Chinese State Owned Enterprises and EU Merger Control

Alexandr Svetlicinii

• Publisher: Routledge
• Year: 2020
• Print ISBN: 9780367513207
• eBook ISBN: 9781000335996
• Edition: 1
• Topic: Business
• Subtopic: Business Law
• Index: Business

This book analyzes the specifics of corporate governance of China's State Owned Enterprises (SOEs) and their assessment under EU merger control, which is reflected in the EU Commission's screening of the notified economic concentrations.

Guided by the going global policy and the Belt and Road Initiative, Chinese SOEs have expanded their global presence considerably. Driven by the need to acquire cutting edge technologies and other industrial policy considerations, Chinese SOEs have engaged in a series of corporate acquisitions in Europe. The main objective of this book is to demonstrate the conceptual and regulatory challenges of applying traditional merger assessment tools in cases involving Chinese SOEs due to the specifics in their corporate governance and the regulatory framework under which they operate in China. The book also explores the connection between the challenges experienced by the merger control regimes in the EU and the recent introduction of the EU foreign direct investment screening framework followed by a proposal concerning foreign subsidies.

The book will be a useful guide for academics and researchers in the fields of law, international relations, political science, and political economy; legal practitioners dealing with cross-border mergers and acquisitions; national competition authorities and other public bodies carrying out merger control; policy makers, government officials, and diplomats in China and the EU engaged in bilateral economic relations.

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State owned enterprises under the EU merger control

1.1 State owned enterprise as ‘undertaking’ or ‘person’ under the EU merger control

The notion of undertaking is a relative concept in the sense that a given entity might be regarded as an undertaking for one part of its activities while the rest fall outside the competition rules.¹

1 Case C-475/99 Ambulanz Glockner v Landkreis Südwestpfalz [2001] ECR I-08089 Opinion of AG Jacobs, para 72.

Article 345 of the Treaty on the Functioning of the European Union (TFEU) (ex-Article 295 TEC) provides that the EU law should not prejudice ‘the rules in Member States governing the system of property ownership’, which establishes a principle of neutrality or non-discrimination between state owned and privately owned companies. According to the Organisation for Economic Co-operation and Development (OECD), competition law is ‘a powerful tool to level the playing field by addressing competition concerns stemming from SOE conduct, provided such conduct amounts to an abuse of dominance, cartel participation, or is subject to merger control’.² When it comes to the regulatory sphere of competition law, including merger control, the SOEs are viewed as market players along with the other types of businesses. In order to maintain the level playing field among various types of market players, the EU and its Member States adhere to the principle of competitive neutrality in their regulatory treatment of the SOEs.³ According to the Commission,

if it was allowed to treat state-owned undertakings more favourably than other enterprises, removing the level playing field that should be the characteristic of free competition, the competitive process and the long-term goal of one European integrated market could be considerably damaged.⁴

The principle of competitive neutrality is also enshrined in the EU Merger Regulation (EUMR), which declares that the ‘arrangements to be introduced for the control of concentrations should … respect the principle of non-discrimination between the public and the private sectors’.⁵

2 Organisation for Economic Co-Operation and Development, ‘Governments as Competitors in the Global Marketplace: Options for Ensuring a Level Playing Field’ (2016) <http://e15initiative.org/publications/governments-as-competitors-in-the-global-marketplace-options-for-ensuring-a-level-playing-field/> accessed 31 July 2020, 8.

3 See Organisation for Economic Co-Operation and Development, ‘Ownership and Governance of State-Owned Enterprises: A Compendium of National Practices’ (2018) <www.oecd.org/corporate/Ownership-and-Governance-of-State-Owned-Enterprises-A-Compendium-of-National-Practices.pdf> accessed 31 July 2020, 46.

4 Organisation for Economic Co-Operation and Development, ‘State Owned Enterprises and the Principle of Competitive Neutrality’ (2009) DAF/COMP(2009)37 <www.oecd.org/daf/competition/46734249.pdf> accessed 31 July 2020, 243.

5 Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (EUMR), OJ L24/1, 29 January 2004, recital 22.

Following the principle of competitive neutrality, the SOEs do not have any specific regulatory treatment under the EUMR, and their mergers and acquisitions falling under the ambit of EUMR have to pass through the same procedural steps and substantive assessment standards. It is therefore expected that the state ownership of a company does not have to be acknowledged in the Commission’s merger decisions, especially when it does not affect the competitive assessment of the notified concentration. For example, in the Gaz de France/Ruhrgas/Slovensky merger case, the French SOE Gaz de France is referred to as ‘integrated gas company mainly active in France at all levels of distribution and supply’. At the same time, the Commission acknowledged the SOE status of Slovak Gas Industry (Slovenský plynárenský priemysel or SPP), which at the time of transaction was ‘currently a fully state-owned company’.⁶

6 Gaz de France/Ruhrgas/Slovensky (Case COMP/M.2791) [2002] OJ L154/08, decision of 6 June 2002, paras 3, 6.

The understanding of the status of SOEs under the EU merger control regime should commence from the definition of the term ‘undertaking’, which is the primary subject of regulation under the EUMR and under EU competition law in general. Although the EUMR on numerous occasions uses the term ‘undertakings concerned’, it does not provide a definition of this term. Although the same concept appears in the fundamental rules of the EU competition law – Articles 101 and 102 TFEU – the Treaty does not define this concept either. Article 101 TFEU, which prohibits anti-competitive collusion refers to ‘agreements between undertakings’ and ‘decisions by associations of undertakings’. Article 102 TFEU, which targets unilateral anti-competitive conduct, refers to ‘abuse by one or more undertakings of a dominant position’. As a result, the meaning of this term has been largely defined through the two main lines of case law: one dealing with concerted conduct under Article 101 TFEU, another with the attribution of liability for competition law infringements.⁷

7 See Alison Jones, ‘The Boundaries of an Undertaking in EU Competition Law’ (2012) 8 European Competition Journal 301, 303.

In relation to Article 101 TFEU, the ‘undertaking’ must possess an autonomy in its decision making because the anti-competitive agreements, prohibited by the said provision, should be concluded by the economically independent entities, which is not the case with a parent company and its subsidiary.⁸ For instance, if

the subsidiary, although having a separate legal personality, does not freely determine its conduct on the market but carries out the instructions given to it directly or indirectly by the parent company by which it is wholly controlled [Article 101(1) TFEU], does not apply to the relationship between the subsidiary and the parent company with which it forms an economic unit.⁹

Or, as summarized by Whish,

the crucial question is whether parties to an agreement are independent in their decision-making or whether one has sufficient control over the affairs of the other than the latter does not enjoy ‘real autonomy’ in determining its course of action on the market.¹⁰

The determination of the ‘single economic unit’ has been further developed in the case law of the Court of Justice of the European Union (CJEU) dealing with attribution of liability for competition law infringements. The court in Luxembourg explained that

it is settled case-law that anti-competitive conduct of an undertaking can be attributed to another undertaking where it has not decided independently upon its own conduct on the market, but carried out, in all materials respects, the instructions given to it by that other undertaking, having regard in particular to the economic and legal links between them.¹¹

For example, the General Court has confirmed the infringement decision for abuse of dominant position against Slovak Telekom, which also included a fine imposed on its parent company – Deutsche Telekom – which engaged in frequent exchanges of information and issued instructions to the board of its subsidiary.¹² Apart from establishing a rebuttable presumption of control based on majority shareholding, the CJEU has continuously increased the flexibility of the criteria taken into account when establishing the ‘single economic unit’ in individual cases.¹³

8 See Alexandr Svetlicinii, ‘The Competition Authority of Bosnia & Herzegovina Follows EU Competition Law Standards and Rejects an Anticompetitive Agreement Complaint in Relation to Affiliated Companies Being Part of A “Single Economic Entity” (Elektrokontakt / Elektroprivreda / Eldis-Tehnika)’ (2011) e-Competitions February 2011, Art. N° 36981 <www.concurrences.com/en/bulletin/news-issues/february-2011/the-competition-authority-of-bosnia-herzegovina-follows-eu-competition-law-en> accessed 31 July 2020; Alexandr Svetlicinii, ‘The Court of Bosnia and Herzegovina Quashes the No-Infringement Decision of the Competition Authority Based on the Concept of “Single Economic Entity” (Elektrokontakt)’ (2014) e-Competitions January 2014, Art. N° 64923 <www.concurrences.com/en/bulletin/news-issues/january-2014/the-court-of-bosnia-and-herzegovina-quashes-the...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Contents
• Preface and acknowledgments
• List of abbreviations
• 1 State owned enterprises under the EU merger control
• 2 China’s state owned enterprises: governance and regulation
• 3 Economic concentrations of China’s state owned enterprises under the EU merger control regime
• 4 From merger control to foreign investment screening in the European Union
• Conclusion
• Annexes
• Index