Hong Kong: Introducing the New Competition Law in Hong Kong

Last Updated: 14 September 2010

After years of consultations, the Hong Kong Government submitted the long waited Competition Bill (the "Bill") on 2 July 2010 to the Legislative Council for debate in the coming 2010-2011 session.  The Bill is expected to be passed at the session as the Competition Ordinance.  It will however only come into operation on a day to be appointed by the Secretary for Commerce and Economic Development.

A.Scope of the Bill

The objective of the Bill is to prohibit and deter undertakings (i.e. any entity engaging in commercial or economic activities) from adopting abusive or anti-competitive conducts in all sectors which will have the effect of preventing, restricting or distorting competition in Hong Kong.  The Bill consists of the following 3 main competition rules :-

1.The First Conduct Rule

The First Conduct Rule prohibits undertakings from engaging in restrictive agreements and concerted practices that will prevent, restrict or distort competition in Hong Kong.

2.The Second Conduct Rule

The Second Conduct Rule prohibits undertakings with a substantial degree of market power from abusing such power by engaging in conducts (inside or outside Hong Kong) that will prevent, restrict or distort competition in Hong Kong.

3.The Merger Rule

The Merger Rule only applies to undertakings which are telecommunication license holders and it prohibits these undertakings from directly or indirectly carrying out mergers that will or are likely to lessen the competition in the telecommunication industry in Hong Kong.  Mergers in other industries are not directly governed by this rule, but they may still fall under the ambit of the First or Second Conduct Rule.

B.Implementation and Enforcement

To enforce the Bill after its enactment, the following statutory bodies will be established :-

1.Competition Commission (the "Commission")

It is an independent statutory body responsible for investigating anti-competition conducts and complaints and the institution of actions before the Competition Tribunal (the "Tribunal") in Hong Kong (to be discussed below). The Commission will also be responsible for promoting the Competition Ordinance, issuing competition guidelines and deciding on applications for exemption etc.

The Commission is vested with a discretionary power to accept commitments from an undertaking to take or refrain from taking any action, in exchange for the Commission's ceasing to investigate complaints or ceasing to commence legal actions against such undertaking in relation to a particular contravention.

Before bringing the matter to the Tribunal, the Commission may issue an infringement notice bearing terms of settlement including the payment of a specified sum (up to HK$10 million) to any person/undertaking who has in the Commission's view contravened the First and/or Second Conduct Rules.  By such notice, the Commission may also require such person/undertaking to take or refrain from taking certain actions to address the Commission's concerns about a possible contravention of a Conduct Rule.

Under the Bill, the Commission is also empowered to enter into leniency agreements with any undertaking willing to cooperate in the investigation of complaints or assist in bringing actions in the Tribunal against other parties.

2.Competition Tribunal (the "Tribunal")

The Tribunal is a superior judicial body that is responsible for hearing and adjudicating competition cases that are brought by the Commission or instituted by private actions, as well as the reviewing of decisions against undertakings made by the Commission in relation to anti-competition conducts.

Under the Bill, the Tribunal is empowered to apply a full range of remedies which include imposing penalties and awarding damages to aggrieved parties, interim injunctions, termination or variation of an agreement adjudged to be infringing the competition law and disqualification orders against directors of undertakings who have carried out activities breaching the competition rules. Decisions of the Tribunal may be appealed in the Court of Appeal with leave.

C.Exemptions

Under the Bill, certain activities will be exempted from the compliance of the competition rules :-

1.Agreements that enhance or likely to enhance economic efficiency

The First Conduct Rule and/or the Second Conduct Rule will not apply to agreements that enhance overall economic efficiency with inevitable anti-competition effects. Parties to an agreement may self-assess whether their agreement satisfies the exemption criteria or may apply to the Commission for an assessment.  Further, block exemption for a specific type of agreement are possible if there are exceptional and compelling reasons of public policy that the Conduct Rules ought not to apply. Agreements or conducts may also be exempted from the application of the Conduct Rules if such agreements or conducts are required to avoid conflicts with international obligations.

2.Mergers that enhance or will likely to enhance overall economic efficiency

Mergers of undertakings holding telecommunication licenses which enhance or will likely to enhance overall economic efficiency will be exempted from the application of the Merger Rule.

3.Conducts complying with other legal requirements

The Bill also states that conducts that may breach the First and/or Second Conduct Rule will be exempted if they are so required for compliance with other legal requirements.

4.Activities of statutory bodies

Unless expressly specified in separate regulations which may be passed after the enactment of the Bill, the (aforesaid) anti-competition restrictions will not apply to the activities of statutory bodies as most of such activities are non-economic in nature.

5.Public officers and the Commission

Infringement activities carried out in good faith by officers of the Commission in performing their duties under the Bill will also be exempted.

As stated above, the Bill is subject to debate at the Legislative Council and some changes to the Bill may be made at the session as a result of the debate.

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