The Chinese antitrust authority responsible for mergers, Mofcom, has announced, in a rather terse decision issued on 17 June 2014, that the proposed P3 Alliance between the Maersk Line, CMA CGM and MSC Mediterranean Shipping has been prohibited and that the parties have no right to appeal the decision.
The decision has sent shockwaves through the shipping industry worldwide and already led to a fall in the A.P. Møller-Mærsk share price. The reaction has essentially been one of huge surprise, as the working assumption was that, as the US and the EU had each looked at the proposals and not vetoed them, it was safe to assume that Mofcom would follow suit.
For the future, however, the case raises an important issue for all multinational businesses, how to manage global risk in a world where the standards are not the uniform and there is uneven, and in some cases arbitrary, enforcement. The P3 Alliance is, in a sense, a good test case for the proponents and opponents of greater harmonisation of antitrust law to argue over.
Leaving aside the merits or otherwise of this particular decision under Chinese law, there has for some time been concern about the lack of certainty in knowing what the rules are and how they will be enforced now that over 160 countries have introduced antitrust and merger legislation. Much of this is misplaced, as it assumes that in a global economy market and trading conditions and thus antitrust issues and solutions will necessarily be uniform across the globe. That is clearly not the case and some differentiation is necessary to ensure that the shoe fits in each particular case.
There has, however, been particular concern expressed about the ‘inexperience’ of the newer competition authorities, China’s included. Fingers will also be pointed at the lack of any right of appeal (most of us support legal certainty and speed of decision-making but not if it comes with too heavy a price).
However, the decisive point here seems to be that under Chinese law the alliance qualified as a merger and, while Mofcom’s practice in merger cases largely follows established competition law principles, the law permits several non-antitrust factors to be considered. Such factors include the ‘public interest’, market efficiency and the failing firm defence. This inevitably gave Mofcom a broad margin of discretion when it came to assessing the impact which the alliance would have in China.
It seems that Mofcom was particularly concerned about the potential impact on its domestic export industries and its ports. Mofcom must have had in mind the interests of Chinese exporters, who undoubtedly are far more reliant on container services than European or US exporters. And the decision expressly cites four adverse effects that the alliance would likely have had on China’s ports, including using the lines’ combined market power to force ports to reduce their service charges. Such domestic concerns were clearly critical in this case. Whatever the thinking behind the decision, despite a last minute attempt by the lines to save the deal by offering commitments, Mofcom reached the conclusion that the alliance would have or be likely to have the effect of eliminating or restricting competition in the Chinese market and so had to be prohibited.
At the same time, one should not forget that the P3 Alliance received only qualified forms of approval in both the US and the EU. In the US, the FMC (Federal Maritime Commission) merely had to rule out the possibility of the alliance being likely, as a result of a reduction in competition, to produce an ‘unreasonable’ decrease in transportation services or increase in transportation costs (which it did, although at the same time it called for the situation to be kept under constant review). Richard Lidinsky, former chairman of the FMC, indeed went as far as issuing a dissenting opinion and in his view the alliance did pose a risk to competition. So, while the competition arguments were aired in full, the final decision not to oppose the alliance was not an unqualified one.
In the EU, the European Commission merely had to satisfy itself that there was something anti-competitive happening that merited further investigation, which it was hardly in a position to do before the alliance had begun operating and before its full impact could be measured (and so it had to content itself with reminding the parties that they were themselves responsible for assessing their own agreement, at risk of being challenged later should their assessment prove to be wrong). The EU Commission’s decision not to open any investigation was therefore entirely silent as to the substance of the law.
It remains to be seen what the parties to the P3 Alliance and their competitors will do next, but it is clear that ‘size matters’ and the very size and degree of integration of the P3 Alliance meant that Mofcom was not prepared to give it the benefit of the doubt.