On January 12, 2010, the Anti-Monopoly Bureau (AMB) of the PRC Ministry of Commerce (MOFCOM) released a set of interpretations1 (Interpretations) of two recently-issued merger filing and merger review regulations - the Measures for the Notification of Concentration Transactions Carried Out by Business Operators (Notification Measures) and the Measures for the Review of Concentration Transactions Carried Out by Business Operators (Review Measures) (together the Measures), both of which were part of MOFCOM’s first round of official merger control rules intended to facilitate the implementation of China’s Anti-Monopoly Law (AML)2. The recently released Interpretations are helpful in that they explain MOFCOM’s intent behind certain rules contained within the Measures and clarify certain requirements prescribed in the Measures, but they fail to eliminate the ambiguity surrounding other rules, and they do not introduce any new substantive rules as further guidance. In sum, while the Interpretations are a praiseworthy demonstration of MOFCOM’s responsiveness to public calls for clarifications of the merger rules, they are not a complete guide to these rules. An English translation of the Interpretations is attached to this article as an Appendix.
Reiteration of Important Rules of the Measures
The Interpretations largely serve to reiterate the important rules contained in the Measures, but they fail to provide detailed guidance or eliminate existing ambiguity. The Interpretations address, among others, the following topics: (i) definition and calculation methods of turnover, (ii) pre-consultations, (iii) notification documents and materials, (iv) withdrawal of notification, (v) objections and restrictive conditions, and (vi) supervision of implementation, all of which have already been stipulated in the Measures. The Interpretations address these topics in a more organized manner, meant to facilitate readers’ understanding of the rules of the Measures.
Clarification of the Rationale and Purpose of Certain Rules of the Measures
As noted above, the Interpretations clarify the rationale behind certain rules contained within the Measures. For example, under the Notification Measures the proper notifying party varies depending upon the type of transaction – in a merger all parties are obligated to submit a notification whereas in non-merger transactions only the business operator acquiring control or decisive influence is obliged to submit a notification; the other parties participating are only obliged to cooperate in filing the notification. In the Interpretations, AMB explains that even though the Measures designate a party responsible for filing the notification, if that party fails to do so other parties to the proposed transaction may submit the required filing. AMB explains in the Interpretations that the notifying party’s failure to submit a notification for a transaction meeting notification thresholds would make such a transaction illegal, so other parties to the proposed transaction should have the right to submit a notification in lieu of the non-acting notifying party in order to obtain anti-monopoly clearance from AMB.
Further Guidance to Facilitate Filing Process
In the Interpretations, AMB specifies certain rules prescribed in the Measures, which should provide further guidance to notifying parties to facilitate the filing process. For instance, Article 12 of the Notification Measures requires notifying parties to submit both a public version and a confidential version of the notification materials, in which trade secrets and other confidential information contained in these documents and materials are indicated by the notifying parties. In practice, AMB usually uses the public version to solicit opinions and comments from interested parties (such as competitors, upstream and downstream companies, business partners and trade associations). However, due to the concern that their trade secrets would be exposed to third parties, many notifying parties disclose a fairly limited scope of information in the public version, or even fail to provide the basic information of the proposed transaction (such as the parties to the proposed transaction and the deal structure), which does not allow third parties to understand the big picture of the proposed transaction. In such situations, AMB may treat the notification materials as insufficient for the purpose of review, and thus would not initiate a case review until the notifying parties supplement further information to the public version. Such a requirement for additional input of information to the public version will certainly delay the commencement of AMB’s review.
In the Interpretations, AMB suggests to filing parties that the public version of the notification materials submitted to MOFCOM should contain necessary information on the proposed transactions sufficient for interested parties to reasonably form opinions on the effect of the proposed transaction on competition. Such advice is helpful for notifying parties to ensure a speedy start of the review process.
Some Ambiguity Remains
The Notification Measures set forth a rule regarding the adjustment of turnover calculation for acquisition of parts of business operators: when the acquirer does not acquire an entire business operator or business operators, but only one, or part, of its or their businesses, only the portion of turnover relating to the parts actually acquired shall be included in calculation of the seller’s turnover. However, the wording “the portion of the turnover that relates to the acquired part or parts” is so vague that the business operators and the reviewing authority may understand and interpret it differently. Specifically, it is not clear whether “the portion of the turnover that relates to the acquired part or parts” refers to the turnover of the target of the transaction (e.g. the turnover of a subsidiary of the seller), or the portion of the turnover of the seller as a group relating to the industry or industries that the target is engaged in. The uncertainty surrounding the abovementioned rule will likely make it difficult for business operators to calculate their turnovers and assess whether a contemplated transaction meets notification thresholds. To the disappointment of the business community, the Interpretations merely reiterate the above rule, without providing any further clarifications or guidance, and thus leave this issue unresolved.
Released less than two months following the enactment of the Measures, the Interpretations demonstrate MOFCOM’s efficiency in formalizing experience gained from its merger review practice, as well as its growing sophistication in interacting with the public for the purpose of implementing China’s merger filing regime.
While the other two anti-monopoly enforcing agencies (the Administration for Industry and Commerce and the National Development and Reform Commission) and the Supreme Court are developing detailed implementing rules and procedures regarding cartels and the abuse of dominant market position, and private actions brought under the AML, MOFCOM’s pace in implementing the AML in merger filing seems to be proceeding substantially faster than development in other areas. The fact that MOFCOM is playing an active role in reviewing preconcentration notifications may mean that multinational companies engaging in international mergers and acquisitions that have an impact on the Chinese market should take MOFCOM’s review of merger filing seriously and allow sufficient time for the antitrust clearance process in China.