Originally published September 24, 2009 Keywords: Gregory So, Hong Kong, Commerce and
Economic Development Bureau, CEDB, Competition Bill, Legislative
Council, antitrust 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 bold 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: 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: 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:
http://mayerbrown.com/publications/article.asp?id=4528&nid=6 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. Learn more about our
Hong Kong office and
Antitrust & Competition practice. Visit us at
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