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MOFCOM Clarified the Criteria of Simple Merger Cases

01/02/2014

The merger control authority in the People’s Republic China (“PRC”), i.e. the Ministry of Commerce (“MOFCOM”) newly issued the Interim Provisions on Criteria Applicable to Simple Cases of Concentrations of Business Operators (“Interim Provisions”) on 11 February 2014. By issuing the Interim Provisions, the MOFCOM clarified the criteria of simple cases for merger filing in the PRC and relevant exclusions as well as the scenario where the MOFCOM may revert to a full assessment under the normal merger review procedure. The new provisions took effect on 12 February 2014.

Why important?

The current merger control regime in the PRC is set forth under the PRC Anti-Monopoly Law (“AML”) which took effect on 1 August 2008. The MOFCOM has finished the review of about 750 notifications of transactions during the period from August 2008 to December 2013. Among the concluded cases, 728 notifications (equaling 97.1%) were cleared without commitments and 21 notifications (equaling 2.8%) were cleared with commitments. Only one notification (equaling 0.1%) was blocked by the MOFCOM.

On one hand, the above statistics indicate that a large number of the notified transactions were cleared without having raised any substantive competition concerns. On the other hand, there have been constant complaints about the long merger review process of the MOFCOM for years. In practice, applying the same review procedures to all notified transactions is not time-and cost-efficient, neither for law enforcement nor for the parties to the transactions.

The international best practice is to implement a fast track review on simple cases. An efficient simplified procedure may speed up the clearance of the “unproblematic” transactions and allow the competition authorities to focus their resources on “problematic” transactions. The implementation of the Interim Provisions represent an important first step of the MOFCOM to establish a simplified merger review mechanism in the PRC, although they still contain uncertainties and a large number of unsolved procedural matters need to be further clarified.

Eligible transactions

The following categories of transactions can be regarded as simple cases under the Interim Provisions:

“No-Impact-on-China” transactions include (i) establishment of an off-shore joint venture which will not engage in any economic activity within the territory of the PRC; and (ii) acquisition of equity or assets of an off-shore target which does not engage in any economic activity within the territory of the PRC. 
 

“Low-Market-Share” transactions include those transactions which fulfill the following conditions:

  • the combined market share of all parties to the transaction that are engaged in the same relevant market (horizontal relationships) is less than 15%;
  • the market share of each of the parties to the transaction in each of the upstream and downstream markets is less than 25%, if the parties have an upstream or downstream business relationship (vertical relationships); and
  • the market share of each of the parties to the transaction in each of the markets relating to the transaction is less than 25%, if the parties have neither a horizontal relationship nor a vertical relationship.

In addition, a transaction relating to an existing joint venture can be regarded as a simple case under the Interim Provisions if the following conditions are fulfilled:

  • The existing joint venture is jointly controlled by two or more shareholders (“Existing Shareholders”) before the transaction; and
  • By implementing the transaction, the existing joint venture is controlled by one or more of the Existing Shareholders.

However, as an exceptional case, if one of the Existing Shareholders will solely control the existing joint venture after implementing the transaction and such shareholder is active in the same relevant market as that of the existing joint venture, the transaction will not be regarded as a simple case according to the Interim Provisions.

Exclusions and revocations Pursuant to the Interim Provisions, eligible transactions will not be regarded as simple cases in special circumstances, e.g. if it is difficult to define the relevant market, or if the transactions are likely to have a detrimental impact on market access, technological progress, consumers and/or other relevant business operators, national economic development or if in the view of the MOFCOM other circumstances affect the market competition. Further, under any of the following circumstances the MOFCOM may revert a simple review to a full assessment under the normal merger review procedure:

  • the notifying party conceals important information or submits false or misleading information;
  • a third party claims and provides evidence proving that the transaction has or is likely to have the effect of eliminating or limiting competition; or
  • the MOFCOM discovers that the notified transaction or the competition situation in the relevant market has fundamentally changed.

Comments The MOFCOM neither makes any commitment how long it will take to clear a “simple case”, nor simplifies any filing requirements in the Interim Provisions. At the current stage, it is still unclear how the Interim Provisions will be implemented by the MOFCOM if a notifying party thinks that its transaction is eligible as a “simple case”.

Although the criteria set forth in the Interim Provisions are largely consistent with international practice, in reality the Interim Provisions might only have a limited use before detailed procedural rules are issued by MOFCOM. During the transition period, it is recommendable that the notifying party of a simple case initiates a pre-contact meeting with the MOFCOM and clarifies the simple review procedures on a case-by-case basis prior to the merger notification.

Source
China Insight - Competition
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Authors

Jie Lin, LL.M.