Everyone is equal
March 11, 2010 | BY
clpstaff &clp articles &Although the implementation and enforcement of the PRC Anti-monopoly Law (中华人民共和国反垄断法) (AML) has been relatively smooth, concerns…
Although the implementation and enforcement of the PRC Anti-monopoly Law (中华人民共和国反垄断法) (AML) has been relatively smooth, concerns over the issue of equal treatment continue to surface as state-owned enterprises appear to ignore filing requirements. But foreign enterprises must follow the rules in order to thrive.
Discussions of equal treatment and protectionism tend to surface when headline-making deals are being reviewed by the Chinese regulators – the attempted takeover of Huiyuan Juice by Coca-Cola being a perfect example. But the two issues are not always intertwined.
“For many observers, the issue of whether or not the AML might be applied in a protectionist fashion crystallised around the time the Ministry of Commerce [Mofcom] prohibited the Coca-Cola/Huiyuan deal,” said JSM senior associate and competition law specialist Gerry O'Brien during a panel session at the recent IFLR M&A Forum in Hong Kong. “But it is important to note that unequal treatment of foreign and domestic firms will not always be due to protectionist policies. There are other reasons Mofcom might need to look at foreign deals differently”
According to O'Brien, the issue of whether foreign firms could expect equal treatment under the AML “was raised directly with Mofcom officials at briefing sessions held after their announcement of the Coca-Cola decision”. Their response, he said, was clear: “They were adamant the AML would be applied equally”.
Lawyers on the panel said there is no evidence of any significant bias against foreign firms in the text of the AML itself. But foreign counsel should bear in mind two Articles in particular.
In Article 27, the Law says that, when conducting an examination of a concentration of business operators, factors that should be considered include the effect of that concentration on “entry into the market and technological progress … consumers and other relevant business operators … the development of the national economy [and] other factors that affect market competition that the State Council's Anti-monopoly Law Enforcement Authorities believe should be taken into consideration” (sub-section 3-6).
Article 31 is more direct:
Where a foreign investor participates in a concentration of business operators through a merger or acquisition of a domestic enterprise or another method and state security is involved, a state security review shall be conducted in accordance with relevant state provisions in addition to the examination of the concentration of business operators conducted in accordance herewith.
The issue of equal treatment will often, therefore, turn on issues of “state” and “economic” security. Beyond this, the real question foreign investors should be asking is whether Mofcom can realistically enforce even the more neutral aspects of the AML in an impartial fashion.
During the panel session, O'Brien pointed out that the PRC government has long had a policy of encouraging consolidation of state-owned enterprises, and it may therefore be very difficult for Mofcom to challenge deals that align with this economic agenda. When China Unicom and China Netcom merged in 2008, they did not notify Mofcom.
“Mofcom was frustrated that there was no notification … other agencies just gave the green light to go ahead,” said O'Brien.
Panel chair Marc Waha, a partner in the competition law group of Norton Rose, added that purely domestic Chinese companies often do not care so much about merger notification as they are closely related to the government.
“The domestic company says 'Don't worry about it, we're owned by Sasac, we're owned by the state, we'll sort it out – one day'. Can you afford to take that risk?”
Despite the behaviour of some domestic players, O'Brien advises foreign companies to talk to the regulator frequently and follow their rules.
“Foreign firms have every reason for vigilance in ensuring compliance and fostering a good relationship with Mofcom,” he said. PT
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