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China should apply anti-monopoly measures against Aussie giants
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China should be prepared for anti-monopoly measures against the new alliance between two Australian mining giants: Rio Tinto and BHP Billiton.

Rio Tinto announced on June 5 a cooperative venture with BHP Billiton, which would pay Rio Tinto US$5.8 billion to set up a joint venture to run the iron ore resources of both companies in West Australia.

Given the two companies' large market share in China's iron ore market, the two companies have the obligation to apply for the approval of the Chinese government on the establishment of the joint venture.

Rio Tinto and BHP Billiton are among the world's three biggest iron ore suppliers and are both major suppliers of China's iron ore resources.

Besides, the iron ore business that the new joint venture is expected to run in West Australia will involve the major iron ore assets of the two mining giants.

Obviously, the joint venture to be establi`shed will to some extent eliminate or have restrictive effect on the competition in China's iron ore market.

China's Anti-monopoly Law "shall apply to the conducts outside the territory of the People's Republic of China if they eliminate or have restrictive effect on competition in the domestic market of the PRC."

Therefore, the joint venture transaction is subject to the investigation of China's Anti-monopoly Law.

Besides, according to Article 21 of the Anti-monopoly Law: "When a concentration of business operators reaches the threshold of declaration stipulated by the State Council, a declaration must be lodged in advance with the Anti-monopoly Authority under the State Council, or otherwise the concentration shall not be implemented."

A concentration of business operators in this case refers to "the acquiring control over other business operators by virtue of acquiring their equities or assets,"' as is stated in Article 20.

The threshold for the declaration, as was set last August, is that "all the business operators participating concentration had an aggregated turnover exceeding 10 billion yuan (US$1.46 billion) worldwide in the immediately preceding accounting year, and at least two of the participating business operators each had a turnover exceeding 400 million yuan in China in the immediately preceding accounting year."

The scale and sales revenue of both Rio Tinto and BHP Billiton have far exceeded the above threshold.

The Chinese government has by no means overstepped its authority by applying its Anti-monopoly Law to two Australian companies, since extraterritorial application of Anti-monopoly Law has long been an international practice.

On the contrary, China should further strengthen the practice of extraterritorial application of its Anti-monopoly Law to ensure international justice and eliminate unfair income transfer.

Generally speaking, developing countries today lag so far behind developed ones in both the enactment and the enforcement of anti-monopoly laws and regulations that the former usually find themselves in disadvantaged situation when practicing extraterritorial application of the law.

That's why international monopolistic enterprises can often grab huge monopolistic profits from developing countries.

China now should and has the ability to apply its Anti-monopoly Law extraterritorially, as the country's huge import ability itself is one channel for China to exert its influence over other countries.

Even if Rio Tinto and BHP Billiton chose to act against China's possible punishment on their probable misuse of monopolistic position by retreating from the Chinese iron ore market, this would be good news for other iron ore suppliers in Australia, Brazil, India or even Russia.

(The author is a senior researcher under the Ministry of Commerce. The views are his own.)

(Shanghai Daily June 11, 2009)

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