Parties contemplating cross-border transactions should factor in potential Chinese merger filing requirements early on in the process.
During the first week of 2009, China’s Ministry of Commerce (MOFCOM) published a series of final guidelines regarding merger notification procedures (Notification Guidelines) as well as draft guidelines regarding relevant market definition (Draft Relevant Market Guidelines) under China’s Anti-Monopoly Law (AML). These new guidelines provide MOFCOM’s first clarification to the merger notification process under the AML since it issued merger regulations in August 2008.
Although the Notification Guidelines reiterate some of the provisions of the 2008 merger regulations, they provide several new significant clarifications. First, the Notification Guidelines explain the type of information and documents to be included in merger notifications. Notably, the Notification Guidelines clarify that merger notifications under the AML will be much more akin to the European Union’s Form CO process, as opposed to the relatively short Hart-Scott-Rodino Act notification form used in the United States. In addition to basic transaction details, merger notifications in China will require significant substantive information in a narrative format, such as details regarding the relevant market, the parties’ positions in the market, the competitive landscape, rationale for the transaction and public interest considerations, among other information.
Second, the types and form of documents to be included with a merger notification are broader under the new Notification Guidelines than under comparable requirements in the European Union and the United States. For example, unlike in the United States where only documents related to the competitive impact of the transaction are required if prepared by or for officers or directors of the parties, there is no similar limitation in China’s Notification Guidelines. Also, the Notification Guidelines require Chinese translations of foreign language documents.
The Draft Relevant Market Guidelines, which outline MOFCOM’s proposed methodology for defining product and geographic markets, are open to comment until 31 January 2009. The draft guidelines set out a process similar to EU and US practices. For example, as in the European Union and the United States, MOFCOM proposes applying the “hypothetical monopolist” test, i.e., could a hypothetical monopolist profitably raise price 5 to 10 per cent for a particular group of products, for defining relevant product markets. Also, MOFCOM outlines certain factual considerations, such as demand side and supply side substitution, which are similar to factors articulated in comparable EU and US guidelines. However, as has been true in the European Union and the United States, parties can expect significant challenges associated with application of these guidelines in practice, as evidenced by the divergent practical approaches of the European Union and the United States, or even as between the Antitrust Division of the US Department of Justice and the US Federal Trade Commission in applying what is nominally the “same” tests under US law.
The publication of the Notification Guidelines and Draft Relevant Market Guidelines highlight how critically important it will be for parties contemplating cross-border transactions to factor in potential Chinese merger filing requirements early during the process especially in light of the relatively minimal Chinese notification thresholds imposed under the AML. For example, in planning multinational transactions, parties will need to build in time to engage in recommended pre-notification discussions with the Anti-Monopoly Bureau, as well as time to prepare the detailed substantive notification and Chinese translations of foreign language documents. Further, parties must ensure that their approach as to market definition and other legal arguments as set out in the Chinese notification form is consistent with the approach they are advancing in notifications being submitted to other competition authorities around the globe. Advance planning and early consultation with Chinese counsel will be critical in navigating this developing regulatory environment.