By Michael Zhang and William Zheng of Sheppard Mullin Richter & Hampton LLP

On August 30 2007, the National People's Congress passed the Anti-monopoly Law of the People's Republic of China (AML). Its passage marks a historical moment in China's legal history. After over 10 years of drafting and preparing an anti-monopoly law, China has finally joined the ranks of countries with advanced antitrust legal provisions. The AML will come into effect on August 1 2008 and, based upon its language, should succeed in its aim of ensuring fair competition in the Chinese market.

INTERNAL PRICE FIXING ARRANGEMENTS

The AML defines two types of anticompetitive agreements:

(i) Between the competing undertakings (Horizontal Monopoly Agreement); and

(ii) Between the undertaking and certain transaction party (Vertical Monopoly Agreement).

The Horizontal Monopoly Agreement deems that so-called ¡°hard core cartels¡± in the market shall be strongly prohibited and investigated. However, findings of a Vertical Monopoly Agreement shall be reviewed by the Anti-monopoly Enforcement Authorities (AEA) and made on a case-by-case basis.  As a general practice, some international brands or multi-national groups may have their subsidiaries conclude special internal arrangements as a strategy of developing their own brands or controlling costs. The current competition laws of China do not strictly prohibit such conduct; however, it is likely that such arrangements will be on the radar of the AEA once they meet the criteria of a Vertical Monopoly Agreement. If a certain agreement is for reasonable commercial purposes and does not cause harm to the market competition, the company shall focus on providing and preparing the evidences that the fixed purchase price or required minimum price: