October 26, 2015

China Gets Serious About Antitrust Enforcement

Earlier this month, the European antitrust watchdog announced that it signed a cooperation agreement with the Ministry of Commerce, China’s merger review authority. In many of today’s larger transactions, deals have a significant impact in both the European Union and in China. In the EU, the European Commission is the competent authority on merger control procedures for larger deals; its counterpart in China is MOFCOM. The announcement reflects MOFCOM’s growing role in global enforcement, also reflected in recent merger decisions and its increasing focus on gun-jumping.

Since China’s Anti-Monopoly Law became effective in 2008, MOFCOM has reviewed more than 1,000 transactions and quickly established itself as one of the major merger control enforcement authorities in the world. In the same time period, the EC reviewed about 1,693 different merger cases (through September 2015).

Today, MOFCOM has become increasingly important to parties seeking to execute global M&A transactions. For example, in June 2014, MOFCOM blocked the proposed P3 network shipping alliance between Denmark’s AP Moller-Maersk, Switzerland’sMediterranean Shipping Co. and France’s CMA CGM. This was MOFCOM’s second prohibition decision, and the first time that MOFCOM had blocked a global foreign-to-foreign merger. The decision highlighted MOFCOM’s confidence in charting its own course and willingness to diverge from positions taken by other major jurisdictions such as the EU and the U.S.

The above transaction was approved by a majority vote of the U.S. Federal Maritime Commission in March 2014, and in June 2014, the EC reportedly informed the P3 partners that it had decided not to open an antitrust investigation into P3. The alliance involved the world’s three largest container shipping lines on the important Asia-Europe Trade — a strategic and profitable trade route both for China’s exporters and container shipping lines — in a sector facing overcapacity issues and rising costs. It is, therefore, not surprising that it would face close scrutiny by MOFCOM. Nonetheless, the decision to prohibit the transaction outright came as a major surprise to many in the container liner shipping community, as both the EU and the U.S. had given P3 the green light.

MOFCOM’s decision exhibited a willingness to carefully scrutinize foreign transactions that are likely to affect Chinese commerce and to chart its own course. It also set the stage for MOFCOM to take a seat at the global antitrust enforcement table, as does China’s focus on gun-jumping. The EC-China cooperation framework is a step in that direction.

Jumping the Gun and Whistleblower Hotline — China is Getting Serious

Companies doing business and deals in China have to be very aware of the increased antitrust scrutiny and pressure China is putting on companies to file their transactions properly. In March 2014, MOFCOM issued a notice announcing that it will publish decisions going forward sanctioning companies that fail to file transaction notifications that meet the Chinese filing thresholds. The notice further provides a fax number to allow whistleblowers to report transactions allegedly infringing Chinese merger control rules to MOFCOM. These actions definitely have increased the risk for companies doing deals that have market impact in China.

To date, more than 40 companies have been fined and punished by MOFCOM and some of these cases, including the company names of the parties involved, have been published on MOFCOM’s website.

On Sept. 29, 2015, MOFCOM published four gun-jumping administrative penalty decisions on its official website, imposing fines on six companies, including Microsoft, Bombardier and four Chinese companies: (1) Microsoft Corp. and BesTV New Media (failure to notify the setup of a joint venture); (2) Bombardier Transportation and Nanjing Puzhen Rolling Stock Works (failure to notify the setup of a joint venture); (3) Fujian Province Electronic Information (Group) (failure to notify the acquisition of shares); and (4) Shanghai Fosun Pharmaceutical Development (failure to notify the acquisition of shares).

Even though MOFCOM does not target only foreign companies in antitrust matters — the four fine decisions include four Chinese companies and two foreign companies — companies have to be aware not only of the increased antitrust scrutiny of MOFCOM, but also of other Chinese antitrust authorities. Beyond merger enforcement, the two other state authorities, the National Development and Reform Commission and the State Administration for Industry and Commerce, intensified their enforcement efforts in recent years quite aggressively. In China, MOFCOM is responsible for merger review, the NDRC enforces the rules against price-related infringements and SAIC is responsible for nonprice-related infringements. Besides Chinese companies, many foreign companies have been targeted and fined heavily by the NDRC and SAIC lately, and some of these initiatives have been criticized at the highest levels of the U.S. and other governments.

The EC-China Cooperation Framework — A Step Toward Closer Global Enforcement Coordination

The cooperation framework announced today contains practical guidance and creates a dedicated framework to strengthen cooperation and coordination between the EC and MOFCOM. The EC already concluded Terms of Reference of the EU-China Competition Policy Dialogue with MOFCOM in 2004, and it will continue to cooperate with MOFCOM on the basis of this agreement. In September 2012, the EC signed a memorandum of understanding with China’s NDRC and SAIC, which created a dedicated framework to strengthen cooperation and coordination on antitrust matters between the EU and China. The cooperation agreement announced this month only relates to merger control reviews. The EC highlights that this framework will increase the efficiency of investigations and will reduce the burden on merging parties, in particular when authorities are able to share information and to discuss timetables at key stages of investigations. The guidance shall facilitate communication throughout the entire merger review procedure on issues of procedure and substance, including the definition of relevant markets, theories of harm, competitive impact assessments and remedies.

It remains to be seen how this new framework will be used in practice; for example, whether it proves helpful to the merging parties — or rather just to the authorities.

Read the full article on Law360 (with subscription).

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