Recent developments in Chinese merger control: MOFCOM consults on draft regulations and imposes remedies in Glencore/Xstrata and Marubeni/Gavilon

The Anti-Monopoly Bureau at the Ministry of Commerce of the People's Republic of China ("MOFCOM") recently published two important draft regulations for public consultation in an effort to streamline and clarify China’s merger control review process.  It has also imposed remedies in two major offshore transactions involving multi-national companies - Glencore/Xstrata and Marubeni/Gavilon. Mark Jephcott and Karen Ip provide details.

Regulation on Simple Cases

On 3 April 2013, MOFCOM opened a consultation on its draft Interim Regulations on Standards for Simple Cases of Concentrations of Business Operators (the "Draft Regulation on Simple Cases").  MOFCOM has been the subject of criticism for the length of time it has taken to review mergers (see further below), including in relation to transactions which raise no or limited substantive competition concerns in respect of China or indeed globally. The Draft Regulation on Simple Cases is an encouraging first step towards the creation of a simplified procedure for cases that are unlikely to raise competitive concerns.  It clarifies the standards MOFCOM will use to distinguish simple cases from cases that merit a more in-depth investigation.  Although the proposed criteria are similar in many respects to those currently applied by the European Commission, there are also noticeable differences with the EU regime.  In particular, the draft is silent as to the consequences will follow from being identified as a 'simple' case, which is crucial to streamlining the regime.  However, it is expected that MOFCOM will provide more detailed guidance on the timeline and procedures which will be applied in simplified cases later this year.

Regulation on Remedies

MOFCOM is also consulting on draft Regulations Regarding Additional Restrictive Conditions for Mergers of Business Operators (the "Draft Remedy Regulation"), published on 27 March 2013.  The Draft Remedy Regulation provides guidance on three types of remedies: structural, behavioural and 'hybrid' remedies with both structural and behavioural features.  Similar to the remedies procedures in the United States and the EU, the Draft Remedy Regulation provides for the merging parties to propose remedies. However, MOFCOM maintains discretion in assessing, modifying and enforcing the remedies.  While the Draft Remedy Regulation clarifies a number of important aspects in the remedies process, it lacks detailed guidance on the procedures and timeline with regard to the implementation process.  The Draft Remedy Regulation, once in effect, will replace the Interim Regulations on Implementing the Divestiture of Assets or Business in Concentrations of Business Operators.

Glencore/Xstrata

On 16 April 2013, MOFCOM published its 17th conditional approval decision in relation to the high profile Glencore/Xstrata transaction, long after merger control clearances were received in the EU and the United States.  The case was initially notified to MOFCOM on 1 April 2012, and it has taken more than a year for Glencore to obtain conditional clearance from MOFCOM.   Notably, the filing was withdrawn near the end of extended Phase II in November 2012, and then re-notified shortly afterwards.  It has been reported that the delay was due to the protracted remedy negotiations between MOFCOM and the merging parties.

In this case, MOFCOM identified a number of relevant markets but focused its competition analysis on the markets for zinc concentrate (the focus of the European Commission's concerns), lead concentrate, and in particular copper concentrate. MOFCOM was concerned that the transaction would strengthen the parties' presence in these markets, which could impinge on China's ability to access reliable long-term sources of supply of these products.  Although the parties' combined share of the Chinese copper concentrate market in 2011 was only 17.8%, the parties were required to divest the US$5.7 billion Peruvian Las Bambas copper mine.  Moreover, MOFCOM imposed a 'crown jewel' provision, requiring the parties to sell an alternative copper mining asset if they fail to find a suitable buyer for the Las Bambas mine within the designated time period.  Behavioural commitments were also required, the parties committing to continue to supply Chinese customers with zinc concentrate and lead concentrate at reasonable prices over the next eight years.  

Marubeni/Gavilon

MOFCOM also imposed remedies in relation to another offshore transaction - Marubeni/Gavilon - on 23 April 2013.  This case is similar in many respects to the Glencore/Xstrata case, both procedurally and substantively.  In terms of timeline, the parties also withdrew their notification close to the end of extended Phase II and re-notified shortly afterwards, as it appeared MOFCOM needed more time to complete its investigation and remedy assessment.  The case was ultimately cleared during extended Phase II following re-notification, the clearance process having taken more than ten months in total.

In terms of the substantive competition analysis, MOFCOM was concerned about China's heavy reliance on the import of soybeans and that the transaction could substantially increase the parties' control over the soybean import market.  The concerns were therefore of a similar nature to those identified in Glencore/Xstrata.  To remedy these concerns, MOFCOM required Marubeni and Gavilon to 'hold separate' their soybean businesses, managing and operating these separately and independently in relation to exports to China.

Conclusion

MOFCOM's recent decisions in Glencore/Xstrata and Marubeni/Gavilon demonstrate its willingness to intervene in respect of large offshore transactions, in particular those which may impact China's access to raw material imports, and insist on remedy packages which go beyond those agreed in other jurisdictions. These cases also demonstrate the length of time MOFCOM merger control reviews can take and the need for parties to factor in the MOFCOM clearance timetable at an early stage of any transaction planning.  The draft Regulations being consulted upon suggest, however, that MOFCOM is taking some positive steps to increase the transparency and, crucially, efficiency of its merger review process going forward.