Distribution Agreements Under China’s Anti-Monopoly Law and the Hong Kong Competition Ordinance

Posted by Social Science Research Network

Distribution Agreements Under China’s Anti-Monopoly Law and the Hong Kong Competition Ordinance

Sandra Marco Colino (The Chinese University of Hong Kong)

Abstract:     This paper discusses the use of distribution restraints in China and Hong Kong, and attempts to develop a general framework for their analysis under the AML and the CO. The (limited) evidence available thus far suggests that vertical restrictions are commonplace in these jurisdictions, and that they may well have adverse effects on competition, particularly when they affect resale prices. However, since economic theory is ambivalent as to their effects, and they may also serve procompetitive purposes, the chosen approach must aim to control their potential problems while at the same time leaving room for an assessment of their potential merits and justifications. Such a task requires giving up the establishment of clear principles and ‘bright lines’ in favour of an effects-based approach, and is particularly intricate in new systems where the authorities and courts have limited antitrust enforcement experience. Likewise, established jurisdictions like the US and the EU have struggled for decades to find an optimal way to balance the mixed effects of these restrictions, and the issue is far from settled. Importantly, economic analysis was only fully developed once these antitrust systems had ripened, placing a question mark was to whether younger jurisdictions ought to give up a blanket prohibition in the early enforcement years. Moreover, the dispute as to the effects of these restrictions on competition unavoidably means that the strategy adopted towards vertical agreements is heavily influenced by ideology. Therefore, chiselling the approach towards distribution restraints unavoidably has a marked impact on the shape, direction and rationale of competition policy in new jurisdictions.

Part II of the paper begins by clarifying the kinds of restrictions typically introduced in distribution agreements, as well as their rationale. It then explores the vast literature on the advantages and disadvantages of distribution restraints, and covers the evolution of the treatment of such restrictions in the US and the EU, which has been subject to considerable swings. Part III focuses specifically on China and Hong Kong, the enactment of their respective competition laws, the evidence of the effects of distribution restraints in these jurisdictions, and how their antitrust legislations have addressed or have the potential to address the relevant problems. A critical assessment is conducted in Part IV, and Part V presents the final conclusions.

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