Unpublished Papers

The Evolution of the Chinese Merger Guidelines: A Work in Progress Integrating Global Consensus and Domestic Imperatives

Susan Beth Farmer, Dickinson School of Law

Abstract

Abstract: The Evolution of the Chinese Merger Guidelines: A Work in Progress Integrating Global Consensus and Domestic Imperatives

China is among the most recent entrants into global competition enforcement, having adopted the first competition law of general application, the Anti-Monopoly Law (AML) after more than a decade of drafting. The AML and Merger Notification Thresholds, rules issued by decree of the State Council, became effective on August 3, 2008. Both the law and the guidelines were subject to public review and comment, and went through a number of drafts before final adoption.

This article is a comprehensive comparison of merger standards across jurisdictions, with particular focus on the evolution of merger regulation in China. It comprises six parts; after an introduction, part two analyzes the AML with respect to mergers, part three examines predecessor pre-merger notification guidelines for foreign acquisitions and the “legislative history” of the AML pre-merger notification thresholds, which went through successive drafts and significant amendments between March and August, 2008. Part four addresses international benchmarking, raises unanswered questions and issues, and part five concludes.

A variety of international organizations advocate strong national competition policy and use the substance and deployment of national antitrust law to evaluate a jurisdiction’s economic regulation. With the adoption of the AML, China joined a growing number of states that have adopted comprehensive competition laws, but the test of the AML will be in its application. The challenges facing new enforcement agencies are vast: organizational, establishing enforcement procedures that comport with the existing Chinese legal system, allocating appropriate functions to three entities and coordinating process and substance, and, finally, establishing policies and priorities. Given the choice of where to begin enforcement, an agency should weigh the destructiveness of the restraint, importance and ability to enforce, and its own proficiency or readiness to enforce the particular category of violations.

China chose to promulgate its first set of AML Guidelines on the subject of pre-merger notification. In a different system, pre-merger notification and enforcement may not be an obvious first step for a new competition agency implementing a new antitrust law. On the one hand, since the AML itself requires pre-merger notification but does not provide sufficient information to comply, Guidelines are needed. On the other hand, the relevant enforcement agency could have paced its enforcement of mergers. In addition, the enforcement mechanism in China will involve three different government ministries, each responsible for enforcing different segments of the AML. The SAIC, the State Administration of Industry and Commerce, will be responsible for enforcing the provisions against abuse of dominant positions, the NDRC, National Development and Reform Commission, will be entrusted with anti-cartel enforcement, and MOFCOM, the Ministry of Commerce, will have jurisdiction over the merger review provisions of the AML. The organizational structure of three entities with separate responsibilities under the AML may complicate the priority-setting process and set up incentives for maximum activity by each as it competes for position. Additionally, given China’s rapid economic growth and pace of mergers, including foreign investments, there may have been a felt need to assert enforcement power in this arena early.

MOFCOM has already begun to issue additional draft Guidelines and review proposed mergers. Emerging from a lengthy drafting process, the operative agencies appear to be moving with alacrity. Going forward, clarity, transparency and predictability would be recommended in the refinement of the notification procedures and promulgation of substantive merger standards. The AML is indeterminate and judicial interpretation is unavailable, so a clear articulation of the appropriate methodology and controlling legal standard is an unfinished project.

Retrospectively, the experience of the AML and Guideline process has revealed notable receptivity to international commentary on the substance and procedures of merger review. The now-adopted Notification Guidelines went through several public drafts and comments were affirmatively solicited from “all sectors of society” including domestic and foreign scholars and lawyers. Viewing the various official drafts and public comments suggests that some of the recommendations were taken on board. Additionally, the solicitation itself refers to the consensus-based international benchmarks of the ICN and asserts consistency with international standards. The application of the AML, Notification Guidelines and additional Guidelines continues to be a work in progress.

Suggested Citation

Susan Beth Farmer. 2009. "The Evolution of the Chinese Merger Guidelines: A Work in Progress Integrating Global Consensus and Domestic Imperatives" ExpressO
Available at: http://works.bepress.com/susan_farmer/1

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