Authored by Michael Gu (email@example.com)
The week before the Chinese Qingming Festival, MOFCOM published two sets of draft rules regarding merger control for public consultation, namely, Provisions on Imposing Restrictive Conditions on Concentration of Undertakings (“Provisions on Imposing Restrictive Conditions”) and Interim Provisions on Standards Applied for Simple Cases of Concentration of Undertakings (“Provisions on Standards for Simple Cases”). These positive steps demonstrate MOFCOM’s continued effort to accelerate the rule-making process and improve the efficiency and transparency of the merger control review.
Provisions on Imposing Restrictive Conditions
The draft Provisions on Restrictive Conditions was published on 28 March and will be open to the public for comments until 26 April 2013. This new draft is intended to replace the currently effective 2010 version of Interim Provisions of the Ministry of Commerce on Implementing Assets or Business Divestment Related to Concentration of Undertakings.
The new draft provisions are encouraging in the sense that it will improve the transparency of MOFCOM’s enforcement and will facilitate filing parties in effectively preparing their notifications. Compared with the current interim provisions, it is a big improvement in terms of the content. The new draft contains 38 articles while the existing rules only contain 13 articles. In particular, the newly proposed rules provide guidance on the behavioral remedies, which were not covered in the current interim provisions. The new draft further clarifies the criteria and procedure for amendment and repeal of the restrictive conditions. In addition, the new draft provides detailed procedures as to the proposal, assessment, implementation, and supervision of restrictive conditions and relevant liabilities for non-compliance.
In principle, the proposed rules are in line with international standards. However, the rules still lack the necessary detail. For example, the new draft provides no detailed guidance on some critical issues, such as the assessment of the effectiveness of the remedies, specific types of remedies, and the rationale for behavioral remedies. In particular, the draft fails to elaborate the meanings of the “effectiveness, feasibility and timeliness” (Article 9) of the suggested restrictive conditions on the concentration submitted by the parties. The draft is also unclear on the timeframe for the undertaking to propose restrictive conditions and for MOFCOM to accept or reject the proposal.
A notable point is that the new draft indicates no preference between behavioral remedies or structural remedies despite the fact that in practice, based on the statistics of remedy decisions made by MOFCOM since the implementation of the Anti-Monopoly Law of the PRC, MOFCOM seems to prefer behavioral remedies over structural remedies when imposing conditions.
However, we suggest the draft include more detailed provisions on the supervisory trustees and their responsibility for supervising the behavioral conditions to address public concerns on the supervision over the implementation of behavioral conditions. Article 13 of the draft provides that the implementation period for the behavioral conditions shall be ten years unless MOFCOM expressly states otherwise in its decision. This might impose undue burden on the parties. We would suggest the duration be more realistic and limited.
The draft provisions have actually been amended many times before being published for solicitation of public opinion. Considering MOFCOM’s open attitude towards the legislation-making process, we expect that the final rules will be more practical and clear in regulating remedies.
Provisions on Standards for Simple Cases
The draft Provisions on Standards for Simple Cases was published on 3 April and open for public comments until 2 May 2013. The draft Provisions on Standards for Simple Cases is really simple with only 7 articles. The proposed draft mainly sets out the criteria for concentrations that are suitable for treatment under the simplified review procedure.
Due to the lack of a short form procedure and limited headcount, MOFCOM has been struggling to handle and conclude the increased number of cases during the statutory time period in recent years. In particular, many merger notifications enter into phase two review just because MOFCOM cannot complete its review in the 30-day preliminary review period (phase one) rather than because of competition concerns raised by the concentration. Thus, it has become urgent and necessary for MOFCOM to adopt a simplified procedure or “fast track” in its review of concentration cases.
Under the new draft, the simplified procedure would be applicable to cases with negligible or no competition concerns. The new draft largely follows the EU rules in terms of the concentration categories that are entitled to going through the simplified procedure. For example, concentrations that may go through the simplified procedure include scenarios where the combined market share of the parties after the concentration is lower than 15% for a horizontal merger or where each party has a market share of less than 25% in its own market for a vertical merger. The new draft also provides that cases where the parties to the concentration establish a joint venture outside of China shall be reviewed under the simplified procedure provided that such joint venture does not engage in economic activity in China. In addition, acquiring sole control or enhancing their control of an undertaking over which one or more parties already have joint control shall be deemed as a simple case.
However, the new draft does not address any procedural issues with respect to the “fast track” review, such as the requirements for submission documents, short-form decision, and review timeline, etc. These specific issues may need to be clarified either in draft provisions or by a separate regulation.
The simplified procedure will substantially reduce MOFCOM’s workload and allow MOFCOM to focus its resources on the more important cases with real competition concerns. The average review period for concentration of undertakings will therefore be shortened accordingly. Hopefully, the concentrations that qualify as simple cases can be cleared within 30 days of acceptance when using this simplified procedure.
Both new drafts are a welcome sign for improvement in the merger review process and are expected to be adopted by the first half of this year. We believe the implementation of these new rules will enhance the merger control enforcement mechanism in China.