Can discriminatory competition policy violate World Trade Organization (WTO) rules? The U.S. Chamber of Commerce thinks so.

In a recent report on the implementation of China’s Anti-Monopoly Law (AML), the Chamber argues that, “[t]o the extent that China’s enforcement of the AML is discriminatory, it arguably violates commitments that China undertook when it acceded to the World Trade Organization (WTO).”  Specifically, the Chamber cites Paragraph 65 of the Report of the Working Party on the Accession of China (Working Party Report), pursuant to which “the Government of China encouraged fair competition and was against unfair competition of all kinds.”  It also cites Article XI:1 of the GATT 1994, which prohibits restrictions on the importation or exportation of goods.

Using these provisions, such a case would likely be a tough sell before a dispute settlement panel

  • First, paragraph 65 of the Working Party Report was not incorporated as a binding commitment into China’s Protocol of Accession, which incorporates only those paragraphs listed in paragraph 342 of the Working Party Report.
  • Second, and as the Chamber report notes, GATT Article XI:1 refers to restrictions on importing and exporting goods, which are not clearly implicated by allegedly discriminatory competition law enforcement.
  • Finally, the WTO’s position on the relationship between competition policy and trade is, at best, undeveloped.  While the WTO established a Working Group on the Interaction between Trade and Competition Policy in 1996, the General Council decided in 2004 that the issue would not be pursued further during the Doha Round.

In the near term, then, political pressure and bi-lateral negotiations may be the only means for foreign companies with interests in China to hash out their issues with AML enforcement.  For example, as the Chamber also notes, China committed at the 2014 U.S.-China Strategic and Economic Dialogue (S&ED) that competition law enforcement “should be fair, objective, transparent, and non-discriminatory.”

It is likely that U.S. negotiators will press China on this point at next year’s S&ED, particularly if foreign companies continue to fall subject to the AML with little opportunity to defend themselves through Chinese legal or regulatory procedures.

The Chamber’s report, “Competing Interests in China’s Competition Law Enforcement,” is a thorough examination of the AML, its legislative history, and its political context.  It should be of interest to more than companies with operations in China, as it discusses aspects of the law that may become a new tool in the Chinese government’s promotion of domestic firms, particularly state-owned enterprises and national champions, vis-à-vis foreign competitors in the global marketplace.