Is Hong Kong ready for competition law?

The Hong Kong Government published last summer the long awaited Competition Bill which is intended to introduce a general competition law in Hong Kong.

A long-awaited bill 

This Bill has been published after more than a decade of discussions.

The Bill is quite similar to the competition laws of several other major developed jurisdictions: such as the EU, the UK or Australia; it also bears many resemblances to the recent Anti-Monopoly Law which came into force in mainland China in August 2008.

Prohibited behaviours “The Conduct Rules”
The First Conduct Rule prohibits agreements, concerted practices and decisions which restrict competition in Hong Kong. This provision essentially prohibits hardcore anti-competitive behaviours such as price fixing, market or customer sharing, quota restrictions or joint boycotts entered into by companies and/or business associations. The Second Conduct Rule prohibits abuses by companies that have “a substantial degree of market power” (similar to “dominant positions” in other jurisdictions) where such conduct restrict competition in Hong Kong. This will include predatory behaviour towards competition and limiting production, markets or technical developments to the prejudice of consumers.

Exemptions and Exclusions
The First and Second Conduct Rules will not apply to the Hong Kong Government or to statutory bodies in Hong Kong.

The Bill also provides general exclusions for:

• Agreements aiming at complying with legal requirements
• Agreements that bring about economic efficiencies.
• Agreements or unilateral conduct by undertakings entrusted by the Government with the operation of services of general economic interest.
• Individual and block exemptions will also be possible.

Penalties
The Competition Tribunal may impose fines of up to 10% of the world-wide turnover. Furthermore, the Competition Tribunal can order the disgorgement of illegal gains and disqualify individuals from acting as a director in Hong Kong for up to 5 years and may make a declaration that a person has contravened a competition rule which could have serious consequences for an individual who is involved in related cases overseas.

The Competition Tribunal will also have the power to require any person or undertaking to dispose of operations, assets or shares of any undertaking. These powers could have far-reaching consequences in cases where the Tribunal finds an abuse of substantial market power. For example, such a power could be used to break up dominant enterprises that have abused their market power.

The Competition Commission will only be able to impose pecuniary penalties of up to HK$10 million for minor violations.

Lastly, the Bill provides for various criminal penalties for presenting misleading information or obstructing investigations.

What are the implications for business in Hong Kong?
The Bill is only a legislative proposal at the moment, but it gives a much clearer view of Hong Kong’s likely new competition regime. Legco’s Bills Committee has scheduled some 37 meetings to review the Bill which is not expected to be voted on before May 2012. Although some provisions may still be modified, we believe that the fundamentals are unlikely to be changed. So, what should companies in Hong Kong begin to do? Below, we give suggestions for some preparatory steps:

• Review major contracts or business practices to see whether they involve arrangements which could infringe the First Conduct Rule, in other words:
- price fixing or bid rigging;
- market sharing or allocation of markets;
- output restrictions;
- joint boycotts;
- resale restrictions - resale price maintenance or use restrictions.

• In negotiating all new contracts ensure that they would comply with the provisions of the First Conduct Rule;

• Conduct reviews of all businesses in which the company holds substantial market shares for example, over 35% to 40% to identify potential issues of substantial market power;

• Consider whether any agreements or arrangements which are typical to a particular business sector should benefit from a block exemption. This may be a matter to raise with the relevant trade association with a view to making an application to the Commission at the appropriate stage;

• Plan for training employees and the introduction of an effective compliance programme which should be carefully adapted to the culture and size of the organization and the particular business sector. Companies are advised to begin this process well in advance of the publication of Guidelines by the Commission. Experience in the European Union has shown that it usually takes several years to instil a new compliance culture into an organization.