Chillin'Competition

[These are exciting days for competition lawyers in Hong Kong. The competition law regime is finally up and running! I have asked our friend Sandra Marco Colino, Assistant Professor at the Chinese University of Hong Kong, author of a textbook and excellent host,  to prepare a note on her impressions about the new times. Enjoy!]

This week marks the beginning of Hong Kong’s competition law era. As of Monday 14^th December 2015, all the provisions of the Hong Kong Competition Ordinance are fully enforceable, following a progressive 3-and-a-half-year implementation period.

The entry into force of the first ever comprehensive competition legislation is excellent news for my professional future a tycoon-dominated economy prone to anti-competitive conduct such as Hong Kong. As I discussed on this blog when the law was passed by the Legislative Council, the pervasive hostility in the region towards introducing any form of cross-sector competition legislation resulted in a passionate “to competition law or not to competition law” debate that went on for more than 15 years. These antitrust jitters left an imprint on the law which, as I previously discussed, required substantial dilution to be met with sufficient support for its adoption. But we got there in the end, and the Hong Kong Competition Ordinance was finally passed on the 14^th June 2012.

So what has happened in the last 3 and a half years, and why has it taken so long for the law to enter into force? For starters, the institutional framework had to be laid down. The Competition Commission (HKCC) and the Competition Tribunal (HKCT) were established in 2013, and both have been warming up for enforcement since. Subsidiary legislation was adopted by the government on the calculation of turnover and excluded bodies in April 2015, and on the Tribunal rules and fees in July 2015. The Competition Commission, in compliance with its obligations under the Ordinance, issued six Guidelines (to be found here) – first in draft form for public consultation, subsequently finalized in July 2015 – on: the First Conduct Rule; the Second Conduct Rule; the Merger Rule; Complaints; Investigations; and Applications for Decisions, Exclusions, Exemptions and Block Exemption Orders. More recently, in November 2015, the Commission announced its finalized leniency policy for cartel cases and its enforcement policy, setting out its enforcement priorities (see here). But beyond guidelines and policy, the Commission has been busy developing various initiatives to promote public awareness and to engage with the business community. It has produced didactic brochures and guidance to help companies understand the kinds of conduct that run contrary to the law. It has organized countless meetings and seminars with SMEs, trade associations and other stakeholders. And for those into soap operas, it has even produced a 10-episode TV mini-series, ‘Compete with Integrity’ (in Cantonese with English subtitles), which aired at prime time on local television. If you are hooked and you missed and episode, fear not – the entire series can be watched on the Commission’s website.

It has taken a while, but it looks like all is set now for competition law to kick in. Although the law is unusually detailed and lengthy, since it has not yet been enforced the Commission and the Tribunal have yet to chisel out some of the fundamental aspects of Hong Kong competition policy which will determine the effectiveness of the regime. It is through their forthcoming investigations and decisions that these aspects will be finally defined. The Commission is expected to start exercising its investigatory powers immediately, and some investigations may lead to enforcement actions before the Tribunal. The Tribunal will then adjudicate on the cases brought before it by the Commission or by private parties, and might impose sanctions if necessary.

As we anticipated, the new law has the potential to tackle many of the anti-competitive practices that threaten the proper functioning of Hong Kong’s free market economy. But the Ordinance, the Guidelines and the policy documents published thus far still leave important questions unanswered. I leave you with a few unaddressed issues to mull over. Under the First Conduct Rule, for instance, it is unclear how vertical agreements will be treated. According to the Guidelines, resale price maintenance “may” be harmful and even anti-competitive by object in some cases; however, the enforcement priorities make no mention of minimum RPM, despite the fact that it is considered to be common practice in Hong Kong. As for the application of the Second Conduct Rule, the Guidelines avoid referring to safe harbours, nor do they give any indication of specific market shares that might amount to “substantial degree of market power”. With regard to the Merger Rule, it remains applicable only to the telecommunications sector, and therefore most concentrations affecting Hong Kong will not be investigated unless they have wider effects and fall under the jurisdiction of other competition authorities. Adequately punishing anti-competitive conduct might also pose prove challenging. Since only the Tribunal can impose sanctions, it is still unclear whether the penalties available will be suitably used to deter anticompetitive conduct; given the relatively low fines that can be imposed (10 per cent of local turnover, for a maximum of 3 years), resorting to other weapons for serious breaches, such as director’s disqualification orders, could be crucial to enhance the punishing potential of the law. In addition, the leniency policy towards cartel members who are not the first to come forward is also far from clear. Moreover, the – virtually absolute – discretion afforded to the Chief Executive to disapply the law to ‘any person’, or to exempt certain conducts, could seriously undermine the authority of the Ordinance.

Only time will tell just how successful Hong Kong’s first cross-sector competition law turns out to be. Both the Competition Commission and the Competition Tribunal are more than sufficiently prepared to make the most of the somewhat limited powers that have conferred on them to fight anticompetitive practices and give a much needed boost to competition in the region. Even though the path towards a fully operational antitrust regime has only just begun, for the time being it is heartening to finally savour the victory of full implementation.