China yet to decide on Rio - BHP deal
Updated
When Rio Tinto rejected a tie-up worth US$20billion from a Chinese company two weeks ago it threatened to start a potentially damaging diplomatic row. Canberra and Beijing have downplayed its significance. But the waters have just been muddied with a threat from China that it could impose trade sanctions if Rio's alternative plan goes ahead.
Presenter: Karon Snowdon, finance correspondent
Speaker: Nick Taylor, lawyer and partner, competition group, Gilbert and Tobin (law firm)
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SNOWDON: The latest missile in this war of words came last week when a Chinese official said the proposed joint venture between Rio Tinto and BHP could be opposed by China's anti-trust regulator.
And trade sanctions would follow if the deal went ahead.
The argument stems from the market power held by the world's second and third largest iron ore producers. Together with Brazil's Vale they dominate iron ore exports.
I asked Nick Taylor, a partner in the competition group at law firm Gilbert and Tobin, if China's anti-trust law applies internationally.
TAYLOR: If there is an effect of eliminating or restricting competition on the Chinese iron ore markets then yes this law will apply.
SNOWDON: If Chinese authorities decide to take action the effect could be one or several - to delay the Rio - BHP deal, to impose conditions, or to reject it outright.
What then would the enforcement chances be?
Nick Taylor again.
TAYLOR: Certainly, putting on trade barriers are not really something that will come out of this existing law, that could come from somewhere else. But the sorts of things that could be done under this law, really you would need have to have assets in China to enforce the law.
SNOWDON: And that's not the case, certainly not in BHP's case.
TAYLOR: Yes, exactly, I think Rio may have some assets that the law could possibly attach to, but then there's another question as to whether those assets are part of the joint venture, and if they're not, are they assets to which an order could attach, and all those questions are really quite specific questions about the application of Chinese court processes.
SNOWDON: When Rio dumped the state-owned Chinalco and decided instead to form an iron ore joint venture with BHP-Billiton, the screams could be heard from Beijing to Canberra.
But they were in the newspapers and on the TV.
The headlines declared a new cold war had erupted. Beijing was furious - Rio had acted dishonestly and Australia was prejudiced against Chinese investment.
The Australian government said it was a commercial decision made by the companies involved, the Chinese government said nothing and even Chinalco's boss, Xiong Weiping, said he was disappointed but 'that's business'. He later praised the Australian government for welcoming foreign investment.
The official whose strong views against the deal were quoted is Ma Yu, a director of the Academy of International Trade and Economic Cooperation.
This comes under the commerce ministry and is a research and advisory body that can have input into policy.
There's been no official comment about a challenge to the deal.
Plus, the watchdog, the Australian Competition and Consumer Commission (ACCC), isn't opposing it, and this might be a factor in deciding Beijing's next move, according to Nick Taylor.
TAYLOR: Traditionally, competition authorities throughout Europe, America, Australia and elsewhere, tend to cooperate closely and they work hard not to embarrass each other with openly inconsistent findings. So, what I think will be interesting with China as a more recent player in the competition law scene is whether the ACCC will have any moral suasion over the way the Chinese conduct their competition analysis on this deal.
SNOWDON: It's easy to understand how China's steel mills might be nervous at the prospect of being ganged up against by the big mining companies when it comes to price negotiations.
Australia has been the largest iron ore exporter to China since 2001, accounting for almost 40 percent of its annual iron ore imports on average.
And that's a fact that both sides know well. Australia is a reliable supplier that China needs as much as Australia needs China.
