[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]






IMPACT OF CHINA'S ANTITRUST LAW AND OTHER COMPETITION POLICIES ON U.S. 
                               COMPANIES

=======================================================================

                                HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON COURTS AND
                           COMPETITION POLICY

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 13, 2010

                               __________

                           Serial No. 111-117

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov








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                       COMMITTEE ON THE JUDICIARY

                 JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California         LAMAR SMITH, Texas
RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr., 
JERROLD NADLER, New York                 Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia  HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
ZOE LOFGREN, California              BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas            DANIEL E. LUNGREN, California
MAXINE WATERS, California            DARRELL E. ISSA, California
WILLIAM D. DELAHUNT, Massachusetts   J. RANDY FORBES, Virginia
STEVE COHEN, Tennessee               STEVE KING, Iowa
HENRY C. ``HANK'' JOHNSON, Jr.,      TRENT FRANKS, Arizona
  Georgia                            LOUIE GOHMERT, Texas
PEDRO PIERLUISI, Puerto Rico         JIM JORDAN, Ohio
MIKE QUIGLEY, Illinois               TED POE, Texas
JUDY CHU, California                 JASON CHAFFETZ, Utah
TED DEUTCH, Florida                  TOM ROONEY, Florida
LUIS V. GUTIERREZ, Illinois          GREGG HARPER, Mississippi
TAMMY BALDWIN, Wisconsin
CHARLES A. GONZALEZ, Texas
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SANCHEZ, California
DANIEL MAFFEI, New York
JARED POLIS, Colorado

       Perry Apelbaum, Majority Staff Director and Chief Counsel
      Sean McLaughlin, Minority Chief of Staff and General Counsel
                                 ------                                

             Subcommittee on Courts and Competition Policy

           HENRY C. ``HANK'' JOHNSON, Jr., Georgia, Chairman

JOHN CONYERS, Jr., Michigan          HOWARD COBLE, North Carolina
RICK BOUCHER, Virginia               JASON CHAFFETZ, Utah
CHARLES A. GONZALEZ, Texas           F. JAMES SENSENBRENNER, Jr., 
SHEILA JACKSON LEE, Texas            Wisconsin
MELVIN L. WATT, North Carolina       BOB GOODLATTE, Virginia
MIKE QUIGLEY, Illinois               DARRELL ISSA, California
DANIEL MAFFEI, New York              GREGG HARPER, Mississippi
JARED POLIS, Colorado

                    Christal Sheppard, Chief Counsel

                    Blaine Merritt, Minority Counsel












                            C O N T E N T S

                              ----------                              

                             JULY 13, 2010

                                                                   Page

                           OPENING STATEMENTS

The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in 
  Congress from the State of Georgia, and Chairman, Subcommittee 
  on Courts and Competition Policy...............................     1
The Honorable Howard Coble, a Representative in Congress from the 
  State of North Carolina, and Ranking Member, Subcommittee on 
  Courts and Competition Policy..................................     2

                               WITNESSES

Mr. Shanker A. Singham, Partner, Squire Sanders, LLP, on behalf 
  of the United States Chamber of Commerce, Washington, DC
  Oral Testimony.................................................     4
  Prepared Statement.............................................     6
Mr. Tad Lipsky, Partner, Latham & Watkins, LLP, Washington, DC
  Oral Testimony.................................................    18
  Prepared Statement.............................................    20
Ms. Susan Beth Farmer, Professor of Law, Pennsylvania State 
  University, Dickinson School of Law, University Park, PA
  Oral Testimony.................................................    27
  Prepared Statement.............................................    29
The Honorable Thomas O. Barnett, Partner, Covington & Burling, 
  LLP, former Assistant Attorney General of the Antitrust 
  Division, United States Department of Justice, Washington, DC
  Oral Testimony.................................................    39
  Prepared Statement.............................................    42

                                APPENDIX

Material Submitted for the Hearing Record........................    71

                        OFFICIAL HEARING RECORD
      Material Submitted for the Hearing Record but not Reprinted

Submission entitled: Symposium, Fourth Annual Latin American Round 
    Table on Competition & Trade, Barriers to Entry in Mexican 
    Telecommunications: Problems and Solutions This submission is 
    available at the Subcommittee and can also be accessed at:

    http://www.brooklaw.edu//media/PDF/LawJournals/BJI_PDF/
bji_vol27i.ashx

 
IMPACT OF CHINA'S ANTITRUST LAW AND OTHER COMPETITION POLICIES ON U.S. 
                               COMPANIES

                              ----------                              


                         TUESDAY, JULY 13, 2010

              House of Representatives,    
                 Subcommittee on Courts and
                                 Competition Policy
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 4:10 p.m., in 
room 2237, Rayburn House Office Building, the Honorable Henry 
C. ``Hank'' Johnson, Jr. (Chairman of the Subcommittee) 
presiding.
    Present: Representatives Johnson, Jackson Lee, and Coble.
    Staff Present: (Majority) Christal Sheppard, Subcommittee 
Chief Counsel; Eric Garduno, Counsel; Rosalind Jackson, 
Professional Staff Member; (Minority) Stewart Jeffries, 
Counsel; Tim Cook, Staff Assistant; and John Mautz, Legislative 
Director.
    Mr. Johnson. The hearing on the impact of China's Antitrust 
Law and Other Competition Policies on U.S. Companies will now 
come to order. And without objection, the Chair is authorized 
to declare a recess. We have called this hearing because there 
is concern within the U.S. business community that China's new 
anti-monopoly law, AML for short, might be applied or 
interpreted in a discriminatory manner. The net effect of this 
would weaken the ability of U.S. companies to compete in China. 
If this is happening, it would contribute to the uneven balance 
of trade we already have with China and ultimately lead to more 
American jobs shipped overseas.
    China is a sovereign nation entitled to design its laws the 
way it wants. At the same time it is unfair for Chinese 
companies to benefit from our antitrust laws which do not 
discriminate against them, while at the same time, applying 
their AML in a discriminatory manner against U.S. companies. In 
these troubled economic times, we must be vigilant in ensuring 
U.S. companies and entrepreneurs are not discriminated against, 
particularly in markets as big and important as China. This is 
why Congress and the Administration have given so much 
attention to examining a variety of Chinese economic policies, 
including its currency valuation, intellectual property 
enforcement and indigenous innovation rules.
    We today are adding to this effort by focusing upon China's 
anti-monopoly law. The results regarding the AML that have been 
expressed to date and which our witnesses will focus on include 
the seemingly uneven application of the merger review 
requirement, the potential for the abuse of dominance 
provisions to encompass normal business activity and the 
ambiguity in how the AML's abuse of intellectual property 
provision will be applied. Our witnesses will also focus upon 
the status of State-Owned Enterprises, SOEs, under the AML. I 
understand that up to 50 percent of China's GDP comes from SOEs 
and that generally China's SOEs operate as commercial entities 
like the Verizons and Fords of the world rather than, say, a 
state run utility. I think it is important that the AML is 
applied to China's SOEs like any other businesses, though I am 
told this is not the case. I look to the witnesses today to 
verify this and for them to elaborate on how SOEs and the 
concept of a planned economy fit into the antitrust regime. I 
also want to note that I am planning to lead a congressional 
delegation to China during the August recess to see firsthand 
various aspects of how the Chinese competition laws and their 
enforcement affect American business.
    I am very much looking forward to the trip and the 
opportunity to interface with Chinese competition policymakers 
on these issues. Lastly, while it is important that China 
establish a level playing field with regard to its antitrust 
laws it should also be mentioned that the AML is brand new. The 
Chinese should be commended for updating their antitrust law. 
This is a positive development for all businesses in China, 
both Chinese and foreign. And an important step as China 
becomes a key player in international economic relations. 
Because the AML came into effect less than 2 years ago, the 
Chinese government is still developing and implementing 
regulations for most of the AML's provisions. That is why at 
present I see no reason to start ringing bells over the AML.
    Nevertheless, we must keep our attention on how China goes 
about applying and enforcing the AML. I also think we should 
make it a priority to continue working with the Chinese to 
ensure discrimination based upon country of origin and the 
closing off of the Chinese market to American businesses does 
not occur. To this end, I hope the witnesses can provide 
constructive advice on how best to engage Chinese policymakers 
to ensure that the AML isn't applied in a discriminatory 
manner. I will now recognize my colleague, Howard Coble, the 
distinguished Ranking Member of the Subcommittee, for his 
opening remarks.
    Mr. Coble. Thank you, Mr. Chairman, for calling the 
hearing. Good to have our panel of witnesses with us today. Our 
trade philosophy is that the United States can and should 
compete in the global market. By opening trade and competition 
with other countries, those countries have a new opportunity to 
prosper economically and build new long lasting relationships 
that are driven by mutual interests. We have benefited from our 
trade with China, but we have also experienced some serious 
difficulties, mainly job losses. While I firmly believe, Mr. 
Chairman, that the United States can compete with any country, 
this only applies if there is a level playing field. That means 
the equivalent rules and standards and ensuring matters such as 
product safety, accurate currency rates, rights and protections 
for workers, intellectual property protection and enforcement, 
environmental protection, nuclear nonproliferation and most 
importantly human rights are paramount. The United States and 
China have engaged in a constructive dialogue for nearly 3 
decades. We have not always agreed but we work through our 
disagreements to forge a strong relationship it seems to me. 
During this time, China has moved from a state controlled 
economy to an economy and society that reflect mutual interests 
embodied in its trade policies.
    In North Carolina, trade with China has had a significant 
impact. Many of our textile plants sit empty and many other 
products including furniture that were once manufactured in our 
district are now either a symbol or shipped to North Carolina 
retail stores from China. North Carolina is rebuilding and 
retooling, but we also need a level playing field where we can 
compete against other countries, not unlike China.
    To that end, we have the opportunity today to discuss 
competition policy in China and how it impacts the United 
States. The United States was the first country to codify a 
competition law, the Sherman Antitrust Act of 1890. Since that 
time, over 100 nations have implemented some form of 
competition act. These laws have the potential to lower prices 
and increase innovation for products and services around the 
globe but if they are implemented improperly, they can unfairly 
benefit comic companies at the expense of foreign rivals.
    In 2007, China, as you pointed out, Mr. Chairman, adopted 
the Anti-Monopoly Law. While the AML bears all the hallmarks of 
a modern competition statute, we have yet to see how it will be 
implemented. I look forward to hearing from our panel of 
witnesses today about the potential of the AML. I am also 
interested to learn what more Congress and the Administration 
can do to ensure that China can benefit from our experiences 
developing competition policies. A sound and effective 
competition policy is in our mutual interest in seems to me. 
And I am hopeful that today's hearing will help us understand 
China's AML and why it is in our mutual interest. I yield back 
the balance of my time, Mr. Chairman.
    Mr. Johnson. Thank you, Mr. Coble. Without objection, any 
other Members' opening statements will be included in the 
record. And at this time, I am now pleased to introduce the 
witnesses for today's hearing.
    Our first witness is Mr. Shanker Singham, a partner at 
Squires Sanders law firm where he specializes in antitrust and 
international trade law, including WTO and market access 
issues. Mr. Singham is speaking on behalf of the global 
regulatory cooperation project of the U.S. Chamber of Commerce. 
Mr. Singham is also the chairman of the International 
Roundtable on Trade and Competition Policy. Welcome, sir.
    Our next witness is Mr. Tad Lipsky, a partner at the law 
firm of Latham & Watkins where he specializes in U.S. and 
international antitrust and competition law. I also want to 
note that from 1992 through 2002, he served as the chief 
antitrust lawyer for the Coca-Cola company, a company which is 
close to my heart. And welcome, sir.
    Next we have Professor Susan Beth Farmer, a professor of 
law at Penn State's Dickinson School of Law where she teaches 
courses in American and comparative antitrust law. She was also 
a Fulbright scholar in 2008 at the University of International 
Business in Economics in Beijing, China, where she researched 
and studied the Chinese legal testimony, particularly the AML. 
Welcome.
    And last but not least, we have Mr. Thomas Barnett, a 
partner at the law firm of Covington & Burling where he 
specializes in global antitrust and competitive law. From 2005 
through 2008, he was the assistant attorney general of the 
Antitrust Division of the United States Department of Justice. 
I want to thank you all for your willingness to come and 
participate in today's hearing. Without objection, your written 
statements will be placed into the record and we would ask that 
you limit your oral remarks to 5 minutes. You will note that we 
have a lighting system that starts with the green light and in 
4 minutes it goes to yellow and then in 5 minutes red. After 
each witness has presented his or her testimony, Subcommittee 
Members will be permitted to ask questions subject to the 5-
minute limit. Mr. Singham, please begin.

TESTIMONY OF SHANKER A. SINGHAM, PARTNER, SQUIRE SANDERS, LLP, 
ON BEHALF OF THE UNITED STATES CHAMBER OF COMMERCE, WASHINGTON, 
                               DC

    Mr. Singham. Chairman, Members of the Subcommittee, I am 
honored by the opportunity to address you today on the subject 
of China and competition policy on behalf of the U.S. Chamber 
of Commerce. As we noted in our written testimony, China's 
transition to a market economy where competition on the 
business merits is the norm continues to be a challenging one. 
It should not surprise anyone given the history, but China's 
attempts to move in this direction should be applauded. 
However, there are some systemic issues that the U.S. 
Government must consider in developing a responsible approach 
to China and its transition. First, China's transition is not 
yet complete. And there are profound challenges in the 
operation of a competition agency embedded in an economy that 
has not yet fully accepted competition policy as a normative 
organizing principle. In these cases, there is a danger that 
competition agencies may become another tool in the hands of an 
industrial policy focused government to distort markets rather 
than to ensure their competitiveness. We have seen evidence of 
a number of policies, such as compulsory licensing in China's 
new patent law and China's indigenous innovation policies that 
are focused on skewing the marketplace away from business 
competition on the merits and toward preferring certain 
technologies and certain firms. China's competition law, the 
AML, will not operate in isolation. Indeed it would not be 
surprising if China's competition agencies were used to achieve 
some of the industrial policy goals that some of the more 
recent developments in intellectual property and indigenous 
innovation are intended to express.
    While we generally applaud the development of the 
competition law in China, which is a significant part of 
China's transition to a market economy, we note that in the 
unique market that is China, there remain concerns as to 
whether the AML will deliver on its goal of ensuring that firms 
of all nationalities operating in China will find a competitive 
marketplace there. We have summarized these concerns in our 
written testimony and they are broadly one. Will China's state-
owned enterprises as well as its state privileged private firms 
be subject to the same disciplines as other private 
enterprises?
    The AML, as written, suggests differential treatment will 
be applied and this will lead to anti-competitive market 
distortions. Currently, China is forcing a number of 
administrative mergers without competition review to better 
position certain China SOEs in the market.
    Two, will China use its AML to erode intellectual property 
rights of U.S. and other foreign firms in order to give 
advantage to that China competitiveness? Based on the revisions 
to the patent law which increase the scope for the use of 
compulsory licensing and other methods of technology transfer, 
as well as China's recent indigenous innovation policy, this 
danger is real.
    Three, is there a danger that China will rely on 
discredited antitrust doctrines to promote industrial policy 
goals in the areas of merger control and unilateral conduct by 
giving greater weight to the welfare of competitors as opposed 
to consumers. Of particular concern is the use of discredited 
doctrines to build an anti-competitive approach to refusals to 
deal at essential facilities that would be completely outside 
the mainstream of international best practice. The type of 
analysis that the Chinese competition agencies are pushing with 
respect to unilateral conduct in particular, which involves 
branding certain firms dominant and then severely restricting 
their scope of action is very problematic.
    In response to this concern, the U.S. Government should be 
careful and consistent in its own messaging on domestic policy 
as only departure from consumer welfare and business 
competition on the merits however slight will likely be seized 
on by China to justify its own policy. Four, there is concern 
about China's approach with respect to activates in both public 
and private sector where cartels formed in China have 
significant impacts on U.S. and other foreign markets. We 
believe as we make clear in our written testimony that all of 
the distortions referred to above some of which may emanate 
from the application of the AML have some which come from other 
laws and policies are anti-competitive market distortions, 
ACMDs which incidentally are not necessarily unique to China. 
But in China, these affect both U.S. firms, as well as Chinese 
consumers in the Chinese economy. It is, therefore, in both the 
interests of the U.S. and China to limit ACMDs and we suggest 
in our written testimony ways in which this can be done.
    To summarize, one, we suggest a new intra-agency process 
built around ACMDs. This process would involve key stakeholders 
in the U.S. Government that have vested interest in their 
reduction, as well as sound application implementation and 
enforcement of the AML. We suggest this group report to 
Congress on the competition effects of ACMDs. We suggest 
evaluation of the potential for international agreements on 
ACMDs and we support the excellent technical assistance 
programs that the FTC and DOJ already provide to recognize the 
fundamental reality in the Chinese market. In summary, we are 
very willing to help the Committee as it tackles this subject 
and we can respond to any questions the Committee has.
    Mr. Johnson. Thank you, Mr. Singham. Next, Mr. Lipsky, 
please.
    [The prepared statement of Mr. Singham follows:]
                Prepared Statement of Shanker A. Singham





                               __________

   TESTIMONY OF TAD LIPSKY, PARTNER, LATHAM & WATKINS, LLP, 
                         WASHINGTON, DC

    Mr. Lipsky. Thank you, Mr. Chairman. Thank you very much to 
the Subcommittee for this opportunity to appear. Shanker in his 
written testimony and in his brief oral statement, has just 
summarized the matter very effectively and it is also obvious 
from your own introductory statements that the level of 
knowledge you have about the development of the AML and the 
current situation we are in is already pretty well developed. 
We agree that the law is new and many of the potential problems 
have been identified are largely questions of implementation 
and I would identify myself very strongly with the Chairman's 
statement that we need to--I don't recall his exact words, but 
the feeling was we need to continue and intensify our 
engagement with the Chinese agencies and the Chinese officials 
who concern themselves with antitrust enforcement in China and 
who develop policy. And Congressman Coble, you have asked the 
very simple question, what can we do?
    So let me, in my very brief oral summary of my statement, 
try to contribute to that question because I support the idea 
of continuing and intensifying our engagement. First, the 
United States should have a coherent message about what 
antitrust law is all about. We stand, I think, first in the 
world in identifying ourselves with the purpose of antitrust 
being to encourage competition on the merits, policy that 
rewards innovation, efficiency, productivity and 
competitiveness to maximize the wealth that our societies can 
create with our scarce resources. I think other nations are 
either--do not implement or do not implement as effectively 
that approach to antitrust, and I think the United States has a 
lot to say and why this is a policy that makes sense and why a 
failure to unify antitrust policy around the concept of 
competition on the merits renders the enforcement of the law 
incoherent, unpredictable and susceptible to parochial 
influence, ultimately dragging down economic performance and 
conflicting with many of the economic and trade goals that you 
identified in your opening statements.
    So the United States, number one, should be a vigorous 
advocate of competition on the merits as the central focus of 
antitrust. As Shanker mentioned, this makes it imperative that 
the U.S. antitrust agencies conduct themselves with great care 
when they present views on issues of antitrust policy to the 
business community and the public. The whole world watches 
these 100 jurisdictions that now have be antitrust enforcement 
when the United States speaks about antitrust because we have 
still, by far, the longest and strongest tradition of antitrust 
enforcement. When we put forth new ideas, we have to make sure 
that great care is taken to make sure that abroad where there 
is much less experience with antitrust, things are not taken 
the wrong way.
    Our current policy discussion on the possibilities of 
extending the reach of section 5 of the Federal Trade 
Commission Act I submit would stand as an example of how we 
might have been a little bit careless in conducting a domestic 
dialogue without thinking very carefully about how that 
dialogue is heard at foreign antitrust agencies. Once we have a 
coherent message, we neat advocacy and we need engagement with 
the Chinese agencies as has been mentioned. Shanker mentioned 
the possibility of an interagency task force with regard to 
China. I support that.
    Let me just mention one other idea here in my brief time. 
So far as I am aware, even though we rely on our antitrust 
agencies to have dialogue with China and other foreign 
antitrust agencies, so far as I am aware there is no direct 
recognition in the statutes that authorize our antitrust 
agencies to act in their organic statutes or in their 
appropriation statutes. There is nothing that directly 
authorizes them to engage in these activities of having 
dialogue with the Chinese officials, nor with the officials of 
any other antitrust agency around the world or with the 
international organizations that concern themselves with 
antitrust policy.
    This would be the international competition network, the 
competition committee of the OECD and some others that have 
been mentioned. There is an excellent recommendation in the 
Antitrust Modernization Commission Report that there be some 
specific budgetary and recognition and some recognition in the 
authority for the agencies so that they are encouraged to 
engage because Congress has, in effect--if Congress would, in 
effect, certify and approve and fund efforts of this nature, I 
think they would feel much more at liberty to be presenting the 
kind of dynamic advocacy that I think it sounds like all of us 
here recognize is required.
    Let me conclude my remarks there. Thank you very much for 
the opportunity to appear. And, of course, I will be glad to 
answer any questions.
    Mr. Johnson. Thank you, Mr. Lipsky.
    [The prepared statement of Mr. Lipsky follows:]
                    Prepared Statement of Tad Lipsky





                               __________
    Mr. Johnson. Next, Professor Farmer.

TESTIMONY OF SUSAN BETH FARMER, PROFESSOR OF LAW, PENNSYLVANIA 
 STATE UNIVERSITY, DICKINSON SCHOOL OF LAW, UNIVERSITY PARK, PA

    Ms. Farmer. Thank you. Chairman Johnson and Ranking Member 
Coble, I appreciate the invitation to discuss the developments 
of the Chinese antitrust law and their effect on American 
business. International competition law and enforcement 
certainly raises important policy issues and congressional 
attention is appropriately focused on these considerations. The 
AML, however, is only 2 years old. It went into effect in 2008 
and in that short time, three separate agencies have been 
organized to enforce the various aspects of the law. They have 
issued many rulings, guidelines and procedures and have begun 
to investigate and take decisions on individual cases. Of 
course, the AML had been in development for more than a decade.
    So the 2-year life of the law may understate its actual 
development. Importantly, a number of the decisions and the 
regulations will affect and have affected American businesses 
operating in China. In order to assess the impact of the AML, I 
would start with the words of American Justice Oliver Wendell 
Holmes. He explained that the life of law has not been logic, 
it has been experience and these experiences included the felt 
necessities of the time, the prevalent moral and political 
theories and intuitions of public policy. He concluded that the 
law embodies the story of a nation's development through many 
centuries and it cannot be dealt with as if it contained only 
the axioms found in a math book.
    China's experience shows the difficulties of moving from 
theory to law to implementation rules to the construction of 
the efficient apparatus for implementation and then finally to 
enforcement within a system that has frankly grown far more 
quickly than its administrative capacities. Based on that 
background, I would like to comment on a few features of the 
AML that you both raised as important considerations. First, 
the AML considers the same kinds of categories of businesses as 
the American Sherman and Clayton Acts. The general prohibitions 
concern anti-competitive agreements, monopolization or abuse of 
the dominant position and anti-competitive mergers.
    However, the AML goes further and because there are Chinese 
characteristics to be considered and it has separate sections 
on the important category of the Chinese economy state-owned 
enterprises and administrative monopolies.
    In addition, China has chosen to have three enforcement 
agencies enforcing separate sections of the law which however 
are not airtight. It is important that they be able to 
communicate with each other and that their regulations are both 
consistent and transparent. There are some overlaps and there 
may be some differences of concern.
    Finally, unlike current American policy, Chinese law 
explicitly incorporates other noncompetition factors into the 
analysis. This is found in Article 1 and Article 4. The 
sections on merger control and abuse of dominance regulated by 
MOFCOM and the SAIC probably affect American business more than 
other of the provisions of the AML. During the first year of 
the AML, MOFCOM reviewed 52 transactions. There is no official 
statistics available for the second year, but if the review is 
moving along at the same pace, the Commission may have reviewed 
up to 100 mergers. During the first year, out of the 52 
transactions, only one was prohibited and 5 were approved with 
conditions. All of these mergers involved one or more American 
parties. The abuse of dominance section and the merger control 
provision both contain explicit statements that national 
security, economic development, noncompetition issues may be 
considered in deciding the merger and determining whether or 
not a firm with a large share of the market has dominance. This 
is a concern. However, it is important to note that both of the 
agencies have been busy issuing their own rules and regulations 
and SAIC is a good example in that it has issued 2 regulations, 
one in 2009 a revision just a few months ago asking for and 
receiving comments from American experts, including some 
sitting at this table and they were listened to.
    So while there are some important differences between the 
American antitrust law and the Chinese, it appears that they 
are committed to capacity building. And while the development 
certainly involves Chinese characteristics, there is a trend 
toward viewing antitrust through a lens of consumer welfare 
along with the majority of jurisdictions, including the 
American. Thank you.
    Mr. Johnson. Thank you, Professor Farmer.
    [The prepared statement of Ms. Farmer follows:]
                Prepared Statement of Susan Beth Farmer



                               __________

    Mr. Johnson. Now, Mr. Barnett.

    TESTIMONY OF THE HONORABLE THOMAS O. BARNETT, PARTNER, 
COVINGTON & BURLING, LLP, FORMER ASSISTANT ATTORNEY GENERAL OF 
 THE ANTITRUST DIVISION, UNITED STATES DEPARTMENT OF JUSTICE, 
                         WASHINGTON, DC

    Mr. Barnett. Thank you, Mr. Chairman, for the opportunity 
to address the Subcommittee on this important topic. I should 
say I am testifying in my personal capacity today. I view the 
AML as holding great promise. The adoption of this competition 
law regime in China is part of the transformation of the 
Chinese economy from a centrally directed economy to a market-
based economy and that is a very critical change. My experience 
with the AML principally comes from my time as the head of the 
Antitrust Division. During that time, we were heavily engaged 
with the Chinese officials who are drafting the AML. I spent 
time on two trips in Beijing meeting with various senior 
Chinese officials as well as many of my staff meeting in 
Beijing as well as in the United States. Our impression was 
uniform, that the Chinese officials were well informed, open to 
exchanging ideas and sincerely focused on crafting a first-
class competition law regime.
    They understand what the U.S. Supreme Court has explained. 
Our competition laws rest on the premise that unrestrained 
interaction of competitive forces yields the best allocation of 
resources, lowest prices, highest quality and greatest material 
progress. On a closely related point, the U.S. Antitrust 
Modernization Commission which this Committee helped to 
establish has underscored that regulation or governmental 
control can be the antithesis of competition, tending to 
preserve monopolies and other noncompetitive market structures. 
Accordingly, by reducing barriers to entry and encouraging 
investment and innovation, the AML and the market oriented 
approach that it represents should promote economic growth in 
part by providing greater opportunities for U.S. businesses in 
China. With respect to the AML itself, as many people have 
noted, the Chinese government succeeded in crafting a 
competition law that generally falls within international 
norms.
    And I would like to think that our consultations made a 
difference. They listened to our comments and as various 
iterations of the AML came out, they incorporated those 
comments and improved the final product. I would particularly 
commend the AML for including a prohibition on the use of 
administrative powers to create a monopoly or restrict 
competition. These are some of the most enduring and harmful 
types of restrictions on competition. There are provisions in 
the AML which do not necessarily reflect an international 
consensus, Professor Farmer has pointed out the three different 
agencies. There are also prohibitions on dominant firms 
charging too high or too low a price, something that is very 
difficult to administer and that can be counterproductive. The 
key question as many have noted is implementation. It needs to 
be enforced in a way that promotes economic growth with a focus 
on efficiency and improving welfare. This fundamental challenge 
is as true in China as it is here in the United States and 
around the world. The short version is it is too early to tell 
how it is being enforced in China.
    To take an example that the Chairman pointed out, Article 
55 of the AML talks about the right to exercise intellectual 
property rights, but also talks about how it can be an abuse 
without defining where the line is. That is a line that we are 
still looking to see drawn. Our focus, I suggest, should be on 
helping the Chinese agencies to implement the law in a 
principled and effective manner that will spur economic growth 
and which should have the effect of opening opportunities for 
U.S. and other businesses operating in China.
    Specifically, the U.S. agencies should continue to exchange 
ideas and best practices with Chinese agencies, both in general 
and in specific enforcement matters. Second, private businesses 
operating in China need to ensure their compliance with the 
AML, but they should also participate in the policy 
discussions. Both the Chinese agencies and the business 
community can learn from each other in this process. Third, we 
should encourage further agency guidance. Each of the agencies 
has been issuing guidance. Indeed the NDRC issued something 
today with a call for public comment for which I commend them.
    Fourth, we should encourage participation by the Chinese 
agencies in international organizations such as the 
International Competition Network. That very dialogue can help 
promote better practices and convergence. As I said, the AML 
holds great promise. If implemented in a manner consistent with 
international norms, the AML should provide a win-win-win 
situation for all involved including not only Chinese 
consumers, but U.S. businesses. Mr. Chairman, thank you for the 
opportunity to participate in the hearing.
    [The prepared statement of Mr. Barnett follows:]
                Prepared Statement of Thomas O. Barnett



                               __________

    Mr. Johnson. Thank you, Mr. Barnett. We will begin 
questioning. This question is for all of the panelists. It has 
been asserted that China's state-owned enterprises are not 
subject to the AML. Do you believe this? Let me ask you this 
question also. If China's state-owned enterprises are not 
subject to the AML, what recourse, if any, do other countries 
have in addressing competitive distortions that are created by 
non-application of the AML to state-owned enterprises?
    Mr. Singham. Mr. Chairman, I think the application of the 
AML to state-owned enterprises, the language could be at best 
somewhat ambiguous and at worst there is a direct equivalent 
application between private firms and state-owned enterprises. 
However, the Chinese agencies do have the right to conduct 
competition advocacy directly with state-owned enterprises and 
with administrative agencies to promote competitive outcomes, 
and I think one of the things that we could be encouraging the 
Chinese competition agencies to do is to engage in complete and 
effective competition advocacy with state-owned enterprises.
    It is certainly important that there is a level playing 
field and that competition law apply to state-owned enterprises 
as well as private firm, but it is important to note that that 
does not necessarily mean that exactly the same antitrust tests 
would be applied as between private enterprises and state owned 
firms. State-owned firms are revenue maximizers at best. They 
are able to sustain low cost pricing for long periods of time. 
They gain benefits from their connections to government and 
therefore the tests that you might apply would be different and 
we would encourage the Chinese agencies to bear that in mind as 
they conduct that type of advocacy. But we would certainly 
think that it is very important for the agencies to engage in 
constructive competition advocacy and that we take advantage of 
our technical assistance programs that the FTC and DOJ are 
engaged with the Chinese on to stress the importance of 
advocacy.
    Mr. Johnson. What is the difference between advocacy and 
enforcement in this context?
    Mr. Singham. The difference is under the law, a different 
approach will be applied between private firms and state-owned 
enterprises in terms of actual implementation. So what the 
Chinese have done through the AML is create a vehicle for the 
Chinese competition agencies to directly advocate competition 
and advocate pro competitive solutions to state-owned 
enterprises. Every country's competition agency ought to be 
conducting competition advocacy with respect to domestic 
regulation as well as actual state-owned enterprises and so 
forth.
    Mr. Johnson. But what about enforcement?
    Mr. Singham. Well, we certainly would like to see 
enforcement both with private firms and state-owned 
enterprises. As you pointed out in your opening statement, 
China's state-owned enterprises are operating as commercial 
companies. In China, they have effects in the U.S. market, they 
have effects in third country markets and U.S. firms that are 
competing against China state-owned enterprises in China, in 
the U.S. and in third-country markets need to have some 
assurance that the benefits and privileges that state-owned 
enterprises are receiving as a result of their connections to 
government do not lead to artificial reductions in cost and 
therefore an advantage that does not derive from business 
competition on the merits. I should point out that there is a 
spectrum of state owned enterprises in China.
    You have one extreme, a fully government owned company; on 
the other extreme, you have a private firm that simply benefits 
from state privileges and tax preferences and so forth. And so 
the real problem with respect to state-owned enterprises and 
competition in China is the network of anti-competitive market 
distortions that benefit certain firms in China and disbenefit 
other firms and obviously have been impact on U.S. firms as 
well.
    So you can't really answer your question without developing 
some tools that the U.S. Government would be able to deploy to 
deal with these anti-competitive market distortions. Be they 
tax distortion, be they special regulatory exemptions, however 
the distortion occurs. But we need to develop some tools to be 
able to deal with those from a competition perspective.
    Mr. Johnson. All right. Thank you, Mr. Lipsky.
    Mr. Lipsky. Thank you. I think Shanker has dealt very 
effectively with this question. I think a way to consider a way 
to think about the problem, think back to the days when our own 
aviation air transportation industry was heavily regulated. 
There was an administrative agency, the Civil Aeronautics 
Board, airlines could not enter a route or leave a route 
without the permission of the Civil Aeronautics Board. They 
could not merge without permission. They could not make 
agreements without permission. As a matter of fact, they 
couldn't even have a discussion about a potential agreement 
without the permission of the CAB.
    In that format, the only thing that was left to the 
competition agencies was actually to appear before the Civil 
Aeronautics Board and say please allow more competition, allow 
prices to be more flexible, allow more carriers to enter and 
leave routes.
    So this is a very long-term process. We should think of 
this as the beginning of a very long road to implement all of 
the things that China needs to do to make the full transition 
from the legacy of central planning to a competitive economy 
that much more resembles the United States, other OECD 
jurisdictions. This is why we need to get organized for 
advocacy with the Chinese and the same could be said with some 
other countries because if you look at all of the steps 
necessary for the transition, it not only involves placing more 
and more assets and productive activities in private hands, 
reducing the involvement of the government, the government 
ownership, the government financing, the government management, 
the presence of government officials in private firms. That is 
a very tall order and a very grand transformation. There is no 
silver bullet or magic words we can say. We need to think of 
this as a long-term prospect of making the transition complete. 
And that would be my recommendation.
    Mr. Johnson. So you are pretty much saying just kind of 
stay the course, wait and see what develops?
    Mr. Lipsky. I don't think I am saying wait. I am saying we 
need to ramp up our involvement. We need to ramp up the 
dialogue, the commitment, the way that we articulate, the very 
good values and economic principles and legal approaches that 
are already reflected in our law. I am not saying they 
translate directly to the Chinese case. In many respects they 
won't. But we need to keep focus on the issue, keep dialogue 
with the officials, keep proving to them again and again this 
lesson of history that the free market competition is the best 
way to get a productive and innovative and progressive economy, 
creating benefits for all of the consumers, both the Chinese 
and the countries like the United States with which the Chinese 
trade. So I guess it would be constant pressure constantly 
applied is maybe the way I would put it.
    Mr. Johnson. All right. Thank you. Professor.
    Ms. Farmer. Thank you. I agree that reducing the state-
owned enterprises is an important goal and China has been 
working on that, making slow but some steady progress because 
frankly a state owned enterprise may not be as efficient as a 
privately owned one.
    Mr. Johnson. I am sorry. Would you say the last part?
    Ms. Farmer. An SOE may provide large employment, but it may 
not be as efficient. There are a couple of tea leaves that we 
may be able to read. Just recently, the State Council has 
adopted a policy encouraging foreign investment. And since a 
number of the large industries are currently state-owned, this 
may indicate some opening wedge. State-owned enterprises are 
not limited to railroads and public utilities. They include 
construction, salt and tobacco. Two recent cases send mixed 
messages. There was a private monopolization case filed against 
China Netcom. The case was settled in favor of the private 
individual. So that suggests that the AML may well apply. On 
the other hand, there was a recent telco merger which 
apparently was not notified to MOFCOM and the justification was 
apparently that the telcos are state-owned enterprises and they 
were regulated by the sector regulator. So there is still a 
little bit of flux in the system. But I certainly agree with 
the other panelists that continued progress on lowering state 
ownership would be a positive development.
    Mr. Johnson. Does that include state-owned ownership? Does 
that include ownership by persons who are in key positions 
within various units of Chinese society?
    Ms. Farmer. Yes, I think Mr. Singham was quite correct in 
explaining that it is a fairly complicated picture. It is not 
just ownership by the central government.
    Mr. Johnson. Mr. Barnett.
    Mr. Barnett. Mr. Chairman, I think it is important to keep 
perspective here in that it is quite clear that 2 years ago, 
none of these state-owned enterprises were subject to any anti-
monopoly law. Today you have a law that on its face says that 
they must comport or operate their businesses in accordance 
with the law. And certainly that is a position that the United 
States should encouraging to the extent that they are engaged 
in commercial enterprises, they should be subject to the same 
competition laws as any other commercial enterprise.
    From my perspective, though, I am going to dissent slightly 
from Mr. Lipsky's predicate, although I agree with his 
conclusion. The U.S. Government, I think, to commend it has 
been very engaged with the Chinese on this front on a 
multiprong effort, everything from the trade folks over at USTR 
to the competition agencies, the FTC and the DOJ, as well as 
the Department of Commerce, USAID in part working with the 
Chamber. There has been an intensive focus on trying to 
encouraging the Chinese to explain to them, as Professor Farmer 
was saying, these state-owned enterprises, if you protect them, 
you are going to protect inefficiency. If you want to promote 
and maintain the kind of economic growth that you have enjoyed 
for the last 15 years or so, you are going to need real 
competition to drive innovation, drive costs down.
    And there are officials in China who, I believe, understand 
that and who are pushing toward the application of these 
competition laws to all entities, including state-owned 
enterprises. Is it clear that they have accomplished that yet? 
No. And that is why I agree with the conclusion that the U.S. 
Government should--and the U.S. business community should 
remain very focused on trying to encouraging them in that 
direction.
    Mr. Johnson. So you believe that they are headed in that 
direction. What is your suspicion as to the outcome?
    Mr. Barnett. I suspect it is going to be a slow process 
that will not an steady process it may well be, you know, 3 
steps forward, 1 or 2 steps back. As I think Mr. Lipsky was 
pointing out, these are complicated issues. Even in the United 
States they are complicated issues. And so in the long run, 
though, I believe that you will see more and more of these 
state-owned enterprises probably both becoming more private and 
in any event more subject to competition law discipline if you 
will. And so I am an optimist on this front. But I do think 
patience and persistence are called for.
    Mr. Johnson. Will that process lead to more individual 
freedoms in China?
    Mr. Barnett. That is the a fascinating question. There are 
certainly many who believe that economic liberty and other 
liberties, political liberties often go hand in hand. I guess 
what I would focus on is to say if the AML is implemented in 
the way it is set up to be implemented, that it will lead to 
greater economic liberty, greater material wealth for Chinese 
consumers, Chinese citizens and that that is ultimately a good 
on multiple fronts. But how it plays out in other realms, I 
leave that to other experts.
    Mr. Johnson. Anyone care to give an opinion about that?
    Mr. Singham. Well, I would agree with Mr. Barnett's comment 
there that economic freedom is derived from the kind of 
competition policy, competitive marketplace where consumers are 
empowered and become real economic actors in their own right. 
It doesn't answer the question. It doesn't tell you that this 
will lead ultimately to greater freedom measured by other 
indicia. But certainly this is a pathway to greater levels of 
economic liberty for Chinese citizens and for Chinese firms.
    Mr. Johnson. All right. I will now yield to questions from 
Mr. Coble, the Ranking Member.
    Mr. Coble. Thank you, Mr. Chairman. I thank the panel again 
for being with us. Mr. Barnett, you referenced the tension 
between China's recognition of intellectual property rights and 
its condemnation of the abuse thereof. How do you see this 
balance playing out today, A? And, B, are you concerned that 
China may try to appropriate U.S. companies' intellectual 
property for their own use?
    Mr. Barnett. I do think that there is a risk that the 
Chinese competition agencies, as well as other competition 
agencies around the world can look at the normal exercise of an 
IP right, a refusal to license or a request for a royalty rate 
that the licensee views as too high as something that violates 
their competition laws. From my perspective, that would be an 
unfortunate and counterproductive implementation of the AML. We 
have not really seen that yet, but it is something that we 
should very much keep an eye on because the agencies, I don't 
believe, have indicated clearly where they will draw the line.
    On this point, I want to underscore something that Mr. 
Lipsky said. This is an issue in the United States and Europe 
and elsewhere as to what is a lawful exercise of an IP right 
and what is an abuse. In having our domestic dialogue and/or 
our dialogue with our European counterparts and other, it is 
very important that we keep in mind that others, including the 
Chinese agencies are watching carefully what we say and do. And 
that that should be part of the thinking as we engage on these 
issues.
    Mr. Coble. Thank you, sir. Professor Farmer, in our 
discussion of state-owned enterprises, some of you raise 
concerns about prominent Chinese officials owning Chinese 
companies. Does this mean that you have concerns about U.S. 
officials owning or having significant ownership in U.S. 
companies?
    Ms. Farmer. That is a difficult question to answer.
    Mr. Barnett. If I understand the question, there is the 
issue that the U.S. Government has in the last couple of years 
become a major shareholder for example in a number of large 
U.S. corporations. And that is an issue that while it may have 
been necessary given the circumstances at the time, in my own 
view that is something that the U.S. Government should be 
trying to get out of as quickly as possible so that it can then 
let the market, the private market continue to work without 
direct governmental involvement.
    Mr. Coble. By the same token, Mr. Barnett, or Professor 
Farmer, do you think that the Chinese should also withdraw?
    Mr. Barnett. I would say if you are talking about 
commercial activity as opposed to traditional governmental 
activity, I believe it is better to have that kind of activity 
in the private sector. It is ultimately, as Professor Farmer 
was alluding to, likely to lead to more efficient companies, 
higher quality products, lower prices to consumers.
    Mr. Coble. I got you. Thank you.
    Mr. Barnett. In both countries.
    Mr. Coble. Thank you, thank you, Professor. Mr. Lipsky, you 
alluded over 100 countries have some sort of antitrust or 
competition law, including the European union. Today's hearing 
focuses on concern that China could use its recently enacted 
anti-monopoly law to discriminate against modern competitors. 
Have United States companies faced this kind of discrimination 
from other nations with antitrust regimes and if so how was it 
handled or how it was disposed of?
    Mr. Lipsky. Let me answer this way, not necessarily 
focusing specifically on the European union's competition law, 
but competition laws of general applicability, which is what 
most antitrust laws are, applying to restrictive agreements, 
mergers acquisitions and all kinds of structural transactions. 
These are extremely broad and powerful systems of law. And to 
the extent they are enforced seriously, you have tremendous 
potential for very serious effects on the structure of 
particular industrious and on trade in particular commodities 
and services.
    In many jurisdictions, we find a lot of the same issues 
that we have been discussing with respect to China today, 
namely the potential that these very powerful legal tools will 
be applied in a way that is not transparent, that tends to 
favor parochial interests, rather than to pursue competition on 
the merits. So we have had a lot of issues trying to get--just 
as we are trying to do with China today, trying to get other 
jurisdictions to clarify, to commit themselves to 
nondiscrimination, to non-protectionist policies. And a good 
place may be to look for a kind of catalog as to how to go 
about this.
    The antitrust section of the American Bar Association has 
for at least about 18 years now had a regular program of 
becoming aware of and commenting upon the adoption of antitrust 
laws, amendments to antitrust laws, the issuance of regulations 
pursuant to antitrust law, including in China, and under a 
certain authority of the American Bar Association, the section 
of antitrust law in combination with other sections like the 
section on international law has commented and has made 
specific recommendations with respect to the laws, the 
regulations and the procedures, remedies, virtually any topic 
you can think of.
    And so there is a very broad menu of jurisdictions and 
legal principles and procedures and remedies where this very 
same potential that we are discussing with respect to China 
today also exists and there again, the solution is engagement. 
We can't force these other jurisdictions to conform their 
antitrust laws to our ideas. But we can persuade. We can show 
them the lessons of history. So that is a concern in many, many 
jurisdictions throughout the word. 
    Mr. Coble. Thank you, Mr. Lipsky.
    Mr. Singham, what rights and remedies does a U.S 
corporation have for anti-competitive conduct in China by a 
Chinese company? And does China recognize private rights of 
action? And, finally, if so, has any non-Chinese company 
brought suit or initiated suit against a Chinese company for 
violation of the AML.
    Mr. Singham. There have been private cases in China 
involving violations of the AML. A number of those cases have 
sort of fallen on technicalities, but your question raises 
another serious point, to what extent can U.S. companies and 
other foreign companies rely on Chinese courts and how does 
that system operate in conjunction with the AML? And certainly 
there are some concerns about the ability of the courts to, A, 
grasp these issues and, B, to operate in ways that aren't 
distorted by protection of Chinese companies' type interests. 
That's not unusual, and that's not unique certainly to China. 
That's the case in many, many countries that are new to 
competition law.
    I think training of judiciaries has been an effective way 
of engraining competition principles and competition culture 
into judiciaries of many countries. I think that's something we 
would certainly recommend with respect to China.
    Mr. Coble. I thank you. I thank the panel.
    Mr. Chairman, I yield back.
    Mr. Johnson. Yes, if it's okay, I would like to engage in 
another round of questions.
    Mr. Coble. Yes.
    Mr. Johnson. All right. Thank you.
    Mr. Singham, I believe you mentioned that there had been 
100 cases filed within the last couple of years in China. Was 
that you or was that Mr. Lipsky? Or that was you, Ms. Farmer? 
One hundred cases, and I think five had been approved with 
conditions, and one had been denied.
    Ms. Farmer. Yes, that's the merger control regulation. We 
don't have official statistics for the full 2 years, but we 
know that 52 cases were notified and reviewed over the first 
year. And of those 52, one, the Coke Huijuan Juice merger, was 
prohibited and five additional were approved with additional 
conditions. And of those five they involved one or both parties 
that were non-Chinese firms. So if the number of pre-merger 
filings is approximately the same, then MOFCOM may have 
reviewed up to 100 mergers, but the statistics have not been 
released yet.
    Mr. Johnson. Are they going to be released or is that a 
matter of secrecy?
    Ms. Farmer. Obtaining information in a timely manner can be 
difficult, because these are relatively new agencies that are 
still engaged in capacity building, but the information does 
become available.
    Mr. Johnson. Anyone else have any comment about how the 
U.S. can actually monitor the progress of the application of 
the AML? Yes, sir.
    Mr. Barnett. Well, Mr. Chairman, it is difficult to get 
specific information, but one of the things that I encourage 
the U.S. Government to focus on when engaging the agencies is 
the importance of transparency and good process in their 
decision making. And that includes not only during the review 
process, ensuring that the parties know what's going on, know 
what the issues are and understand what the evidence is but 
when you make a decision that you explain the decision to the 
parties and to the world. That type of sunlight, if you will, 
can be a good disciplining force on the decision-making process 
and can help others understand what you're doing, I think.
    And I commend the current Attorney General, Christine 
Varney, who has made this one of the centerpieces of her 
international dialogue, the importance of this kind of 
transparency in merger review and other cases; and I couldn't 
agree more with it.
    Ms. Farmer. If I could turn from merger cases to 
monopolization or dominance cases. Five--at least five have 
been filed, not by the government but private parties. It's 
interesting to note that they are occurring in Beijing and 
Shanghai. The Supreme Court of China has determined that these 
cases are so complicated that they should be filed at the 
immediate court level or in the intellectual property section 
of the lower court because these courts are experienced in 
dealing with complex cases and economic consideration. So I 
think that's a salutary feature of the law going forward.
    Mr. Johnson. Mr. Singham.
    Mr. Singham. I think we've talked a lot in this hearing 
about the importance of persuasion and persuading the Chinese 
competition agencies to adopt an economic-welfare-oriented 
approach to competition policy implementation. I think that's 
very important, and we should continue to do that. But I would 
agree with Mr. Barnett that I think the agencies have done a 
very good job of trying to persuade the Chinese about the 
benefits of economic welfare and consumer welfare as a guiding 
light for competition policy enforcement.
    But I think we also have to be realistic. And China's 
competition policy and the AML does not sit in a vacuum. It 
doesn't rely entirely on academic niceties. I think Professor 
Farmer alluded to this. And in view of that realism I think 
what we need to do is have greater tools for accountability so 
that where there are divergences from those types of normative 
principles, especially whether there are that are beyond 
international best practice. And I think there is a serious 
risk that we may well see this in the area of intellectual 
property and competition policy.
    Mr. Johnson. What kind of tools are you talking about? You 
mean for U.S. companies or outside companies or what are you 
referring to?
    Mr. Singham. I think the starting point--and I think Mr. 
Lipsky made this comment as well--is----
    Mr. Johnson. I'm sorry to keep asking questions about what 
others have gone over.
    Mr. Singham [continuing]. The need to really organize 
ourselves on how we address competition policy not just in 
China but in other countries as well in terms of how we express 
our views best in the interagency process. We have a history of 
being very successful with countries that have newly 
incorporated competition laws or antitrust laws in terms of 
technical assistance, but many of those countries are countries 
that have basically accepted competition policy as an 
organizing principle in the economy.
    And the China of today is not necessarily the China of even 
5 or 6 years ago. I think it is very important that we 
therefore reorganize or at least organize an additional 
interagency process around these kinds of anti-competitive 
market distortions. Simply because a competition agency is 
doing something does not mean that it is pro-competitive. There 
may be many examples of competition agency action that actually 
take you away from a competitive market, and we need to ensure 
that where that occurs we have tools for engaging the Chinese 
in a dialogue and that we have a metric-based, rule-based way 
of doing that so we are not sort of constantly playing whack a 
mole with each new regulation or decision or whatever comes out 
of China but we have a consistent policy that's based on 
persuasion certainly, persuading people of what the normative 
principles ought to be in competition policy enforcement and 
why it is good for their own economies but also with a bit of a 
stick as well.
    Mr. Johnson. Yes, Mr. Lipsky. It just seems like we're 
dancing tenderly. We're tiptoeing in terms of testimony, I'm 
saying. This is not getting right to the--I suppose this is a 
tough issue to deal with with a sledgehammer.
    Mr. Lipsky. It is tempting to look for a silver bullet or 
something concrete to do that will materially advance things.
    I wanted to just address there's a mild suggestion that has 
crept into the remarks here that I was perhaps critical of 
previous U.S. Government in action on this issue, and I want to 
remove any such suggestion by saying that there should be--I 
think we're all saying there should be additional focus, there 
should be additional resources, there should be encouragement, 
there should be recognition, there should be better structure 
and organization to monitor what's happening in China; and the 
same could be said elsewhere.
    I didn't mean to cast aspersions, but, nevertheless, I 
believe it is still correct to say that there's no place in the 
statutes of the United States or in the statements that 
accompany budgetary appropriations or authorization, there is 
no place that says, Department of Justice Antitrust Division, 
Federal Trade Commission, please do this, please monitor how 
these other antitrust laws affect U.S. business. It is I think 
perhaps indirect, and it's implicit. It has certainly become a 
custom and a very creditable custom in the agencies to engage 
in these matters.
    And yet I have to say that, having been at this for a 
while, every time there is a change in leadership at the 
Antitrust Division or at the Federal Trade Commission, the 
officials that we would expect to really take the opportunity 
and spearhead the American interest in foreign antitrust 
enforcement and how it affects the global economy and U.S. 
business, there is always a momentary--a moment of butterflies 
in the stomach where you hear, well, I hear he doesn't like to 
travel or I hear she won't participate in the Japan-U.S. 
bilateral because she won't eat sushi under any circumstances. 
There's always a question as to how the personal preferences 
and predilections of the senior officials will affect the way 
that the United States agencies participate in this very, very 
important dialect.
    Well, it shouldn't be a question of personal predilection. 
It should be a welcome responsibility.
    Mr. Johnson. Should that come through some form of 
legislation or some regulatory rule?
    Mr. Lipsky. Well, certainly the first step would be simply 
to recognize that it is a proper activity, an activity that the 
Congress is aware of and acknowledges. And I don't know----
    Mr. Johnson. I hear you right now and--but I'm just 
wondering, in your view, what would need to be done in order to 
ensure that we have some continuity in this area between 
changes in our personnel?
    Mr. Lipsky. I believe that even the simplest expression of 
recognition, support, and encouragement of this activity, 
whether it was in the authorization legislation or report or 
many flexible ways that Congress could deal with this short of 
enrolled legislation it seems to me.
    I'm confident that the agencies--I would be very interested 
in Mr. Barnett's view on this, but I'm confident that an 
explicit congressional recognition of the value and importance 
of this function would be embraced eagerly by the officials of 
these agencies.
    Mr. Johnson. Yes, sir.
    Mr. Barnett. I heartily endorse the sentiment that the 
agencies should be engaging with many other countries, but 
China in particular in many ways, one of the most important.
    I guess I would say to me it's mainly a question of making 
sure they have adequate resources. I believe and it was 
certainly my perception at the time that I understood quite 
clearly that Congress was interested in our focusing on that. 
There are multiple ways for Congress to do that. There was 
certainly not an authority or lack of authority to do it, given 
the amount of time and resources that we devoted to it. But it 
could well be that even more resources are valuable.
    In that respect, and also to address the continuity point, 
one specific thing that probably could use more--even more 
focus or more opportunity is not so much the exchange between 
senior officials but opportunities to interact at the career 
level, at the staff level. And I'll use the example of the 
relationship between the U.S. agencies and the European 
Commission.
    There used to be a lot--well, there can be divergences, but 
there used to be a lot more. The agencies have now developed a 
relationship so they talk on almost on a daily basis on major 
matters, and they educate each other, and they end up coming to 
more convergent results. And we've not seen the same sort of 
divergence we saw 10 years ago.
    It's very dif--it's harder to do that with the Chinese 
agencies, but if we can find ways for career staff to spend 
time with the career staff of the Chinese agencies--and, 
remember, Professor Farmer talked about capacity building. 
These are complex issues, and you're asking people who grew up 
in a centrally directed economy to apply a set of principles 
that derive from a market-based economy that's not necessarily 
intuitive to them. It's hard to overestimate the importance of 
training the rank and file on these principles, on the 
economics and how to do this best. That I think is largely a 
matter of resources.
    Mr. Johnson. Are the Chinese receptive to that kind of 
dialogue?
    Mr. Barnett. They were. I certainly raised this expressly 
with them when I was in Beijing even before the AML was 
enacted, looking ahead and realizing that implementation would 
be key. And we talked about--they seemed very open to it.
    In that regard, I will commend--I think it is in Mr. 
Singham's testimony--there is, for example, one program with 
the USAID that sets up a series of conferences and seminars, 
and that's a positive thing. But I'm talking about more of this 
and more person-to-person interaction. I think they will be 
cautious about it, but I think they are eager to learn. And if 
you structure it in the right way I think they will be open to 
it.
    Mr. Johnson. Yes, sir.
    Mr. Singham. I think there's one issue that we haven't 
addressed necessarily here that we need to address in order to 
do all these things more effectively, and that is there is a 
disconnect between the level of authority of the competition 
agencies in the U.S. with respect to other members of the U.S. 
Government. And particularly in countries that are new to 
competition or new competition agencies, those agencies are not 
very powerful at all. They have very little political power 
within their own systems. And so there is a slight disconnect 
there in terms of our expectations of them.
    And particularly in China there are many decisions that are 
really competition decisions that are not made and will not be 
made by the competition agencies in China going forward. They 
will be made by other branches of the government, and they will 
be imposed to some extent the Chinese competition agencies. And 
for that reason, while I agree with everything that everyone 
has said here in terms of the persuasion, the technical 
assistance, the--even to the extent Mr. Barnett suggested the 
placement of resident advisors, which I think is one of the 
best methods of technical assistance that you can find 
generally--we also need to have some tools--and these may be 
legislative tools--that gives some measure of accountability 
where an anti-competitive market distortion occurs either 
because the competition agency is engaged in it or because it 
is going on in the Chinese market and the competition agency is 
doing nothing about it. That enables us to be more effective in 
our advocacy of competition policy concerns.
    We suggested in our written testimony reform of the 
interagency process and also congressional reports by that 
interagency group, the reports from that interagency group to 
Congress on anti-competitive market distortions, measurable 
market distortions that have welfare-damaging impacts. Because 
that is also a tool that can be used in China and in other 
countries to demonstrate that a particular anti-competitive 
market distortion visits a certain amount of harm on that 
country's own consumers and their own economy. And that would 
enable us to build up those forces and people within countries 
not just in China but around the world who want to have 
competition policy implementation enforcement based on 
economics and not on support of national champions or what have 
you.
    Mr. Johnson. All right. Mr. Coble.
    Mr. Coble. Thank you, Mr. Chairman.
    I have two questions, Mr. Chairman.
    Mr. Singham, how would you would rate the current 
Administration's engagement with China on the issues of 
competition policy?
    Mr. Singham. I would commend the current Administration as 
well as the previous Administration on engagement with China on 
a very, very difficult issue. I think everyone is agreed that 
the transition of a country from a completely centrally planned 
economy to a market economy is a hugely challenging task, and I 
think the current Administration is doing a good job of 
engaging in the technical assistance area and engaging in other 
dialogues with the Chinese to persuade them to adopt a 
competition policy that is more in line with international best 
practice than was the case 2 or 3 years ago in our ongoing 
discussion with them which has been going on for about 15 years 
on this competition law.
    I would say, though, that the Administration is limited in 
its ability to be effective because of the paucity of tools 
that it has. In our written testimony, we suggest increasing 
the toolbox to enable actors not just in DOJ and the Federal 
Trade Commission but in other agencies that have a stake in a 
competitive market in China to also engage.
    Mr. Coble. Thank you, sir.
    Mr. Lipsky, finally, it is virtually impossible to discuss 
China without talking about the country's human rights 
situation. Google recently had its licensed renewed in China 
despite a very public dispute with the country regarding 
censorship. In the meantime, Google's share of the Chinese 
market seems to have fallen relative to its Chinese competitor 
Baidu. While the licensing issue does not seem to implicate 
China's AML per se, it seems possible that China could pursue a 
lengthy and costly legal campaign against a company that is 
critical of any of China's internal policies. Is this a real 
concern and, if so, how should it be addressed?
    Mr. Lipsky. Well, the--I am not privy to the details of 
that particular dispute----
    Mr. Coble. And nor am I.
    Mr. Lipsky. But the generic issue of mixing these different 
policy considerations always has the potential to lead to the 
perception that the competition aspect has been inappropriately 
mixed with a non-competition policy and thus that the 
competition enforcement standard has been distorted. And I 
would point out that the history of monopolization proceedings 
in the United States has also from time to time raised this 
question, abuse of dominance proceedings in the European Union 
have raised this question, and we need to be vigilant. We need 
to urge transparency. That really is the only way to control 
the inappropriate or the abusive reliance on competition law 
proceedings to achieve what is not an economically efficient 
result.
    The case United States vs. IBM lasted 13 years. There were 
some very lengthy, expensive, and complex proceedings brought 
under section 5 of the Federal Trade Commission Act against the 
breakfast cereal makers and against the oil companies. And that 
same potential always exists, and it will exist under the 
cognate provisions of the Chinese law. And so I think we just 
have to be vigilant, urge transparency, insist on 
accountability, and continue to pursue that over time.
    Mr. Coble. Thank you.
    Mr. Chairman, I yield back.
    Mr. Johnson. Thank you.
    Sheila Jackson Lee, our distinguished congresswoman from 
Houston, Texas.
    Ms. Jackson Lee. Mr. Chairman, thank you so very much; and 
my apologies to the witnesses. I have just landed, flying into 
Washington, D.C. But I am delighted that I was able to make the 
hearing before it had concluded.
    I want to thank the Chairman and the Ranking Member for 
what is a vital discussion; and I hope that you will engage me 
as I pursue some issues that I think are very, very important.
    I have been engaged in this issue for a number of years ago 
the Member of the Judiciary Committee when Chairman Hyde was a 
Member and a Chairman, of course, and raised a number of issues 
about the abuse of intellectual property. And certainly as I 
respect our friends and allies in China and have marveled at 
the ability to develop a very thriving middle class, one that 
is continuing to grow, I've also been appalled at the extensive 
abuse of intellectual property, much of it coming from the 
United States.
    Many of our friends are prone to talk about the trillions 
of dollars of debt that we have--I think $14 trillion may be 
the number at this point--and look awry at any efforts that our 
present government, my party, has engaged in to invigorate the 
economy which sometimes calls for stimulating it. But part of 
our crisis, if you will, goes a lot to the imbalance of export 
and import.
    And, frankly, I do not want to be quoted to suggest that 
the abuse of intellectual property is such a cause of it, but I 
would say that the inequities in markets like China and China 
having a large part of our debt, which makes me enormously 
unhappy because I think the playing field in China is not even 
uneven. It doesn't exist. We were advocates of China getting 
into the World Trade Organization as I understand that they are 
in. But, more importantly, this Congress went against its 
better judgement and supported the PNTR, the Permanent Normal 
Trade Relations, and I think the U.S. Chamber of Commerce might 
have been enthusiastic about it. We thought it was going to be 
a quid pro quo.
    Now all we get from China is lost jobs and closed doors. We 
get the sanctioning and censorship of Google and others. As the 
Ranking Member mentioned, we get continued human rights 
violations. And we get a big, empty bank account where we are 
losing money, even more so now with the approach that they are 
taking on trade, but, more importantly, over the years where 
they have abused intellectual property, where they have gained 
their economic edge because they have stood up on the backs and 
shoulders of Americans, from my perspective.
    So my question to the--I am not interested in soft-pedaling 
this potential crisis, meaning the AML laws that may, in 
essence, make us more than second-class international citizens. 
It may not even put us on the ballpark, if you will. Probably 
be something like some of the soccer games that we saw and the 
rulings of some of those referees that ruled us out.
    So I would like to pose to Mr. Singham, who is with the 
U.S. Chamber of Commerce, that we may find it a grand 
opportunity to be in alliance. Why is everyone soft-pedaling 
some of the legal schemes that are being proposed? And if these 
AML laws thrive, then they'll have some other laws, which is, 
knock three times at our door, we'll think about it and let you 
know in about 10 years whether you can do business in China or 
whether you can do it in an even playing field.
    So I would like to know some real solutions to laws that 
can be passed by a sovereign entity, which China is, to make 
them part of the international arena and, to be very frank with 
you, to get back some of the bounty that they've taken from the 
American people and others around the world that have advanced 
them to our disadvantage.
    Mr. Singham.
    Mr. Singham. Congresswoman, you make some excellent points; 
and I'd like to--and you make your point that it is sort of way 
beyond the narrow scope of the AML, but I agree and I said in 
my oral testimony and the written testimony that it is very 
important that we do not regard the AML in a vacuum, that in 
China it is not in a vacuum.
    Other policies and other laws in China do affect the 
implementation of the AML, but you raise a much, much greater 
and bigger point which is the issue of trade liberalization and 
competitive markets, which is essentially trade liberalization 
only really works when you have competitive markets inside the 
border and how can we get there with respect to China.
    One of the things that we absolutely have to do--and I 
would agree with you on this point--it is to ensure that we are 
not competing--U.S. firms are not competing with firms that 
have their costs artificially reduced through anti-competitive 
market distortions, whether they are in China or anywhere else, 
quite frankly. And so I would agree with you that we need to 
have a much more proactive approach to the issue of anti-
competitive market distortions.
    When trade barriers were high, it didn't really matter what 
happened inside markets that we were trading with. As trade 
barriers have come down, these kinds of behind-the-border 
barriers, these kinds of anti-competitive distortions have 
become much, much more significant.
    I would certainly argue that they are just as if not more 
important now than the sort of traditional border trade 
barriers, and that's one of the reasons that the U.S. Chamber 
has set up a global regulatory corporation project to try to 
align some of these policies and try to deal with this 
particular problem, which affects not only U.S. firms but it 
affects U.S. jobs, it affects--because it is not just a 
competition in China or in the U.S., but it is a global 
competition, and U.S. firms are competing globally, and supply 
chains are competing globally. And where there are these kinds 
of distortions you are going to have an effect on the 
profitability of U.S. firms and their ability to employ U.S. 
people.
    I agree with you. There's a complete alignment here between 
U.S. firms and U.S. workers on this point. We ought to be able 
to say that business competition on the merits is the way that 
economies grow. And we ought to be able to agree that that is 
how economies develop, that is how consumers are empowered, and 
that's how the global economy grows. We all have a vested 
interest in that.
    While we say that, we ought to be able to say to our 
people, let competition decide our outcomes. Business 
competition on the merits, let that be the decider of outcomes. 
But we will be aggressive if we see that countries or 
government departments are artificially distorting their 
markets and, therefore, lowering the costs in an artificial way 
of businesses that are competing directly or indirectly with 
U.S. firms.
    So in our written testimony we've advocated a revision of 
the interagency process around anti-competitive market 
distortions, a way of measuring anti-competitive distortions so 
that we are actually dealing in real data and metrics. We've 
talked about looking at evaluating international agreements on 
anti-competitive market distortions. Many of these provisions 
already exist in existing trade agreements or the beginnings of 
them exist. We are debating now in the Trans-Pacific 
Partnership Agreement a chapter on competition policy that 
deals with some of these issues.
    If the AML is used by Chinese competition agencies in the 
way that you fear, we ought to have a set of tools to look at 
that interference, which is what it would be in the market as 
an anti-competitive distortion, and we ought to have a way of 
dealing with that. So I think there we are in a lot of 
agreement.
    Just on your point about intellectual property abuse--and 
this is critical because, as other members of the panel have 
noted intellectual property abuse--many competition agencies 
are taking the view, not the U.S. but other country's 
competition agencies--many other country's competition agencies 
are taking the view that refusal to license the intellectual 
property is by itself an abuse, is by itself a competition 
problem that the competition agency should get involved in. And 
we see some of that certainly in the provisions of the SAIC and 
other parts of the Chinese government in terms of how we will 
apply Article 55 on abuse of intellectual property.
    But I would make this point. For those competition 
agencies, competition policy and intellectual property are 
intention. But if you have a welfare-enhancing economic 
approach to competition policy and implementation, there is no 
tension between competition policy and intellectual property 
policy. Both policies have the same innovation and welfare-
enhancing goals. So if we can succeed--however we do it, with 
whatever tools we can use, but if we can succeed in getting and 
insuring that the AML is applied in ways that make economic 
sense, that are welfare enhancing, then we will not have a 
situation where the AML is being essentially abused to erode 
the intellectual property rights of U.S. and other firms.
    Now there are certainly cases where firms do abuse 
intellectual property rights, and I'm not talking about that 
right now. But the key here is to ensure that the AML is 
implemented in a way that is based on economics, sound 
economics and consumer welfare. If you do that, then all the 
provisions that could be used--could be abused, I would say, to 
erode intellectual property rights won't be used in that way. 
So I think that's the key with respect to intellectual 
property.
    Ms. Jackson Lee. Mr. Chairman, if you would indulge me for 
a moment, I'm on a line of questioning.
    I think intellectually, Mr. Singham, you're absolutely 
right, if we analyze it in the way that you've analyzed it. And 
of course I think the modems and policies that you're speaking 
of I assume is policies that the U.S. Chamber of Commerce is 
looking at as you engage in doing business or helping your 
members do business--a lot of your members are very large 
companies--as they do business internationally around the 
world.
    I'm reading just a paraphrase of the language of AML, and 
what strikes me is language that says monopolistic conduct and 
economic activities within China, which is what AML is supposed 
to apply to, and foreign conduct that eliminates or has a 
restrictive effect on competition. Now, if you have one judge, 
then any foreign business that comes out of a climate of 
capitalism versus government-owned, directed, controlled 
businesses as China does could be found to be in violation of 
the AML, and it could be in violation on the basis of they are 
getting too much of the market share and making too much money.
    And so if I might--if someone else wants to launch in and 
let me yield to any of the other persons about the danger of 
language that, in essence, would close the door. Our companies 
that might make the first trip over--and I'm, obviously, using 
metaphors because we've been over--would be large companies to 
a certain extent and could be easily accused of conduct that 
eliminates or has a restrictive effect on competition and be a 
foreign entity.
    My thought is the Chairman has held this hearing and what 
are we doing in terms of protective laws from our perspective? 
We're in the WTO. We've got the PNTR. I have not seen major--I 
shouldn't say that. I assume the existence of Google and 
others--there is probably a long litany of companies, 
obviously, doing business there. The question is, where is the 
balance?
    But do we now need to look at laws that would match the 
laws that China has if they are laws that are preventative or 
blocking rather of our businesses from the United States--and 
that's what I'm framing my question around--loss of jobs and 
the businesses that have either gone there or not been able to 
thrive because they have been blocked from coming into China. 
Do we not need laws that respond to that kind of litmus test?
    Mr. Lipsky.
    Mr. Lipsky. Let me address this concern as follows:
    The law that you referred to, the provision of the AML that 
you've referred to, is in many respects consummate with legal 
norms that have emerged in other jurisdictions. In other words, 
in the United States, we have a statute which says that foreign 
conduct can be reached under U.S. antitrust law so long--I'm 
paraphrasing and simplifying quite a bit--but essentially as 
long as that conduct has a substantial direct and foreseeable 
effect on U.S. commerce.
    Ms. Jackson Lee. Just for a moment, I understand that we 
interpret our laws differently or at least in a more open 
manner than I perceive a law like this as it relates to China. 
So I think we're talking about two different approaches in 
interpretation of individual laws.
    Mr. Lipsky. Well, to the extent that the law is interpreted 
to create the kind of disadvantage for U.S. companies or 
foreign companies, we do have some historical experience with a 
somewhat similar situation where trade remedies were proposed. 
There was a provision of our trade act--I am not a trade 
expert, Shanker is, and he may wish to comment--but I think it 
was referred to as Special 301. It was a provision--as far as I 
know, there was never a successful proceeding invoked under 
that provision.
    There was a very intense, competitive battle reflected in 
the Kodak/Fuji case. Ultimately, I think a trade complaint was 
filed on behalf of Kodak. But, as I recall, it was not a 
Special 301 complaint. It was--they stepped right to the brink 
of invoking that provision but never invoked it.
    So we can certainly consider similar provisions to the 
extent we are encountering tilting of the playing field under 
the guise of competition law enforcement. Or, in that case, I 
think it was actually an accusation of lack of competition law 
enforcement in Japan.
    My own feeling, having not studied the matter carefully but 
just based on my own experience with this and similar disputes 
of this nature, is that what we are advocating is probably more 
likely to work out better for all parties in the long run. I 
think if we think of our relationship to China with respect to 
trade and related matters primarily and a partnership, I mean, 
our success is bound up with theirs and vice versa. If they do 
hold a lot of debt, that means they have a great percentage in 
our success.
    So we're going to be in this dialogue for the very long 
run, and I'm not saying we shouldn't use sticks. If there is 
serious trade distorting--unjustified trade distorting conduct, 
wouldn't discourage Congress from applying the appropriate 
stick. But you can't use only sticks. You have to feel your way 
through the dialogue. It's like any long-running, important 
partnership. Both parties have to give and take. There are a 
huge number of issues on the table in the bilateral 
relationship between the United States and China, and I----
    Again, we're kind of at the inception of the AML. A lot of 
jurisdictions go through tremendous adjustments. When the 
European Union implemented its rules on restrictive agreements 
in 1962, it was kind of a bureaucratic catastrophe, because 
they elicited thousands and thousands of petitions from 
businesses who were afraid that their arrangements were going 
to be condemned, and then they had bureaucratic gridlock for 
years and years. So I'm sure I could think of examples of 
United States enforcement. Our initial experience with the 
Sherman Act and the Clayton Act was not an entirely happy 
experience.
    So I think the door has in a sense just opened, and we need 
to look at the record as it rolls out and pay close attention 
and try to insist on transparency and accountability and impose 
a little discipline and encourage our executive branch to get 
on it and stay on it and see where we are as time progresses.
    Mr. Johnson. Mr. Barnett.
    Mr. Barnett. If I could make expand slightly on that, to 
put it in perspective. You raise a lot of very important 
issues, but one way to think about this is should we view the 
AML itself as something that's good or something that's bad for 
U.S. businesses? In my view, it should by viewed as generally 
something good. There is certainly the potential for it to be 
applied in a way that could be protectionist or harmful to U.S. 
businesses and Chinese consumers, but, importantly, it is 
substituting for a regime that before had much more direct ways 
to exclude U.S. businesses from operating in China. It is an 
instrument to open up the markets there.
    There is a long ways to go, as Mr. Singham has pointed out. 
And you've not heard the witnesses say that the AML has been 
abused in very clear circumstances. What you've heard is that 
it may be in the future. A lot of the examples that have been 
pointed to of concern are other laws in other areas.
    In that respect, there is an additional potential benefit 
to the AML. Not everyone in China thinks the same way. You now 
have individuals at the various agencies, to the extent that 
they are persuaded that a market-based economy is the way to 
encourage growth and a focus on opening up markets to 
competition, including foreign competition, they can be a voice 
within the government to advocate for opening up and bringing 
down trade barriers. We have seen that type of advocacy be 
effective in other countries.
    So without minimizing your point that those are very 
serious issues and agreeing that we should bring a lot of 
different tools to bear on it, I just want to put in 
perspective that the AML itself can be an engine for good.
    Mr. Singham. Yes, I think that's right. One of the most 
important provisions in the AML is the provision that deals 
with advocacy and competition advocacy by Chinese competition 
agencies with other branches of the Chinese government.
    Now if you look at--as Mr. Barnett said, if you look at 
what we had before the AML, there was really no way that there 
would be a voice of competition or a voice for competition in 
any branch of the Chinese government. So we shouldn't 
underestimate how important that is.
    Now that it is there, it doesn't mean it will be a force 
for positive pro-competitive markets necessarily, but I think 
it is incumbent on us to try to work with the Chinese, 
recognizing the efforts that have been made and to develop the 
kind of individuals who can lead the charge on promoting 
competitive markets in China.
    It's interesting that in the field of competition what a 
difference individuals can make. I did a lot of work with 
Brazil when Brazil was starting its road on competition policy 
and happened to have some very, very good heads of competition 
agencies in Brazil who made huge inroads into what was also a--
perhaps not as planned as the Chinese economy but was emerging 
from import substitution and a sort of command economy in 
Brazil. So I think we shouldn't underestimate the power of 
these competition agencies to be a force for pro-competitive 
markets.
    I would say, in answer to your question about laws and so 
forth, that there are a number of laws already on the books 
that apply--could be applied in this area. Mr. Lipsky mentioned 
the Kodak/Fuji case. Where there are anti-competitive practices 
in foreign markets that have an effect in the U.S. under the 
Foreign Trade Antitrust Improvements Act, you can rely on U.S. 
antitrust law.
    There was a case in New York involving a vitamin C cartel 
where the Chinese government essentially said that it was a 
state-owned enterprise and the state basically forced the anti-
competitive activity. And this was a defense in the case that 
was brought in New York.
    I think those are cases where, under the FTAIA, our 
antitrust agencies could meaningfully be involved.
    And on the trade side, many of our trade laws, section 337, 
section 301, the GSP preferences that we have, there are many, 
many trade laws that apply disciplines where there is anti-
competitive activity. Now, historically, that has been rarely 
used; and it tends to be contained to private anti-competitive 
activity.
    I think the one area where legislative--some analysis of 
potential legislative solution could be explored is the area of 
where you have a market where the anti-competitive activities 
are primarily in the public sector or primarily government 
anti-competitive activities. But we ought to include those 
within what we count as anti-competitive practices for the 
purposes of those laws. So I think that certainly could be 
done. That would require us to apply the same discipline as to 
ourselves.
    And the Antitrust Modernization Commission, which has been 
mentioned on this panel, did make a recommendation to look at 
the state action exemption. The state action exemption protects 
state activity and allows states to essentially get away from 
anti-competitive activities where they are acting as states, as 
opposed to market participants. We need to revisit that, quite 
frankly. But there's a lot of those types of laws that we refer 
to in our written testimony where we can do that.
    But I do agree with what Mr. Barnett said, is we need to 
bear our problems. We do need to address the problems and 
develop tools to address the problems, but we also need to take 
a 25,000-foot look and say, well, there has been progress here. 
Let's try and build up----
    Ms. Jackson Lee. If you could wrap up, and I appreciate it.
    Professor, I didn't know if you want to finish.
    Let me just thank the Chairman and indicate and comment to 
the answer to my question is, of course, I think, Mr. Barnett, 
you're right. The underlying premise of anti-monopolistic laws 
is good. I mean, our laws, our antitrust laws started with a 
framework to enhance competition opportunity.
    Those of who are still practicing law--I practiced law 
previously--know that, depending on what side of the case you 
are, sometimes our antitrust laws are paper tigers. You've seen 
mergers come and go and meet a basic standard and most people 
say how in the world could we allow these two entities to 
merge? They've obviously created an anti-competitive 
marketplace.
    I would only offer that this is a very important hearing; 
and I think all of these variables have to be integrated--
deficits, the abuse of intellectual property, the potential--
and I use that example because it is the most consumer-based, 
glaring example of when technology and design and talent that 
is taken from another and is utilized in this instance by China 
with anti-monopolistic laws if misinterpreted or used in a one-
sided manner. No matter what country or what company is 
attempting to interact with China it is to the disadvantage of 
the overall market or the overall economy as we look at the 
world economy. And my point is let us not tiptoe through the 
violence.
    I would like to help China have a vigorous marketplace that 
has its doors open to all of us, and I'd like for the United 
States in particular to benefit from its partnership with 
China. My disappointment is that--and maybe I need a 10-year or 
20-year view. I voted on the PNTR in the late '90's--is to 
actually look at what the benefit is bringing to the United 
States when we engage in the PNTR. It seems that we always get 
a lopsided impact when we engage in----
    Mr. Chairman, I think that we should continue to be 
cautious. I think this review is very important. We want an 
invigorated market, but we don't want a lopsided market. I look 
forward to more extensive testimony and considering legislation 
or not depending upon how we see the future.
    I thank the Chairman and I thank the witnesses very much 
for their testimony. I yield back.
    Mr. Johnson. Thank you. I thank the gentlewoman from Texas.
    I also thank the witnesses. This has been a relatively long 
hearing, but at least there were no breaks and so you could 
keep moving along with the discussion. So I want to thank you 
all for contributing to it and for coming. This is a very 
important hearing, and I look forward to this Committee 
following up on some of the recommendations that have been made 
by you. Thank you very much.
    Let me see, I'm getting a little ahead of myself here. 
Members will have 5 legislative days to submit any additional 
written questions which we will forward to the witnesses and 
ask that you answer as promptly as possible to be made a part 
of the record.
    Without objection, the record will remain open for 5 
legislative days for the submission of any other additional 
materials.
    With that, this hearing for the Subcommittee on Courts and 
Competition Policy is adjourned.
    [Whereupon, at 6:02 p.m., the Subcommittee was adjourned.]

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