The Ministry of Commerce of the PRC (MOFCOM) recently announced that it will authorize provincial-level commerce authorities to assist MOFCOM in their respective regions. In effect, this announcement (Announcement) has formally launched anti-monopolistic investigations at the provincial level. Although much of the provincial authorities’ investigation powers will be in the area of pre-concentration review, they will have other anti-monopoly authority as well. In this issue of the China Antitrust Update, we will brief you on the main tasks that the provincial-level commerce authorities will take on in their antimonopoly investigations.  

Background  

China’s State Council has designated MOFCOM, the National Development and Reform Commission (NDRC), and the State Administration of Industry and Commerce (SAIC) to serve as the anti-monopoly enforcement authorities (AMEA). While the State Council explicitly authorizes an AMEA to play a major role in enforcing China’s Anti-Monopoly Law (AML), Article 10 of the AML also allows any of the AMEAs to authorize provincial agencies to enforce the AML when necessary. The reason that this delegation of power has been allowed is that although AML enforcement mostly involves national issues, the collaboration of local agencies is indispensable for implementing the AML in some situations. However, the AML imposes certain limitations on this delegation of power by stating that only agencies at the provincial level of an AMEA may take over an AMEA’s responsibilities with its authorization. For example, MOFCOM may authorize the Department of Foreign Trade and Economic Cooperation of Guangdong Province to assist MOFCOM in Guangdong province; however, it can not authorize the Bureau of Foreign Trade and Economic Cooperation of Guangzhou Municipality to assist MOFCOM in Guangzhou city. Departments of commerce of autonomous regions corresponding to the provincial level, such as the Department of Commerce of Inner Mongolia Autonomous Region, and bureaus or commissions of commerce of municipalities directly under the central government, such as the Beijing Municipal Bureau of Commerce and Shanghai Municipal Commission of Commerce, are also examples of agencies at the provincial level of MOFCOM.

At present, MOFCOM is the first and only central authority to authorize provincial agencies to enforce the AML. The Anti-Monopoly Bureau (AMB) under MOFCOM has recently categorized the delegation of anti-monopoly enforcement power into two major categories: specific authorization and general authorization. Specific authorization means that MOFCOM may authorize one of its provincial-level commerce authorities to assist in AML enforcement activities, such as conducting onsite investigations in a specific instance; while general authorization allows the provincial-level commerce authorities to exercise the AML enforcement power granted by MOFCOM in certain types of cases. The Announcement contains general authorizations made by MOFCOM.  

Main Tasks of the Provincial-Level Commerce Authorities According to the Announcement, the main tasks of the provincial-level commerce authorities’ anti-monopoly investigations include:  

  1. Assisting MOFCOM in formulating anti-monopoly laws and periodically reporting to MOFCOM on regional policies and regulations related to competition;  
  2. Supervising business operators’ concentration transactions within the province, and if a concentration transaction meets the notification criteria, promptly reporting to MOFCOM and notifying the business operators to submit their notifications to MOFCOM;  
  3. Lawfully collecting evidences on business operators’ concentration transactions and reporting to MOFCOM about each case;  
  4. Supporting MOFCOM in preventing prohibited concentration transactions from proceeding; assisting MOFCOM in supervising business operators’ fulfillment of restrictive conditions, if such conditions are imposed on a concentration transaction; and reporting to MOFCOM promptly if a concentration transaction is carried out illegally or in violation of the restrictive conditions;  
  5. Reporting to MOFCOM promptly if it finds that a business operator meeting the notification criteria fails to submit its notification, or if a business operator has submitted its notification, but carries out the concentration transaction without approval;  
  6. Reporting to MOFCOM promptly if a concentration transaction does not meet the notification criteria, but evidences show that the transaction has or may have an effect of restricting or eliminating competition, and carrying out an investigation in accordance with MOFCOM’s authorization;  
  7. Investigating monopolistic acts that disturb foreign trade, collecting evidence, and verifying that information; and  
  8. Assisting MOFCOM in assessing the market’s situation, and promptly gathering that information and reporting to MOFCOM on a timely basis.

Comments  

The Announcement indicates that provincial-level commerce authorities will participate actively in investigating business operators’ concentration transactions in their respective regions, and their assistance may help relieve MOFCOM of some workload in this area. However, their involvement may complicate the implementation of the AML.  

First, provincial-level commerce authorities’ inexperience with the pre-concentration review procedures may cause practical difficulties during the AML’s initial implementation period in China. MOFCOM has gained substantial experience with pre-concentration review procedures since April 2003, when the Interim Provisions on Mergers with and Acquisitions of Domestic Enterprises established the concentration control regime. In contrast, provincial-level commerce authorities were excluded from any actions taken during the AML’s initial implementation period, nor have they assisted in implementing the anti-monopoly aspect of the concentration control regime. Thus, it still remains to be seen as to how provincial-level commerce authorities will effectively carry out their main tasks.  

Second, provincial-level commerce authorities’ involvement may increase the level of uncertainty during the anti-monopoly notification and review process. Although their tasks are limited to assistance and supervision, their involvement may affect MOFCOM’s decisions and, therefore, significantly impact business operators seeking smooth completions of the transaction notification and review process. For example, MOFCOM and its provincial-level commerce authorities may have different understandings of certain legal requirements under the AML or its implementation rules, which may frustrate business operators in evaluating whether their concentration transactions comply with the legal requirements.  

In addition, provincial-level commerce authorities’ participation may further complicate the AML’s implementation in the area of foreign trade. MOFCOM’s power to supervise monopolies in foreign trade activities may overlap with the jurisdictions of both NDRC and SAIC, and it remains dubious as to how MOFCOM will coordinate with NDRC and SAIC to enforce the AML in foreign trade activities to avoid possible conflicts. The Announcement authorizes provinciallevel commerce authorities to investigate monopolistic acts that disturb foreign trade, collect evidence, and verify that information. However, the provincial-level commerce authorities’ possible coordination with NDRC, SAIC and their respective provincial-level agencies are expected to be a complicated issue.  

The Announcement indicates that business operators will work more closely with provinciallevel commerce authorities than before on their proposed concentration transactions. Therefore, business operators interested in entering the Chinese market should consider including this factor in their deal planning, and it is especially important for them to closely monitor the development of the AML and its future implementation rules. To reduce uncertainties currently surrounding the concentration control rules and to complete the transaction notification and review process smoothly, business operators may want to frequently communicate and coordinate with both MOFCOM and its provincial-level commerce authorities of the regions in which the business operators’ proposed concentration transactions are involved.