Last week, Rio Tinto, a resource giant of Australia, withdrew its proposed transaction with China’s Chinalco, and announced that it will set up a joint venture with another rival miner, BHP Billiton. If the Rio Tinto - BHP Billiton deal is finished, as analysts estimated, there will be a great concert effect, because they will be able to share their ports and railroads in Western Australia, which considerably cuts costs for both parties.
However, as the greatest importers of iron ore, Chinese steelmakers have expressed their concerns at the potential monopoly that will be created by this transaction. They argue that Vale, Rio Tinto and BHP Billiton, as the three most important mining corporations, have monopolized 70% of global iron ore transactions. In China, these two corporations have already gained nearly 50% of the market share. If Rio Tinto makes an alliance with BHP Billiton, their market share will undoubtedly expand, which consolidates their dominant position in the market. Officials of China MOFCOM explained that if the turnovers of the two parties reach the threshold set by Chinese AML, their concentration will trigger a review by China MOFCOM.
In this case, the two parties of the said developing monopoly are foreign corporations.
Furthermore, the transaction did not happen within the territory of China. However, Chinese anti-monopoly institutions still have the power to review the transaction according to Chinese AML meaning they can prohibit or impose conditions upon it. This is referred to as the extraterritorial enforcement of anti-monopoly law. The precondition of such enforcement is that the transaction has exerted, or will exert, negative influence on the competition of one country. Since the iron ore market is already highly concentrated, and entry to the market is costly, the concentration of the Rio Tinto - BHP Billiton deal will substantially eliminate the competition. As a result of this, the Chinese anti-monopoly law enforcement department is entitled to review the concentration.
However, if the MOFCOM prohibits the concentration, the most difficult part of the problem is how to impose any decisions reached. For example, in the Rio Tinto concentration, neither party involved has an office in China, nor do they have any property within China. It would be unpractical to prohibit the import of iron ore because of China’s demand for it. Simply put, defensive measures are very limited, if any at all. The only effective approach is that there is cooperation with the anti-monopoly law enforcement department by other countries. Negotiations with those entering into the negotiations will also be necessary. This is evident from the practices of the US and EU, whose anti-monopoly law enforcement institution may negotiate with the parties involved and try to impose some acceptable limitations to the transaction. This would create a far more beneficial situation.