China: MOFCOM's New "Simple Case" Filings And Its Enhanced Enforcement Mechanisms

Last Updated: 11 June 2014
Article by Tao Jie and Wang Pei

The Ministry of Commerce ("MOFCOM") and its Anti-Monopoly Bureau (the "AMB") have streamlined filing requirements for concentrations of undertakings that are found to be "simple cases". This welcome development should help to reduce filing costs and will hopefully lead to expedited review. Shortly after these developments, MOFCOM also announced that it would commence publishing administrative penalty decisions relating to failures to file. This Haiwen Alert outlines the criteria for "simple cases" and notes the possible deterrent effect of systematically publishing penalty decisions.

The new "simple cases" regime came into effect on February 12, 2014. The rules are set out in the Interim Regulations on the Standards Applicable to Simple Cases of Concentrations among Business Operators (the "Interim Regulations"). On April 18, 2014, the AMB provided additional guidance in its Guiding Opinions on the Notification of Simple Cases of Concentrations among Business Operators (Trial) (the "Guiding Opinions"). These measures point to streamlined merger control notifications and reduced costs for "simple case" notifications. Although no new standard of review for "simple cases" has been announced, we expect that the new classification will help to increase administrative efficiency.

In a separate development, on March 20, 2014, MOFCOM announced that it will publish administrative penalty decisions on its official website, detailing any failure to file in respect of violations investigated from and after May 1, 2014. MOFCOM's announcement included a whistle-blower fax hotline (8610-65198998). From these actions, it appears that MOFCOM is determined to enhance investigations and enforcements relating to failures to file reportable concentrations, and transparency of related administrative enforcement actions.

What is a "Simple Case"?

Article 2 of the Interim Regulations expressly outlines six types of concentrations that may be treated as "simple cases". Three are based on market share: (1) if all the merging parties are in the same relevant market, and the combined market share of all the merging parties is below 15%; (2) if the merging parties have upstream and downstream relationships, and the respective market share of the merging parties in the upstream or downstream market is below 25%; and (3) if there are no horizontal or vertical relationship among the merging parties, their respective market share in each merger-related market is below 25%. Although the Interim Regulations seem to suggest that a merger would qualify as a "simple case" if it falls within one of the above three situations, the AMB, in the Guiding Opinions, states that if the assessment is based on market share, all three of these conditions need to be satisfied for a concentration of undertakings to qualify as a "simple case".

The other three types of "simple case" concentrations are: (1) in the case of the establishment of an offshore joint venture, the joint venture does not engage in any business in China; (2) in the case of an acquisition of offshore equity or offshore assets, the relevant offshore entities do not engage in any business in China; and (3) in the case of an exit from a joint venture by one or more of its shareholders, the number of controlling shareholders of the joint venture is reduced.

MOFCOM still retains considerable discretion in assessing "simple cases" under Article 3 of the Interim Regulations. Even if a merger apparently meets the criteria for a "simple case" set out in Article 2, MOFCOM may conclude it is not a "simple case". Article 3 not only outlines five situations that cannot be considered as "simple cases", including cases where it is difficult to define the relevant market, or where the concentration may have adverse effect on market access, technological development, consumers and other relevant business operators or national economic development. Article 3 also sets out a catch-all provision permitting MOFCOM to determine that a case is not a "simple case" if there are other circumstances which may have an adverse effect on market competition.

"Simple Cases" Mean a Simpler Filing Package

The notification materials to be submitted for a "simple case" are less extensive than the materials required for all other cases. The specifics are set out in Annex I of the Guiding Opinions. Among other things, the notifying parties need not provide materials addressing the supply and demand structure of the relevant market, an analysis of market entry, and other related information. Offshore notifying parties can provide copies of notarization or certification documents filed within the past three years without re-notarization or re-certification. Business licenses and approval certificates for affiliated enterprises of merging parties need not be provided. Additionally, unlike ordinary filing cases, notifying parties in "simple cases" must fill in the public notice template set out in Annex II of the Guiding Opinions and submit the completed template to the AMB. In short, a "simple case" means a simpler filing package.

Determining "Simple Case" Status

After receipt of the notification materials, the AMB will accept the filing as a "simple case" if it determines that the relevant criteria are met. If the AMB does not accept the filing as a "simple case", the notifying parties must re-file as ordinary case, and submit the usual (and more extensive) filing package. If the filing is initially accepted as a "simple case", the AMB will then post the related public notice on its official website for comment. Third parties have ten days to provide comments, together with relevant documentary support and contact information, as to whether the filing should be treated as a "simple case".

Once the comment period has closed, the AMB may, revoke "simple case" status and require the notifying parties to re-file as an ordinary case if it is considered that such case shall not be classified as a simple case. We note that "simple case" status does not equate to expedited review. No separate timelines for review of "simple cases" have been issued. Moreover, the AMB retains the right to require the notifying parties to re-file a notification as an ordinary case at any time during the review process. To ease the uncertainty, however, the AMB has stated that the notifying parties may, prior to a filing, apply for consultations with the AMB as to whether the transaction satisfies the criteria for a "simple case" filing.

Failure to File – Whistleblowing and Publication

In a separate development, MOFCOM has added two new tools to its enforcement toolbox. There is now a fax hotline for whistleblowing (+86 10 6519 8998) open to the public. Although specifics on whistleblower submissions have yet to be announced, if this program is similar to whistleblowing programs now running at other regulators, supporting documentation, identification information and other details will likely be required, and whistleblowers should be entitled to confidential treatment.

In addition, MOFCOM's other new tool involves publishing decisions that impose penalties for failure to file a reportable concentration of undertakings. The public posting of MOFCOM's penalty decisions will commence with investigations started from and after May 1, 2014. Accordingly, in addition to monetary deterrent effect, a penalty will also involve some degree of reputational risk.

Summary

The Interim Regulations and the Guiding Opinions establish a simplified merger control procedure for "simple cases", and will likely reduce the cost and burden associated with these types of filings. However, MOFCOM's implementation of the "simple case" regime has just begun, and the applicable standards remain ambiguous in certain respects. Accordingly, we suggest that the parties communicate with the AMB prior to attempting a "simple case" filing in advance to avoid any unnecessary waste of time and resources. At the same time, as MOFCOM appears to be getting tougher on failure to file violations, the initial assessment of whether a transaction may require a filing should be completed very early in the process.

Haiwen will continue to report on significant developments as they arise.

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.

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