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Monopoly worries in Rio-BHP merger

The proposed iron ore joint venture between Rio Tinto Group and BHP Billiton has a "strong monopolistic flavor" and China is actively seeking ways to deal with any problems arising from the deal, a senior official said.

China's anti-monopoly law should apply in the Rio-BHP deal, said Chen Yanhai, head of the raw material division at the Ministry of Industry and Information Technology.

The Ministry of Commerce said on Monday that China's worries about the deal were understandable as Rio and BHP, the world's second and third-largest iron ore suppliers, jointly make up 80 percent of Australia's ore exports.

"The merger has a strong monopolistic flavor. It's likely to deal a heavy blow to China's steel industry as China is the top iron ore importer," Chen told Xinhua news agency yesterday.

Chen said that if the tie-up was found to be monopolistic, China may seek new policies and measures to defend its say in ore pricing.

China's anti-monopoly law, which came into effect last August, says that all business mergers must file for review if their joint revenue exceeds 10 billion yuan (US$1.46 billion) globally or 2 billion yuan in China, and two or more of the firms each have more than 400 million yuan of revenue in China the previous year. That would apply in the Rio-BHP case.

Violators are subject to a fine of up to 10 percent of their annual revenue in China, it says. That could mean a fine of more than 10 billion yuan for Rio and BHP.

But law experts say implementation could be difficult.

"Both Rio and BHP are Australian companies with no mining assets in China, so when you are to fine, you may only fine their Chinese branches," said Zhang Malin, law professor at Southeast University in Nanjing. "And you may not be able to block that deal, and that's the root cause."

One possible action China may take is to limit ore imports from Australia, said an executive from an international mining company.

Australian Trade Minister Simon Crean said the deal wouldn't lessen competition as Rio and BHP would still operate as separate marketing arms, and the purpose was to improve efficiency and bring down costs. Debt-laden Rio proposed the venture after it scrapped a US$19.5 billion funding plan from Aluminum Corp of China.


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