More Suitable Objective: Discrimination or Obstacle?

As explained above free movement rules in the EU has gone through a developing process from discrimination to obstacle.

First, the scope of ‘obstacles’ is broader than that of ‘discrimination’. While discrimination is in the light of the disparity of national measures applying unequal treatments to goods, services, workers and capital on the ground of nationality, obstacles restricting free movement on a non-discrimination basis include discrimination on the ground of nationality, indirect discrimination which applies equally to objects but with discriminatory effect, for example double burden effect, and obstacles which apply equally to import and domestic objects without discriminatory effect but restrict free movement. A discriminatory measure without any justification108 definitely has a restricting effect and is a kind of obstacle for free movement. However, a measure falling within the obstacles on the basis of non-discrimination may not a discriminatory measure.

The relation is also available in the free circulation provisions in the AML. For example, a product of an undertaking which is established in district A is delivered for sale in district B. The technical standard applied in district B differs from that applied in district A. The product has to satisfy the technical standard in district B if it is intended to be sold in this district. In this case, although the technical standard in district B equally applies to any similar product sold in the local market without distinction on grounds of the origin of products, the product has to be subjected to a double-burden on technical standards. This situation is similar to that in Cassis de Dijon in the EU.

Guangdong Province Detailed Rules on Tentative Measures for the Administration of Financing Guarantee Companies109 require that:

108

The justifications will be discussed in the section. 3.2.6 of this chapter. 109

Guangdong Province Detailed Rules on Tentative Measures for the Administration of Financing Guarantee Companies [广东省融资性担保公司管理暂行办法实施细则_{] which is formulated by Guangdong}

Province People’s Government was promulgated on September 27, 2010 and was operated since November 1, 2010.

Article 10 … The minimum amount of registered capital of the financing guarantee companies in first class districts shall not be less than 100 million RMB Yuan, and the minimum amount of registered capital of the financing guarantee companies in second class districts shall not be less than 50 million RMB Yuan. Article 12 The following requirements must be met when a financing guarantee company applies for their subsidiaries and affiliates: … (2) The minimum amount of registered capital of the financing guarantee companies in first class districts shall not be less than 200 million RMB Yuan, and the minimum amount of the registered capital of the financing guarantee companies in second class districts shall not be less than 100 million RMB Yuan.

It is argued by some guarantee companies that the minimum amount in the standard is too high and that lots of private guarantee companies cannot meet the standards and they cannot access the market.110 Meanwhile, Tentative Measures for the Administration of Financing Guarantee Companies111 only requires 5 million RMB Yuan as the minimum amount of registered capital of the financing guarantee companies.112 To form a hypothesis in this case, if the minimum amount standards can actually constitute a restriction to access to a market without any justification, this regulation may create obstacles to free circulation in setting up branches without any discrimination against operators from outside Guangdong province, as well as business operators resident Guangdong province. While free circulation in the AML merely focuses on the objective of removal of discrimination, such a case could not fall within and be regulated under Article 35 of the AML.

110

See http://finance.sina.com.cn/roll/20100928/06343467177.shtml (last visited on March 1, 2012). 111

Tentative Measures for the Administration of Financing Guarantee Companies [融资性担保公司管理暂行办法] which was jointly promulgated and issued by China Banking Regulatory Commission, National Development and Reform Commission of the People’s Republic of China, The Ministry of Industry and Information Technology of the People’s Republic of China, the Ministry of Finance of the People’s Republic of China, the Ministry of Commerce of the People's Republic of China, People's Bank of China and the State Administration for Industry and Commerce of the People's Republic of China on March 8, 2010.

112

A specifically related regulation focusing on free circulation between regions113 already contains the discrimination and obstacles approaches. The list of detailed manners in which conduct of regional blockade is constituted mainly focuses on the discrimination approach, as do the provisions in the AML.114 However Article 3, a general provision on goods and services, states that

‘[a]ny institutions or individuals may not infringe the regulations of laws, administrative laws and regulations of State Council to obstruct or intervene goods or project construction services (thereafter services) from outside the locality to enter the local market, or to connive, shelter or restrict fair competition by any means as obstructing or intervening goods or services from outside the locality to enter the local market’.115

It is clear that any measure obstructing or intervening in the exchange of goods and services may constitute regional blockade conduct, without applying the discrimination approach.

Second, as stated above, there is an argument for prohibiting discrimination and unhindered trade. Some scholars conclude that prohibiting discrimination which can bring maximum discretion to member States can constitute a power decentralisation model while unhindered trade which may maximise free trade is a kind of power centralisation model.116 The inefficiency and restriction on regulatory competition between legal orders is the main disadvantage of the power centralisation model.117

Centralisation can lead to an excessively uniform regulation in a Union with different 113

Provision on Prohibiting Regional Blockade in Market Economic Activities [关于禁止在市场经济活动中实行地 区封锁的规定_{] was published by State Council and was promulgated on April 21, 2001.}

114

Ibid., Articles 4 and 10-16. 115

This article should be a general provision for all kinds of regional blockade conduct. Unfortunately, in the content, goods and services are particularly stated. This confused expression may create indistinct understanding in practicing.

116

See para. 2.2 of this chapter. Also see J. Snell, note 38, at 2-3. 117

Meanwhile, the advantages of the power centralisation model are accepted that ‘[a] centralized system can be politically stable, which also brings benefits of economic stability and predictability. Centralisation reduces transaction costs of private operators, who only have to familiarize themselves with one set of regulations. A centrally run system can also cope with distortions caused by market failures, such as negative externalities’. See J. Snell, note 38, at 35-48.

levels of performances on background in member States. For example, some industries in less developed member States may have to accept a heavy regulatory burden which is normal for developed Member States. Not only may less developed States lose their competitive advantage, but also investors or consumers lose their choices in a diverse environment. It is true that being completely freedom from obstacles may increase a gap in competition between districts at different levels of development because of the law of survival of the fittest. However, this kind of disadvantage is a short-term effect that maintenance of difference will keep away from the latest development.

Third, discrimination involves a comparison of measures and treatments of objects while restricting obstacles concentrates on the effect on a market. Especially in the AML these provisions will merely apply when an administrative measure distinguishes or discriminatorily treats goods, services or investment from outside of the locality. Without a compared object, it is hard to judge whether a measure should fall within these provisions. However obstacles to trade will be analysed by the effect on competition or access to a market. This is a universally applicable test involving economic judgements.

Standardisation may be a typical example of distinctions between discrimination and obstacles. There are national, trade, local standards and standards for enterprises according to Standardisation Law.118 Local standards may be formulated in provinces, autonomous regions and municipalities directly under Central Government, in the absence of national or trade standards and standards for enterprises only applying to enterprises themselves.119 An administrative measure on standardisation may be regarded as illegal only when different local standards between the locality and the original district apply to an object in movement. The local standard may be directly discriminatory in itself or impose a double burden on the object. However, few national and trade standards is presented in reality and

118

Standardisation Law [标准化法] which was promulgated on December 29, 1988 the Standing Committee of the National People’s Congress of the People’s Republic of China (SCNPC).

119

Ibid., Article 6. The local standards are limited for the safety and sanitation requirements for industrial goods which need to be unified. In reality, this restriction on industrial goods is out of date and a new Standardisation Law is required. A consultative paper of the new Standardisation Administration Law which removes this limitation was issued but not available for the public.

only a few local standards exist.120 Once a certain kind of goods is prohibited when it moves from its original district without any local standard to another district with a high- level standard, an evaluation under the obstacle-restricting approach with a view to the effect on access to a market might be a better choice.

Finally, the approach of restricting obstacles to free circulation will be more consistent with other provisions in the AML. Chapters Two and Three of the AML regulate monopoly agreement and abuse of dominant position, similarly to Articles 101 and 102 TFEU. The analysis referring to undertakings’ performance in a relevant market and the restricting effect on competition in the market is on a basis of economic principles. Meanwhile, Article 36 of the AML, which is similar to Article 106 TFEU, prohibits abuse of administrative power to force business operators to engage in the monopolistic conduct. This provision should also deal with the analysis of competition effect in a market.

The restricting obstacles approach generally focuses on the effect of an administrative measure on trade whether a measure will create barriers to entering a market or to competition in a market, while the conduct of a business operator is not a crucial element in this test.121 Especially in the EU, in some situations, if companies or individuals act in a way that excludes foreign products, the Court may see this as a matter of competition law.122 Since free circulation provisions and other anti-monopoly provisions are in the same AML, it is even more important for them to be linked. The objective of prohibition of obstacles will promote interrelation of free circulation and anti-monopoly, in particular on abuse of administrative power.

120

For example, national and trade standards in medical cold china logistics are blank or some is in process of draft. Only a few districts have their local standards. See:

http://ccn.mofcom.gov.cn/spbg/show.php?id=10433&ids=5; in the industry related with water, there is no compulsory national standard. See: http://www.standardcn.com/article/show.asp?id=31984; in the industry of automobile, the standard system is incomplete with low standard coverage. See:

http://www.standardcn.com/article/show.asp?id=35038. Until now, China is in low level standardisation overall, has slow speed on standards draft, lack of high technique standards, incomplete safety standard system, out of date standards on resources economy. See:

http://www.standardcn.com/article/show.asp?id=6124. (last visited on March 1, 2012). 121

See D. Chalmers, G. Davies and G. Monti, note 16, at 757. 122

To summarise, unlike the objectives of prohibiting discrimination and obstacles, the existing standard of discrimination against free circulation in the AML may not comprehensively prevent different kinds of blocking of the free circulation. Maintaining free circulation based on prohibiting obstacles is not only a more fundamental approach with economic analysis but also improves the combination structure with other anti- monopoly provisions in the AML.