Jurisdiction - Hong Kong
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Hong Kong – All’s Fair In Competition Law.

28 November, 2012

 

Hong Kong is introducing competition law for the first time in its history, and this will change the business landscape forever­­­­­­­­­­­.

 

In the summer of 2012, Hong Kong’s legislators voted to enact a new and unprecedented competition law, making the territory the last developed economy in the world to introduce such a law. Although it is not likely to come into force for another year or two, lawyers are warning companies to start preparing now.

 

Hong Kong’s legislative council voted to enact the Competition Ordinance on 14 June 2012. The implications for businesses in Hong Kong were discussed recently at a media briefing at the Hong Kong office of Orrick Herrington & Sutcliffe.

 

The ordinance will introduce two big changes in the form of the conduct rules. The first will be a prohibition on restrictive agreements – “agreements, concerted practices and decisions which have as their object or effect the prevention, restriction or distortion of competition in Hong Kong,” as Veronica Lockyer, counsel at Orrick, explained. They may be between competing companies or between companies at different levels of the supply chain, and also apply to decisions by trade associations.

 

The second will be a prohibition on the abuse of a substantial degree of market power, Lockyer continued. At present, it is unclear how a “substantial degree of market power” will be defined. The EU applies a “dominance” test, which would generally require at least a market share of above 40%. In Hong Kong, the approach seems to favour a lower threshold.

 

There are exclusions and exemptions in the ordinance to ensure that small and medium-sized enterprises (SMEs) are not penalised for anti-competitive behaviour: some lawyers say it would go against one of the key reasons for introducing competition law in Hong Kong if the ordinance adversely affected SMEs.

 

It is not yet known when the ordinance will come into force. But businesses should note that there is no “grandfathering period”, as Lockyer explained. In other words, businesses will be expected to be compliant with the ordinance on the day that it is brought into force.


Lockyer advised that companies should start to make adjustments now to ensure they are not caught by the anti-competitive provisions at that future date. They should also become familiar with the concepts and consequences of the ordinance.

 

Enterprises in Hong Kong may wish to begin a full review of the business alliances they have, particularly those with competitors. If a collaboration agreement between two (or more) enterprises exists, then they should review the contract and make sure it does not contain any provisions that will breach the law.

 

The general business conduct of the company should also be reviewed and in particular, participation in trade associations. It is important for staff attending trade association meetings, for example, to be aware of what topics of discussion are appropriate in light of the anti-competitive provisions of the new ordinance.

 

The training of company staff in competition-law concepts will be vital so as to ensure company compliance, so businesses should draft policies and train staff accordingly.

 

“Prepare compliance policies for dealing with competitors and trade associations; review current business conduct and know what to do if and when the authorities turn up on your doorstep unannounced,” advised Lockyer.


Speaking to Conventus Law later, David Renton, a partner at Bird & Bird, agreed that businesses – in particular SMEs – need to start acting now. He considers the new legislation to be “a very positive move for Hong Kong”, and says he is already being approached by clients asking how best to prepare for the change in the law.

 

When asked whether he agreed that the new Hong Kong competition law was modelled on the EU approach, he agreed, adding that it is also modelled on the UK legislation.

 

“It was done deliberately because competition law is new to Hong Kong. The government was very keen to pick a regime which would provide case law that would guide the competition commission and tribunal here,” Renton said. “But during the legislative process some significant differences were introduced to allay concerns from businesses.”

 

Both Lockyer and Renton agree that the lack of merger provisions is a big gap in the law. Renton believes that it is only a matter of time before proposals to include merger provisions will be put forward.

 

Businesses not wishing to be a victim of a dawn raid would be wise to follow both lawyers’ advice and start preparations early.

 

“Businesses, in particular the SMEs, do need to take the legislation seriously. Larger companies in Hong Kong are already familiar with competition law, being international,” continued Renton. “But it is the SMEs who are going to have to make the greatest adjustment and I get a sense they are not taking it quite as seriously as they should. I don’t think they are still quite convinced.”

 

But, this may not be easy for SMEs who lack manpower and resources. As one CEO of a Hong Kong start-up company explained, their company is not doing anything in preparation for the change in the law because they were not aware of the ordinance.

 

Without guidance from the enforcement agencies – the Competition Commission and Competition Tribunal, which are yet to be set up – companies may claim it is difficult to prepare themselves. But SMEs be warned: the competition law is coming and you will be expected to be compliant, so start taking it seriously. 

 

 

For further information, please contact:

 

Scherzade Westwood, Conventus Law

editor@conventuslaw.com

 

Follow Conventus Law on Twitter @conventuslaw

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