New MOFCOM and NDRC Rules May Indicate Authorities' Focus in Antitrust Enforcement

With the second anniversary of the Anti-Monopoly Law ("AML") approaching in August, new developments regarding merger control and cartel conduct may shed light on China's future antitrust policy.

In July 2010, two of the three authorities entrusted with enforcing the AML - the Ministry of Commerce ("MOFCOM") and the National Development and Reform Commission ("NDRC") - were active on the legislative front. The published legal texts may indicate the authorities' enforcement priorities.

MOFCOM's new regulation on merger control remedies

On July 8, MOFCOM - the authority in charge of merger control in China - issued the Interim Regulation on the Implementation of Asset or Business Divestiture in Concentrations between Undertakings ("Interim Regulation"). The regulation came into force with immediate effect.

Scope of application. Although few in absolute numbers, some transactions subject to MOFCOM merger control may have anti-competitive effects. If the parties in such transactions realize that MOFCOM is unlikely to grant unconditional approval, they can put forward proposals to "remedy" the concerns MOFCOM may have. In addition to more subtle behavorial commitments, the parties can propose structural remedies - that is, essentially the sale of parts of the merged entity's business.

The Interim Regulation aims to lay down the basic procedural framework for the merging parties to divest a part of their business.

Reliance on third parties to police divestiture. With its relatively stretched resources, MOFCOM appears keen to delegate the responsibility to oversee the sometimes lengthy and cumbersome divestiture procedure. The Interim Regulation makes clear that MOFCOM plans to rely on third-party "monitoring trustees" and "divestiture trustees", as the antitrust authorities in other jurisdictions.

The merging parties are entitled to propose the trustees -both organizations and individuals are possible - subject to MOFCOM's approval, but also need to pay their compensation.

Search for a suitable buyer. The Interim Regulation splits the divestiture procedure into three main phases. First, the merging parties attempt to find a suitable buyer for the business to be divested. The exact conditions for that step will be set in MOFCOM's conditional clearance decisions, and can thus vary from case to case. In past cases like Pfizer/Wyeth, the relevant time period was six months. During this first phase, the monitoring trustee will supervise the parties' actions.

If the parties fail to find an appropriate buyer, a divestiture trustee will be put in charge of that task. Again, the clearance decisions are meant to give details about the length of this second phase. In contrast, the Interim Regulation itself sets a (steep) deadline for the last phase: Following signature of the sales agreement, the divested business must be transferred to the new owner within three months (although MOFCOM may grant extensions).

Timing challenges. Many transactions require filings in multiple jurisdictions, and coordinating the timing of procedures across borders is a major challenge for companies. Ambitious deadlines set in the clearance decisions have the potential to increase time pressure upon merging parties. Hence, beyond the Interim Regulation, companies will hope that MOFCOM shows sufficient flexibility to make divestiture feasible in practice.

Read full article China Antitrust Alert.

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