Hong Kong is currently awaiting commencement of the region's first cross-sector competition law. A Competition Bill was passed by the Legislative Council on 14 June 2012, and the Hong Kong government is mapping out a period of transition to enforcement of the new law.
Purpose, Conduct Rules and Merger Rule
According to its Explanatory Memorandum, the Competition Ordinance aims to prohibit conduct that prevents, restricts or distorts competition in Hong Kong. For this purpose, it sets out two main 'conduct rules' of cross-sector application:
- a prohibition of agreements, decisions and concerted practices that prevent, restrict or distort competition in Hong Kong (the "first conduct rule"); and
- a prohibition of the abuse of a substantial degree of market power in a market (the "second conduct rule").
The First Conduct Rule prohibits agreements and concerted practices (that is, cooperation arrangements between parties falling short of an ‘agreement’ as such) that have the object or effect of restricting competition in Hong Kong. The enforcement focus is expected to be serious cartel activity amongst competitors, which includes agreeing on customer prices or price-elements such as discounts or price ranges (price-fixing), allocating segments of the market amongst competitors such as by territory or customer type (market-sharing), subverting the normal competitive nature of tender processes by agreeing with competitors who will make what bids (bid-rigging) and agreeing with competitors to limit production or sales output to drive up prices or otherwise maximise market positions (output-restriction). Infringements of this nature will be dealt with most seriously. Other infringements, which may potentially include restrictive agreements/practices between vertical trading partners (such as suppliers and customers, or manufacturers and retailers), may only be dealt with via issue of a ‘warning notice’ to the infringing parties, unless the conduct is repeated or continued.
The Second Conduct Rule prohibits a business with substantial market power from abusing that power by engaging in conduct that has the object or effect of restricting competition in Hong Kong. Guidance will be published regarding how businesses with such market power will be identified, and the conduct that may be considered to constitute "abuse" of such power.
The Bill also includes provisions prohibiting mergers or acquisitions that have the effect (or likely effect) of substantially lessen competition in Hong Kong - however this "merger rule" will only apply where there is a change of control concerning a telecommunications licensee in Hong Kong, until such time as the government may determine that it is appropriate to broaden the scope of application of the rule.
Exclusions and exemptions
Various exclusions and exemptions are provided for in the Bill. For example, immunity from the conduct rules can be granted to an agreement or conduct that enhances economic efficiency (and satisfied related criteria set out in the Bill), is performed by an undertaking entrusted with the operation of services of general economic interest, or is made in compliance with a legal requirement.
The Chief Executive In Council can also make exceptions if there are exceptional and compelling reasons of public policy to do so. Additionally, the Bill will not apply to the government or statutory bodies, unless such bodies (or certain of their activities) are specified in relevant regulation(s) that may be made by the Chief Executive-in-Council.
According to the Bill, an independent statutory Competition Commission will be established to investigate complaints, bringing public enforcement actions in respect of anti-competitive conduct, and promoting public understanding on competition matters. Interestingly, the Competition Commission may also conduct 'market studies' into matters affecting competition in Hong Kong.
A new Competition Tribunal will hear and adjudicate on competition cases brought by the Competition Commission and the Competition Tribunal will also be able to hear 'follow on' private actions.
Penalties and remedies
The Competition Tribunal will be empowered to apply a full range of remedies for contravention of the conduct rules and the merger rule, including pecuniary penalties up to 10% of Hong Kong total turnover for each year (up to a maximum of three) in which a contravention continued, award of damages to aggrieved parties, interim injunction orders, and termination or variation of an agreement.
This website includes a link to all of Mayer Brown JSM's legal update publications in relation to the new law, and an outline of the firm's capabilities and experience. The Mayer Brown JSM Antitrust & Competition Team in Hong Kong welcomes any questions from businesses in (or selling into) Hong Kong about the impact of the new law, or the content of the linked publications.