Australia: Competition law developments in East Asia

China security review enters into force

When it came into effect in August 2008, China's Antimonopoly Law introduced a comprehensive system of competition merger control for parties to concentrations reaching certain thresholds. Amongst the merger control provisions, Article 31 of the Antimonopoly Law provides for an additional review of concentrations by foreign investors where state security is involved. More than two years after the law's entry into force, Article 31 has finally been brought into effect by the State Council, which announced an implementing regulation in February establishing the framework for the security review regime. That regime took effect on 5 March.

Early in March, the Ministry of Commerce also issued interim procedural rules for security review applications, which complement the regulation issued by the State Council in February. The security review regime remains opaque however, and adds to the existing uncertainty for foreign investors in China.

While the legal basis for the state security review, Article 31 of the Antimonopoly Law, refers to "concentrations", the State Council regulation refers to various forms of "foreign acquisition of domestic enterprises" instead, which would seem to have a broader scope of application. The security review procedure will apply to acquisitions by foreign investors in two categories of industrial sectors. It would appear that any type of asset purchases or equity investment by foreign entities regarding military and national defence activities would be subject to review, irrespective of whether they lead to a "concentration" as defined in the Antimonopoly Law.

As to the second category of investments subject to review, namely investments in a broad range of activities loosely related to "national security" (including such matters as important agricultural production, infrastructure and key technology), these investments will only fall within the scope of the security review regime if the foreign investor acquires legal or de facto control of the target. Interestingly, the State Council regulation describes several situations amounting to legal or de facto control which have not been expressly included in the definition of "concentration" in the Antimonopoly Law. It is open to question whether the security review regulation will influence the interpretation of the notion of control for general competition merger control purposes.

In terms of procedure, parties subject to merger control under the Antimonopoly Law should also be aware of the potential for additional delays as a result of the security review regime. Although the rules introduced by the State Council and the Ministry of Commerce do not specify whether the initiation of the security review process shall suspend or delay any parallel competition merger review under the Antimonopoly Law, they do require parties to suspend other regulatory applications with local commerce authorities in relation to their transaction.

The effect of the new regime will need to be assessed over time, after the authorities have had the opportunity to adopt additional implementing rules and to develop their decisional practice. In the meantime, it is advisable for parties, in particular foreign investors, to consult with the Ministry of Commerce before proceeding with a transaction which appears to come within the security review regime.

Garuda Indonesia and eight other airlines win judicial review against KPPU's air fuel surcharge cartel decision

On 28 February, the Central Jakarta District Court overturned the decision of the Commission for the Supervision of Business Competition (KPPU) from last April, which ordered Garuda Indonesia and eight other airlines (including Sriwijaya Air and Merpati Nusantara Airlines) to pay fines and compensation totalling Rp585 billion ($66 million) for their involvement in a fuel surcharge cartel between 2006 and 2009. The District Court decided that the KPPU had insufficient evidence of collusion, noting that the airlines had bought their fuel from the same supplier, Pertamina, which could explain why their surcharge rates were relatively similar. A spokesperson stated that the KPPU would appeal against this decision to the Supreme Court.

The above is an excerpt from our monthly Competition Report. More detailed commentary on these issues and other recent competition law developments in the Asian region is to be found in this month's edition of our report available on a free subscription basis (see further below).

Table of contents of our March 2011 report (Issue 28)

China National security review system enters into force
China Book price cartel stopped
Indonesia Court overturns KPPU fines in airline cartel
Indonesia Fines imposed in two bid-rigging cases
Indonesia GE merger approved
Japan More fines for bid-rigging in construction sector
Japan JFTC consults on new merger control rules
Japan JFTC upholds fine in steel pipe piles cartel
Korea Sanctions adopted in five cartel cases
Korea Hana/KEB merger cleared
Korea Cannon sanctioned for resale price maintenance
Korea Samsung investigated for price fixing

Korea Real estate brokers sanctioned for restrictive practices
Singapore Samwoh/Highway International merger decision published
Singapore Competition Appeal Board reduces fines in cartel case
Taiwan Tobacco distributors fined for price fixing
Taiwan Airlines fined for restrictive practices
Taiwan Blu-ray patent joint venture cleared
Annex Translation of State Council General Office's notice on the establishment of a security review system for foreign acquisitions of domestic enterprises
Annex Translation of >MOFCOM's interim regulation on matters concerning the security review system for foreign acquisitions of domestic enterprises

Read the full report - Please register if you are interested in subscribing to our monthly East Asia competition reports (free subscription).

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