Tripartite convergence for certainty in merger review under China's anti-monopoly law.

• Author: Himmelberger, Adam W.

1. INTRODUCTION

   China's implementation and application of its Anti-Monopoly Law (AML) has greatly affected transnational mergers, but a shroud of uncertainty leaves foreign investors questioning the review and success of prospective deals. (1) Numerous government agencies apply their antitrust laws to foreign corporations, sometimes triggering complicated reviews of international business deals in multiple jurisdictions, uncertain enforcement outcomes, and conflicts over nations' competition policies. (2) Policy-makers have increased efforts to converge their nations' laws and apply international best practices to counter these inefficiencies. (3) The People's Republic of China enacted its AML in August 2008, producing the latest addition to the global antitrust landscape and presenting a unique challenge to the theory of convergence in international antitrust, particularly regarding merger reviews. (4) The international community generally welcomed the AML with cautious optimism, but over one year later, the same concerns remain with the uncertainty surrounding the law's application. (5)

   This note will suggest that the United States should engage China on a multilateral basis, using the United States and European Union relationship as a model for legal and procedural cooperation, to ensure continued practical convergence of antitrust law vis-a-vis China's AML, specifically with regard to merger review. (6) Part II will briefly assess the current global reach of antitrust law, focusing on merger review convergence attempts and the relationship between the United States and European Union. (7) Part III will discuss China's modern rise to major world-economic actor, the AML's enactment, and early insights into its implementation. (8) Part IV will posit that the United States should engage China's new competition regime under the AML, but argue that multilateral efforts with the European Union would be the most effective means of fostering efficient merger review convergence. (9) Part V concludes that despite the uncertainty and challenges of merger review under the AML, tripartite soft convergence will ease AML growing pains and enable harmonious international transactions among the three major regulatory centers. (10)

2. ANTITRUST REVIEW OF TRANSNATIONAL M&AS

   In 2007, an estimated eighty countries had some form of merger review in place. (11) Transnational merger and acquisition (M&A) activity is an important aspect of a vibrant economy, but because it transcends national boundaries, it often triggers antitrust review from agencies in multiple countries. (12) This multi-layered review can create jurisdictional conflicts and inefficient costs and can ultimately impede international business. (13)

   1. Conflict and Cost

      Governments enact antitrust laws to promote and protect competition. (14) While the objective is uniform, every nation tailors its laws to its own history, economy, culture, and policies. (15) Governments enforce competition laws to protect their consumers and promote an efficient market, but they can also use laws to secure individual national interests. (16)

      Merger review conflicts occur when multiple states review a deal and employ different substantive and procedural standards to determine if a merger should be allowed. (17) These overlapping reviews create a complex extraterritorial legal labyrinth in which cross-border mergers approved in one country may be rejected in another. (18) Although merger review plays an important role in preventing firms from anticompetitive behavior, review costs outweigh potential benefits in certain situations. (19)

   2. Averting Divergence

      States can minimize costly legal conflicts in transnational merger reviews in several ways: non-binding bilateral agreements, soft convergence approaches, and uniformity. (20) Bilateral agreements primarily focus on interagency assistance coordination and information sharing. (21) Although these agreements do not alter domestic law, they are designed to foster more efficient and transparent antitrust enforcement, depending on the extent that parties to the agreement are willing to cooperate. (22) Bilateral agreements alone neither foster convergence nor prevent divergent merger review outcomes. (23)

      On the opposite spectrum is the call for uniformity of law with one binding international standard enforced by one international entity. (24) Uniformity would solve the shortcomings of bilateral agreements and the larger issue of varying substantive and procedural approaches to transnational M&A review. (25)

      Implementing one standard for every state to follow, however, is an exceedingly complex undertaking, given the differences in policies, economies, and legal systems. (26) Additionally, uniformity requires collective government willpower, which has been difficult to muster. (27) Uniformity is arguably impractical and unlikely to occur. (28)

      Finally, there is "soft convergence," which is the concept of promoting convergence via a combination of multilateral cooperation, "second-generation" agreements, and international organizations, without establishing binding international laws. (29) Competition regimes also increase cooperative efforts in this manner through utilization of international organizations as a forum for establishing best practices. (30) Soft convergence influences states with both developing and established antitrust law to comport with best practices. (31) While non-binding international discourse has not solved all problems arising from multi-jurisdictional merger review, this method facilitates transparency and meaningful convergence of law. (32) The relationship between competition agencies in the European Union and United States is a preeminent example of effective soft convergence.

   3. Transatlantic Merger Review

      The E.U. and U.S. competition policies are significant for three main reasons. (34) First, most major transnational deals implicate the E.U and U.S. antitrust agencies due to the sheer magnitude of their respective economies. (35) Second, the European Union and United States, despite differences, have converged on many antitrust issues to promote effective and consistent outcomes. (36) Necessitated by the large amount of merger activity affecting the European Union and United States, the two parties entered into the 1991 competition cooperation agreement (the first basic bilateral agreement between the two), the 1998 positive comity agreement, and the Administrative Arrangement on Attendance. (37) Less formal harmonization of merger review occurs in revised merger guidelines, policy discourse, and constant communication between agencies in the European Union and United States. (38) As a result of the willingness to cooperate on both formal and informal levels, the European Union and United States have a close, transparent relationship that minimizes transnational M&A conflicts, with both sides recognizing that some differences in review outcomes are acceptable due to varying market conditions. (39)

      Additionally, this transatlantic relationship is significant because E.U. and U.S. competition policies influence the international convergence process. (40) The two regimes actively advise other governments that are developing antitrust laws, including China. (41) The European Union's antitrust framework is especially influential on new competition regimes because of the appeal of E.U. membership, but also because many countries find the E.U. model more compatible with their legal system. (42)

3. ENTER CHINA

   1. Toward a Market Economy

      In 1978, the Chinese government officially called for an end to the Marxist class struggle and for a refocus on economic development. (43) The shift from planned to market economy introduced the paradoxical challenge of maintaining Chinese-Marxist theory and state-owned enterprises (SOEs), while introducing private ownership and non-public sectors. (44) This transition opened the door for re-integration into the world economy. (45)

      A global, market-oriented Chinese economy, however, necessitated domestic legal reforms in order to ensure the successful function of market policies alongside China's Communist Party (CCP) authority. (46) International assessments of CCP reforms consistently cite conflicting government policies and lack of transparency as major concerns. (47) Despite these criticisms, China established itself as an important force in the modern global economy. (48) China's economic potential and acceptance of globalization meant implementation of new laws and policy, such as the AML, directly affected foreigners doing business in China or with Chinese parties. (49)

   2. A New Competition Regime

      After a thirteen-year drafting process, China's AML went into effect on August 1, 2008. (50) In enacting the AML, China took the first steps toward creating a comprehensive, nationwide antitrust law. (51) The AML addresses fundamental substantive antitrust violations similarly prohibited by other countries, such as monopolies, cartels, and "operator consolidation," or excessive concentration through mergers and acquisitions. (52) The AML also supplanted several laws fragmented across different agencies and industries that regulated trade and competition. (53) China's former merger-review process was criticized for being too broad in scope and for applying only to M&As by foreign companies. (54)

      The AML drafters welcomed input from the international community during the drafting process, which resulted in some provisions that closely adhere to, or at least adopt the language of, international best practices. (55) U.S. antitrust representatives worked with their Chinese counterparts during this stage. (56) Chinese drafters ultimately found the E.U. model more influential. (57) Despite China's comparative analysis of international antitrust practices, the eventual product was uniquely structured to China's political, economic, and legal system. (58)

      1. Implementation...