Jurisdiction - Hong Kong
Reports and Analysis
Hong Kong – Draft Guidelines To The Competition Ordinance.

13 January, 2015

 
 

Towards the end of last year, the Competition Commission published six draft guidelines to explain how the Commission will interpret and apply the substantive provisions of the Ordinance which are expected to come into force in 2015. The draft guidelines are currently undergoing a public consultation and are expected to be finalised in the first half of 2015 following consultation with the Legislative Council.


Three of the draft guidelines cover the new competition rules implemented under the Ordinance, relating to anti-competitive agreements between undertakings (the “First Conduct Rule”), abuse of substantial market power (the “Second Conduct Rule”), and anti-competitive mergers involving telecommunications carrier licensees (the “Merger Rule”). The remaining three guidelines deal primarily with procedural matters such as the Commission’s approach to the handling of complaints and investigations. Here we provide a brief summary of the draft guidelines:


Draft Guideline On The First Conduct Rule


The First Conduct Rule prohibits anticompetitive arrangements between two or more undertakings. The draft guideline on the First Conduct Rule notes that there are two types of anti-competitive arrangements that may be caught by the rule: those that by their very nature have the object of harming competition, such as cartel behaviour, and those that do not have an anti-competitive object but nonetheless have an anti-competitive effect. The draft guideline notes that the First Conduct Rule applies to both vertical and horizontal arrangements (i.e. arrangements between undertakings at all levels of the supply chain). The guideline also helpfully provides a number of examples demonstrating the Commission’s approach to certain common arrangements such as the use of standard terms, recommended or maximum resale price agreements and membership of trade associations.


Draft Guideline On The Second Conduct Rule


The Second Conduct Rule prohibits conduct that has, as its object or effect, the prevention, restriction or distortion of competition in Hong Kong. It only applies to undertakings which have a substantial degree of market power in a given market. The draft guideline on the Second Conduct Rule explains how the Commission will define the relevant market in which an undertaking operates and assess whether it has a substantial degree of market power therein. The guideline confirms that the Commission’s approach will follow international best practice, taking into account both the product market and the geographic market, and that the assessment of substantial market power will not simply depend on meeting certain prescribed market share thresholds, but will instead be determined on a case by case basis considering a number of economic factors.


Draft Guideline On The Merger Rule


The Merger Rule prohibits mergers that have, or are likely to have, the effect of substantially lessening competition in Hong Kong. When the rule comes into force it will initially only apply to undertakings operating in the telecommunications sector. The guideline sets out the Commission’s approach to applying the Merger Rule, including its approach to assessing the effect that a given merger will have on competition, and indicates two “safe harbours” based on market share and market concentration. Mergers that fall into either of these safe harbours are unlikely to raise competition concerns. The draft guideline also sets out certain processes and procedures including a process to seek informal advice from the Commission.


Draft Guidelines On Complaints, Investigations And Applications


The remaining three guidelines deal mainly with procedural matters. They explain how a party that suspects an undertaking of contravening a competition rule may register a “complaint” with the Commission and how the Commission will handle such complaints. They outline the approach that the Commission will adopt when considering an alleged contravention of the Ordinance and how it proposes to use its statutory
information gathering powers. In addition, they explain how a person may apply to the Commission for a decision as to whether or not an agreement or course of conduct falls within the relevant exemptions under the Ordinance, and outline the Commission’s approach to issuing “Block Exemption Orders” which exempt certain categories of agreements from the application of the First Conduct Rule.


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For further information, please contact:

 

Paul Westover, Partner, Stephenson Harwood
paul.westover@shlegal.com


Victor Lee, Stephenson Harwood
victor.lee@shlegal.com


Fiona Cheng, Stephenson Harwood
fiona.cheng@shlegal.com

 

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