Anti-monopoly Law - MOFCOM's decision to block Coca Cola's proposed US$2.3 billion acquisition of Huiyuan Juice

This article revisits some of the key provisions of China's Anti-Monopoly Law (反垄断法) and gives a legal review of the decision by the Ministry of Commerce (MOFCOM/商务部) to block Coca Cola Co's (可口可乐公司) proposed US$2.3 billion acquisition of Huiyuan Juice Group (汇源公司集团).

Anti-Monopoly Law - a brief background

After more than 13 years' of drafting and debate, the Chinese Anti-Monopoly Law came into force on August 1, 2008. It is China's first comprehensive and unified competition law. Article 1 of the Anti-Monopoly Law made it clear that its purpose is to:

(i) prevent and prohibit monopolistic conduct (预防和制止垄断行为);
(ii) protect fair market competition (保护市场公平竞争);
(iii) enhance operational efficiency of the economy (提高经济运行效率);
(iv) safeguard consumer's interest and public interest of society (维护消费者利益和社会公共利益); and
(v) promote healthy development of the socialist market economy (促进社会主义市场经济健康发展).

Monopolistic conduct

The Anti-Monopoly Law applies to monopolistic conduct within the territory of China as well as those outside the territory of China that may have the effect of eliminating or restricting competition in the Chinese domestic market. Article 3 states that monopolistic conduct shall include:

(i) monopoly agreements by undertakings (经营者达成垄断协议);
(ii) abuse of dominant market by undertakings (经营者滥用市场支配地位); and
(iii) concentration of undertakings that have or may have the effect of eliminating or restricting competition (具有或者可能具有排除、限制竞争效果的经营者集中).

MOFCOM's decision dated March 18, 2008

In publishing its decision to prohibit Coca Cola's acquisition of Huiyuan Juice, MOFCOM made references to Article 28 of the Anti-Monopoly Law. Article 28 states that the Anti-Monopoly Enforcement Authority shall make a decision to prohibit concentration of undertakings that have or may have the effect of eliminating or restricting competition. However, if the undertakings can prove that the positive effects of such concentration outweigh the negative effects, then the Anti-Monopoly Enforcement Authority may make a decision not to prohibit such concentration.

MOFCOM stated that the proposed acquisition by Coca Cola would have an adverse effect on competition. Upon completion of such concentration, Coca Cola may exploit its dominant position in the carbonated soft drinks market to limit competition through tying, bundling or other exclusive transactions, thus forcing consumers to accept higher prices and limiting their options. At the same time, because brands can restrict entry to the market, it may be difficult for potential competition to remove such restrictive effect. In addition, the concentration would reduce the room for small and medium-sized Chinese juice companies to survive, and will have an adverse effect on the structure of competition in the Chinese juice market.

Both Coca Cola and Huiyuan commented that they respected MOFCOM's decision.

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