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Cablegate: Sclao Discusses Anti-Monopoly Law

VZCZCXRO6936
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #4780/01 2000841
ZNR UUUUU ZZH
P 190841Z JUL 07
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 9999
RUEAWJA/DEPT OF JUSTICE WASHINGTON DC
INFO RUCPDOC/USDOC WASHDC
RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 BEIJING 004780

SIPDIS

SENSITIVE
SIPDIS

JUSTICE FOR CHEMTOB, MASSOUDI
STATE PASS FTC FOR GENERAL COUNSEL BLUMENTHAL
STATE ALSO FOR EB/TPP/IPC, INR/B
STATE PASS USTR STRATFORD/WINTER/MCCARTIN
USDOC FOR DAS KASOFF AND ITA/MAC/OCEA/MCQUEEN
TREASURY FOR OASIA/ISA DOHNER/HARSAAGER/CUSHMAN

E.O. 12958: N/A
TAGS: ECON EIND EINV PGOV WTRO CH
SUBJECT: SCLAO DISCUSSES ANTI-MONOPOLY LAW
IMPLEMENTATION WITH FTC, DOJ


1. (SBU) SUMMARY. Federal Trade Commission (FTC) and
Department of Justice (DOJ) officials raised United
States concerns about China's draft Anti-Monopoly Law
(AML) and proposed amendments to its 1993 Anti-Unfair
Competition Law (UCL) in a March 30 meeting with State
Council legislative Affairs Office (SCLAO) officials.
SCLAO declined to predict when the National People's
Congress (NPC) would enact the AML, noting the process
was arduous because of the contentious issues involved.
State Council departments would participate in the
future Anti-Monopoly Commission, hopefully on a
Ministerial-level. Promulgation of the AML would be
followed by State Council formulation of
implementation rules. The DOJ and FTC officials
offered to share U.S. experience with antitrust law
implementation. SCLAO said amendments to the UCL
should be harmonized with the AML, as should other
laws such as the Price Law. Whether the future AML
would cover administratively authorized monopolies was
not resolved. The SCLAO was open to further exchanges
with United States antitrust experts on draft Chinese
laws and competition policy. End summary.

Process for AML Enactment
-------------------------

2. (SBU) Asked about the status and prospects of the
draft AML, SCLAO Deputy Director General (DDG) Dong
replied that the draft AML had been submitted to the
National People's Congress (NPC) where it had
attracted considerable attention. While it was
possible the NPC could conduct the minimum three
readings within six-months, passage of the law would
remain difficult due to competing legislative
priorities and other barriers. The draft AML had
provoked a wide ranging discussion at the State
Council and more difficulties were expected during the
NPC's readings. Dong declined to predict when the law
would be passed.

3. (SBU) China's future AML would be important to
China and the world, she continued. The AML was
intended to promote market competition and enhance
market efficiency. The demand for an AML in China to
uniformly regulate market order had grown in the more
than 20 years of economic reform as China moved from a
centrally planned economy to a socialist market
economy and became even more integrated with the world
economy following China's 2001 accession to the World
Trade Organization. Existing problems in China's
markets included such phenomena as abuse of dominant
market position, mergers among undertakings, and
administratively sanctioned monopolies.

4. (SBU) DDG Dong approvingly noted past helpful
comments and suggestions from FTC, DOJ and Commerce
Department officials. She said the draft AML
reflected many of those recommendations.

Future Anti-Monopoly Authority?
-------------------------------

5. (SBU) FTC General Counsel (GC) Blumenthal asked
about the future Anti-Monopoly Commission and whether
the SCLAO would be involved in structuring that future
regulatory agency. DDG Dong said that according to
the current draft AML, the Anti-Monopoly Commission
(AMC) would be supervised under the framework of the
State Council and be comprised of representatives from
both State Council commissions and Chinese ministries,
as well as outside academics and experts. Dong did
not anticipate that the SCLAO itself would be a member
of the AMC. While not specified in the draft, the
State Council would likely appoint high level
officials, such as Ministers, to the Commission.

AML Implementation Challenges
-----------------------------

6. (SBU) DOJ's Stuart Chemtob inquired about the role
of the State Council in the AML's implementation and

BEIJING 00004780 002 OF 003


whether preparations for implementation had begun in
anticipation of the NPC passing the law. DDG Dong
described the AML as a constitution for economic
matters. Promulgation of the AML would be only a
first step. Implementation would be a long and
arduous road. China noted that implementation of
corresponding laws in the United States, the European
Union, and Japan had been very complicated. Dong said
she expected to participate in the State Council's
formulation of implementation rules. Departments
responsible for legal enforcement would also
participate. While no schedule had been decided for
implementation, some efforts regarding implementation
rules drafting had begun.

7. (SBU) The State Council would most likely focus on
substantive rules, while procedural rule-making would
largely be in the purview of China's courts and the
NPC, DDG Dong continued. One should expect specific
rules regarding administrative review of the AML.
FTC's Tritell commented that DDG Dong has a
realistic appreciation for anti-monopoly
implementation difficulties. The United States would
be happy to share its experiences from over 100 years
in implementation of the antitrst laws, he said,
which DDG Dong welcomed.

Status of UCL and Opportunities to Comment
----------------------------------------

8. (SBU) In response to a question concerning the
relationship between the competition policy elements
of the UCL and the draft AML, DDG Dong said the State
Administration of Industry and Commerce (SAIC) was
drafting amendments to the UCL and had not yet
submitted a draft to the SCLAO. Dong would
participate in a review of that draft after it reached
the SCLAO.

9. (SBU) Reminded of the remarkably transparent
procedures regarding access to the draft AML and
opportunities to comment on it, Dong said she expected
the same transparent procedures for the UCL once a
draft was completed. Chinese laws and regulations on
the legislative process mandated that most laws be
made in the open and transparently, with the exception
of laws and regulations concerning national security,
foreign exchange and other specific situations. With
regard to the draft UCL amendments, Dong said the
draft may have been circulated domestically to
individual departments and enterprises, but not to the
United States.

10. (SBU) Dong added that China had also solicited
public comments on the just enacted Property Law via
the Internet. Public comments have also been sought
on drafts of the Contract Law, Labor Contract Law and
real estate regulations prepared by the State Council.
In accordance with the annual State Council
legislative plan, China would focus on transparency
and openness and increasingly solicit public opinions.
Drafts would also be delivered to experts and industry
representatives and departments for comment. Dong
encouraged the United States to pay more attention to
Chinese requests for public comment. United States
views could be submitted then and the SCLAO hoped to
hear opinions from the United States on a broad range
of issues.

11. (SBU) Pressed by FTC's Tritell on whether
provisions of the UCL would be harmonized with provisions
of the AML, DDG Dong acknowledged the importance of the
issue while repeating that, although SCLAO intended to
coordinate on the topic, it had yet to receive finished
draft amendments to the law from SAIC. DDG Dong noted the
two laws dealt with different subject matter. The AML
regulated insufficient market competition while the UCL to
regulated excessive competition. A precise definition of
excessive competition had not yet been established, but in
Dong's view it referred to acts such as fraudulent
advertising.

BEIJING 00004780 003 OF 003

12. (SBU) DOJ's Chemtob pointed out that other Chinese
laws also had competition-related provisions, e.g., the
Price Law in part addressed predatory pricing and collusion.
Would other laws' competition provisions also be harmonized
with the AML? DDG Dong said yes without any further
elaboration.

Contentious Administrative Monopolies Issue
-------------------------------------------

13. (SBU) FTC's Tritell asked whether the issue of whether
to subject or exempt administratively authorized monopolies
from review under the AML had been contentious in NPC
readings of the bill, as the topic had been during the
bill's drafting. DDG Dong replied that NPC delegates had
not formed consistent opinions on the matter. Similarly,
comments collected from experts and the public were also
divided. Opinions fell into two groups. First, someQ
commentators observed that most countries regulated just
three types of monopolistic activities -- namely,
monopolistic acquisitions, dominant market positions, and
mergers. The list did not include administrative
monopolies, so this group argued that the issue need not
appear in China's AML. A second set of commentators argued
that inclusion of the issue in the draft AML would be
beneficial to resolution of the unique problems associated
with China's administrative monopolies. The NPC would make
the final decision on whether administrative monopolies
would be covered by the AML.

14. (SBU) FTC General Counsel Blumenthal said United States
officials were heartened to see administrative monopolies
addressed in the current draft AML, and argued that
addressing the issue in the AML was in China's self-
interest. He encouraged DDG Dong and her colleagues to
consider the United States' experience with the Commerce
Clause of the Constitution and the European Union's
experience with the Treaty of Rome as reference points for
this contentious issue. DDG Dong noted that even in the
absence of a promulgated AML, Chinese authorities had
regulations to prohibit administrative restraints on
economic activities in regional areas and reforms of
certain administrative monopolies -- such as the oil, energy
and postal industries -- had already begun. Even though the
State Council would not be able to make the final decision
about the AML's coverage of administrative monopolies, it
would continue to make concerted efforts in other areas to
address the problem.

15. (SBU) In closing, DDG Dong emphasized that the SCLAO
had benefited from exchanges with DOJ, FTC, and Commerce
Department officials on the AML. The SCLAO in time may
reach out with additional questions or requests for help.
United States laws and experience were the foundation
driving China's development of its AML. SCLAO was happy to
meet frequently with DOJ, FTC, and Commerce officials.

16. (U) SCLAO participants in this March 30, 2007 meeting
included Deputy Director General Dong Chaojie and Zhang
Yaobo.

17. (U) United States participants included FTC's General
Counsel William Blumenthal, Randy Tritell, and Dina Kallay;
DOJ's Deputy Assistant Attorney General Gerald Masoudi,
Stuart Chemtob, and Hill Wellford, and United States
Embasy economic officers Chris Beede and Matthew Dolbow.

18. (U) The FTC/DOJ delegation cleared this reporting cable
July 18.

RANDT

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