Kathryn Edghill                 Zhaofeng Zhou          Cicely Sylow
Partner, Australia            Partner, China           Senior Associate, Australia

Bird & Bird
A: Asia: Beijing, Hong Kong,
Shanghai, Singapore &
Sydney
W: twobirds.com

The recent China-Australia Free Trade Agreement (ChAFTA) may have a significant effect on competition and merger activity in both countries. This article explores some of the possible effects.

MERGER CLEARANCES IN AUSTRALIA

The ChAFTA encourages Chinese imports and investment in Australia by reducing tariffs and raising the thresholds for foreign investment, giving rise to a very real potential for increased imports and investment to impact favourably on merger clearance rates in Australia. The level of import competition is an important factor to be considered by the Australian competition regulator, the ACCC, in assessing merger clearances. Any increase in import competition from China, particularly where tariff cuts are the greatest (manufactured goods, electronics and household products), coupled with the continued success of online market places, which makes it easier to source supply internationally, is likely to raise the threat of actual or potential import competition to sufficiently high levels to permit mergers and acquisitions in Australia which would otherwise have been denied clearance. Just how realistic a substitute import competition is for the domestically manufactured products will remain a key factor. Anti-dumping applications, Australian Standards and brand loyalty will all play a role in this assessment.

Similarly the increased foreign investment thresholds are likely to encourage more Chinese investment in Australia, potentially bolstering competition in the Australian market. This impact could be felt most in industries that attract strong Chinese demand and where tariffs on Australian exports will be reduced, such as meat, dairy and agriculture.

MERGER CLEARANCES IN CHINA

To date there have been few merger filings by Australian companies in China as their Chinese revenues have not triggered the mandatory notification thresholds. As the Chinese market opens up we are likely to see greater Australian business activity in China and increased imports of meat, dairy and agriculture. As a result, Australian companies seeking to merge or enter into joint ventures with Chinese counterparts are more likely to be required to lodge merger filings with MOFCOM.

EXPOSURE TO RISKS OF NON-COMPLIANCE

The opening up of trade between China and Australia exposes firms from each country to risks of non-compliance with unfamiliar competition laws. MOFCOM and the ACCC are likely to step up their enforcement activities as unseasoned firms make deeper inroads into each other’s markets. Firms seeking to do business in each other’s countries would be well advised to undertake now the necessary steps to ensure compliance with their obligations under competition law.