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China’s Ministry of Commerce [MOFCOM] is expected to release detailed anti-monopoly review provisions, two sources close to MOFCOM told Dealreporter.
The detailed regulations, expected to be released sometime in July, will include the following topics: Guidance Relating to the Definition of Relevant Market, Provisional Measures Relating to the Notification of Concentration of Business Operators [Notification of Concentration Guidance], and Measures Relating to the Review of Concentration of Business Operators, one of the sources detailed.
As such, the proposed joint venture between BHP Billiton and Rio Tinto will formally fall under the revised interpretation of concentration, crystallizing the deal’s jurisdiction under MOFCOM, the other source said.
The modification comes shortly after MOFCOM said Chinese anti-monopoly law (AML) would be applicable to the Rio/BHP iron ore JV which, in turn, led media and experts to question whether the deal actually met the existing State Council Regulations on the Notification Threshold of Concentration [Implementation Regulation].
According to Kirstie Nicholson, of Counsel at Lovells’ competition, EU and trade practice, neither the AML nor the Implementation Regulation makes any reference to the application of AML merger control regime to JVs.
MOFCOM Anti-monopoly Bureau Chief Ming Shang also pointed out not all the JVs would need to notify regulators but referred to turnover and change of control as the two main concerns for concentration review under the current Implementation Regulation.
BHP and Rio have described their proposed 50-50 partnership as “a production joint venture.” While it is not in question that both BHP and Rio met the turnover threshold for concentration notification, whether the 50-50 JV agreement can be defined as “a concentration” needs further clarification.
As previously reported by this Dealreporter, BHP and Rio might be able avoid EC anti-monopoly clearance as its “production joint venture” could be considered unqualified as a “full-function” JV. A source close to Rio also said it is difficult to say whether BHP and Rio would not adopt a different approach for the joint venture notification as it is a fundamentally different prospect on production only.
According to Nicholson, although the Notification of Concentration Guidance is yet to be released, the draft of the guidance published by MOFCOM early this year to hear public opinion does include a clause in the definition of merger control [Article 3] that two or more business operators jointly establishing a new independent entity constitutes a concentration of business operators as referred to in Article 20 of the AML.
”This sends a clear message that the merger control provisions of the AML will cover the establishment of at least certain types of JV,” said Nicholson. She added that the application of the AML merger control provisions to JVs has been also confirmed informally on a number of occasions by various MOFCOM officials.
Currently MOFCOM already considers JVs as a concentration in practice, whether there is a change of control in the JV or not, said Yong Huang, a Beijing-based competition law expert who often provides advisory views to MOFCOM.
A second Shanghai-based competition lawyer pointed out that although the revised details on conditions for joint-ventures to be looked at as mergers have not been published yet. “There is no limitation on what kind of joint-ventures can be looked at under the merger regime [in the draft] so it could be any kind, including cases where production units are held separately and their sole customers are the parent companies as in the Rio/BHP joint-venture.” The lawyer further said, “Politically, it’s happening in Australia where authorities have said they will look at the deal although it’s a pure production joint-venture”.
According to Nicholson, even if the JV in question does not satisfy the current requirements of a “concentration” or the turnover thresholds, the JV agreement may be reviewed under AML general prohibition on monopolistic agreements or the general prohibition on abuse of dominance. In that case, the National Development and Reform Commission [NDRC] will have the jurisdiction on all potentially monopolistic pricing matters while the State Administration for Industry and Commerce [SAIC] will take care of all any issues related to non-pricing matters. MOFCOM also has a residual power to review deals that do not fall within the obligation to notify, Nicholson added.
An official at the Anti-Monopoly Bureau of MOFCOM declined to comment on whether a 50-50 JV can be considered as a concentration and needs notification but said operators are encouraged to talk to MOFCOM directly and clarify if the notification is required, the official said.
According to Ming Shang, BHP and Rio have yet to begin any filing procedures with MOFCOM. However, the two iron ore giants are believed likely to speak to the various anti-monopoly enforcement agencies in order to confirm any relevant application of the AML. “Given the high-profile nature of the proposed transaction, I would agree the parties will wish to be sure, before completion, that there are no competition concerns arising out of the transaction that may result in any consequences for the parties,” said Nicholson.
”Remember last time on the BHP side, they thought they didn’t need to but at the 11th hour they said they had always intended to file and did a filing,” said the Rio Tinto side source. He added both Rio and BHP understood there won’t be rapid execution for the timetable. They hoped the documentation can be completed in six months with completion of the JV next summer, the source said.
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