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Legal Update

Hong Kong Edges Closer to Introduction of Competition Law

24 September 2009
Mayer Brown JSM Legal Update

Gregory So, Under Secretary for Hong Kong's Commerce and Economic Development Bureau (CEDB) today announced new details relating to the Hong Kong government's proposed cross sector Competition Bill, and re-affirmed the government's commitment to introduce a bill to the Legislative Council in the 2009/2010 legislative session.

In April 2009, the Government postponed the introduction of the long awaited Competition Bill citing technical problems relating to the proposed civil administration enforcement model of the law and widespread concerns expressed by various stakeholders regarding the proposal to exempt statutory bodies from the competition law.

Speaking at an antitrust conference in Hong Kong co-sponsored by JSM, Mr So noted that drafting of the Bill was in progress, and that the government has made several significant changes to the proposals for the Bill that it had previously set out in a May 2008 Consultation Paper.

Set out below is a brief summary of the key comments Mr So made in relation to the Bill.

Revised Institutional Arrangements

Mr So confirmed earlier reports that the government now proposes to adopt a judicial model for enforcement of the law, which represents a significant departure from previous proposals for a new Competition Commission to hold both investigatory and adjudicatory powers.

Under the revamped proposals, the Competition Commission's role will mainly be limited to the conduct of investigations and prosecutions, while a newly established Competition Tribunal will be charged with deciding cases in this area, empowered to impose fines, grant injunctions and disqualify directors.

However, Mr So also noted the Commission would be able to issue an Infringement Notice to parties that it believed were acting in contravention of the law, with those parties then having the option of paying an infringement amount (and, where applicable, providing undertakings to cease infringing behaviour) to avoid prosecution through the courts.

Where cases are heard by the Competition Tribunal, Mr So confirmed that appeals will be possible (to Hong Kong's Court of Appeal) on matters of fact and law.

Existing Sector-Specific Regimes Will Remain Intact

Mr So advised that the government now favours retaining the existing sector-specific competition regimes applicable to Hong Kong's broadcasting and telecommunications sector. Accordingly, Hong Kong's Broadcasting Authority and Telecommunications Authority will enjoy concurrent jurisdiction with the new Competition Commission.

Mr So also indicated that the merger control regime in the Telecommunications Ordinance (which only applied to certain telecommunications licensees) would remain in place, notwithstanding that the government appears to hold the view that merger control regulations are not required in other sectors (as discussed directly below).

No Cross-sector Merger Control Regulations

In the May 2008 Consultation Paper, the government stated that it was still considering whether merger control regulations should be included in the new competition law. In today's speech, Mr So indicated the government had now reached a conclusion on this issue, and had decided that no cross-sector merger control regime should be introduced, at least in the short term.

However, Mr So did not indicate how relevant 'M&A' agreements would be carved out from the proposed general prohibitions on anti-competitive agreements and conduct that are still proposed to apply in the manner described below.

Conduct Rules

It appears from Mr So's comments that the government has not materially shifted from its earlier proposals to introduce two key broadly worded prohibitions in the law, as follows:

  • a general prohibition on anti-competitive agreements and concerted practices that substantially lessen competition; and
  • a general prohibition on the abuse of a substantial degree of market power.

However, Mr So did state the focus of these conduct rules would be on whether relevant conduct has the "object" or "effect" of preventing, restricting or distorting competition. This marks a departure from some earlier proposals that indicated it would be necessary to establish that a business had an anti-competitive purpose in order to prove that it had violated the law.

Mr So also repeated proposals in the May 2008 Consultation Paper relating to permitted defences. Specifically, Mr So stated that the law would allow businesses which were alleged to have violated the conduct rules to mount a defence based on the fact that their conduct resulted in a net economic benefit, related to their provision of services of general economic interest, or was taken in order to ensure compliance with other laws. However, it was noted that work needed to be done to detail the precise criteria and tests for application of these defences.

Importantly, Mr So noted the Competition Commission would be empowered to accept and decide (or provide indicative guidance in response to) applications by businesses seeking confirmation that proposed conduct or agreements would not violate the law. While no significant further detail about this proposed 'prior notification' arrangement was provided, Mr So indicated that the Commission could decide whether or not to provide guidance or a binding decision on a case-by-case basis, and that steps would be put in place to ensure that businesses were able to 'self-assess' in most cases.

It was also confirmed that the Chief Executive-in-Council would be able to exclude certain activities from the ambit of the prohibitions on the basis of overriding "public policy considerations".

Exemptions and Exclusions

Mr So noted that the government was standing by its previous proposals to make government institutions exempt from the law. However, a different position is being adopted in relation to statutory authorities. Specifically, where it was once proposed that all statutory authorities would be exempt from the law, CEDB is now understood to be conducting examination of each of Hong Kong's statutory authorities with a view to inclusion in the Bill of a schedule listing specific statutory authorities that will not enjoy a general exemption.

Mr So confirmed earlier reports that the 'selection' process to determine which statutory authorities should fall under the law was being conducted by reference to factors that include whether (and to what extent) the statutory body:

  1. is engaged in economic activities, and if so whether for the purpose of regulation these activities are inseparable from and incidental to the provision of essential services;
  2. operates in direct competition with private sector entities;
  3. engages in conduct that could affect the economic efficiency of a specific market; and
  4. enjoys autonomy in decision-making and day-to-day operation.

No doubt the final composition of this list of exempted statutory bodies will be the subject of considerable debate as the Bill moves through the Legislative Council.

Mr So also stated that the Competition Commission would be authorised to introduce 'block exemptions' in respect of any category of agreement or conduct that it believed was very commonly likely to yield economic benefits outweighing their anti-competitive harm (removing the necessity to have it assessed every time on a case-by-case basis). According to Mr So, the Commission would be able to exercise this power on its own initiative or after due consideration of applications by interested parties.

Private Actions

The government is said to favour allowing both "follow-on" and "stand-alone" private actions by parties who had suffered loss or damage as a result of another's contravention of the law.

However, Mr So made it clear that no representative actions would be permitted, and that the Competition Tribunal would be given strong powers to strike out private actions that were deemed unmeritorious or vexatious.

Guidance documents

According to Mr. So, the Competition Commission will be required to draft guidance documents that explain how the general prohibitions proposed to be included in the competition law will be applied in practice. Acknowledging that this process could only commence once the Competition Commission is established (suggesting there may be some delay between introduction of the law and its active enforcement), Mr So also suggested that the government would compile some key principles for this guidance, which would be published at the time the bill was introduced, to assist the Commission and provide a framework for its work moving forward.

Mr So also stressed that the Commission would be required to consult with the community as it developed guidance documents relating to the law.

Today's speech by Mr So provides the strongest indication yet that Hong Kong is on track for the introduction of a new competition law within the next 12 months. Businesses who are concerned about the proposed direction of the law should seriously consider making submissions to CEDB while the drafting process continues, and all businesses with operations or sales in Hong Kong should be taking steps to prepare for compliance.

For further details about the proposed law, please see the prior alert published by JSM in relation to the government's May 2008 Consultation Paper:

How JSM's Antitrust and Competition Team can assist:

JSM has a working relationship with key stakeholders in the development of the proposed competition law in Hong Kong, and is actively involved in ongoing consultation procedures relating to the new law. JSM can assist with the preparation of submissions to the government to help ensure the law does not unduly increase the costs and risks of doing business in Hong Kong, and can also provide compliance counselling and training.

For inquiries related to this Client Alert, please contact:

John Hickin ( )

Hannah Ha ( )

Gerry O'Brien ( )

Learn more about our Hong Kong office and Antitrust & Competition practice.

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