European Union Merger Control and Chinese State-Owned Enterprises - Essay Example

European Union Merger Control and Chinese Owned Enterprises (SOEs) Table of Contents Introduction 3 An Overview of EU Merger Control 4 Merger Control of EU Over Chinese SOEs 6 A Detailed Analysis of EU Competition Law 10 Conclusion 14 References 15 Bibliography 18 Introduction The perception of merger control is fundamentally described as the process of periodically reviewing mergers and acquisitions (M&As) under the incorporation of any antitrust or competition law1. It has been apparently observed that the significant concern of merger control has become an imperative aspect especially in the field of public intervention in a particular economy. In this similar context, the idea of merger control can bestow various trade unions as well as work councils with valuable information through restructuring as well as ensuring that the management team of any organisation periodically consults with different workforce representatives on devising along with implementing any sort of M&As related plans. Moreover, the important idea of an effectual merger control is generally adopted in order to safeguard anti-competitive results of M&As2. It has been viewed that the economy of China has developed at a rapid growth rate and thus has become a ‘socialist market economy’. By considering the augmented growth rate of Chinese economy, various state-owned enterprises (SOEs) belonging to China are incessantly playing a decisive role in advancing the economy of China by a considerable level3. It has been predicted that the business climate of the Chinese SOEs and the economy will continue to shift in future that would ultimately result in creating superior level of directness and lucidity relating to business practices as well as management. This particular factor would certainly facilitate to make an effective merger control particularly in the area of European Union (EU) competition law over different Chinese SOEs4. The factors that comprise increasing growth rate of Chinese economy and the profitable socialist market are ultimately attracting EU to hold superior merger control over several Chinese SOEs. In this paper, a detailed analysis concerning merger control in the area of European Union competition law over various Chinese SOEs will be taken into concern. Various aspects in support of this particular subject matter such as an overview of EU merger control, approaches of EU towards making merger control over Chinese SOEs and significant facets of EU competition law will also be discussed in this paper. An Overview of EU Merger Control It was in the year 1990 that the Merger Regulation was introduced by the European Commission which framed or constructed EU based competition law. This law is regarded as a sort of legal framework that is fundamentally executed for periodically reviewing acquisitions, mergers and other diverse kinds of concentration. It has been apparently observed in this context that the Merger Regulation is principally based upon certain key propositions. The first proposition states that the intensification of the EU and the lessening of international barriers towards trade and investment would act as a principal structure of concentrations in main corporate reorganisations. The second proposition represents that acquisitions, mergers and other different kinds of concentrations must be welcomed with the intention of raising the competence level of various European industries, enhancing growth conditions and most importantly increasing the living standards of EU communities. The third proposition signifies that the law must contain certain lawful provisions in order to govern various forms of concentrations that might extensively hinder effective competition in the business market. After acquiring a brief idea about the different key propositions of the Merger Regulation, it has been viewed that the prime intention of this law is to make effective control over various concentration forms for the motive of smooth functioning of the business5. In order to acquire a brief idea about the merger control of EU, it has been noted that the fundamental target of introducing as well as developing the Merger Regulation is to safeguard the consumers from various adverse effects relating to monopoly power. These encompass lower product quality along with production, lesser innovation and most significantly higher product prices. The other objective of the Merger Regulation is to defend the welfare of the consumers by preserving a superior level of competition in the business market. In this similar context, it can be affirmed that the merger policy under the guidance of the Merger Regulation of the European Commission aims at securing as well as empowering dominant position held business entities through the process of M&As or any other concentration forms by a greater extent. The major principles of the Merger Regulation include assessing the competence level of the Commission towards periodically reassessing concentrations and providing obligatory notifications accordingly. Moreover, the other fundamental principles of the Merger Regulation comprise making as well as following constant application of competition-based along with market-oriented criteria and solving any sort of legal uncertainties through making effective decisions5. While determining the merger control of EU, it has been apparently observed that there exist significant differences between the merger control of EU and the United States. In this similar context, the main difference between the merger control of EU and the US is that the Merger Regulation of EU is primarily based upon strict deadlines, whereas, the Merger Regulation of the US is much open-ended in nature. Another major dissimilarity between the merger control of EU and US is that the merger system of EU is administrative type and authorises the Commission to adopt as well as to implement necessary steps in order to endorse or prohibit mergers. In contrast, the merger system of the US is typically judicially based rather than administrative type. With regard to determine the trends along with the implications of the Merger Regulation, it has been viewed that this particular legal framework has been proven to be much beneficial for the European Commission. It other words, it can be stated that the formation, execution as well as the application of the legal framework i.e. the Merger Regulation is broadly regarded as considerably successful for European Commission. The Commission has been identified to adopt as well as to implement an effective, open as well as a pragmatic approach while applying the Merger Regulation5. Thus, on the basis of the above discussion, it can be affirmed that the Merger Regulation would certainly support the European Commission to address and to mitigate future challenges successfully relating to merger control by a considerable level. Merger Control of EU Over Chinese SOEs The business transactions that involve SOEs or ex-SOEs might prove to be quite advantageous or provide greater interest to a particular member state owing to the reason that the position of the business corporations of different member states on their respective national business markets can be determined with the involvement of SOEs. Moreover, it has been noted that the merger or other concentration cases engaging SOEs might increase sensitiveness in a specific member state. This is owing to the reason that SOEs are quiet active in playing a decisive role in developing various significant sectors of the economy by facilitating different foreign entities to obtain private interests at large6. In order to evaluate the merger control of EU over various Chinese SOEs, it has been viewed that the European Commission has issued clearances concerning the aspect of merger control under the proper guidance of the EU Merger Regulation over different Chinese SOEs. In this similar context, the European Commission had been identified to issue authorization under the legal framework of merger control regulations of EU for the proposed joint venture or the proposed transaction between Dutch based pharmaceutical companies named DSM and Sinochem in the year 2011. Sinochem is regarded as one of the biggest Chinese based SOEs that had been involved in merger control policy of EU7. The aforementioned proposed transaction would be primarily active particularly in the segment of certain antibiotics as well as anti-infective related products that are largely used for treating any sort of fungal, bacterial or other infections. In this regard, the European Commission has cautiously scrutinised the probable effects of the aforesaid proposed transaction and finally concluded that there would lay adequate competition level in the business market even if every Chinese SOE experiences mergers, acquisitions or any other concentration forms. It has been previously mentioned that the proposed transaction would be taking place between DSM and Sinochem. In this similar context, DSM is regarded as an international based organisation which is actively involved in particular sectors linked with nutrition as well as pharmaceuticals, industrial chemicals and performance materials. On the other hand, Sinochem is regarded as one of the biggest Chinese based SOEs, which possesses active industrial units in the field of agriculture, business finance, energy and real estate among others. Though the European Commission cautiously inspected any sort of probable effects concerning the proposed transaction, the Commission still assessed whether or not the biggest Chinese SOE i.e. Sinochem would perform its different operational functions autonomously of the state. According to the legal framework of the Merger Regulation that was propounded by European Commission, if it is observed that the Chinese based SOEs are performing their respective operational functions autonomously of the state then the merged organisations would be regarded as an individual entity8. In order to analyse or determine the merger control of EU over different Chinese SOEs, it has been viewed that the European Commission conducts a test named ‘control’ test with the intention of identifying whether a particular SOE possesses self-governing commercial based decision-making power or not. If not, then the test would guide in determining what other crucial undertakings can be taken into concern in order to provide active support to the SOEs who do not possess self-governing commercial based decision-making power. In this similar concern, it has been apparently observed that the European Commission has applied the aforesaid test previously in order to analyse various SOEs particularly in the regions such as Italy, France and Spain. However, it has been viewed that the European Commission applied the test in modern times in the background of Chinese SOEs due to their substantial investments in performing different outbound activities and the generation of excess turnover outside the region of China. It is worth mentioning that SOEs, especially in China are duly organised as well as managed by the State-Owned Assets Supervision and Administration Commission (the "SASAC") both at national as well as local level. While determining the merger control of EU over Chinese SOEs, it has been viewed that the European Commission has adopted as well as implemented an effective approach in order to inspect the interrelation between the "SASAC" and the various Chinese based SOEs. The Commission has emphasised much upon various significant aspects while scrutinising the association between the "SASAC" and the Chinese based SOEs. In this regard, the aspects include their decision-making procedure, the applicable laws as well as regulations prevailing in China and their various operational functions among others7. Apart from the proposed transaction between DSM and Sinochem, the European Commission has also been identified to clear the proposed acquisition of a Norwegian based producer of silicon named Elkem by China National Bluestar under the legal framework of the Merger Regulation of EU. In this similar concern, the Norwegian based company i.e. Elkem deals primarily with the production as well as the sales of several silicon associated materials and carbon products. On the other hand, Bluestar is viewed to be one of the subsidiaries belonging to China National Chemical Corporation (ChemChina) which actively deals with the production of a broad assortment of different chemical products. By taking into concern this proposed transaction, the Commission carefully scrutinised this merger and ultimately concluded that there would lay sufficient competition level especially in the business market of silicon. This is owing to the reason that the Chinese SOEs would be treated as an individual entity as well as they would perform different valuable functions autonomously resulting in generating adequate market competition particularly in the silicon market. It is worth mentioning that the European Commission has adopted as well as implemented deliberate approaches in assessing the association between the Chinese SOEs and the SASAC with the intention of smoothly executing the aforementioned proposed transactions or mergers. Moreover, apart from adopting along with utilising deliberate approaches, the European Commission also conducted a “control” test in order to determine whether the Chinese SOEs possess autonomous commercial based decision-making power or not9. Thus, on the basis of the above discussion, it can be affirmed that the EU under the guidance of the European Commission hold an effective merger control over different Chinese SOEs by a significant level. A Detailed Analysis of EU Competition Law From the above discussion, it can be affirmed that the European Commission has dynamically reviewed several concentrations engaging Chinese SOEs that include DSM/Sinochem and China National Bluestar/Elkem among others10. In order to analyse the EU competition law concerning merger control over the Chinese economies, it has been apparently observed that the Chinese SOEs face certain effective merger regulations based upon EU competition law. These regulations under the provision of EU competition law comprehend the type as well as the nature of the different Chinese SOEs along with their boundaries. Moreover, the regulations also ensure that there does not lay any sort of discrimination amid the different SOEs11. It has been viewed in this similar context that the Ministry of Commerce of the Peoples Republic of China (MOFCOM) plays a crucial role in making any sort of merger or other concentration forms on behalf of the Chinese SOEs by granting as well as approving substantial number of transactions12. With regard to determine the merger control in the area of EU competition law over the Chinese SOEs, it has been noted that there are certain fundamental rules or regulations that are applicable towards merger control under the provision of EU competition law. In this similar concern, the prime intention of EU competition law has been identified to be forbidding trade barriers along with any sort of restrictive or discriminatory practices for the motive of generating and preserving adequate level of competition in the business market. Moreover, the other chief objectives of EU competition law are raising economic efficiencies, integrating the European business markets, preserving the competitive business markets of EU and most significantly developing the European business markets to become a competent industry13. After acquiring a brief idea about the objectives of EU competition law, it is quite necessary to recognise the general rules that are applicable to merger control in the area of EU competition law over Chinese SOEs. In this connection, one of the imperative general rules concerning EU competition law is that the aspects like the intensification of EU and the lessening of international barriers towards trade and investment would act as a principal structure of concentrations in main corporate reorganisations. Moreover, the other rule is that such reorganisations should be encouraged for the motive of raising the competence of the European industries, enhancing growth conditions and most importantly augmenting the living standard of the European communities by a greater extent. Another important rule of EU competition law is that it must be ensured that the reorganisation procedure does not lead towards damaging the business market competition prevailing in the EU community and therefore, certain effective provisions must be taken into concern in order to govern the concentrations. This particular practice might increase the competition level in the business market at large14. The general rules of EU competition law have demonstrated with reference to the fact that it is quite indispensable to identify whether the concentrations within the background of the Merger Regulation are compatible or not within the prevailing business market conditions. This recognition would ultimately support in preserving as well as developing effectual competition in the business market by a greater degree. Moreover, in this regard, the EU competition law also portrayed that various effective policies must be conducted based upon the principles of market economy along with free competition with the intention of establishing a situation of an undistorted competition in the business market. It has been viewed that it is the European Commission which possesses the responsibility to publish suitable guidance that must deliver a sound framework for assessing a large quantity of concentrations for maintaining adequate competition in the business market. This could be explained with reference to the fact that the European Commission cautiously inspected the proposed transactions like Bluestar/Elkem and DSM/Sinochem among others and concluded that there would lay the possibility of maintaining adequate competition in the business market by a certain degree15. In this similar context, according to Article 13 of the EU competition law, the European Commission possesses inspection powers for smoothly executing the proposed transactions or any sort of merger or acquisition. Relating to Chinese SOEs, the Commission possess the power to scrutinise whether they possess autonomous commerce based decision-making power, perform substantial investments relating to outbound activities and most importantly whether they are able to generate huge turnover or not. The inspection of the Commission on the aforementioned aspects would certainly deliver a better idea about whether there lays an adequate competition in the business market or not7. Thus, on the basis of the above discussion, it can broadly be affirmed that the general rules of EU competition law and the role of the European Commission ultimately hold superior as well as dynamic merger control especially in the area of EU competition law over different Chinese SOEs. Conclusion The conception of merger control plays a decisive role in periodically reviewing any sort of acquisition, merger or other concentration forms. After acquiring a brief idea about the aspect of merger control, it can be stated that the merger control of EU has been primarily based upon the legal framework of the Merger Regulation that was introduced in the year 1990. This particular legal framework holds certain key propositions that have eventually facilitated EU to hold effective merger control over different Chinese SOEs. One of the propositions comprises the intensification of the EU and the lessening of international barriers towards trade and investment which would act as a principal structure of concentrations in main corporate reorganisations. The other proposition encompasses certain lawful provisions that must be followed in order to govern various forms of concentrations which might extensively hinder effective competition in the business market. The general rules that are portrayed in EU competition law make the Chinese SOEs to face certain effective merger regulations. In this regard, one of the important general rules concerning EU competition law is that the proposed mergers should be encouraged for the motive of raising the competence in the European industries, enhancing growth conditions and most importantly augmenting the living standards of the European communities. Notably, it is the European Commission which possesses the power to inspect the effects of the proposed mergers and thus it can be concluded that EU possesses effective as well as dynamic merger control in the area of European Union competition law over Chinese States-owned enterprises. References Clifford Chance LLP. ‘Introduction’. Client Briefing, 2011, pp. 1-5. Clifford Chance. ‘Introduction’. Client Briefing, 2011, pp. 1-5. Eurofound. ‘Merger control’. Areas, 2007 (accessed 01 March 2013). 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