Antitrust developments in emerging markets

1
Anti-trust developments in emerging markets

• Presentation to Competition Law Association
• 20th November 2008
• Gordon Moir

2
Agenda

• Recent developments in emerging markets
  anti-trust rules for global business
• Focus on India, China and Hong Kong
• Cover off
• Merger rules
• Security and other protections
• Anti-trust provisions and impact on supplier
  relationships
• Concurrency between sectoral powers and
  anti-trust rules

3
BT Around the World

• BT has operations in around 170 countries
  globally
• Local operations supporting local companies and
  global organisations in China, India and Hong
  Kong
• Closely engaged in development of relevant
  regulatory and anti-trust rules

4
The Growing Adoption of Competition Law

• There are now at least 100 systems of competition
  law worldwide. (http//www.olis.oecd.org/olis/2008
  doc.nsf/ENGREFCORPLOOK/NT000030BA/FILE/JT03245323
  .PDF (May 2008))
• Emerging markets are adopting competition law
  regimes
• Vietnam Competition Law 2004, which came into
  force in January 2005 (dealing with agreements in
  restraint of competition, abuse of dominant
  market position and monopoly position, and
  economic concentrations.)
• Pakistan Competition Ordinance, 2007.
• Pakistan had an anti-monopoly law Monopolies and
  Restrictive Trade Practices (Control and
  Prevention) Ordinance (MRTPO) 1970 but it was
  inadequate to address competition issues
  effectively.

5
Antitrust Developments in China, India and Hong
Kong

• China
• The Chinese Anti-Monopoly Law (AML) went into
  effect on August 1, 2008.
• Maintains Unique Chinese Elements
• Article 4 notes that the rules are to be applied
  in the context of a socialist market economy.
• India
• Amendments to Competition Act 2002 (the CA)
• Competition (Amendment Act) 2007 (the CAA)
  which now provides for a regime that governs
  mergers, anticompetitive arrangements and abuses
  of dominance.
• During 2008 draft substantive, procedural and
  implementing regulations on the new antitrust
  rules were published. It is expected that the new
  rules will be in force in early 2009
• Hong Kong
• Traditionally laissez faire with no competition
  policy
• July 2003 legislation introduced to regulate MA
  activity in the telecoms sector
• HK Govt now consulting on the introduction of a
  general competition law applying to all industry
  sectors - still undecided whether it will include
  a general merger control provision

6
Watch for Them In Mergers India

• The CAA requires mandatory notification to the
  CCI of all domestic and international mergers
  that meet any of four asset or turnover
  thresholds.
• The draft guidelines have introduced a local
  nexus by providing that a transaction is not
  likely to have an appreciable effect on
  competition in India unless two of the parties to
  the combination have assets of approximately
  US50 million or turnover of approximately US
  150 million in India.
• Merger notifications required within 30 days of
  either (a) date of execution of any agreement
  (b) approval by the entitys board of directors
  or ( c) a bona fide intention to acquire the
  target is communicated to the Central Government
  or State Government or Statutory Authority.
• Notification fee proposed is around US100,000.
• Once merger filing is filed, the maximum waiting
  period is 210 days although if the transaction
  does not prima facie raise competition law
  concern in India decision will be given within 30
  days (if notification is on the basis of Form 1)
  or 60 days (if notification is on the basis of
  Form 2).

7
Watch for Them In Mergers China

• Effective 3rd August 2008.
• The new merger thresholds are the following
• - the combined aggregate worldwide turnover of
  all undertakings in the last financial year is
  more than RMB 10 billion (approximately Euro 960
  million) and the turnover within the PRC of each
  of at least two of the undertakings is over RMB
  0.4 billion (approximately Euro 38 million).
• - the combined aggregate PRC turnover of all
  the undertakings to the concentration in the last
  financial year is more than RMB 2 billion
  (approximately 192 million) and the PRC turnover
  of each of at least two undertakings to the
  concentration in the last financial year is over
  RMB 0.4 billion (approximately Euro 38 million).
• Investigation can still be carried out for
  transactions that fall short of thresholds but
  have or may have the effect of precluding or
  restricting competition.

8
National Security Approvals Foreign Investment
Restrictions

• China Article 31 Acquisition of domestic
  enterprises by foreign investors that concern
  national security shall be reviewed in accordance
  with relevant regulations. Separate review by the
  Ministry of Commerce (MOFCOM). It is generally
  perceived to be supportive of foreign investment.
• India India has no formal mechanism to evaluate
  the national security implications of Foreign
  Direct Investment. But critical investments need
  approval of the Foreign Investments Promotion
  Board. This could be refused if the Govt
  believes that a particular investment is
  sensitive from the security angle.

9
These New Antitrust Laws May be Useful in
Allegations of Collusion China

• Under the AML, agreements, decisions, or other
  concerted behavior that eliminates or restricts
  competition are prohibited, such as price
  fixing, output restriction, market allocation and
  joint boycott (Article 13).
• But exemptions
• Article 7 for industries dominated/ controlled by
  state owned economy and vital to the Chinese
  national economy and/or national security. This
  could exempt telecommunications, energy,
  financial services.
• Article 15 for certain agreements including
  improving competitiveness of small to medium
  enterprises, to mitigate a serious decline in
  sales or market overproduction in an economic
  downturn, secure legitimate interests in foreign
  trade, or other reasons specified by the State
  Council.
• Penalties Article 46 and 47 provide that if a
  company violates the relevant provisions of the
  AML (including price cartels) the authorities
  (the Anti-Monopoly Enforcement Agency or AMEA)
  can (1) order the firm to cease and desist such
  acts (2) confiscate the gains resulting from
  such anticompetitive activity and (3) require
  that the firm pay a fine ranging from 1 to 10
  of the total sales volume in the relevant market
  from the previous year.. The AML also allows a
  private right of action for enforcement of the
  AML (Article 50).

10
These New Antitrust Laws May be Useful in
Allegations of Collusion India

• Under Section 3(3) of the Competition Act as
  amended, price fixing, output restriction, market
  allocation and bid rigging agreements are
  presumed to have an appreciable adverse effect
  on competition.
• In cartel cases penalties of up to three times of
  its profit for each year of the continuance of
  such agreement or ten percent of its turnover for
  each year of the continuance of such agreement,
  whichever is higher.

11
The Need for a Competition Law in Hong Kong

• Debate commenced June 2006 Competition Policy
  Review Committee (CPRC) published report stating
  that whilst HK had a free and open economy with
  few market barriers, there were concerns about
  the possibility of anti-competitive conduct
• Nov 2006 the HK Govt issued a consultation on the
  need for cross-sector competition law
• Outcome - High level of support for a stronger
  regulatory environment for competition
• BUT concerns remained in the business sector as
  to increased costs of business and potential for
  litigation

12
Proposals

• May 2008, HK Govt released a consultation on the
  main proposals for the new cross-sector
  competition law
• Main provisions include
• 1. Setting up an independent Competition
  Commission to investigate and adjudicate, and a
  Competition Tribunal to hear appeals of the
  Commission's decisions and private actions
• 2. Prohibitions on agreements that have the
  purpose or effect of substantially lessening
  competition and on undertakings with a
  substantial degree of market power from abusing
  that power with the purpose or effect of
  substantially lessening competition
• 3. Rights to commence private actions
• 4. New competition law to apply to all sectors
  (cf Singapore Competition Act 2004) including
  telecoms. OFTA to share jurisdiction with CC.
• 5. Three options for Merger Control - (i)
  introduce provisions similar to those in the
  Telecommunications Ordinance (ii) introduce
  merger provisions but delay the enforcement until
  after a review of the effect of the law (iii)
  not to include merger provisions in the new law
  but leave the door open for later.

13
Why exclude Merger Control? Reasons given are...

• HK is a small economy that cannot support
  multiple providers of certain goods and services
• Mergers traditionally are not of practical
  concern in HK as large-scale mergers are uncommon
  and the open economy produces competition from
  foreign suppliers
• Competition Bill will be tabled in 2008/09
  legislative session

14
The Jurisdictional Nexus Between Regulation and
Competition Law

• One of the biggest debates going forward
• The U.S. regulatory/antitrust gap
• The regulator (the Federal Communications
  Commission) has deregulated bottleneck access
  facilities with the expectation that competition
  will emerge even if it is not there yet.
• In Verizon Communications v. Law Offices of
  Curtis Trinko, LLP the U.S. Supreme Court held
  that a telecommunications company cannot be
  liable under Section 2 (monopolization) for
  refusing to deal where its only dealings with
  plaintiff were, from the start, compelled by the
  telecommunications laws.
• Effort in current Supreme Court case (linkLine)
  to preclude price squeeze claims as well since
  this is simply a lesser form of a refusal to
  deal.
• Result Absence of both regulatory and antitrust
  law oversight to constrain the unlawful exercise
  of monopoly power in the access market

15
Jurisdictions where Competition Laws are Not
Applicable to Telecoms by Statute

• Singapore
• The Singapore Competition Act 2004 excludes many
  key sectors such as telecoms, water, postal
  services, bus and rail services.
• Telecoms sector excluded because the National
  Regulatory Authority (NRA) had jurisdiction
  over competition matters and had already
  promulgated a Competition Code.
• Unfortunately the Competition Code competition
  law provisions were weaker.
• Example Under the Competition Code, the NRA has
  wholly inadequate investigative and enforcement
  powers and remedies, compared to those of the
  Singapore Competition Commission.
• Similarly in Hong Kong, if the Competition
  Ordinance is passed, the competition provisions
  in the Telecommunications and Broadcasting
  Ordinances should be repealed.