return to AMPLA 2015 Table of Contents Foreign Threats to Australian JVs: The Rise of the Asian Competition Regulators and Their Ability to Impact Australian Based Resources JVs Taylor * and Jason A Beer ** Nicolas J SUMMARY Asian export sales underpin the majority of Australia’s major joint venture resource projects. The offshore jurisdiction of the ACCC to regulate competition is limited, and the competition laws of export target countries may apply, on an extraterritorial basis, to Australian resources joint ventures. Many of these laws are administered by regulators as powerful and interventionist as the ACCC. Within Asia and beyond, joint ventures are subject to many different regulatory regimes and inhouse counsel advising joint venturers need to be aware of the potential competition risks. This paper outlines the Australian position, and the positions in some of our key markets. There are common threads to be drawn that can be traced back to US and European consideration of similar issues in decades past. INTRODUCTION Asian export sales underpin the majority of Australia’s major joint venture resource projects. Resources lawyers are generally familiar with the necessity (and complications) of complying with Australian Competition and Consumer Commission (ACCC) administered competition laws, but today the competition laws of each export target country also commonly apply on an extraterritorial basis to Australian resources joint ventures. * Partner, Jones Day. ** Associate, Jones Day. The authors gratefully acknowledge the contribution of their colleagues within Jones Day: Tony Wassaf (Sydney) who peer reviewed the paper, and Shinya Watanabe (Tokyo), Yizhe Zhang (Beijing) and John C Lin (Taipei) who peer reviewed the sections on their respective jurisdictions. 32
F OREIGN T HREATS TO A USTRALIAN JV S : A SIA 33 The ACCC can be a powerful and interventionist regulator, but its passion, and in some cases jurisdiction, fades away as producers fix their sights on export markets and Australian consumers lose interest. Indeed, under Australian law it is even possible to gain immunity for an export cartel by registering its existence with the ACCC. 1 However, no sooner than a rich commodity laden ship disappears into the setting sun, free from ACCC purview, the rising sun brings a rude awakening as the captain is met head on by equally powerful and interventionist regulators in China, Korea, Japan, Taiwan or India. However, the rules in those countries work very differently from in Australia – at least as far as joint venture producers are concerned. Within the Asian region and beyond, the competition law treatment of joint ventures varies substantially. In some countries the formation of the joint venture is treated as a merger requiring notification and approval, in other countries exemptions or clearances that are similar to ACCC authorisations are required for joint marketing, and in another set of countries there is a “self-assessment” system, with the risk of a competition regulator “second guessing” that assessment years later. With the increasingly aggressive positions being taken by Asian competition regulators, inhouse counsel advising on the formation of a new joint venture, or the sale or purchase of an interest in an existing one, must have regard to competition law risks in each jurisdiction to which the joint venture may export, even where the parties to the joint venture may have no business or assets in those jurisdictions. WHY IS THIS AN IMPORTANT ISSUE? Finding Markets for the Product Both as a result of Australia’s geographic proximity and the growing role of Asia in driving global growth, Australia’s mining and resources industry is characterised by a clear focus on Asian customers. When considering Australia’s three largest natural resource exports, it is clear that within Asia five jurisdictions are of particular importance to Australian companies: China, Japan, Korea, India and Taiwan. 1 Competition and Consumer Act 2010 (Cth) s 1(2)(g).
34 AMPLA Y EARBOOK 2015 Source: Data for the above graph sourced from DFAT, Australia’s Trade in Goods and Services 2013/14. Structuring Projects Shareholders Want and Banks Tolerate Economically efficient mines and oil and gas projects are often so substantial that even the world’s largest companies are not well placed to take all the risk inherent in “going it alone”. As a result, it is often necessary to collaborate with other firms which can offer particular synergies, complementary skill sets or additional scale. In other words, the economics of large-scale extraction industries are such that joint ventures are often the preferred structure. Efficient Tax Structuring Tax structuring often makes or breaks the economics of the project and the sums at stake are so large that it is tax that will dictate the type of vehicle through which a joint resources investment will be made. The advice usually entails two key elements: 1. The joint venture should be unincorporated so that all the parties, minorities included, can consolidate their interest in the venture with their other activities. 2. While the joint venturers will necessarily be caught by the Australian tax net, they should wherever possible avoid being caught by the tax net of the countries to which the product is exported. For this reason, jointly owned and operated resources projects will typically comprise:
F OREIGN T HREATS TO A USTRALIAN JV S : A SIA 35 an unincorporated production joint venture in which, from a legal viewpoint, • the joint venturers are each entitled to mine/well output in proportion to their interests; and/or a joint marketing agreement whereby the participants’ product remains • separately owned but is jointly sold. Competition Law Competition laws around the world are structured according to three main controls: • scrutiny of agreements between competitors with a strict prohibition of cartels; • supervision of companies that are dominant or which have a substantial degree of market power; and • merger control that applies when market structures are changed. Joint ventures and joint marketing agreements sit uncomfortably at the apex between the competitor agreements on the one hand and merger control on the other. They are neither clandestine conspiracies against the customer (as a true cartel), nor are they “simply” a merger transaction executed and closed within a few short months. They both change the structure of the market and involve ongoing agreements between the participants. Writing on the issue of joint ventures in a competition context, Silva Morais identifies that: “[T]he intense acceleration and globalization of economic activities, which have acted as catalysts for profound changes in entrepreneurial activity, require to some extent the development of cooperation and concentration relations of growing complexity.” 2 The rise of these types of business collaborations has posed unique challenges for advisers, competition regulators and judges around the world. The US, European and Australian regulators each took very different approaches to the treatment of joint ventures and joint marketing arrangements, well before Japan started vigorously enforcing its competition law and before other Asian countries enacted competition laws. This divergence among regulators arises because competition regimes mark out the boundary between the application of the prohibitions that seek to regulate the conduct of firms operating in a market, and prohibitions which seek to regulate the structure of markets. As joint ventures can range in scope and function from fully integrated corporate entities (e.g. incorporated production and marketing entities) through to narrowly defined joint endeavours between entities which are otherwise fiercely 2 LS Morais, Joint Ventures and EU Competition Law (Oxford, Hart Publishing, 2013) 1.
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