[Q&A] Extraterritorial Jurisdiction in Competition Law
2025. 2. 7
Question: What is the extraterritorial jurisdiction in the Anti-Unfair Competition Law?
Answer: At the end of 2024, the Standing Committee of the National People's Congress released the "Anti-Unfair Competition Law (Revised Draft)" (hereinafter referred to as the "Revised Draft") and solicited public opinions. The Revised Draft is the third major revision since the formal implementation of the "Anti-Unfair Competition Law," increasing the number of articles from the current thirty-three to forty-eight. One highlight is the addition of Article 40 in Chapter V, Supplementary Provisions: "Unfair competition acts specified in this law that are conducted outside the People's Republic of China, which disrupt the market competition order within the territory or damage the legitimate rights and interests of domestic operators, shall be dealt with in accordance with this law and relevant laws." This means that China will introduce an extraterritorial jurisdiction system in the field of anti-unfair competition. If such provisions are finally passed, it will open a new era for China's anti-unfair competition laws.
Traditional domestic economic law theory used the territorial principle to determine the scope of jurisdiction, meaning that relevant laws only regulated activities within the territory of the People's Republic of China, and activities outside the territory were not bound due to limited enforcement capabilities. However, with the development of China's social economy and internationalization, and the shift in global legal theory and practice, China has also begun to introduce the concept of extraterritorial jurisdiction into domestic economic law legislation. The most important legislation was the establishment of the extraterritorial jurisdiction system in the 2008 Anti-Monopoly Law, which clearly stipulated in Article 2, "Monopolistic conduct outside the People's Republic of China that eliminates or restricts competition in the domestic market shall apply to this law." Consequently, China's anti-monopoly enforcement agencies have gained jurisdiction over monopolistic behavior outside the territory as long as such behavior affects domestic market competition. After more than a decade of practice, China's anti-monopoly enforcement agencies have effectively governed foreign operators through merger reviews, investigating monopoly agreement cases, and strongly maintaining China's market competition environment.
With the continuous advancement of China's "Belt and Road" initiative, China's participation in international market competition has deepened, resulting in many new situations in the field of anti-unfair competition. This urgently requires domestic legislation to regulate unfair competition acts outside the territory. According to international legal practices, three principles are usually adopted for such extraterritorial jurisdiction legislation: the "effect principle," the "execution principle," and the "single economic entity principle." The Revised Draft currently adopts the "effect principle," which means that regardless of whether the place of decision-making, the place of execution, or the actor is within the same judicial jurisdiction, as long as the behavior produces consequences that may affect the competitive order within that jurisdiction, the authorities of that jurisdiction have the right to exercise jurisdiction over such behavior. This means that as long as the specified legal consequences occur, Chinese authorities have the right to govern unfair competition acts worldwide.
Once this legislation is passed, it means that the Chinese government will investigate and deal with relevant unfair competition acts through all legally permitted means. Although relevant enforcement may be limited by diplomatic, political, and other factors of various countries in practice, this will still pose new challenges to the global governance system of multinational companies. In the current context of advocating for the establishment and improvement of the ESG system, multinational companies should pay more attention to examining the compliance of competitive behaviors worldwide to avoid adverse impacts on the Chinese market or operators due to unfair competition acts in certain jurisdictions, thus creating a favorable environment for long-term compliant operations in the Chinese market.