Choice of a notification system for small economies

noti-fication system appears to impose huge and possibly unnecessary costs on the merging firms in competitively neutral or pro-competitive transactions. Based on these considerations, merger control should not impose onerous burdens on businesses or authorities charged with assessing mergers.³⁶⁹ Several studies have suggested that voluntary notification systems may achieve objectives similar to those achieved by mandatory systems at lower costs to the merging firms and authorities.³⁷⁰ This should be borne in mind particularly in small economies where resources are more limited than in large economies.

365 Singapore Competition Act, Article 69.

366 Riswi, Wun: “Relevant Factors on Notified Mergers in Singapore”, in Singapore Law Watch, issue 4, October 2008, p. 5.

367 Decision of Competition Commission of Singapore of 23.05.2008, Case No. CCS 400/007/07 – Thomson Corporation / Reuters Group. Available online:

http://www.ccs.gov.sg/NR/rdonlyres/30094F78-DCA8-43A2-98DC-AB66A5DB67C9/21314/Thomson_ReutersGD_080714Redacted.pdf (last visited 15.05.2009)

Decision of Competition Commission of Singapore of 29.09.2008, Case No. CCS 400/002/08 – Manitowoc Company / Enodis. Available online:

http://www.ccs.gov.sg/NR/rdonlyres/30094F78-DCA8-43A2-98DC-AB66A5DB67C9/22213/redactedGD_091008.pdf (last visited 15.05.2009).

368 Riswi, p. 8.

369 Rowley, William J., et al., pp. 8–10.

370 Ibid.; Choe, Chongwoo; Shekhar, Chander: “Compulsory or Voluntary Pre-merger Notification? A Theoretical and Empirical Analysis”, August 2006. Available online:

http://www.iss.u-tokyo.ac.jp/~matsumur/CCNote68.pdf (last visited 15.05.2009).

In a voluntary system the competition authority has the flexibility to select the mergers to investigate. Besides the transactions voluntarily submitted by the merging firms, the authority may scrutinize non-notified mergers, where there are valid presumptions about the anti-competitive risk without being restrained by pre-established thresholds. In contrast, under the mandatory system, the authority must follow the notification thresholds, which do not always convey sufficient information about the dangers of a merger. Hence, irrelevant mergers from the competitive point of view will not be notified nor submitted to an investigation by the competition authority under the voluntary regime. On the contrary, in the mandatory system, there is a set of mergers that classify to be notified and investigated by the competition authority, due to their magnitude above the threshold, despite of having a low competitive risk.³⁷¹

It should of course be borne in mind that once a merger has occurred, it is very costly, if not impossible, to bring back the market structure to the pre-merger situation, because during a pre-merger, firms combine assets, technologies, and redesign their organization and management making it unfeasible to undo the process once consolidated. Even though some anti-competitive effects of a merger can be controlled ex post, the competition authorities may not be able to implement sufficient remedies to solve all the competitive problems that a merger may cause. These reasons explain why it is generally preferable to control mergers ex ante prior to their implementation.³⁷²

Voluntary merger notification systems are not in contradiction with this principle. As could be seen from above, merging firms are induced to apply for a clearance before completing a merger, where the merger could potentially raise competition concerns. In order to increase the deterrent effect, but also to enable the competition authority to timely react to problematic cases where merging firms have not notified or suspended the completion of their merger, it is crucial that the authority has the necessary tools to act vigorously in order to avoid or suspend mergers with a high competitive risk. The regulatory frame-work should therefore provide clear and easily enforceable interim measures available for the competition authority to act against unlawful avoidance of revision by the competition authority. Singapore serves are a good example in this respect.

The risk that firms avoid merger control and implement a merger, which should be controlled, exists also in a mandatory system. Merging firms may decide not to notify even though the transaction size is above the thresholds defined by the law, and go on with the process. Still, this risk is likely lower in mandatory systems as compared with voluntary systems, because it is easier for a competition authority to show before a court that firms acted illegally when the requirement to notify is determined by well-defined and easily-verifiable parameters, than when the conditions are more difficult to prove like the anti-competitive potential of a merger in case of voluntary system. This difference in

371 Gonzales & Benitez, p 14.

372 Ibid., pp. 2–3.

the clarity of the rule hence makes it easier to prove the illegal action in a mandatory system.³⁷³

It has been argued that one of the shortcomings of voluntary system is that it reduces the flow of information to the competition authority.³⁷⁴ While it may indeed reduce the amount of market information that merging firms may have to submit in merger notifications in case of non-problematic mergers, the re-duction of the amount of information about the fact of transactions taking place can be overcome. On the one hand, there have been opinions that such problem is of low significance in small economies, as the competition authorities there are more likely to learn of important mergers by public means.³⁷⁵

On the other hand, it would be possible introduce a system, whereby the competition authority should be informed of any share transactions leading to change of the ownership of at least 10% of shareholding. Sending such infor-mation should be a necessary precondition for registering the change of owner-ship, but meeting this requirement should be swift and require no significant resources. For instance, it should not require more than simply submitting the names of the transaction parties and the number of shares through some electronic register kept by competition authority, which would automatically confirm the receipt of the data. This requirement could effectively be made mandatory only with respect of domestic share acquisitions, leaving aside asset acquisitions and foreign transactions. Nevertheless, this task would still facilitate the competition authority’s ability to constantly keep its eye on local transactions, while not putting excessive burdens to business community. In order to provide more certainty for merging firm, a deadline (e.g., four months as in the UK) could be set for the competition authority to open an investigation with respect to mergers registered through the system. In this way, foreign transactions and asset acquisitions would be induced to register as well.

In order for the voluntary system to function, firms should have a good understanding of the criteria followed by the competition authority is assessing the effects of a merger when they decide whether to notify a given transaction or not.³⁷⁶ Thus, it is important that such criteria are clearly laid out in regulations or competition authority’s guidelines. Furthermore, the practice of the competition authority could serve as guidance. Therefore, it may be prefer-able to introduce merger control first with a mandatory notification system and replace it with voluntary system after some practice and guiding principles have been developed.

In summary, voluntary notification system has significant appeal as com-pared to mandatory system. There are certain complications that related to voluntary system, which could be surmounted or at least alleviated by proper

373 Ibid., p. 13.

374 Taylor, Martyn D.: “International Competition Law – A New Dimension for the WTO?”, Cambridge University Press, Cambridge, 2006, p. 86.

375 Inter-American Development Bank and OECD, p. 7; Freeman, p. 11.

376 Gonzalez & Benitez, pp. 10–11.

design of the deterrent mechanisms and enforcement measures, and by coupling the voluntary system with some light mandatory informational obligations. In the author’s view, for small economies voluntary notification system (as opposed to conventional mandatory notification system) is therefore preferable.

The question of choice of notification system and hence the scope of jurisdiction claimed over mergers is an important one. However, it is equally important to be able to enforce its merger control decisions in practice. While the success of domestic enforcement tends to be the matter of domestic administrative and judicial system, extraterritorial enforcement may pose more hurdles. Therefore, the thesis continues with the analyzing the issues related to extraterritoriality.