International Seminar on Competition Policy and Laws - Jeremy H. Hovland | Asian Development Bank

International Seminar on Competition Policy and Laws - Jeremy H. Hovland

Speech | 17 September 2010

Opening speech by ADB General Counsel Jeremy H. Hovland at the International Seminar on Competition Policy and Laws on September 17, 2010 in Beijing, People's Republic of China

Vice Minister Chong Quan,
Distinguished Guests, Ladies and Gentlemen,
Good morning.

I am honored to have this opportunity to make some opening remarks for this International Seminar on Competition Policy and Laws. This is an area in which the Ministry of Commerce (MOFCOM) and the Asian Development Bank (ADB) have been cooperating for years. However, today's conference may be viewed as a turning point and a milestone, because this is the first time that we have been able to bring the subject of "Competition Policy and Law" to a broad range of senior officials in the Chinese Government.

We at the Asian Development Bank are very pleased to have been able to support the development of China's policy and laws on competition. Based on the experience of the past six years of cooperation in this area, we believe that the current efforts in the area of competition policy and laws will achieve great success.

Let me begin with a brief review of what we have been able to achieve through the cooperation between MOFCOM and ADB in this area.

An Overview

The economic reform of the PRC has achieved remarkable results, as shown by the surge in China's economic activity on a global scale, especially in the past decade. These achievements have been accompanied by progress in other areas, including the development of the legal and judicial system. However, as you are aware, there remain huge challenges facing the country. These include inequality in wealth distribution, inadequate coverage of the social security system, rapid urbanization and uneven rural development, environmental protection and resource management, the need for further development and reform of the legal and judicial system, and the issue of corruption, to name some of the most daunting issues. I am pleased to note that in all of these areas, ADB has been acting as a partner with the Government, supporting the Government to overcome these challenges.

Another area where the PRC has made big strides is the increased integration of its economy into the global economy. In these days of global economic upheaval, one may wonder if integration into the global economy is a good thing. Let me say that it is a reality, and just as China has greatly benefited from the competitive edge of its exports in the global market, it now needs to adapt to changing realities. For China, this may mean reorienting itself toward other outlets for its production. With a vast domestic market that is still underdeveloped, China seems well placed to weather the storm.

One of the cornerstones of a sound market economic framework is a sound domestic competition framework. A lack of competition, in its starkest form a monopoly, harms the interest of consumers, leads to persistent low levels of efficiency in monopolistic enterprises, distorts the fair distribution of wealth among enterprises and of income between the employees of different enterprises, and increases the opportunity for corruption.

ADB Financed Activities

With a clear awareness of the importance of a sound competition policy and law, the Chinese Government has already taken important steps in adopting the Anti Monopoly Law and developing a competition policy. I am glad that that ADB has been able to contribute to this process by providing funding for technical assistance in this area. I recall that as early as 2003 we supported a seminar in Xiamen on the regulation of cross border merger and acquisition (M&A) transactions, jointly organized by ADB and MOFTEC. Although it was focused on developing the regulatory framework for cross border M&A transactions, it helped revitalize the legislative process for the Anti Monopoly Law.

The ADB then provided support to the development of the legal framework for competition law. In this effort, we worked closely together with the PRC authorities responsible for drafting the Anti Monopoly Law and revisions to the Law against Unfair Competition, namely, the Legislative Affairs Commission of the Standing Committee of the National People's Congress, the State Administration of Industry and Commerce, and MOFCOM. Such efforts helped to finalize the draft Anti Monopoly Law and its adoption in August 2007. In particular, we believe that the seminar held in Hanzhou in May 2006, also co-organized by MOFCOM, ADB and the Organization for Economic Development and Co-operation (OECD), under Mr. Shang Ming's guidance and with the participation of senior officials from the anti-trust authorities of the United States, the European Commission, and Germany, together with OECD experts, contributed to the finalization of the draft law.

Following the adoption of the Anti Monopoly Law, our assistance shifted to strengthening the capacity to implement the law. ADB was given the opportunity to support the establishment of procedures for reviewing merger and acquisition transactions from an anti monopoly perspective, and for the economic analysis of monopolies. Initially, ADB contributed to the work and function of the office of the Anti Monopoly Committee located in MOFCOM. ADB also provided support for a study of the issues relating to the development of a data base for anti monopoly reviews, and is currently supporting the development of a working manual for anti monopoly reviews by translating reference materials on the anti trust review process in the United States.

Rationale Underpinning ADB's Assistance

In formulating this technical assistance project, we realized that making competition policy and law work in the PRC would be a challenging and complex task. In addition to adopting laws and developing the capacity to implement them, institutions have to be established and capacity has to be developed to address the following issues:

  • identifying the core objectives of competition policy and laws and their possible conflict with other policy objectives,
  • clarifying the authority, capacity, and legal and policy instruments of the agencies implementing the competition law, and
  • clarifying the relationship between anti monopoly law authorities and other sector regulators, and the related legal procedures and role of the judicial system.

The adoption of the Anti Monopoly Law marked the establishment of both the legal and policy frameworks for the regulation of competition. According to the law, a high-level cross-ministerial committee, the State Council's Anti Monopoly Committee, was set up.

The work in the area of competition policy and law has now expanded to a new dimension, as evidenced by this conference. The challenge now is to make the policy framework work effectively and play important role, together with the legal framework.

What Next: Assessment and Suggestions

Based on our observations, I congratulate the Chinese Government on two major achievements in this area:

  • a legal framework on competition, centered in the Anti Monopoly Law and the Law against Unfair Competition, has been developed and put into action, and the capacity to implement these laws has been strengthened; and
  • a policy framework has been set up with the establishment of the State Council's Anti Monopoly Committee, and work has begun to consider how to make such a framework work effectively.

While it is well recognized that the operation of the legal framework needs further strengthening, the challenges facing the Anti Monopoly Committee are even bigger.

A brief assessment of what has been done and what still needs to be done may be useful. The Committee has been set up at the State Council's level, now chaired by a Vice Premier, which gives it very prominent status and a high level of authority.

The Committee now comprises 16 ministries or ministerial level agencies, covering a wide range of industries, legal and regulatory areas. This brings together all of the major authorities concerned, it positions competition policy as a major dimension of sector development policy, and it sets the implementation of competition laws as a major mandate in the legal and regulatory regime. The Committee thus offers a forum to discuss at the highest level in the Government competition policy and the issues involved.

The Anti Monopoly Law outlines five major areas as the mandates of the Committee, and provides the Committee with a wide range of authority and responsibility. The mandates are written in a very general and broad way, leaving plenty of flexibility for developing detailed operational procedures, a methodology, and an approach for delivering the Committee's mandate.

In order to help put the policy framework into operation, it is suggested that the three following measures will need to be undertaken.

First of all, a consensus needs to be built up among all participating authorities in the Committee on the ultimate objective of the competition policy and laws. The relationship, interaction, and even conflict, between competition policy and laws and other policies and laws need to be discussed and studied. An understanding needs to be reached on how to balance and adjust such different policies and laws.

Secondly, operational procedures need to be developed to enable the Committee and its working staff to meet the requirements of the mandate enshrined in the Law.

Thirdly, the policy instruments need to be developed to enable the Committee and its members to apply concrete means to carry out the process of policy analysis, formulation, and implementation.

These three areas will require an enormous amount of effort and work. This conference represents one of the initial efforts in this area, and there is a long way to go in the future. I hope this conference will provide you all with an opportunity to begin to discuss and explore some of these critical issues.

In conclusion, may I wish this conference every success in laying the groundwork for the Government to develop a competitive and dynamic market in China in the future.

Thank you very much.