Originally Published 15th May 2008
The Hong Kong Secretary for Commerce and Economic Development recently announced the launch of a three month public consultation on government proposals for a new cross-sector competition law. These proposals are a result of the Government's attempts to address concerns and implement appropriate competition laws for Hong Kong.
The focal points of the consultation paper include:
- outlining the proposed forms of prohibited conduct,
- the proposed regulatory structure of the Competition Commission, and
- the manner in which small business concerns are proposed to be addressed.
The turn of the millennium saw the Hong Kong government introduce sector-specific regimes in the telecommunication and broadcasting industries. The Competition Policy Review Committee then issued recommendations in June 2006 that advocated economy-wide competition regulation. The government commenced an initial public consultation, finding support for cross-sector regulation, but also concerns regarding the potential for unmeritorious litigation and associated regulatory cost burdens.
The proposals prefer a conduct-based over a structure-based model for the new competition law. The conduct-based model will group prohibited activities into:
- agreements and concerted practices, and
- abusing substantial market power,
with the purpose or effect of substantially lessening competition. A contravention of the law will attract a civil penalty, capped at HK$10 million.
Rather than the law listing specific contraventions, the Competition Commission, a new independent authority, will issue guidelines to clarify infringement thresholds. The guidelines should include examples of anti-competitive agreements and specifically address "hard core" conduct, such as price fixing, market allocation and bid rigging, for which a significant anti-competitive impact appears likely to be presumed.
The new competition law will apply to telecommunications and broadcasting. However, the Government sees value in retaining some of the other regulators' expertise in such sector-specific matters so there will be some overlap.
The proposals point out that any structure-based competition regulation for mergers is likely to be inappropriate for Hong Kong. Nevertheless, the consultation paper refers to the potential concerns of global mergers involving Hong Kong subsidiaries and recognises a need for further public discussion on the issue of merger control.
The regime will be implemented by the Competition Commission and Tribunal. The Commission will be capable of investigating anti-competitive behaviour both voluntarily and in response to a lodged complaint. It will be vested with power to require the production of documents and to search premises, as well as to make determinations and apply remedies.
The Tribunal, in addition to reviewing Commission decisions, will provide a forum for private action. Parties have the right to seek compensation for loss ("follow-on" action) and to seek a determination by the Tribunal ("stand-alone" action). Available remedies include injunction or declaration, award of damages and termination or variation of an agreement. To allay concerns about excessive litigation, the proposals emphasise that the Tribunal will have the power to dismiss claims that are meritless or vexatious.
Small and medium sized-businesses (SMEs)
The consultation paper also responds to concerns of SMEs that increased regulation will bring about a more complex and costly operating environment. The proposals state a preference for the de minimis approach, where an agreement is immune from regulation when the aggregate market share of the parties is less than a certain percentage. There will be no exemption, however, for SMEs from investigation of "hard core" conduct.
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