Saturday 1 August 2015

Hong Kong's Competition Law - one step closer


The Hong Kong Competition Commission (Competition Commission) has published its final guidelines on the Competition Ordinance which will come into effect on 14 December 2015. The guidelines cover the First Conduct Rule (on anticompetitive agreements), the Second Conduct Rule (on abuse of market power) and the Merger Rule (which regulates mergers in the telecommunications sector).  The Competition Commission also explains how it will handle complaints, conduct investigations and consider applications for exemptions and exclusions. 

The new competition law contains many borrowings from established competition laws, notably the EU, US and Australian regimes.  However, there are some noteworthy features which indicate that the legislature and the Competition Commission have sought to adopt a rather idiosyncratic approach in certain areas. 

The Competition Commission has not set out any indicative market share thresholds for either a finding of substantial market power or for vertical agreements that might be caught by the First Conduct Rule.  The absence of any ‘bright line’ safe harbours is based on the view that such thresholds would be unworkable given the structure of the local economy. 

There are specific exemptions for SMEs whose conduct will not infringe the First Conduct Rule where the businesses engaging in the practices have a combined turnover in Hong Kong of less than HK$200 million.  The Second Conduct Rule does not apply to businesses with local turnover of less than HK$40 million.  However, serious infringements including price fixing, market sharing, output limitation and bid rigging will not benefit from exemption.   

Private actions can only be brought after the Competition Tribunal has ruled that there has been a violation following an application by the Competition Commission for the imposition of a fine or an order to stop the infringing practices.  However, the Government is understood to be considering the need for a standalone action in the years after implementation.

Hong Kong does not have general merger control at present outside the telecommunications sector.  However, the need for industry-wide merger control is expected to be revisited in a few years.

The Competition Commission has already been active in developing its policies and procedures and in competition advocacy.   It has launched a market study into oil pricing and completed a study of the building management market using very similar powers to those in the UK under the Enterprise Act 2002.  It has also urged the Government to open up the electricity market. 

It seems that businesses are already taking note of the changes.  For example, the Travel Industry Council has pledged to rescind its guidance on ticketing pricing before the Ordinance comes into effect. 

The Competition Commission has not yet published its leniency policy or its statement of enforcement priorities, although these are expected in the coming months.  Consumer facing industries such as healthcare and leisure are expected to be priorities.  Many of the Competition Commission’s officials have a background in consumer law enforcement.   

The test of the new law will be how it is interpreted and applied and against the specific features of Hong Kong’s market policy.  Not surprisingly the shipping industry has urged that a rigid application could have serious implications for its sustainability by banning cooperative arrangements that have been acceptable up to now but which would violate the First Conduct Rule unless exempted. 

When the new rules come into effect Hong Kong will be the last developed economy to adopt an industry wide competition law joining most of its neighbours such as mainland China, Indonesia, Japan, Malaysia, South Korea, Taiwan, and Thailand.  Although North Korea does not have one…

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