHAPTERS

1. INTRODUCTION AND BROAD ANALOGY OF COMPARISON

2. FUNCTIONS OF THE COMMISSION AND THE ENFORCEMENT OFTHE LAW

3. EXTRA TERRITORIAL REACH

4. EXCEPTIONS, SIMILARITIES AND DISSIMILARITIES

5. UNIQUE FEATURES OF CHINESE LAW

6. ANTI COMPETITIVE AGREEMENTS

7. ABUSE OF DOMINANT MARKET POSITION

8. REGULATIONS ON COMBINATIONS

9. INQUIRY, INVESTIGATION PROCEDURE & ORDERS

10. APELLATE FORUM

11. EFFECTS ON RIGHTS ON IPR DEALT IN COMPETITION LAW

12. POWERS OF GOVERNMENT

13. PENALTIES

14. CRIMINAL PROSECUTION OR IMPRISONMENT

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COMPETITION LAW A COMPARATIVE STUDY OF INDIA AND CHINA

By R. Ganesan FCA as intern with Competition Commission of India under guidance ofComdt. (JG) MM Sharma, Additional Registrar of CCI, New Delhi

ARTICLE PRESENTED IN JUNE 2008

Chapter 1 Introduction and broad analogy of comparison

India and China are the emerging economics of the World, China taking a lead over Indiain many sectors and on different scales. India and China are the fastest growingeconomies of the World.

o Together they represent 38% of World populationo At continued growth of economies, by 2025 China will become the largest and

India 3 largest economy in the World. (Together 39% of world output)o Both the Nations have a huge domestic marketo Both the Nations have vast natural resources

(Source : Book titledCHINDIA Rising by Prof Jagdish N Sheth published by Tata

Mc Graw Hill ,2008 Pages 1-15)

The international trade of both the Nations are increasing at admirable rates. The foreigndirect investment in both the Nations is increasing, India and China bilateral tradeUS$38.64 billion whereas that with USA is US$34.60 billion in calendar year 2007. Thegrowth rate in bilateral trade with China in the year 2007 was 53%. The targeted bilateraltrade between India and China by 2010 is US$60 billion. At present Indias bilateral tradewith USA is in surplus and with China it is deficit. (Source :The Times of India dated17-1-2008)

China is in a transition stage from controlled or centrally planned economy to market

economy or socialist market economy. Liberalization process started in China in 1978and got momentum in the 1980s , whereas liberalization process started in 1991 in Indiaand is getting momentum in the 2000s. China followed the economic progress path ofSouth Korea for establishment of large conglomerates as the best way for domesticenterprises to obtain economies of scale and compete with MNE both domestically and ininternational markets. In 1991 and in 1997 the State Council selected a national team of120 large enterprise groups, primarily from industries considered to be of strategic

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importance, to receive special treatment from the government. To enhance theircompetitiveness, these national champions were granted tariff protection, special rights toengage in international trade, access to foreign technology, easy loans from state ownedbanks and other preferential treatment.

India is in transition stage from mixed economy to a liberalization to reach greater levelof market economy. Many of the large scale M&As are government managed. A govtorder in 2002 merged nine domestic airlines under the control of Civil AviationAdministration for form 3 super groups. Under the 10

th5 year Plan in 2000-05 the govt

encouraged about 100 small automobile manufacturers to merge with 3 giants

Both the countries witnessed international takeovers in the recent past. To list them :

2004 Chinas Lenovo acquired IBMs personal computer division.

2005 Chinas CNOOCs bid for acquisition of Unocal of USA. (Transaction notcomplete)

2005 US Carlyle Groups takeover of Xuzhou Construction Mfg Group. 2006 India Mittal Steels acquisition of Arcelor Europes largest steel

manufacturer.

2007 Sino Steel India subsidiary of Sino Steel a State Owned company of China,funded by China and the enterprise approved by Governments of India and China

2007 China National Chemical Corporation (Chem China) acquired AustralianNufarm Ltd, a generic farm chemical company.

2007 India Tata Steels acquisition of Corus Steel

2007 India Hindalcos acquisition of Novelis (largest North American sheetaluminum company)

2008 India Tata Motors acquisition of Jaguar of UK

2008 Sino Steels bid to acquire Midwest Corporation Australia, an iron oreprospecting company.

2008 Daiichi Sankyo, Japanese companys proposal to acquire Ranbaxy of India.

ANTI TRUST LAW :

Anti trust law is the Magna Carta of economic laws of a Nation. The anti trust lawsobject is to encourage competition, so that the level of competition brings maximumbenefit to the consumers. The law restricts or prohibits certain conducts which are againstcompetition. They regulate the market to become more and more competitive.Competition results in innovation, substitution, reducing cost of production, distribution,

economics of scale etc.

Both the countries have formulated a new competition law to be made effective. In Chinathe new competition law named Anti Monopoly Law is made effective from 1-8-2008.In India the Competition Act 2002 was passed, amended in 2007, some sections havebeen notified. Enforcement sections are not yet notified.

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Both the law emphasizes on the fundamentals of anti competitive agreements, abuse ofmarket dominance and regulations on combinations. Indian law also is mandated onadvocacy of competition. .

The chronological legislative history in Competition or anti monopoly law of the two

countries is given below :

INDIA CHINA1969 Monopolies and RestrictiveTrade Practices Act (MRTP)Competition Act 2002Competition Act amended in 2007

1980 Provisional Regulationsconcerning Development andProtection of the SocialistCompetition Mechanism

First Enactment First Enactment : 1993 Anti UnfairCompetition Law (1-12-1993)

Till 1991 only private enterpriseswere covered in MRTP. The Govt

issued notification in 1991 forbringing public sectorundertakings under the Act.

1994 Creation of Fair TradeBureau under SAIC with 3

divisions prevention of unfairtrade practices, investigatingmonopolies and consumerprotection.

Second : 1998 Price Law (1-5-1998)

2003 First Notificationrequirements on merger andacquisition.

Administrator : StateAdministration for Industry and

Commerce (SAIC)State Development and Reformcommission is the enforcingauthority of 1998 Price Law

China was not having a single comprehensive law to deal all aspects of anti trusttransactions. There were different laws to deal different situations and the enforcingauthority for certain law are the same and for some other law they are different.

China Transition from the objective in 1980 In economic activities, with theexception of products managed exclusively by State designated departments and

organizations, monopolization or sole proprietary management of other products is notallowed to in 1993 Safe guard healthy development of the socialist market economy,encourage and protect fair competition, stop acts of unfair competition and to defend thelawful rights and interest of operators and consumers

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The 1993 Anti Unfair Competition Law proscribed the following important aspects :

a) Trade mark counterfeiting.b) Restrictions on use of related products imposed by public enterprises and other

legal monopolies.c) Abuse of administrative power or restraints of free trade among regions byGovernment agencies or their associates.

d) Bribery in business transactions.e) Deceptive advertisementf) Obtaining, disclosing or using trade secrets without consent of the owner.g) Predatory Pricing ( Exceptions : sale of fresh products, the disposal of products

whose period of validity is about to expire, or of overstocked products, seasonalreductions in prices, sale of products at reduced prices to pay off debts or due tochange in product lines or the closure of business.

h) Tied Sales.

i) Deceptive sales tactics such as prize draws j) Uttering and disseminating false information that would hurt reputation of acompetitor.

k) Bid rigging.

1993 Act provides for criminal penalties only in cases of trademark infringements, andbribery. In case of bid rigging there is criminal prosecution under the Public TenderingLaw in 2000.

In 1995 SAIC handled 194 anti trust cases and this went up to 2208 in 2001 and 1547 in2002. SAIC promoted from Vice ministerial to ministerial level in 2001. It hasestablished cooperative relationships over 20 competition agencies from other countries.

Many provinces and cities have their own laws and regulations designed to counter unfaircompetition. Price fixing was first prohibited by Guangdong Province in 1994

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The three core principles of the law ie transparency, non discrimination and proceduralfairness are enshrined in both the laws. The object of Competition Act 2002 of India andthat of Anti Monopoly Law of China is as under :

Object of Indian Competition Act, 2002 :: (Preamble)

To establish a Commission to prevent practices having adverse effect on competition, topromote and sustain competition in markets, to protect the interests of consumers and toensure freedom of trade in markets in India.

Object of Chinese Anti Monopoly Law ,2007 :: Article 1

For guarding against or ceasing monopolistic conduct, safeguarding and promoting theorder f market competition, improving economic efficiency, protecting the interest ofconsumers , public interest and promoting the healthy development ofsocialistic marketeconomy.

Translation script of Chinese Anti Monopoly Law :

As such we do not have official English translation of the Chinese Anti Monopoly Lawof 2007. For the purpose of this study we have considered the English translation in

www.antitrustchina.com. Other English translations are available in other sites. Thetranslations differ in wordings like business operators/undertakings, business association/business guild, justification/ justifiable etc. However the major changes notified by me inother English translations are as under :

Relevant Matter www.antitrustchina,.com Other translations

Fine as per Article 46 and47

1% to 10% of the total salesvolume in the relevantmarket

1% to 10% of total salesrevenue in the previous year

No of days in Article 26 90 working days 90 days (calendar)

Notification requirement

Article 21

Undertakings shall notify Lodged in advance

In this study I have restricted the comparison only to the English translation ofwww.antitrustchina.com as advised by my guide.

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COMPETITION LAW : A COMPARATIVE STUDY OF INDIA AND CHINA

Chapter 2 Functions of the Commission and Enforcement of the Law

The Competition Commission of India established under the Competition Act 2002 hasthe functions are duties of the Commission is to eliminate practices having adverse effecton competition, promote and sustain competition, protect the interest of the consumersand ensure freedom of trade. It will also take suitable measures in competition advocacy.The Central Government may make a reference to the Commission on any matter informulating a policy in competition. The Law enforcing authority vests with theCommission. The Director General is an arm of the Commission to assist the

Commission in conducting investigations. The Commission also shall take suitablemeasures for competition advocacy. The Central Government may make a reference tothe Commission on any matter in formulating a policy on competition.

In the Chinese context, the Anti Monopoly Commission is basically for formulation ofpolicies on competition. The law enforcing authority does not vest with the Commission.The law enforcement is to be carried out by the Anti Monopoly (Enforcement )Authority. This authority will be established by the State Council and is under the StateCouncil. In Chinese context, the Policy and enforcement are being carried out by twodifferent agencies.

The Appellate Tribunal established under the Indian Competition Act is a separate bodyto hear and dispose of appeals against any direction issued or decision made or orderspassed by the Commission and to adjudicate on claim for compensation. In the Chinesecontext, there is no separate forum for appeal. The undertakings can apply to the AntiMonopoly Enforcement Authority for administrative reconsideration only. Thus we seethat the appeal forum is the same as the Enforcement Authority.

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The functions of the Commission under the two Acts are given as under :

INDIAN CONTEXT CHINESE CONTEXT

On Competition Policies

1. The Central Government may informulating a policy on competitionor any other matter, make a referenceto the Commission for its opinion onpossible effect of such policy oncompetition.

2. The Commission shall give itsopinion on such reference within 60days of receipt of reference.

3. The opinion of the Commission shallnot be binding upon the Central

Government.(Section 49)

The Anti-monopoly Commission, is in

charge of organizing, coordinating, guiding

anti-monopoly work, performs the

following functions:

(1) studying and drafting related competition

policies;

(2) organizing the investigation and

assessment of overall competition situations

in the market, and issuing assessment

reports;

(3) constituting and issuing anti-monopoly

guidelines;

(4) coordinating anti-monopoly

administrative law enforcement; and

(5) other functions as assigned by the StateCouncil. The State Council shall stipulatecomposition and working rules of the Anti-monopoly Commission. (Article 9)

Law Enforcement Authority

It shall be the duty of the Commission toeliminate practices having adverse effect oncompetition, promote and sustain competition,protect the interests of consumers and ensurefreedom of trade carried on by otherparticipants, in markets in India: (Sec 18)

No enforcement Authority with theCommission

Competition AdvocacyThe Commission shall take suitable measures

for the promotion of competition advocacy,creating awareness and imparting training aboutcompetition issues.(Sec 49(3)

No specific mention of advocacy policy

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Chapter 3 Extra Territorial Reach

In many circumstances an economic and commercial transaction taking place outside thecountry may have an adverse effect in the country on competition or anti trust policies.Simply because that any of the party or both the parties are out side the country may notexclude the authority to conduct enquiry. Under the Indian context, In the Export Cartelcase of soda ash cartel in 1996 and the case of float glass in 1998 before the then MRTPmade the difference. In both the cases the MRTP commission issued interim injunction

on the American Natural Soda Ash Corporation (ANSAC) restraining it from exportingsoda ash to India alleging cartelization. In float glass case the MRTP Commission issuedan injunction against the Indonesian companies from exporting float glass to India. Inboth the cases the Supreme Court of India observed that the MRTP Commission had noextra territorial jurisdiction. The Court said that its jurisdiction would commence onlyafter the goods had been imported and a restrictive trade practice had subsequently takenplace. Based on Effects Doctrine theory the ambit of Competition Act shall cover actstaking place outside India but having an effect on competition in India. Section 32 of theAct deals in this regard. Similar provision is available in the AML of China Article 2 isrelevant in this regard. Whereas in the Indian context the section is elaborate, the articlein AML of China is simple but extensive.

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The comparative stand of relevant sections of the Law is given below :

INDIAN CONTEXT (Sec 32) CHINESE CONTEXT (Article 2)

The Commission shall, notwithstandingthat,(a) an agreement referred to in section 3 hasbeen entered into outside India; or(b) any party to such agreement is outsideIndia; or(c) any enterprise abusing the dominantposition is outside India; or(d) a combination has taken place outsideIndia; or(e) any party to combination is outside India;or

(f) any other matter or practice or actionarising out of such agreement or dominantposition or combination is outside India,

have power to inquire in accordance withthe provisions contained in sections 19, 20,26, 29 and 30 of the Act] into suchagreement or abuse of dominant position orcombination if such agreement or dominantposition or combination has, or is likely to

have, an appreciable adverse effect oncompetition in the relevant market in Indiaand pass such orders as it may deem fit inaccordance with the provisions of this Act.

This Law shall apply to the conducts

outside the territory of the People'sRepublic of China if they eliminate or haverestrictive effect on competition on thedomestic market of the China.

Refer article 3 in this regard :For the purposes of this Law,"monopolistic conducts" are defined as thefollowing: (1) monopolistic agreementsmade between undertakings ; (2) abuse ofdominant market positions by undertakings

; and (3) concentration conducted byundertakings that may have the effect ofeliminating or restricting competition.

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Chapter 4 Exceptions, Similarities and Dissimilarities

Under administration of any commercial or economical law exemptions and exceptionsare pralevent. Exemptions are directed against those economic transactions which areabsolutely not covered under any aspect of the law. No section can be extended to coverthe same. Also generally exempted categories are not acted up on otherwise by theGovernment or Enforcement authority under the pretext of regulations or rules or orders.Generally exceptions are for compliance of particular section under the law. Exceptionsunder the Act may be many at various application stages. The comparative study of

exemptions and exceptions under both the law covers the entire law. Notably governmentdepartments or public sector enterprises are totally exempted under both the Laws. Underthe Indian Competition Act 2002, there is territorial exemption ie the Act does not extendto the state of Jammu & Kashmir. There is no such territorial exemption of the AntiMonopoly Law of Peoples Republic of China. It applies to all provinces of China.

First we study comparison of exceptions :

Indian context Chinese context

Sovereign functions of the

Government includingDepartments of the CentralGovernment dealing with atomicenergy, currency, defense andspace. These are not covered bynot extending the meaning ofenterprise u/s 2(h)

Article 56 This law is not applicable to the ally or

concerted actions related to the operation of

production, processing, sales, transportation, and

storage of agricultural commodities conducted by

farmers or their professional enterprises.

Article 55 This law is not applicable to conducts byundertakings to protect their legitimateintellectual property rights in accordance with theIP law and relevant administrative regulations;however, this Law is applicable to the conduct of

undertakings to eliminate or restrict marketcompetition by abusing intellectual propertyrights stipulated in the IP law and administrativeregulations.

SIMILARITIES IN LAW :

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1. Both the law extends goods and services. [Sec3,4/ Article 12]

2. Extra Territorial Reach : Law extends to all actions taking place outside thecountry but having effect on competition in the country. [Sec 32/ Article 2]

3. Time bound order in case of combinations (210 days in India and 180 days inChina) [Sec 6(2A)/Article 26]

4. Monetary fine or penalties for contravention of agreements and abuse ofdominance are linked to turnover. (In India max 10% of turnover, In China 1%to10% of turnover) [Sec 27(b)/ Article 46 & 47]

5. Threshold limit exists for regulation of combinations [Sec 5/ Article 21]

6. Mandatory notification for mergers beyond threshold limits. [Sec 6(2)/ Article 21]

DISSIMILARITIES

INDIAN CONTEXT CHINESE CONTEXTThe Law enforcing authority vests with theCommission. [Chapter IV Sec 18 to 39]

The Law enforcing authority is differentfrom the Anti Monopoly Commission. It isAnti Monopoly Enforcement Authorityunder the State [Article 10]

In addition the Commission is mandated totake up advocacy functions. [Sec 49]

No such provisions

The Director General of Investigation is an

arm of the Commission. He is appointed bythe Central Government. [Sec 16]

The investigation is carried out by the Anti

Enforcement Authority. There is noseparate Directorate. [Article 38]

There is an Appellate Tribunal to preferappeal against the order of the Commission[Chapter VIII A sec 53A to 53U]

There is no Appellate forum. Theaggrieved party can prefer anadministrative reconsideration from theEnforcing Authority. [Article 53]

Group of enterprises concept explained fordominance and combination. Group is onstructural basis. [Explanation (b) to sec 5]

There is no such group of enterprisesconcept. It is only individual undertaking.However collective dominance conceptexists. [Article 19]

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Chapter 5 Unique Features of the Chinese Law

There are certain unique features which are there in the Chinese law but no parallel in theIndian Law. Such features are given below :

1. National security examination [Article 31]In the case that national security is concerned, besides the examination onconcentration in accordance with this Law, the examination on national security

according to the relevant regulations of the State shall be conducted as well onthe acquisition of domestic undertakings by foreign capital or othercircumstances involving the concentration of foreign capital.

2. Support for Expansion and Competition :Undertakings may concentrate when such an action is in accordance with the lawand adheres to fair competition and is a voluntary union that expands the scale ofoperation and improves market competition. [Article 5]

3. Abuse of Administrative powerSeparate chapter on abuse of powers by other administrative agencies to restrict

competition. [Chapter V]

4. Collective market dominanceCollective Dominance concept exists [Article 19 ]

5. Prove that consumers to share the interest

In respect of anti monopoly agreements, to claim exemption, the undertakingsmust additionally prove that the agreement can enable consumers to share theinterests derived from the agreement, and will not severely restrict the competitionin relevant market. [ Article 15]

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Chapter 6 Anti competitive Agreements

The objective of competition policy is to promote efficiency and maximize welfare andthus, to create a conducive business environment in which the abuse of market power isprevented mainly through competition. The focus of Competition or Anti Trust Law ofany country shall be on preventing anti competitive behavior of enterprises and protectingthe market from abuse. Three areas of enforcement provide the focus for mostcompetition laws in the member countries of WTO today namely anti competitive

agreements among enterprises, abuse of dominance and mergers or more generallycombinations among enterprises.

Some of the agreements firms enter into have the potential to restrict competition. Mostof the Countries in their Competition Law distinguishes horizontal and verticalagreements between firms. Horizontal agreements are agreements between two or morecompetitors that occupy the same stage of production chain and are in the same market.Cartel is the best example in this category. Vertical agreements involve a purchasing orselling relationship between firms, and may be pernicious if they are between firms in aposition of dominance. Most competitive laws view vertical agreements more lenientlythan horizontal agreements because, prima facie, the latter are more likely to reduce

competition than are agreements between firs in a purchase seller relationship. Theeffect of the horizontal or vertical agreements on competition is judged on the basis oftwo separate criteria viz per se rule and the rule of reason. The law distinguishes certainagreements per se void or illegal.

The words horizontal and vertical agreements are not mentioned either in the Indian Law

or the Chinese Law. Similarly the word per se void is also not mentioned in both the

texts. In the Indian context, an agreement includes any arrangement, understanding or

concerted action entered into between parties. It need not be in writing or formal or

intended to be enforceable in law. In the Chinese context, "monopoly agreements" refer

to agreements, decisions or other concerted actions which eliminate or restrict

competition..

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I COMPARISON ON STRUCTURING OF SECTIONS/ ARTICLES

PARTICULARS INDIAN CONTEXT CHINESE CONTEXT

Anti Competitive Agreements Section 3 Article 3

Horizontal Agreements Section 3(3) Article 13

Vertical Agreements Section 3(4) Article 14

Bid Rigging Explained u/s 3(3) See separate standingorder

Enabling Power to inquire agreements Section 19 Article 38

Procedure for Inquiry Section 26 Article 39 to 43

Orders of the Commission/Enforcement Authority

Section 27 Article 44

II COMPARISION OF THE LAWS DEALING IN ANTI COMPETITIVEAGREEMENTS

HORIZONTAL AGREEMENTS

Anti Competitive Agreements

Section 3(1) of Indian Competition Act mentions No enterprise or association ofenterprises shall enter into any agreements in respect of production, supply,distribution, storage, acquisition or control of goods or provision of services, which

causes or is likely to cause an appreciable adverse effect on competition withinIndia. There is no exemption and no scope for inquiry or investigation. Certainagreements are specified under section 3(3) and besides agreements it covers practices and decisions in the context. The agreements mentioned u/s 3(3) shall bepresumed to have an appreciable adverse effect on competition. Exception is given in3(3) and not in 3(1). The Chinese context is straight forward, Following monopolyagreements prohibited.

Under the Chinese Law the general clause is described in this way other monopolyagreements confirmed by the Anti Monopoly Enforcement Authority under the StateCouncil.

.

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Presumption :

Any agreement entered into between enterprises

or associations of enterprises or persons orassociations of persons or between any personand enterprise or practice carried on, or decisiontaken by, any association of enterprises orassociation of persons, including cartels,engaged in identical or similar trade of goods orprovision of services, which(a) to (d)shall be presumed to have an appreciableadverse effect on competition and shall bevoid

Prohibited :

Article 13 Any of the following monopoly

agreements among the competing

undertakings are prohibited:

(1) to (5) or (6) other monopoly agreements

as determined by the Anti-monopoly

Authority under the State Council. For the

purposes of this Law, "monopoly

agreements" refer to agreements, decisions

or other concerted actions which eliminateor restrict competition.

(a) directly or indirectly determines purchase orsale prices;

(1) fixing or changing prices of

commodities;

(b) limits or controls production, supply,markets, technical development, investment orprovision of services;

(2) Restricting output volume or sales

volume of products;

(4) restricting the purchase of new

technology or new facilities or the

development of new technology or new

products;

(c) shares the market or source of production orprovision of services by way of allocation ofgeographical area of market, or type of goods orservices, or number of customers in the marketor any other similar way;

(3) dividing the sales market or the raw

material procurement market;

(d) directly or indirectly results in bid rigging orcollusive bidding,

(5) Jointly boycotting transactions;

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COMPARISON :

1. Price determination or fixing or changing of price is same. The word product isnot defined under the AML of China. In the Indian context the pricedetermination is for purchase or sale prices. The determination of purchase price

is wide under the Indian context.2. Bid rigging is explained under the Indian Competition Act. No mention of theword bid under the AMP. There is a separate Act in the Chinese context on bidscalled Invitation and submission of Bids Law of China

3. Under the Indian context, sharing the market or source or production ismentioned. The source of production in general terms shall extend to productionfacilities as such. It may extend to raw material market. However under theChinese context dividing the raw material procurement market is speciallymentioned.

4. Refusal to deal and group boycott are within limiting and controlling productionand investment. In the Indian context, refusal to deal is mentioned under vertical

agreements. Joint boycotting of transactions is specifically mentioned in the AMLof China.

III COMPARISION OF EXEMPTIONS


Following category of horizontalagreements are exempted:Joint Venture agreements if suchagreements increase efficiency inproduction, supply, distribution, storage,

acquisition or control of goods [Sec 3(3) ]

No separate exemption for horizontalagreements as such.

Following categories of agreements areexempted:

o Exports from India[Sec 3(5)(ii)]

o Agreements ( with reasonablerestrictions) to protect intellectualproperty rights [Sec 3(5)(i)]

Following categories of agreements canbe exempted:(1)For the purpose of improvingtechniques, researching and developingnew products;(2) for the purpose of upgrading productquality, reducing cost, improvingefficiency, unifying product models andstandards, or carrying out professionallabor distribution;

(3) for the purpose of improvingoperational efficiency and enhancing thecompetitiveness of small and medium-sized enterprises;(4) for the purpose of maintaining thepublic welfare such as conserving energy,protecting the environment and providingdisaster relief etc;

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(5) for the purpose of mitigating seriousdecrease of sales volume or excessivestock during economic recessions;(6) for the purpose of protecting thelegitimate interests of international trade

and foreign economic cooperation [Article15]

IV For the sake of comparison the exemption categories under the Chinese Act iscom[pared to provisions of Sec 19(3) of the Indian Competition Act 2002. TheCommission shall have due regard while determining those agreements have adverseeffect in competition is mentioned in section 19(3)


Section 19 (3)

The Commission shall, while determiningwhether an agreement has an appreciableadverse effect on competition under section 3,have due regard to all or any of the followingfactors, namely:

Article 15 An agreement among undertakings

shall be exempted from application ofarticles 13 and 14 if it can be proven to bein any of the following circumstances:

(a) creation of barriers to new entrants in themarket;

No such comparison

(b) driving existing competitors out of themarket;

No such comparison

(c) foreclosure of competition by hinderingentry into the market;

No such comparison

(d) accrual of benefits to consumers; No such comparison

(e) improvements in production or distributionof goods or provision of services;

(1) For the purpose of improvingtechniques, researching and developingnew products;

(2) for the purpose of upgrading productquality, reducing cost, improving efficiency,unifying product models and standards, orcarrying out professional labor distribution;

(f) promotion of technical, scientific andeconomic development by means of productionor distribution of goods or provision of services.

Clubbed in above

No special consideration for small and mediumscale enterprises

(3) for the purpose of improving operationalefficiency and enhancing thecompetitiveness of small and medium-sizedenterprises;

Power to Central Government u./s 54 (a) toexempt by notification any class of enterprisesif such exemption is necessary in the interest ofsecurity of the State or public interest

(4) for the purpose of maintaining the publicwelfare such as conserving energy,protecting the environment and providingdisaster relief etc;

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No such comparison (5) for the purpose of mitigating seriousdecrease of sales volume or excessive stockduring economic recessions;

Power to Central Government u./s 54 (B) toexempt by notification any practice or

agreement arising out of and in accordance withany obligation assumed by India under anytreaty, agreement or convention with any othercountry or countries.

(6) for the purpose of protecting thelegitimate interests of international trade

and foreign economic cooperation foreigneconomic cooperation;

Exports of goods and services from India areexempt u/s 3(5): right of any person to exportgoods from India to the extent to which theagreement relates exclusively to theproduction, supply, distribution or control ofgoods or provision of services for suchexport.

No specific exemption for exports

Exemption Power to the CentralGovernmentPower given u/s 54

other circumstances as stipulated by lawsand the State Council.

VERTICALAGREEMENTS

Section 3(4) of the Indian Competition Act context refers to vertical agreements. Thewords horizontal or vertical is nowhere mentioned in both the law. Article 14 of AMP ofChina deals with vertical agreements. Comparison table is given below :


Any agreement amongst enterprises or personsat different stages or levels of the productionchain in different markets, in respect ofproduction, supply, distribution, storage, sale orprice of, or trade in goods or provision ofservices, including(a) to (e)shall be an agreement in contravention of sub-section (1) if such agreement causes or is likelyto cause an appreciable adverse effect oncompetition in India.

Article 14 Any of the following agreementsamong undertakings and their tradingparties are prohibited:(1) to (3)

(a) tie-in arrangement;"tie-in arrangement" includes anyagreement requiring a purchaser of goods,as a condition of such purchase, to purchasesome other goods;

No such mention

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(b) exclusive supply agreement;"exclusive supply agreement" includes anyagreement restricting in any manner thepurchaser in the course of his trade fromacquiring or otherwise dealing in any goodsother than those of the seller or any otherperson;

No such mention

(c) exclusive distribution agreement;"exclusive distribution agreement" includesany agreement to limit, restrict or withholdthe output or supply of any goods orallocate any area or market for the disposalor sale of the goods;

No such mention

(d) refusal to deal;"refusal to deal" includes any agreementwhich restricts, or is likely to restrict, byany method the persons or classes of

persons to whom goods are sold or fromwhom goods are bought;

No such mention

(e) resale price maintenance,"resale price maintenance" includes anyagreement to sell goods on condition thatthe prices to be charged on the resale by thepurchaser shall be the prices stipulated bythe seller unless it is clearly stated thatprices lower than those prices may becharged.

(1) fixing the price for resale to a thirdparty;(2) restricting the minimum price for resaleto a third party; or

General clause : No enabling clause forgeneralization

(3) other monopoly agreements as

confirmed by the Anti-monopoly Authorityunder the State Council.

COMPARISON

Exemption given under the Indian context are for exports (as described in above) and forrights under Intellectual Property . Under the Chinese AML, exemptions for horizontaland vertical contracts are same as given in previous paragraph. Under the Chinese AML,IP Rights are covered by the AML to the extent they eliminative or restrict marketcompetition.

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SPECIAL TREATMENT FOR SMALL& MEDIUM SCALE ENTERPRISES INBOTH HORIZONTAL AND VERTICAL AGREEMENTS IN THE CHINESEACT

Agreements for the purpose of improving operational efficiency and enhancing

competitiveness of small and medium sized enterprises are exempt.

The agreements are for the benefit of small and medium scale enterprises. There is noneed that small and medium enterprises are to be a party to such agreement.

Small and Medium scale enterprises in the Chinese context are on the basis of number ofemployees, volume of sales and total assets

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Chapter 7 Abuse of dominance Market Position

Competition law prohibits the use of market controlling position to prevent individualenterprises or a group from driving out competing business from the market as well asdictating prices. The concept of abuse of dominant position of market power refers to anticompetitive business practices in which the dominant firm may engage in order tomaintain or increase its position in the market. Under the Indian context a group ofenterprises can be taken as a single unit to determine market dominance. Under theChinese AML such an approach is not mentioned. In the Indian law to determine the

market dominance, several factors are to be considered including the enterprise marketshare in the relevant market. There is no such minimum % of market share mentioned inthe Act, to consider the enterprise as a dominance enterprise. In the AML of China, adefined % of market share of the enterprise in the relevant market is mentioned to beassumed to have market dominance. The regulatory authority ie CCI will have thefreedom to tackle errant undertakings and encourage competitive market practicesregardless of whether the market consists of small or large players. Two things are utmostimportant. First dominance has to be established and then abuse of dominance to beestablished. Then the relevant market is another important issue in this regard. A relevantmarket has two dimensions, the product market and geographical market. On the demandside, the relevant product market includes all substitutes that the consumer could switch

to if price of the product being investigated were to increase. On the supply side, therelevant market includes all producers who could, with their existing facilities, switch tothe production of substitute goods. The geographical dimension involves identification ofthe geographical area within which competition takes place, whether local, national orinternational. Some factors relevant to the geographic dimension are consumption andshipment patterns, transportation costs, perishability of goods and existence of barriers tothe shipment of products between adjoining geographic areas. Relevant market , relevantgeographic market and relevant product market are defined under the Act.

2(r) "relevant market" means the market which may be determined by the Commission withreference to the relevant product market or the relevant geographic market or with reference

to both the markets;2 (s) "relevant geographic market" means a market comprising the area in which theconditions of competition for supply of goods or provision of services or demand of goods orservices are distinctly homogenous and can be distinguished from the conditions prevailing inthe neighboring areas;2 (t) "relevant product market" means a market comprising all those products or serviceswhich are regarded as interchangeable or substitutable by the consumer, by reason ofcharacteristics of the products or services, their prices and intended use;

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An abuse is a conduct which does not constitute normal competition. Abuse of dominantposition of market power can vary widely from one sector to another. Abuses include :charging unfair or excessive prices, price discrimination, predatory pricing, refusal todeal or to sell, tied selling or product bundling etc. They prevent, restrict or distortcompetition, in the relevant market. The abuse is an act of imposing unfair or

discriminatory condition or price, limiting production or technical or scientificdevelopment, denying market access, concluding contracts of supplementary obligationshaving no connection with subject of such contracts, entering or protecting other relevantmarket. Whether an enterprise indulges in such practices has to be seen with reference tonormal enterprise practices. Deviation from normal practices resulting in weakeningcompetition is abusive.

Comparison is made on the applicability, determination of dominance position, enablingto inquire, inquiry or investigation procedure and orders is given below :



Abuse of dominant position Section 4 Article 6

Enabling Power to inquire agreements Section 19 Article 38

Procedure for Inquiry Section 26 Article 39 to 43


Section 27 & 28 Article 44

II COMPARISION OF THE LAWS DEALING ABUSE OF MARKET

DOMINANCE

To determine market dominance group concept is mentioned in the Indian CompetitionLaw ie rather than individual enterprise, the CCI may determine whether dominance canbe established to a group. Group as explained is based on structure rather than sharingrelevant market. Under the Chinese context there is no scope for extending thedefinition to group, undertaking is only mentioned. Reading of the AML suggests that theEnforcement Authority can club maximum 3 enterprises, if the joint has more than ofthe relevant market.

Group as defined under the Indian Competition Act explanation to section 5"group" means two or more enterprises which, directly or indirectly, are in a position to (i) exercise twenty-six per cent. or more of the voting rights in the other enterprise; or(ii) appoint more than fifty per cent. of the members of the board of directors in the otherenterprise; or(iii) control the management or affairs of the other enterprise;

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Hence the group for dominance under the Indian context can be only of above relatedenterprises. The group definition cannot extend to totally unrelated enterprises in thesame market. In the Chinese context, they can combine maximum 3 enterprises in thesame relevant market, whether these 3 enterprises are related in any way or totallyindependent.

A specific threshold limits to assume market dominance is not prescribed under theIndian Law whereas these are specified in the AML of China. These are the two majordissimilarities in both the Law. Otherwise the law are similar in determination of abuseand prohibiting the same.

Article 17 of the Chinese Law mentions the prohibited market dominance behavior.


Abuse of dominant position :Section 4(1) No enterprise or group shall

abuse its dominant position

Article 17 : An undertaking with adominant market position shall not abuse its

dominant market position to conductfollowing acts:

Determination of dominant position :"dominant position" means a position ofstrength, enjoyed by an enterprise, in therelevant market, in India, which enables it to(i) operate independently of competitive forcesprevailing in the relevant market; or(ii) affect its competitors or consumers or therelevant market in its favour.

Article 17"dominant market position" refers to amarket position held by undertaking thatcan control the price or quantity of productsor other transaction conditions in relevantmarket, or can block or affect the access ofother undertakings to the relevant market.Article 19 Undertakings can be constructed tohave a dominant position if any of the

following conditions is fulfilled : (i) therelevant market share of a one undertakingamounts for1/2 in the relevant market; (ii)the joint market share of two undertakingsamounts for 2/3 in the relevant market or(iii) the joint market share of threeundertakings amounts for 3/4 or above. Inthe case that the circumstance of theundertakings fall under the conditions (ii) or(iii) and any of the undertakings has amarket share of less than 10%, the

undertaking shall not be considered to havedominant market position. .See factors given in Article 18 :

There shall be an abuse of dominant positionif an enterprise or groupActions that shall be considered as abuseunder the act :(1) directly or indirectly imposes unfair or

Article 17 Undertakings are prohibited fromthe following behaviour that abuses theirdominant market position : .

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discriminatory 4(2)(a)

(i) Condition in purchase or sale of goods orservices or

(6) applying discriminating treatment onprices or other transaction terms to tradingparties with equal standing, without anyjustification;

(ii) price in purchase or sale (includingpredatory price) of goods or service

(1) selling products at unfairly high prices orbuying products at unfairly low prices;(2) selling products at prices below costwithout any justification;

(2) Limits or restricts 4(2)(b)(i) production of goods or provision ofservices or market theefor or

(ii) technical or scientific development relatingto goods or services to the prejudice ofconsumers; or3. Practices resulting in denial of market access

as a result of dominant position :1. indulges in practice or practices resulting indenial of market access in any manner Sec4(2) or

(3) refusing to trade with trading parties

without any justification;

2. makes conclusion of contracts subject toacceptance by other parties of supplementaryobligations which, by their nature or accordingto commercial usage, have no connection withthe subject of such contracts; Sec 4(2)(d) or

(4) Limiting trading parties to conduct dealsexclusively with them or designated partieswithout any justification;

3. uses its dominant position in one relevantmarket to enter into, or protect, other relevantmarket. Sec 4(2)(e)

(5) Implementing tie in sales without any justification or imposing other

unreasonable trading conditions. ;General Clause Nil General clause(7) other conducts determined as abuse of adominant position by the Anti-monopolyAuthority under the State Council

ESSENTIAL FACILITIES DOCTRINE (EFD)

Barrier to entry of new enterprises into the relevant market is a major restraint on the

working of competition. When an enterprise with dominance in the relevant marketcontrols an infrastructure or a facility that is necessary for accessing the market andwhich is neither easily reproducible at a reasonable cost in the short term norinterchangeable with other products/services, the enterprise may not without soundjustification refuse to share it with its competitors at reasonable cost. This has come to beknown as the essential facility doctrine (EFD). It has been recgonised that any applicationof the essential facilities doctrine should satisfy the following :

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1. The facility must be controlled by a dominant firm in the relevant market.2. Competing enterprises should lack a realistic ability to reproduce the facility.3. Access to the facility is necessary in order to compete in the relevant market. And4. It must be feasible to provide access to the facility.

Subject to such conditions being satisfied, the Commission may under provisions of Sec4(2) of the Act , pass a remedial order under which the dominant enterprise must sharean essential facility with its competitors in the downstream markets.

Intellectual Property Rights :

While reasonable use of IPRs stand exempted from the provisions of anti competitiveagreements, no such derogation is available in case of abuse of IPRs in respect of sec 4.They stand on equal footing with others in determination of abuse of dominance.However under the Chinese Act, legitimate use of IPRs and no abuse of IPR is anexception to monopolistic conduct.

The comparative methodology to determine dominant market position considering otherfactors are given below :


Section 19(4) : The commission shall, whileenquiring whether an enterprise enjoys adominant position or not under sec 4 have dueregard to all or any of the following factorsnamely :

The dominant market status shall bedetermined according to the followingfactors: Article 18

(a) market share of the enterprise; (1) the market share of the undertakings and

their competitive status in the relevantmarket;

(b) size and resources of the enterprise; (3) the financial and technical status of theundertaking;

(c) size and importance of the competitors; (4) the extent of the reliance on theundertakings during transactions by otherundertakings ;

(d) economic power of the enterprise includingcommercial advantages over competitors;

(2) the ability of undertakings to control thesales market or the raw material purchasingmarket;

(e) vertical integration of the enterprises or sale

or service network of such enterprises;

(f) dependence of consumers on the enterprise;

(g) monopoly or dominant position whetheracquired as a result of any statute or by virtue ofbeing a Government company or a public sectorundertaking or otherwise;

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(h) entry barriers including barriers such asregulatory barriers, financial risk, high capitalcost of entry, marketing entry barriers, technicalentry barriers, economies of scale, high cost of

substitutable goods or service for consumers;

(5) the degree of difficulty for otherundertakings to enter the relevant market;

(i) countervailing buying power;

(j) market structure and size of market;

(k) social obligations and social costs;

(/) relative advantage, by way of thecontribution to the economic development, bythe enterprise enjoying a dominant positionhaving or likely to have an appreciable adverseeffect on competition;

(m) any other factor which the Commissionmay consider relevant for the inquiry.

and (6) other factors relevant to theundertakings dominant market position..

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Chapter 8 Regulations on Combinations

INDIAN CONTEXT

The Indian Competition Act 2002 mentions 3 types of combinations ie by way ofacquisition, acquiring control and merger or amalgamation. Entering into a combination

by way of merger or acquisition is like entering into an agreement. As in case ofagreements, they are classified into horizontal and vertical combinations. As in the caseof horizontal agreements, mergers have the potential of reducing competition. The aboveprinciples apply not only to mergers but also to acquisition through takeovers, jointventures or interlocking directorates. Horizontal acquisitions like horizontal mergers areclearly the type of activity which contributes most directly to concentration of economicpower and which is likely to lead to a dominant position of market power, therebyreducing or eliminating competition. Vertical acquisition of control may have adverseeffects, such as foreclosing the rival firms from the market by creating a captivedistribution channels, blocking entry by compelling the potential entrants to have bigcapital investment, price squeezing by enabling the combined enterprise to reduce costs

resulting in reduction in output prices. Mergers between enterprises operating in differentmarkets are called conglomerate mergers. Conglomerate mergers would generally bebeyond the purview of any law on mergers.

A merger lead to bad outcome only if it creates a dominant enterprise that subsequentlyabuses its dominance. The provision in the Competition Act is to pre empt the potentialabuse of dominance, as subsequent un bundling can be both difficult and socially costly.

To constitute anti competitive combinations, the Act has prescribed certain requirementsincluding a threshold limit based on value of assets and turnover. Further thecombinations shall be examined on individual enterprise as well as a group of enterprises.

The law requires mandatory notification by the party to the Commission and thecombination is effective under law only if the Commission approves the combination.

Exemptions under the Act are only for share subscription or financing facility or anyacquisition by a public finance institution, foreign institutional investor, bank or venturecapital fund pursuant to any covenant of a loan agreement or investment agreement.

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CHINESE CONTEXT

China is not having a comprehensive antimonopoly legislation. The new Anti MonopolyLaw to be effective from 1-8-2008 addresses most of the issues and is the comprehensivelaw. Before AML the regulations regarding concentrations are ;

1. Regulations on the Mergers & Acquisition of Domestic Enterprises by ForeignInvestors (M&A Regs)

2. Guidelines on Anti Trust Filings for Mergers and Acquisitions of DomesticEnterprises by Foreign Investors (Filing Guidelines)

These Regulations were not WTO compatible as they apply only to Foreign investors.The new law is WTO compatible as the law is neutral to both national and foreigninvestors. There were separate thresholds limits : One set for Onshore M&A Transactionand another for Offshore M&A. The new Law states that the threshold limits are to benotified by the State Council. It is expected that the State Council will publish theImplementation Regulations before the Law becomes effective from 1-8-2008. In theearlier drafts of the Law, notification and review were required if the aggregateworldwide turnover of all parties to the transaction exceed RMB 12 billion (App US$1.50billion) and one of the parties had a China turnover exceeding RMB 800 million (appUS$105 million). This threshold limit was widely criticized because many multinationalcompanies doing business in China can easily satisfy this limit. In addition to anantimonopoly review, Article 31 provides that concentrations involving a foreign investormight have national security concerns that subject the transaction to national securityreview in accordance with relevant regulations. This article is perhaps the mostcontroversial provision in the Law. This is not the first time national security check aspart of Chinese legislation. The M&A Regulations the focus was mainly on nationaleconomic security. In December 2006, the State Council released a list of strategicsectors in which the State would retain control including military manufacturing, powerproduction and grids, petroleum, gas and petrochemicals, telecom manufacturing, coal,civil aviation and shipping. The M&A Reg article 12 requires parties to report toMOFCOM any onshore transaction that results in actual control by a foreign investorand involves key industries, has factors imposing or possibly imposing material impacton the economic security of the State or would result in transfer or actual control in adomestic enterprise which owns any well known trade marks or Chinese historicalbrands. Exemption are there for parties owing more than 50% of the total voting powerin two categories. Exemption is generally for merger of holding company and subsidiarycompany. Filing of document is mandatory and approval by Enforcement Authority isalso necessary.

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With this background we now compare the Laws of the most populace Nations of theWorld. :



Definition of Combination Section 5 Chapter VI(Concentrations)Article 20

Regulation of Combinations Section 6 Article 27, 28, 31

Exemptions Section 6(4) Article 22

Notification Section 6(2) Article 21

Enabling Power to inquirecombinations

Section 20 Article 23, 24,

Procedure for Investigation Section 29 Article 25


Section 30 & 31 Article 26, 29,30

COMBINATIONS OR CONCENTRATIONS WHICH ARE SUBJECT TO THISACT :

Threshold limits are prescribed in both the Law for mandatory notification of merger,acquisition. The Indian Competition Act has mentioned this threshold limits in the Actitself. The limits may be reviewed on certain basis once in 2 years. In the AML of China ,the threshold limits are not mentioned and they have to be notified by the State Council .The Indian context brings to focus not only a single enterprise but a group of enterprisesin the regulation of combinations. Such extending is not mentioned in the Chinese Law.Further the Indian Law relates the threshold limits only to asset base and turnover base,there is no lining to market margin, however in the earlier regime before AMP, theChinese law and regulations have criteria linked to assets base, turnover and market

margin. The Chinese context in earlier regime had two different threshold limits one foron shore M&A and another set for Offshore M&A. The Indian Law refers to 3 kinds ofcombinations ie acquisition, acquiring control and merger or amalgamation. There aretwo threshold limits one for single enterprise and another for the group. Again there aretwo threshold limits for parties in India, and in India or outside.

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Comparison of the section and article :


Combination : (Acquisition Sec 5(a)The acquisition of one or more enterprises byone or more persons or merger or amalgamationof enterprises shall be a combination of suchenterprises and persons or enterprises, if(a) any acquisition where (See thresholdlimits)

Article 20 A concentration refers to the

following circumstances: (2) Controlling

other undertakings by acquiring their shares

or asets or through other means ;

Combination : ( acquiring control Sec 5(b)acquiring of control by a person over anenterprise when such person has already director indirect control over another enterpriseengaged in production, distribution or trading ofa similar or identical or substitutable goods orprovision of a similar or identical orsubstitutable service, if (See threshold limits)

(3) acquiring control over other undertakingsby contract or other means by obtaining theability to exercise decisive influence overother undertakings by contract or othermeans.

Combinations (Mergers Sec 5any merger or amalgamation in which(i) the enterprise remaining after merger or theenterprise created as a result of the

amalgamation, as the case may be, have, (Seethreshold limits)

(1) the merger conducted by undertakings ;

COMPARISON OF THRESHOLD LIMITS

The Indian Competition Act 2002 prescribes the threshold limits on combinations in thethree modes for mandatory notification. These limits were amended in 2007 AmendmentAct. In the AML of China the threshold limits are not mentioned in the Act, they will benotified by the State Council. It is not clear under the Chinese AML whether thethreshold limits will be the same for all the 3 modes of concentrations or different for

each mode. The Indian law mentions threshold limits for individual enterprise and forgroup. There is no such grouping under the AML of China. The Indian Competition Actrelates or links the threshold limits to the asset base and turnover base , whereas theChinese regulations on M&A links the threshold limits to assets base, turnover base andmarket margin base. Since the threshold limits are not notified, the comparison is notpossible at this stage;

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Threshold limits for combinations where the parties (enterprises) to combinationsare operating totally in India :

Threshold criteria (Assetor Turnover)

No Group Group

Assets Value > Rs. 1000 Crores > Rs.4000 crores

Turnover > Rs.3000 crore > Rs. 12000 Crores

** Threshold limits for combinations where among the parties (enterprises) tocombination atleast one party is operating in Indian and outside India :

Threshold criteria(Asset orTurnover)

No Group Group

Total/ India Total India Total India

Assets Value >$500 millions Min Rs. 500crores

>$1500 million Min Rs. 1500crores

Turnover >$2 billion Min Rs.500crores

>S 6 billion Min Rs.1500crores

Section 20 (3) give power to the Central Government to change the threshold limits, maybe category wise. Notwithstanding anything contained in section 5, the CentralGovernment shall, on the expiry of a period of two years from the date of commencementof this Act and thereafter every two years, in consultation with the Commission, bynotification, enhance or reduce, on the basis of the wholesale price index or fluctuationsin exchange rate of rupee or foreign currencies, the value of assets or the value ofturnover, for the purposes of that section.

The following words and phrases are explained or defined in the Act which haverelevance in determination of combinations

Group : Explanation (b) to Section 5

"group" means two or more enterprises which, directly or indirectly, are in a position to (i) exercise twenty-six per cent. or more of the voting rights in the other enterprise; or(ii) appoint more than fifty per cent. of the members of the board of directors in the otherenterprise; or(iii) control the management or affairs of the other enterprise;

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Control : Explanation (a) to Section 5

"control" includes controlling the affairs or management by(i) one or more enterprises, either jointly or singly, over another enterprise or group;(ii) one or more groups, either jointly or singly, over another group or enterprise;

Acquisition : Section 2(a)"acquisition" means, directly or indirectly, acquiring or agreeing to acquire(i) shares, voting rights or assets of any enterprise; or(ii) control over management or control over assets of any enterprise;

Turnover Section 2(y)

"turnover" includes value of sale of goods or services;

Determination of value of assets : Explanation to Section 5

the value of assets shall be determined by taking the book value of the assets as shown, in theaudited books of account of the enterprise, in the financial year immediately preceding thefinancial year in which the date of proposed merger falls, as reduced by any depreciation, andthe value of assets shall include the brand value, value of goodwill, or value of copyright,patent, permitted use, collective mark, registered proprietor, registered trade mark, registered

user, homonymous geographical indication, geographical indications, design or layout-designor similar other commercial rights, if any, referred to in sub-section (5) of section 3.

Chinese Context

As described above the Chinese AML has not quantified the threshold limits forconcentrations notifications. The threshold limits are yet to be notified. Under theexisting M&A Regulations, there are different threshold limits one for concentrationscovering on shore enterprises and another for off shore enterprises. Details are givenbelow :

Two Types of On Shore M&A Transaction : Equity and Asset :

EQUITY TRANSACTION :

Equity Transaction in which a foreign enterprise either(a) purchases equity shares in a domestic enterprise and subsequently converts that

domestic enterprise into a foreign invested enterprise (FIE) or

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(b) subscribes for a capital increase in a domestic enterprise and subsequentlyconverts that domestic enterprise into and FIE

ASSET TRANSACTION :

Asset transaction through which a foreign enterprise either :(a) establishes and FIE to purchase and operate the assets of a domestic enterprise or(b) purchases such assets for contribution to the establishment of a new FIE.

The mandatory notification threshold limits are given below :

Particulars On Shore M&ATransaction Off Shore M&ATransactionRef Article Article 2 Article 53

Asset Base in China Not Applicable >RMB 3 billion(App $ 388 million)

Turnover in China RMB 1.50 billion(App$194 million)

RMB 1.50 billion(App$194 million)

Other acquisitions More than 10 domesticenterprises in relatedindustries in Chinawithin 1 year

Will hold directly orindirectly an equity interestin more than 15 FIE inrelated industries in China

as a result of thetransaction.

China market sharebefore M& Atransaction

20% or more 20% or more

China market shareafter M& Atransaction

25% or more 25% or more

The drafts on Regulations of AML suggests the following threshold limits :

Only turnover base and market share base. No relation to asset base ;

Aggregate worldwide turnover RMB 12 billion (App $ 1.50 billion)One of the parties China Turnover RMB 800 million (App $ 105 million)Market share after M&A transaction >25% of China

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Some legal experts have commented that these are very low levels compared to thecurrent economic scenario of FDI and merger activities in China.. Also it is mentioned inthe press that the asset base threshold limit may be dropped retaining only turnover andmarket share threshold.

REGULATION OF COMBINATIONS :


Section 6 (1)No person or enterprise shall enter into acombination which causes or is likely to cause

an appreciable adverse effect on competitionwithin the relevant market in India and such acombination shall be void.

Article 28In the case that the undertakingsconcentration will or may eliminate or

restrict market competition, the Anti-monopoly Enforcement Authority shallmake a decision to prohibit theconcentration and give reasons thereof.However, the Anti-monopoly EnforcementAuthority may decide not to prohibit theconcentration if the involved undertakingscan prove either that the advantages ofimplementing the concentration exceed thedisadvantages, or that the concentration is inharmony with the public interest..

Under the Indian Competition Act, the absolute power or authority to determine whetherthe combination causes or likely to cause an appreciable adverse effect on competitionrest with the Commission. The parties to the combination shall during the course ofhearing shall file all relevant documents and proof to prove that the transaction is not anticompetitive. In the Chinese context, if the undertakings concerned can prove that theconcentration will bring more positive impact than negative impact on competition Thisis a very subjective matter proving more positive than negative. There is no measurementscale to measure the positive or negative impact on competition. Another important thingis that in case the operators that the concentration is in pursuant to public interests thenthe Enforcing Authority may not prohibit the transaction. To prove public interest and

not even benefits of public interest. These two areas are better to be vested with theEnforcing Authority than with the operators.

EXEMPTIONS :

Exemption is mentioned in both the Laws from filing the notice of combination orconcentration.

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Indian Context :

Under the Indian Context only the holding of equity by Public Financial Institutions,Foreign Institutional Investors, bank, venture capital funds and too pursuant toconversion clause in the loan agreement or investment agreement.

Section 6(4)

The provisions of this section shall not apply to share subscription or financing facility orany acquisition, by a public financial institution, foreign institutional investor, bank orventure capital fund, pursuant to any covenant of a loan agreement or investmentagreement.

Chinese context : Under the AML of China , the exemption is for M&A in case ofholding and subsidiary company.

Article 22 Where a concentration is under any of the following circumstances, it may not be

declared to the Anti-monopoly Authority under the State Council:(1) one undertaking who is a party to the concentration has the power to exercise more

than 50% of the voting rights of every other undertaking , whether of the equity or the

assets; or

(2) one undertaking who is not a party to the concentration has the power to exercise

more than 50% of the voting rights of every undertaking concerned, whether of the

equity or the assets.

NOTIFICATION :


Section 6(2)

Subject to the provisions contained in sub-section (1), any person or enterprise, who orwhich proposes to enter into a combination,13[shall] give notice to the Commission, in theform as may be specified, and the fee whichmay be determined, by regulations, disclosing

the details of the proposed combination, within14[thirty days] of

Article 21 Undertakings shall notify the Anto

Monopoly Authority regarding

concentrations reaching the threshold of

notification stipulated by the State Council.

.

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(a) of section 5 or acquiring of control referredto in clause (b) of that section.

Note : No time limit given in the AML of China for filing. It is rather advance filing.

RELEVANT MARKET

Indian Context :

The word relevant market is well defined in the Indian Competition Act 2002. Section (r )defines :

"relevant market" means the market which may be determined by the Commission withreference to the relevant product market or the relevant geographic market or with

reference to both the markets;

U/s 19(5) for determining whether a market constitutes a relevant market for the purposesof this Act, the Commission shall have due regard to the relevant geographic market andrelevant product market.

U/s 19 (6) The Commission shall, while determining the relevant geographic market havedue regard to all or any of the following factors namely :

(a) regulatory trade barriers;(b) local specification requirements;(c) national procurement policies;(d) adequate distribution facilities;(e) transport costs;(f) language;(g) consumer preferences;(h) need for secure or regular supplies or rapid after-sales services.

U/s 19 (7) the Commission shall while determining the relevant product market have dueregard to all or any of the following factors namely :

(a) physical characteristics or end-use of goods;(b) price of goods or service;

(c) consumer preferences;(d) exclusion of in-house production;(e) existence of specialized producers;(f) classification of industrial products.

Chinese context

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Under the Chinese context the relevant market has a simple definition in Article 12 as givenbelow :

"relevant market" refers to the commodity scope or territorial scope within which theundertakings compete against each other during a certain period of time for specificcommodities or services


Chapter 9 Inquiry/ Investigation Procedures and orders

Inquiry and investigation is a very important tool in the enforcement of economic laws.The investigation procedure gives the Enforcing Authority the strength to rely on certainfacts and circumstances which are crucial to make final opinion or decision. Generallythe investigation arm in a subject Law is within the Law itself and is not a common bodyto investigate the affairs. For example the investigation arm of the Income Tax orinvestigation arm of the Customs etc are within the relevant administrative Head of theLaw Enforcement Authority. In most economic and commercial laws the investigatingarm is a separate Directorate having its own regulations. It is not merely a departmentenquiry committee. In the Indian Competition Act 2002, the duties of Director Generalwho is the designated authority for investigations is given separately. DG is a separatedirectorate acting within the Competition Commission . Under the Chinese AML, there

is no separate directorate of Investigation. The investigation is supposedly to be carriedout by the Enforcing Authority. In the new law of AML of China , nothing is mentionedon who will carryon the investigation. In the existing regime of China the EnforcingAuthority themselves do investigation and this dept is called Office of InvestigationAgain in AML of China the word inquiry is not used only investigation. In the Indiancontext, both inquiry and investigation are used.

The comparative study is given below :

Indian context :

1. The DG is appointed by the Central Government. He is not appointed by theCommission.

2. The DG shall when so directed by the Commission, assist the Commission ininvestigating into any contravention of the provisions of the Act. Ie the DG is toinvestigate any contravention if and only if he is directed by the Commission. TheDG suo moto cannot initiate investigation.

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3. The office of DG shall be vested with the powers as in a Civil Court under theCode of Civil Procedure 1908.

4. The DG shall have similar powers of inspector under the companies Act 1956 u/s240 (Production of Documents and Evidence) and 240A (Seizure of documentsby Inspector)

Under what circumstances, can investigation be directed by the Commission to the DG ?

1. On anti competitive agreements and abuse of dominant market position, onreceipt of a reference from the Central Government of State Government or astatutory authority or on its own knowledge or information received u/s 19, theCommission shall direct the DG to cause an investigation to be made.

2. If the report of DG recommends that there is no contravention of the provisions of

the Act, the Commission shall invite objections or suggestions from CentralGovernment or State Government or statutory authority or the parties concernedon such report of DG. If after consideration of the objections or suggestions theCommission is of the opinion that further investigation is called for, it may directfurther investigation.

There is no time limit for concluding an investigation by DG ?

No specific time limit is given.

Under what circumstances, can the Commission call for inquiry ?

1. Inquiry into combination by Commission u/s 20(1)2. The Commission shall not initiate any inquiry under this subsection after the

expiry of 1 year from the date on which such combination has taken effect.3. U/s 26(8) If the report of the DG recommends that there is contravention of any

of the provisions of the Act (in relation to agreements and dominant position), andthe Commission is of the opinion that further inquiry is called for, it shall inquireinto such contravention in accordance with the provisions of this Act.

4. U/s 42(1), the Commission may cause an inquiry to be made into compliance ofits orders or directions made in exercise of its powers under this Act.

Whether the Appellate Tribunal make an inquiry through DG ?

No. The Appellate Tribunal shall make inquiry on its own.. U/s 53 N(3), the AppellateTribunal after an inquiry made into the allegations pass an such order

The Chinese Context

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Chapter VI of AMP deals extensively about investigation procedures. The InvestigatingAuthority is the same as Enforcement Authority. They have wide powers .

Under what circumstances an investigation be carried out ?

The anti-monopoly authority shall make investigations into suspicious monopolisticconducts in accordance with law. Any entity or individual may report suspiciousmonopolistic conducts to the anti-monopoly authority. The anti-monopoly authority shallkeep the informer confidential. Where an informer makes the reporting in written formand provides relevant facts and evidences, the anti-monopoly authority shall makenecessary investigation.

Powers of officers carrying out investigations :

Article 39When investigating suspected monopolistic conduct, the Anti-monopolyAuthority can take the following measures:

(i) Conduct on-the-spot inspection at the location that the business takes place or otherplaces that are relevant to the undertakings;(ii) Question the undertaking under investigation, interested parties, and other relevant

organizations and individuals of the relevant circumstances;

(iii) Examine or copy the relevant documents, agreements, contracts, accounting books,business mail, and electronic data submitted by the undertaking concerned, interestedparties, and other relevant organizations or individuals;

(iv) Seal up and retain relevant evidence; and

(v) Inquire after the bank accounts of the undertakings concerned.Before any of the actions described in this Article are applied, a written report must be

submitted to the senior officials of the Anti-monopoly Enforcement Authority for

approval..

One more stipulation is that at least 2 officers to be present during investigation :

Article 40 When investigating suspected monopolistic conducts, there shall be at least two

law enforcing persons , and they shall present their certificates.

The authority may suspend the investigation or resume investigation under circumstancesgiven below :

Article 45 In the process of investigating monopolistic conduct, the Anti-monopolyEnforcement Authority may suspend the investigation if the subject undertakings promiseto eliminate the effects of the conduct through the use of concrete measures within the

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period prescribed by the Anti-monopoly Enforcement Authority. The determination tosuspend investigation should state the concrete measures of the promise.In case that the Anti-monopoly Enforcement Authority decides to suspend theinvestigation, such Anti-monopoly Enforcement Authority shall supervise theimplementation of the promise by the relevant undertakings. If the undertakings

implement the promise, the Anti-monopoly Enforcement Authority may

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terminate the investigation..However, the Anti-monopoly Enforcement Authority shallresume investigation if any of the following occurs:

(i) The undertakings fail to implement the promise;(ii) The facts on which the decision of suspending investigation depended haveundergone significant changes; or (iii) The decision of suspending investigation was based on incomplete or inaccurate

information submitted by the undertakings..

The procedure for investigation and orders are given below :

PROCEDURE OF INQUIRY OF ANTI COMPETITIVE AGREEMENTS ANDORDERS

Indian Context Chinese Context

Initiation of InquiryThe Commission may initiate inquiry intoanti competitive agreements on :

1. Its own information and knowledge inpossession

2. On receipt of information3. On reference of reference from

Central or State Government

Article 38 The anti-monopoly authority shallconduct the necessary investigations forthose reports that are in a written formcontaining relative facts and necessaryevidence. Any enterprise or individual mayreport a suspected monopolistic conduct tothe anti-monopoly authority.

InquiryThe Commission may direct the DG toconduct inquiry on any anti competitiveagreements

The inquiry or investigation shall be carriedout by Enforcement Authority (Office ofInvestigation ) Procedure mentioned inArticle 39 to 44

After Inquiry ?After receipt of the investigation report fromthe DG, the Commission shall determ