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
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
register if you are interested in subscribing to our monthly
East Asia competition reports (free subscription).
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
In some cases these fees or surcharges are higher than what a bank charges to these merchants for use of the system.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).