The march of ASEAN competition

Ruben Maximiano, senior competition expert at the OECD and head of the OECD/Korea Policy Centre, provides his analysis of merger control regimes and trends in the region

The last few years have seen the rise of competition law in Asia. The vast majority of Asian jurisdictions now have competition laws with merger control rules and quite a few already have active merger control. Indeed, effective merger review is an important component of a competition regime, with about 90 jurisdictions across the world providing for merger control. This means that while there are some very experienced agencies in the ASEAN region (such as Korea or Japan), there are also many newcomers to the field.

Developing regimes in newcomer jurisdictions is crucial as there is a clear trend for notifications having to be made to many jurisdictions, with the same happening in Asia. One example is the acquisition of NXP Semiconductor by Qualcomm, which will be notified to merger control authorities in China, Japan, Korea, the Philippines and Chinese Taipei. Indeed, despite 2016 in Q1 not generating as much M&A activity in Asia as in 2015, M&A activity was still very high.

An overall aspect of the legal architecture in the region is that most regimes provide for mandatory notification of transactions, meaning transactions cannot be implemented before clearance. Only two regimes require notification post-closing: Indonesia and, for certain types of transaction, South Korea. Singapore is the only active merger regime in Asia with a voluntary system of notification (as in Australia and New Zealand, which are outside the scope of this article).

Whether a transaction needs to be filed or not in a mandatory jurisdiction falls in line with common practice elsewhere in the world and rests on whether the proposed transaction qualifies as a concentration, with the associated concept of control, as in China, Singapore or Vietnam; or as a merger or other reportable acquisition of shares or voting rights under the national merger control law, such as in Chinese Taipei, South Korea, India and Japan (and if so whether the local thresholds are met in that particular case). In general, joint ventures (JVs) need to be evaluated and may be reportable if the legal thresholds are met. The exception is Singapore where, as in the EU, JVs are only reportable if they perform on a lasting basis all the functions of a fully autonomous economic entity

Singapore is the only active merger regime in Asia with a voluntary system of notification

Review timelines are fundamental when structuring M&A transactions, given the effects this may have on stock prices and costs of financing, among other aspects. While jurisdictions do have differences in terms of timing, as a general rule most of the regimes where there is mandatory pre-closing notification make a distinction between an initial phase and an in-depth review phase (phase I and II as they are normally known). A notable exception is India, which has no such distinction but has a 210 calendar day statutory maximum; longer than other large jurisdictions in the region. Indeed, of the more experienced merger jurisdictions – China, Japan and Korea – all have 30 calendar days for a phase I and 90 calendar days for phase II, although China can extend this by a further 60 calendar days. To these formal timelines must of course be added pre-notification discussions; China and India both require pre-notification contacts.

During 2015-16 several transactions in industries where IP is very important, for instance in telecoms and technology, attracted the scrutiny of Asian competition authorities, resulting in several remedies and one prohibition. The prohibition took place in Korea and involved the largest mobile network operator and rival cable television provider CJ HelloVision; it was only the ninth merger blocked since the country's merger control regime was introduced in 1981.

A couple more general trends have been debated within the legal circles in Asia in the last few months: the increase in the number of transactions that have been cleared subject to remedies and the rise in the number of third-party interventions in the merger review processes in Asia.

One of the main challenges facing younger jurisdictions in Asia in particular is integrating economics into their analysis. In most jurisdictions in South East Asia, for instance, decisions use only rudimentary economic analysis – sometimes limited to the use of the Herfindahl-Hirschman (HHI) concentration index and market shares. A notable exception in this regard is Singapore, which shows sophistication in economic analysis and use of economic tools. This has been an area of focus for the OECD/Korea Policy Centre in its workshops on merger control in the last two years, not only for competition officials but also to equip judges with an understanding of the importance of economic evidence and tools in merger control.

China has a mandatory, pre-closing filing regime, where notifications are made to the Ministry of Commerce (Mofcom). China takes longer over reviews than in other comparable jurisdictions, even though it has made efforts to improve this in the last few months. One of the possible explanations for the long review time is the fact that it has a reduced number of staff when compared to other jurisdictions with a similar number of cases, such as the EU, Japan or Korea. It has very recently, in September 2016, added more staff to the merger team, but there is still some way to go to reach the staffing levels of the comparable jurisdictions. Another effort to improve timing in reviews was the introduction of the simplified procedure in mid-2014 which is now bearing fruit. Indeed, recent statistics show that most cases are now reviewed under the simplified procedure, where Mofcom tries to close the review within one month upon accepting to review the transaction.

One of the other main trends of 2015-16 has been that Mofcom has been stricter on filing lapses, and in particular on gun-jumping (finalising a deal before Mofcom clearance). In the last year it has named and shamed, as well as penalised, 11 companies. The public naming of those companies is meant to act as a further deterrent given that the financial penalties are capped relatively low at ¥500,000 ($72,000). There are reports that Mofcom officials are seeking to obtain higher penalties when the Anti-Monopoly Law is revised.

The Competition Commission of India (CCI) has been ramping up its experience over the last few years and has now analysed approximately 600 mergers. In 2015, 127 notices were filed and it conditionally approved three phase II mergers: Ranbaxy Laboratories and Sun Pharmaceutical Industries; the acquisition of Lafarge by Holcim; and the acquisition of DLF Utilities by PVR, where structural remedies were imposed in the cinema markets.

In 2016 the CCI made several attempts to simplify procedures for mergers. It released guidance notes in the guise of an FAQ document, clarifying its regulations on M&A, including JVs. Also, the CCI has decided to increase the financial thresholds for notification, in order to reduce the number of notifiable transactions, which would allow it to focus resources on investigating those mergers that may raise competition issues.

Another interesting recent development in India was the penalty imposed on General Electric in February 2016 for failing to notify its Alstom deal within the required timeframe, sanctioning GE for INR50 million (approximately $750,000).

A major development in Asia has been the adoption of competition laws in most of the ASEAN member countries. By the end of 2015, eight of the ten ASEAN countries had merger control rules, at least on their books if not being actively applied. The only two jurisdictions that have no merger control are Cambodia, which has yet to pass a competition law (expected for 2017), and Malaysia, which has decided so far not to have a general merger control regime even if it does have merger control for certain sectors of the economy. Thailand is currently reforming its competition law to try to more actively apply its competition rules. Therefore merger control may increase in Thailand during 2017 and beyond.

Indonesia's competition regime is one of the most established in ASEAN, with the competition law dating back to 1999. However only in 2010 did Indonesia implement its merger control regime. This regime has a couple of particularities worth mentioning: first, it is a post-closing notification system; second, a reportable merger is one that is conducted through share (or equivalent) based transactions.

One of the main challenges facing younger jurisdictions in Asia in particular is integrating economics into their analysis

Recently the Business Competition Supervisory Commission (KPPU) has been clamping down on the application of the notification obligation and through 2015-16 it issued eight decisions for failure to notify within the legal deadlines, in two of which it slapped significant fines.

The KPPU has approximately 50 notifications per year (it had 59 notifications in 2014, 51 in 2015 and 11 in the first semester of 2016), with approximately 400 merger notifications since 2010. It has thus far not issued any prohibition decisions and only four clearances were conditional on commitments, with behavioural commitments being used.

A draft amendment is currently under discussion in the parliament and the proposal by the KPPU included a suggestion to change the requirement for a post-notification to a pre-notification and to include asset-based transactions in the merger regime. This is expected for 2017.

The Competition Commission of Singapore (CCS) has continued to consolidate its practice in merger control in the 2015-16 period; its decisions are more economically grounded as every year goes by. Singapore has no compulsory notification system and thus it has a relatively reduced number of cases, the CCS having reviewed nearly 60 mergers, four of which were notified and decided in 2016. An additional trend has been an increase in the number of cases going to second phase, as well as the increased confidence to apply structural as well as behavioural remedies. Of all the cases decided this year have been cleared except for one case that was conditionally cleared in 2016 that had been notified in 2015.

Another trend has been to undertake ex-post assessment of merger cases, so far having undertaken such examinations in four merger cases, including most recently a post-merger study issued in 2016 of its clearance in 2014 of the Asia Renal Care's acquisition of Orthe in the kidney dialysis market.

Malaysia is currently the only jurisdiction in ASEAN with a competition law that does not provide for competition merger control. The only exception was introduced by the Malaysian Aviation Commission Act 2015, which came into force in March 2016 and may provide a useful template that could be extended to the broader economy through amendments to the Competition Act. Notification is voluntary and the legal test is the substantial lessening of competition test. Given this is a new regime in Malaysia, the Aviation Commission is planning to provide guidelines, possibly including safe harbour provisions.

The Philippines introduced merger control in its Competition Act of 2015 and issued implementing rules and regulations in June 2016, which set rules for notification and the thresholds for compulsory notifications as well as providing procedures and timelines for reviewing M&A transactions. Since then, the Philippine Competition Commission (PCC) has released its prescribed M&A Notification Form and been working on the development of guidelines and clarifying notes. The PCC is currently undertaking comprehensive reviews of M&A notifications, including a joint acquisition, currently in the courts, of telecommunication assets worth $1.5 billion by Philippine telecommunications companies Globe Telecom and PLDT.

The OECD/Korea Policy Centre's mission

The OECD/Korea Policy Centre's Competition Programme provides support for Asia-Pacific competition authority officials. Every year it provides at least one workshop on merger control issues, bringing in expert practitioners from OECD member countries to share their experiences and best practices. The OECD/KPC is a joint venture between the Korean government and the OECD and provides capacity building to competition officials across all the Asia Pacific region, as well as workshops for judges. The Centre plays a pivotal role in ensuring that newer jurisdictions are learning from best practice and benefitting from the vast experience of OECD members in competition policy and specifically, in merger control. These actions have been tremendously helpful to young competition agencies in the Asia-Pacific region. Since 2004 the Centre has held 75 events across the region with a total attendance of nearly 1,600 participants. Another project which is currently being pursued is a guide to competition laws and practices across the region, which would allow Asian jurisdictions to know more about competition law regimes and experiences in applying these laws. This publication will be issued in the first half of 2017.

As more transactions require multiple filings, agencies with merger control powers will seek to coordinate their reviews in terms of both timing and substance. Indeed this increased coordination has been observed in Asia and there are several examples of bilateral arrangements in the region. An important example includes the second-generation Cooperation Agreement between the competition authorities of Australia and Japan. So called second-generation agreements allow the authorities to exchange confidential information without the need to obtain a confidentiality waiver from the parties to the transaction. Mofcom has been particularly active on international cooperation, having concluded arrangements in the 2015-16 period with the Competition Bureau of Canada, the European Commission (on best practices), with BRIC countries and the Japan Fair Trade Commission (JFTC).

Also of note is some indication of increased cooperation amongst Asian competition agencies. One example of this is the exchange between the Korea Fair Trade Commission (KFTC) and Mofcom in the context of the AM/Tokyo Electron case. One would expect that this sort of cooperation would increase further among the most experienced agencies in the region, and then also among the newer agencies, for instance in the context of ASEAN. The OECD's work here can certainly help, not only by providing frameworks for discussion with a database of provisions that may be used, but also via the workshops it organises in Asia, which not only build up expertise in merger control but also allow for trust to develop among officials from different jurisdictions.

Although merger control is very dependent on the economy generating M&A deals, should the merger wave continue in Asia this will require further coordination between agencies in the region. It is therefore expected that coordination will further increase in 2017. At the same time there are new kids on the block that will ramp up their activity and experience in merger control, such as Malaysia and the Philippines, while others such as Laos, Myanmar and Thailand will start to implement their merger control rules. The OECD will certainly be there to provide all possible support.

Disclaimer: any opinions set out herein are of my own exclusive responsibility and not bind nor necessarily reflect the views of the OECD.

About the author
		Ruben Maximiano Senior competition expert, OECD Lille, France T: 33 1 4524 8815 E: ruben.maximiano@oecd.org Ruben Maximiano is a senior competition expert at the OECD. He is responsible within the Competition Division of the OECD for Asia and is specifically responsible for the Competition Programme of the OECD/Korea Policy Centre. Prior to this, Maximiano worked at DG Competition at the European Commission and at the Portuguese Competition (PCA). He has mainly worked in the merger field, although he has worked extensively also in European State Aid, as well as in cartels. Prior to this, Maximiano was a lawyer focusing primarily in competition law (dealing mostly with issues of abuse of dominance) and telecoms regulation fields, in Brussels and Lisbon. Maximiano currently also teaches the EU Merger Control course at the Law Faculty in the Masters 2 at Université Catholique de Lille, France.