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Extraterritorial Jurisdiction under European Union and Chinese Merger Control Regimes

Aristi Zaimi, a Postgraduate student studying International Commercial Law, analyses the extra-territorial jurisdiction under both European Union and Chinese merger control regimes, providing a comparative outlook of the two legal systems.


A State’s sovereignty often collides with another State’s assertion of extraterritorial jurisdiction over conducts or companies closely related to the former but still having an impact on the latter. There is a core of activities and rights that constitute the ‘economic sovereignty’ of a State since they are of high importance to its national interests. When jurisdictional conflicts arise, the extent to which one country may interfere in another’s economic sovereignty is unclear, and various doctrines have been adopted in the effort to give a solution to these conflicts.[1]

This essay will begin by discussing the extent to which the European Union (‘EU’) and the Chinese merger control regimes assert extraterritorial jurisdiction. Thereafter, there shall be an examination of the limitations imposed on such jurisdictional assertions, and a short reference to possible solutions to the conflict of laws.

The EU Regime

For the European Commission (‘DGComp’) to assert jurisdiction under Article 1 of the EU Merger Regulation (‘EUMR’), a concentration with a Union dimension must be established.[2] The thresholds that have to be met here are a worldwide turnover of EUR 5000 million and an EU-wide turnover of EUR 250 million. [3] Recital 10 of the Regulation states that a Union dimension exists where the turnover of the undertakings exceeds the given thresholds, irrespective of ‘whether or not the undertakings effecting the concentration have their seat or their principal fields of activity in the Community, provided they have substantial operations there’.[4] However, Art.1 does not explicitly state whether or not the undertakings in question need to be established or have any business-wise connection with the EU for the European Commission to obtain extraterritorial jurisdiction.[5] This legislative silence has afforded a wide domain for the interpretative function of the Court of Justice.

According to case law, DGComp has asserted extraterritorial jurisdiction based on two doctrines.[6] The first one, namely the ‘single economic entity’ theory established through the Dyestuffs case[7], concerned the relations between a parent company and a subsidiary and whether the EU could obtain jurisdiction over a company incorporated in the UK, not a member of the Community at the time, due to the instructions it had given to its Belgian subsidiary.[8] The Court of Justice (‘CJ’) in the before-mentioned case concluded that ‘when the subsidiary does not enjoy real autonomy in determining its course of action in the market’, despite having a separate legal personality, it ‘forms one economic unit’ with the parent company.[9]

It is unclear if the EU adopts the ‘effects’ doctrine according to the US model. In the Wood Pulp case[10], the CJ avoided taking a clear position, simply stating that ‘the effect of restricting competition consists of conduct made up by two elements, the formation of the agreement, decision or concerted practice and the implementation thereof’.[11] Thus, it managed to reach a decision avoiding the application of the ‘effects’ doctrine and instead adhered to the ‘implementation’ one since the mere fact that the producers had implemented their pricing agreement within the Common Market sufficed for the Commission to assert jurisdiction and was covered by the, universally recognized in public international law, territoriality principle.[12] Consequently, the difficult and occasionally arbitrary test of whether the conduct creates a ‘direct and immediate’, ‘reasonably foreseeable’ and ‘substantial’ restriction of competition was avoided.[13] It is clear that the implementation doctrine is narrower than the effects doctrine since the former does not apply to negative conduct that takes place outside of the EU concerning agreements not to sell or purchase from EU producers.[14]

Regarding merger control, the extent of the extraterritorial jurisdiction of DGComp was fleshed out by three cases: Gencor/Lonrho[15], Boeing/McDonnell Douglas[16] and GE/Honeywell[17]. Gencor/Lonrho concerned a merger between two companies in the platinum and rhodium mining industry, both incorporated and having all of their production in South Africa. LPD was a subsidiary of Lonrho incorporated in London and selling worldwide through LPD’s Belgian subsidiary.[18] Although the merger was cleared unconditionally by the South African authorities, it was deemed to have a Union dimension as it met the worldwide and Union-wide turnover thresholds of the EUMR. The Commission held that the merger would have anti-competitive effect in the common market and therefore Gencor appealed and challenged its jurisdiction. In its judgement, the General Court(‘GC’) stated that Art.1 of EUMR does not require the undertakings to be established within the EU or that the production activities must be carried within EU territory.[19] It highlighted the importance of sales operations and concluded that these alone suffice for the implementation doctrine to be fulfilled.[20] Furthermore, it made reference to the Wood Pulp case[21], mentioning that ‘the implementation criterion is satisfied by mere sale within the Union, irrespective of the location of the sources of supply and the production plant’.[22] Despite the fact that the GC used the wording of the effects doctrine, claiming that EUMR can apply ‘when it is foreseeable that a proposed concentration will have an immediate and substantial effect in the Community’,[23] it did not explicitly refer to that approach but rather considered itself to be applying the implementation theory.[24] It is suggested that the fact that sales of the product in the Union were less than a quarter of the worldwide total makes the blocking of the merger by DGComp seem like an unjustified abuse of jurisdiction, justified solely by reference to the letter of the law and proceeding in ignorance of the principle of non-interference with other countries’ economic sovereignty.

In Boeing/McDonnell Douglas[25], DGComp asserted jurisdiction over a merger between two US aircraft manufacturers since the transaction had a Union dimension under Art.1. [26] As the US authorities had already cleared the merger, and were now placing pressure on DGComp based on their bilateral cooperation agreements, the Commission had to accept the merger after Boeing made certain behavioral commitments. However, the fact that the US did not dispute the EU’s extraterritorial jurisdiction but rather expected it to take into account the national interests of the former and their bilateral agreement should attract interest and will be further analyzed below.

Finally, in GE/Honeywell[27], the Commission blocked a merger between two US companies that had already been cleared by US authorities. Given the fact, that it would have been the biggest merger in US corporate history, it was met with various reactions in political, diplomatic and public opinion levels.[28]

The Chinese Regime

According to Article 3 of the Decree of The State Council of the People’s Republic of China,[29]a concentration can fall under the Anti-monopoly Law (‘AML’) if it reaches a total worldwide turnover of RMB 10 billion and a PRC turnover of each of the two undertakings of at least RMB 400 million or a total PRC turnover that exceeds RMB 2 billion and a PRC turnover of each of the undertakings that exceeds RMB 400 million. [30] However, in contrast to EUMR, AML clearly states in Art.2 that Chinese law is ‘applicable to conducts outside the territory of the PRC that have eliminative or restrictive effects on competition in the domestic market of the PRC’.[31] Therefore, not only is it clear that the Chinese regime asserts extraterritorial jurisdiction upon concentrations that exceed its turnover thresholds but also that, following the US model, it adopts an ‘effects doctrine’ rather than an implementation one. As a result, the question is not whether AML provides the theoretical background for exercising extraterritorial jurisdiction but whether China will indeed make use of Art.2 in order to enforce its merger control policy on foreign companies.[32]

Chinese scholars were concerned with how Chinese companies did not have ‘fair access’ to the US market- some  going so far  as to  suggest that the AML was a response to that exclusion, targeting foreign buyers.[33] Moreover, Chinese officials claimed that the drafting of the AML was necessary in order to protect the Chinese market from foreign multinational companies that could dominate or monopolize the market in China.[34] The main motive for the adoption of AML was certainly national interests but, China having joined the world economy and having a large consumer base,[35] was also influenced by the desire to exercise influence on the global market.[36]

The Chinese cases do not give a clear image of exactly how the Chinese authority, MOFCOM, obtains extraterritorial jurisdiction. The first decisions lacked detail, simply repeating the wording of the AML articles in use without describing excessively the application of those articles to the particular case. However, over the course of the years, it can be observed that the brief decisions such as in InBev/AB[37] and Coca-Cola/Huiyuan[38] gave way to more elaborate and analytical ones, such as Seagate/Samsung,[39] proving that MOFCOM is rapidly progressing.[40]

The first extraterritorial application of AML was in the case of Alcon/Novartis[41], where both companies were established in Switzerland and their merger was to affect many jurisdictions, including the US and Europe.[42]  In this case, MOFCOM conditionally approved the merger imposing some restrictions, and for the first time applied AML on two companies situated outside of China but affecting the national market.[43] Considering that a large number of merger decisions concern offshore transactions, such as Uralkali/Silvinit[44] and Alpha V/Savio[45], it can be said that MOFCOM has succeeded in the extraterritorial application of its policies. [46] Besides, in the Panasonic/Sanyo[47] and Glencore/Xstrata[48] cases, MOFCOM imposed as a restrictive measure the divestment of assets located abroad.[49] In any case, although western commentators were worried that China would block mergers that would have a positive effect on worldwide competition but affect its national interests in a negative way,[50] the truth is that it has blocked very few mergers, approving the vast majority subject to conditions.

Limitations on Extraterritorial Jurisdiction

Nevertheless, the way each regime asserts extraterritorial jurisdiction is subject to limitations dictated by international law principles, such as comity, the principle of taking into account the other country’s interests and rights when obtaining jurisdiction over a merger. Thus, the authorities have to proceed to a balancing of interests in assessing whether or not to exercise its jurisdiction.

Case law demonstrates that the European merger control regime takes into account the principle of comity. For example in Boeing/McDonnell Douglas[51], despite its serious objections to the merger between the two aircraft manufacturers and pursuant to the EC-US Competition Cooperation Agreement[52]and FTC’s indication that blocking the merger would harm important US defense interests, DGComp decided to conditionally approve the merger.[53] A contrary reaction could have raised serious political upheaval and diplomatic tension.

However, the outcome was different in the Gencor case. The GC examined whether DGComp’s assertion of jurisdiction violated the principle of non-interference and concluded that there is no conflict since the South African authorities stated that ‘the concentration agreement did not give rise to any competition policy concerns’ and did not require such an agreement to take place.[54] Consequently, despite the fact that the interests of South Africa were probably in a superior position than those of the EU, given that the sales of the product in the Union were less than a quarter of the worldwide total, the Commission blocked the merger. Additionally, the GC went as far as to state that ‘there is no conflict of jurisdiction between a State which prohibits something and a State which allows it (rather than requires it)’.[55] The latter can be considered as a quite ambivalent statement due to the fact that if a State does not require something, the State that prohibits it will always be in a position to impose its policy over the State that allows it. Thus, the argument reaches a logical deadlock; a very privileged one for the party that is arguing for prohibition.

At this point, the very interesting approach of F.A. Mann should be noted claiming that the ‘balancing interests’ idea leads to legal inconsistency.[56] According to Mann, once an authority asserts jurisdiction, it cannot come back and state that it will not exercise it due to comity reasons; it should either a priori obtain jurisdiction or not. This opinion should be deemed accurate since authorities arbitrarily obtaining and not exercising jurisdiction would lead to uncertainty of law and give space for political games that little have to do with the actual function of the market or give rise to de facto economic alliances between countries.

Article 2 of AML contains no limitation concerning the significance of the prohibiting effects. MOFCOM’s decisions do not make reference to a principle of comity or a test of foreseeable, immediate and substantial effects. However, all the cases to which MOFCOM intervened, concerned mergers with foreseeable, substantial and direct effects in China.[57] It can also be observed that there must be some form of communication between MOFCOM and EU and US authorities since many decisions on offshore cases by the former (Panasonic/Sanyo[58] or Novartis/Alcon[59]) follow those of the latter and are published shortly after them.[60]


Solutions to the Conflict of Laws

Many questionable solutions have been proposed to the problem of conflict between laws of different States. However, any solution that does not adopt as its perspective that of a global welfare is doomed to fail. A global welfare approach would suggest that countries consider first and foremost the effect of their actions upon the global community. Nevertheless, it is quite a utopia to expect from authorities lacking global responsibility to act regardless of the domestic interests that they serve.[61]Some scholars state that this conflict of laws might also have beneficial results, such as the rise of competition between competition laws aiming to the optimization of national competition legislation.[62]

The fact that States can legislate granting themselves extraterritorial jurisdiction that brings them into conflict with the jurisdiction of another State should be considered to constitute a logical absurdity resembling that of playing a game in which each player can create his own rules binding only himself. It is not a functional situation- especially when it concerns countries with diplomatic relations rather than game players.

Provided that, as described above, the principle of comity rather complicates the situation than gives a solution to it, the question remains what other options exist. The ideal one would be the creation of an international body of competition law responsible for merger control cases and specialized to resolve jurisdictional matters.[63] This international body would have exclusive jurisdiction whenever more than one countries were involved. However, this is very unlikely to happen, since national interests are closely related to competition policies and often have different starting points and different aims, making global consensus on the function of the hypothetical international body seem infeasible.[64]

A second solution would be the signing of bilateral or multilateral agreements on information exchange and mutual cooperation. Such agreements do exist, for example EU/US Competition Cooperation Agreement,[65]EU/US Positive Comity Agreement,[66] EU/US Best Practices on Cooperation in Merger Investigations[67], EU-China Competition Policy Dialogue,[68]and international organizations aiming at multilateral cooperation such as World Trade Organization(‘WTO’) and International Competition Network(‘ICN’). Nevertheless, these agreements do not suffice for the authorities to avoid conflicts as it has been clearly shown in Boeing/McDonnell Douglas.[69]

Finally, a harmonization of national laws could offer an escape of jurisdictional conflicts. In a smaller scale, this is what happens within the EU regime since the individual member states have allocated their own jurisdictional claims to the transnational body of the European Commission- but this is no panacea. [70] No country would be willing to give up on its sovereignty, but there can always be hope for a future where international cooperation, after passing through many developmental stages, will eventually reach a perfectly functional international competition body.


[1] AV Lowe, 'The Problems of Extraterritorial Jurisdiction: Economic Sovereignty and the Search for a Solution' [1985] 34 International and Comparative Law Quarterly 743.

[2] EC Merger Regulation No.139/2004 [2004] OJ L24/6 art.1 para 1.

[3] Ibid., para 2.

[4] Ibid., OJ L24/2 recital (10).

[5] Alison Jones and Brenda Sufrin, EU Competition Law (5th edn, Oxford University Press 2014) 1278.

[6] JD Banks, 'The development of the concept of extraterritoriality under European merger law and its effectiveness under the Merger Regulation following the Boeing/McDonnell Douglas decision 1997' [1998] 19(5) European Competition Law Review 306.

[7] Case 48/69,ICI v. Commission (Dyestuffs) [1972] ECR 619.

[8] See n.5,1272.

[9] See n.7, para.134 & 142.

[10] Cases 89,104,114,116,117,and 125-129/85,A.AhlstrÓ§m Oy v. Commission [1988] ECR 5193

[11] Ibid.,para 16.

[12] Ibid.,para18.

[13] As described by Advocate General Mayras in ICI v. Commission 1972 (the Dyestuffs case).

[14] See n.5, 1277.

[15] Case IV/M 619,Gencor/Lonrho [1997] OJ L11/30, [1999] 4 CMLR 1076.

[16] Case IV/M.877,Boeing/McDonnell Douglas [1997], OJ L 336/16.

[17] Case No. COMP/M.2220,GE/Honeywell [2004] OJ L48/1.

[18] See n.5, 1279.

[19] Case T-102/96,Gencor Ltd v. Commission [1999] ECR II-753, para 79.

[20] Ibid., para 85.

[21] See n.10.

[22] See n.19,para 87.

[23] Ibid., para 90.

[24] See n.5, 1283.

[25] See n.16.

[26] See n.5, 1284.

[27] See n.17.

[28] See n.5 1285.

[29] Decree of The State Council of the People’s Republic of China No. 529 2008, article 3(PRC).

[30] Anti-Monopoly Law of the People’s Republic of China 2007 (PRC).

[31] Ibid., Article 2 (PRC).

[32] Michael Faure and Xinzhu Zhang, 'Towards an Extraterritorial Application of the Chinese Anti-monopoly Law that Avoids Trade Conflicts' [2013] 45(3) The George Washington International Law Review 504.

[33] Ibid.,526.

[34] Ibid.

[35] Kenneth J. Hamner , 'The Globalization of Law: International Merger Control and Competition Law in the United States, the European Union, Latin America and China' [2001-2002] 11(2) Journal of Transnational Law & Policy 400.

[36] See n. 32, 526.

[37] MOFCOM, InBev/AB [2008]

[38] MOFCOM, Coca-Cola/Huiyuan [2009]

[39] MOFCOM, Seagate/Samsung [2011]

[40] Tingting Weinreich-Zhao, Chinese Merger Control Law (Springer 2015) 149

[41] MOFCOM, Alcon/Novartis [2010]

[42] See n.32, 530.

[43] Ibid.

[44] MOFCOM, Uralkali/Silvinit [2011].

[45] MOFCOM, Alpha V/Savio [2011].

[46] See n.40, 169.

[47] MOFCOM, Panasonic/Sanyo [2009], para. 18.

[48] MOFCOM, Glencore/Xstrata [2013], para. 46.

[49] See n.40, 169.

[50] See n.32, 528.

[51] See n.16.

[52] Competition Cooperation Agreement 1991(EC-US)

[53] See n.5,1284.

[54] See n.19,para 103.

[55] See n.5, 1284.

[56] See n.5, 1262.

[57] See n.40, 170.

[58] See n.47.

[59] See n.41.

[60] See n.40, 173.

[61] See n.32, 522.

[62] Ibid.

[63] See n.35, 404.

[64] Ibid.

[65] See n.52.

[66] Positive Comity Agreement 1998 (EU-US).

[67] Best Practices on Cooperation in Merger Investigation 2011 (EU-US).

[68] Competition Policy Dialogue 2004 (EU-China).

[69] See n.16.

[70] See n.1, 731.


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