As China’s regulators vie for position to investigate the BHP Billiton-Rio Tinto tie-up, there is a danger that the country’s Anti-Monopoly Law (AML) could be altered to allow the more experienced Ministry of Commerce (Mofcom) to take charge. Doing so would constrict future joint ventures in the country.
As reported last week, the high-profile nature of the deal has meant that Mofcom, the National Development and Reform Commission (NDRC) and State Administration of Industry and Commerce (SAIC) could all hope to investigate the agreement. Mofcom has the most experience in dealing with international deals under the AML and is reportedly favoured by the government to investigate the tie-up.
But because the agreement does not appear to be a full function joint venture, it would not fall under the merger control regime (which Mofcom regulates).
“It is important to make the distinction between a new, fully formed player independent from its parent companies, and a simple co-operation agreement between competitors, such as, apparently, this,” said Francois Renard, head of Allen & Overy’s Asian antitrust practice in Beijing.
If this is the case, and the tie-up is not judged to be full functional and independent, then either the NDRC or SAIC should investigate the deal as a monopolistic agreement.
The Chinese government is in the process of finalising regulations governing joint ventures now, but some fear that it may do so in a way to allow Mofcom to investigate the deal. In theory, such a compromise would mean that all joint ventures would have to be investigated by the regulator in future, causing a huge burden on companies.
Mofcom issued a draft interim measure for comments in January which provided that any joint venture would fall under the merger control regime. Following comments from the market opposing this, the State Council re-circulated a new draft in March, in which it appeared that Mofcom would only review ‘lasting-basis and independent’ joint ventures.
“We were expecting the finalised regulations in June but this deal could be influencing the final text,” said Renard.
If this does happen, and Mofcom is entrusted to regulate all joint ventures, the consequences would be dire. “Any company of a certain size in China setting up a small warehouse or a factory with another company would need to be notified to Mofcom and would need its approval.” said Renard.
“This is one of the most delicate cases the Chinese government will have to deal with,” said Renard. He believes that a task force, made up of representatives from Mofcom, NDRC and SAIC would be a suitable solution.