MOFCOM publishes long-awaited Interim Rule on Applicable Standards for Simple Merger Review Cases

On Feb. 13^th, 2014, the Chinese Ministry of Commerce (MOFCOM) unveiled its long-awaited Interim Rule on Applicable Standards for Simple Merger Review Cases. While many interested groups hailed this development as a positive step taken by the MOFCOM towards a comprehensive “fast-track” review procedure for simple cases which exists in the U.S. and in the EU, they recognize that much work still needs to be done based on the paucity of relevant information revealed by the current document. The Interim Rule explains only the circumstances that define a simple case, but makes no mention of any special filing methods for simple cases or even how simple cases will be processed differently, if at all. However, current competition lawyers in China, some of whom have engaged in consultations with the MOFCOM, suggest that the MOFCOM will exercise its discretions and internally process certain simple cases differently. This is due both to MOFCOM’s heavy workload making less time available to implement the simplified procedure, as well as possible dissent that still exist within the MOFCOM regarding the finer details of the simplified procedure. In the end, MOFCOM decided to publish the non-controversial Interim Rule to show its commitment instead of keeping silent altogether, while continue to fine tune the actual procedures internally, sources said. Some of the points of contentions are:

•  If a case was classified as simple, whether a review should be completed with clearance within phaseI. Greater certainty on timing in simple cases is essential for market participants.
• Whether information requirements for filings should also be simplified. Antitrust attorneys said MOFCOM had not clarified whether there would be a different merger notification form for simple cases that require less information from filing parties.
• Whether reviews of simple cases would involve inter-ministry consultation and consultation with other stakeholders.
• Whether MOFCOM would publish notification of a simple case once a filing had been accepted. MOFCOM is concerned about how to protect itself against challenges or complaints from third parties (including other government authorities, trade associations, customers, suppliers and competitors) after clearance has been granted for a simple case.

What are the definitions of “simple cases”? According to Article 2 of the Interim Rule, MOFCOM will treat the following concentrations as simple cases:

• For concentrations involving parties active in the same relevant market (i.e. in a horizontal relationship): the total market share of all parties to the concentration is less than 15% in the same relevant market.
• For concentrations involving parties in a vertical relationship: the market share of the parties to the concentration in each of the upstream and downstream markets is less than 25%.
• For concentrations involving parties that are neither active in the same market nor in a vertical relationship: the market share of each of the parties to the concentration is less than 25%.
• For offshore joint ventures: the parties establishing a joint venture are outside China and the joint venture has no economic activities in China.
• For acquisitions of the equity or the assets of an offshore target: the offshore target has no economic activities in China.
• For reduction of the number of controlling shareholders: in joint ventures that are jointly controlled by two or more parties, one or more shareholders exit with the result being that the joint venture is controlled by either one remaining shareholder or is still jointly controlled by the remaining shareholders.

However, there are exceptions where cases which satisfy the above criteria are not considered simple cases:

• When a joint venture controlled by two or more parties becomes controlled by one of the parties through the concentration and the joint venture competes with the controlling party in the same relevant market.
• When the relevant market for the concentration is difficult to define.
• When the concentration may have a negative impact on market entry or innovation.
• When the concentration may have a negative impact on consumers or other relevant operators.
• When the concentration may have a negative impact on the development of national economy.
• When there are other circumstances that MOFCOM considers may have a negative impact on competition in the market.

In addition, the MOFCOM may even revoke “simple case” status under the following circumstances:

• When the applicant conceals important information or provides false and misleading information.
• When a third party alleges that the concentration has the effect of excluding or restricting competition and provides relevant evidence.
• When MOFCOM finds material changes in the circumstances of the concentration or competition in the relevant market.