Hong Kong: Hong Kong Government attempts to shed light on Competition Bill ... but business sector remains in the dark

Last Updated: 6 June 2011
Article by John M. Hickin, Hannah C. L. Ha and Gerry P. O'Brien
Most Read Contributor in Hong Kong, October 2018

Originally published 2 June 2011

Keywords: Hong Kong, Competition Bill, guidelines, First Conduct Rule

In recent days, the Legislative Council Bills Committee that is considering Hong Kong's proposed Competition Bill was provided with guidelines that explain how the government believes key aspects of the Bill should be interpreted and applied. However as the Guidelines on the First Conduct Rule are a sample only, and are in no way binding on the proposed Competition Commission (which would be established as an independent body under the law and tasked with drafting a 'real' set of guidelines to explain its approach to key matters), they may be considered to be of limited practical use for the business sector in terms of gearing up for compliance or debating the merits of the Bill.

Indeed, for many businesses, the key 'takeout' from publication of the Guidelines will be that it highlights the very broad discretion that would be granted to the Commission in terms of determining the true scope of the proposed law. This is an aspect of the Government's proposals that has already generated concern amongst the business sector, with many representatives of the sector calling for the Bill to be amended to address key uncertainties now (rather than leaving them for later determination by the Commission) so that debate on whether to pass the Bill can be made in full knowledge of its potential impact.

In this legal update we summarise the content of the Guidelines and comment on how their publication impacts the debate in relation to the proposed law.

Scope of the Guidelines

The Guidelines focus on the proposed law's general prohibition on agreements that have the object or effect of preventing, restricting or distorting competition (which prohibition is referred to in the Bill as the 'First Conduct Rule'). No sample guidance is provided in relation to other key aspects of the proposed law, such as how the broadly worded prohibition relating to abuse of substantial market power will be applied. It is not clear whether further sample guidelines may be provided to the Bills Committee in the future.

Examples of potentially unlawful agreements are provided

Several pages of the Guidelines are devoted to providing examples of the types of agreements that may breach the First Conduct Rule. In total, twelve categories of agreement are referenced, covering agreements between competitors to (i) fix prices, (ii) rig bids, (iii) share markets, (iv) limit output, production or investment, (v) fix trading conditions, (vi) engage in joint purchasing or joint selling, (vii) share information, (viii) exchange price information, (ix) exchange non-price information, (x) restrict advertising, (xi) standardise agreements, and (xii) fix terms of membership (i.e. of associations) or certification requirements (i.e. for product quality assurance labels, etc).

Only 'appreciable' restrictions or distortions of competition will be actionable

The Guidelines clarify that rather than any level of restriction or distortion of competition being actionable as a breach of the First Conduct Rule, only 'appreciable' restrictions or distortions will be actionable (mirroring the approach to enforcement of competition law in Europe). This means that very minor restrictions on competition, such as may often arise from agreements between very small business operators, should not give rise to risks in the context of the First Conduct Rule.

A 'Single Economic Entity' defence is outlined

The Guidelines note the First Conduct Rule will not apply to agreements between entities who are considered to be part of a 'single economic unit' (that is, the same corporate group). The Guidelines go on to indicate that the issue of whether two entities (i.e. 'A' and 'B') are part of a single economic unit should be determined by reference to factors such as whether 'A' or 'B' are under a high degree of operational and financial control by the other (or both are under such control by a parent company).

The concept of an 'agreement' is further explained

The Guidelines include explanation of when an 'agreement' may be held to exist in the context of the First Conduct Rule, supplementing existing wording in the Bill on this issue. Specifically, the Guidelines note that the term applies to both legally enforceable and non-enforceable agreements, written or oral agreements, and "so-called gentleman's agreements". It is also noted that an entity can be considered a party to a relevant agreement even if the entity may have only played a limited role in setting up the agreement, is not fully committed to its implementation, or was pressured into participation in the agreement (however these factors may be taken into account when any penalty is applied if the relevant agreement violates the First Conduct Rule).

The government has not revealed its hand in relation to vertical agreements

In relation to vertical agreements, the Guidelines state that "it is expected that the first conduct rule will be applied in a much more limited fashion [than it will be applied in respect of horizontal (i.e. cartel) agreements]". The Guidelines note that in the absence of a party to a vertical agreement having strong market power, significant adverse effects on competition will be rare from such agreements, and it may be considered that relevant restrictions placed on parties within such agreements are most commonly for valid or pro-competitive purposes.

However, the Guidelines are carefully worded so as to reflect that ultimately it would be for the proposed Competition Commission to decide whether vertical agreements may still be open to review/challenge under the First Conduct Rule. The Guidelines state "[W]e expect that the Commission would consult the stakeholders and the public on how vertical agreements should be dealt with under the first conduct rule. The Commission could deal with vertical agreements through the guidelines on the first conduct rule. Alternatively, the Commission could issue a block exemption order to exempt vertical agreements from the application of the first conduct rule in light of their pro-competitive effects, and to impose appropriate conditions or limitations....".

This aspect of the Guidelines may be particularly frustrating for business operators who have called for the Government to make good on strong indications it made in previous consultation documents that vertical agreements would be clearly 'carved out' from the possibility of review or challenge under the First Conduct Rule.

Explanation is provided on the concept of 'concerted practices'

The First Conduct Rule is worded so as to apply both to 'agreements' and 'concerted practices'. The term 'concerted practice' is not defined in the Bill, but since publication of the Bill it was generally assumed that the term referred to circumstances where there is informal cooperation between competitors, without any formal agreement or decision. This is confirmed in the Guidelines, which replicate the prevailing European competition law approach to this concept by noting that "[A] concerted practice would be found to exist if parties, even if they did not enter into an agreement, knowingly substituted the risks of competition with co-operation between them".

The Guidelines note that mere 'parallel' (i.e. aligned) behaviour by competitors is not conclusive evidence of collusion between them (as competitors in some industries may be expected to closely follow each others pricing and terms, even if there is no agreement between them to do so), but the presence of other factors in addition to the parallelism may cause the Commission to consider that a concerted practice does exist. In this context, the Guidelines reference several factors that may be taken into account, such as whether the parties knowingly entered into practical co-operation, and whether the structure of the relevant market and the nature of the product involved are favourable to collusion (i.e. oligopoly sectors in which the products competitors produce are relatively homogenous).

Application of the First Conduct Rule to trade associations

The Guidelines briefly touch on the issue of trade associations, noting that they "generally carry out legitimate functions intended to promote the competitiveness of their industry sectors". However the Guidelines also note that, in the context of determining whether decisions or conduct of a trade association may violate the First Conduct Rule, "[T]he key consideration is whether the object or effect of [a decision by the association] is to influence the conduct or co-ordinate the activity of members in some commercial matter". The Guidelines go on to state that such circumstances may even arise from non-binding recommendations of an association.

Ascertaining the "object" of an agreement

The Guidelines note that the term "object" in the context of the First Conduct Rule prohibiting agreements with "the object or effect of preventing, restricting or distorting competition" refers to the objective purpose of the agreement considered in the economic context in which it is to be applied, and does not mean the subjective intention of the parties when entering into the relevant agreement.

It is stated in the Guidelines that the "object" of an agreement will need to be inferred from the surrounding facts, and particular regard may need to be had to such aspects as records of meetings between the relevant parties to the agreement. For example, the Guidelines note that discussions relating to an agreement between competitors that indicate the agreement was intended to prevent "ruinous price competition" or to ensure "an orderly market" may be taken as showing that the object of the agreement was to restrict the level of price competition between them.

Some elaboration is provided on the scope of First Conduct Rule exclusions and exemptions

The Guidelines contain some general commentary on the general exclusions that apply to conduct that may otherwise be deemed to breach the First Conduct Rule.

Of particular interest is the guidance provided in relation to the exclusion for entities entrusted with the provision of services of general economic interest (which exclusion, it should be noted, will only protect the relevant entity to the extent that application of the law would obstruct the performance by that entity of the relevant service provision entrusted to it).

The Guidelines note that the term "entrusted" in the context of the exclusion can apply when the task of providing a particular service is applied to a particular entity "by way of legislative measures such as regulation, or the grant of a licence governed by public law, [and also] through an act of the Government", however it will not apply in situations where the task of providing the particular services is merely given "approval by the Government".

The effect of this is that an organisation that is not expressly assigned (under law, or licence, etc) with the task of providing a particularly important service in Hong Kong (such as a utility service), but which is merely 'recognised' by the Government as a provider of such a service, will face an uphill battle if it seeks to rely on the exemption. This appears to be the case even if 'recognition' of the organisation's status as a supplier of the relevant service appears in the form of legislation or regulations.

Final comments

The Acting Secretary for Commerce and Economic Development, Mr. Greg So, reportedly advised the Bills Committee during 2010 that 'sample guidelines' would be provided to them for review by January 2011. Although it has taken five further months for the Guidelines to now surface, the Bills Committee will have plenty of time to consider and raise questions on the Guidelines - given that their scheduled review of the Bill is expected to continue until the second calendar quarter of 2012.

The Guidelines are useful in the sense that they explain the Government's preferred approach to many crucial issues of interpretation and enforcement in relation to the Competition Bill. However, the business sector may continue to question the wisdom of leaving final resolution of these issues to the proposed Competition Commission rather than codifying the position in the text of the Bill. Although it is true that a number of other competition law regimes around the world use 'flexible' guidelines to spell out the fine detail on aspects of interpretation and enforcement of their key law, the view may be taken that in a jurisdiction which has not previously had a cross-sector competition law there is a need for more certainty on such aspects during the debate about whether the law is right for Hong Kong, not after.

In particular, while good arguments can be made for ensuring the approach to issues such as application of exclusions and exemptions can evolve and adapt to changing circumstances over time, it can equally be argued that issues such as:

  • whether or not vertical agreements can be challenged under the First Conduct Rule; and
  • the threshold of restriction or distortion of competition that will be actionable,

are so fundamental and far-reaching that you cannot properly have a debate on the merits of the proposed law without knowing - with certainty, rather than on an indicative basis - the approach that would apply on such issues if the law was to come into effect.

For now, however, the business sector remains 'in the dark' on such issues, and many in the business sector will consider that only amendments to the Competition Bill will remove the shadow of uncertainty.

Learn more about our Hong Kong office and Antitrust & Competition practice.

Visit us at www.mayerbrownjsm.com

Mayer Brown is a global legal services organization comprising legal practices that are separate entities (the Mayer Brown Practices). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; Mayer Brown JSM, a Hong Kong partnership, and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2011. The Mayer Brown Practices. All rights reserved.

This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions