Local Nexus in

Merger Control

Presentation of the OECD Background paperPedro Caro de SousaOECD Competition Division

Working Party No. 3 on Co-operation and Enforcement15 June 2016 Roundtable

The Background note together will all materials related to the discussion can be found at:

http://www.oecd.org/daf/competition/jurisdictional-nexus-in-merger-control-regimes.htm

2

The increasing number of cross-border mergers, the proliferation of merger control regimes, and the limited resources competition authorities have to enforce competition law make it important that authorities only review those mergers that have an impact on their jurisdiction.

The 2005 OECD Council Recommendation on merger review included recommendations on notification and review procedures, jurisdictional thresholds and appropriate local nexus criteria.

In 2013, the OECD prepared a Report on Country Experiences that looked at the Recommendations impact in practice.

Abstract

3

The background paper builds on this work and assesses the local nexus criteria of a number of OECD and non-OECD jurisdictions by reference to Recommendation.

It is found that all countries have local nexus criteria, and that in most countries these criteria comply with the Recommendation.

A trend towards greater compliance in this respect since 2005 is also observed.

The paper also unearths some patterns in the design of merger control thresholds that raise questions regarding the possibility of greater compliance with the OECD Recommendation and the adequacy of its recommendations for some jurisdictions.

Abstract

4

Structure

5

1. Background

2. Method

3. Results

4. Questions1. on merger review in emerging high innovation markets

2005 – OECD Recommendation on Merger Review

2013 – OECD Report on Country Experiences

– OECD Roundtable on Definition of Transaction for Merger Control

ICN Merger Working Group:

-Recommended Practices (2002 and 2008)

-Report on Costs and Burdens of Merger Review (2004)

Background

6

Local Nexus

–Merger control only over transactions with “appropriate” local nexus

–Local nexus is relevant for identification of “mergers that could raise competition concerns in the territory”

–Discretion as to required level of materiality of transaction for jurisdiction

–Guiding principles for establishing local nexus:

• Based on activity of merging parties in the territory

• Measured by reference to acquired entity or at least two parties to transaction

Background

7

• Thresholds – objective and certain v. flexible and targeted

Social Costs of Merger Review < Benefits of Merger Review

• Various considerations relevant when setting notification thresholds:

– Mandatory or voluntary?

– Previous experience / benchmarking

– Size of economy

– Market structures

– Alternative competition tools

Background

8

• Objective – assess compliance with Recommendation

• Method – review of notification thresholds in 53 jurisdictions

+comparison with international recommendations

•Merger Notification Thresholds– Different types

– Combinations of types (alternative, cumulative, and even both alternative and cumulative simultaneously)

The Paper

9

• Types of Notification Thresholds– Turnover (worldwide and local)

– Assets (worldwide and local)

– Value of Transaction

– Market Shares

• Additional tools– Exemptions

– Residual jurisdiction

– Previous finding of dominant position

– Domestic effects

The Paper

10

General adoption of Recommendation as regards local nexus

Results

11

• Many reforms to competition acts and merger control thresholds since 2005

• Trend towards greater compliance with the Recommendations

• Some jurisdictions have reviewed their competition laws but decided not to align themselves fully with the Recommendation

Results

12

• Changes: Why have countries been amending their notification thresholds? Why have some decided against following the Recommendation?

• Setting notification thresholds: How do jurisdictions set them? Is there a developing international best practice?

• Materiality: Should focus be on local nexus or on identifying problematic mergers? Is this a false question? What is an “appropriate” local nexus? What is a sufficiently “material” transaction?

• Assessing the Recommendation: Is it appropriate for all cases (e.g. voluntary notification systems)? Have some limitations been identified? Do the developments of the past 10 years mean that an update is in order?

Questions

13