The implementation of the new Competition Ordinance (Chapter 619 of the Laws of Hong Kong) (the Competition Ordinance) on 14 December 2015 will mark the first time that Hong Kong has a general and cross-sector competition law.

Background

The Competition Ordinance was enacted on 14 June 2012 as a general and cross-sector competition law to curb anti-competitive conduct and will come into full effect on 14 December 2015.

Three major forms of anti-competitive conduct are prohibited under the First Conduct Rule, the Second Conduct Rule (collectively referred to as the Conduct Rules) and the Merger Rule respectively. In this issue, we will discuss the First Conduct Rule.

What is the First Conduct Rule?

The First Conduct Rule1 concerns agreements, decisions and concerted practicesamong undertakings which have the object or effect of preventing, restricting or distorting competition in Hong Kong. It applies to both horizontal and vertical agreements, and even if the impugned conduct occurs outside Hong Kong or if any party to the conduct is outside Hong Kong.

A flowchart illustrating how the First Conduct Rule works is set out in Appendix 1.

Key terms used in the First Conduct Rule

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Serious Anti-competitive Conduct – the "hard core" infringements

Where the Competition Commission has reasonable cause to believe that a contravention of the First Conduct Rule has occurred, in general, it must issue a warning notice to the undertaking concerned before bringing proceedings in the Competition Tribunal.

However, this procedure may be bypassed in cases of serious anti-competitive conduct (Serious Anti-Competitive Conduct), which is defined as " conduct that consists of any of the following or any combination of the following:

  1. fixing, maintaining, increasing or controlling the price for the supply of goods or services (i.e., price fixing);
  2. allocating sales, territories, customers or markets for the production or supply of goods or services (i.e., market sharing);
  3. fixing, maintaining, controlling, preventing, limiting or eliminating the production or supply of goods or services (i.e., output limitation);
  4. bid-rigging".2

Further, the general exclusion for agreements of lesser significance3 does not apply to cases of Serious Anti-Competitive Conduct.

Exclusions and exemptions from the First Conduct Rule

The First Conduct Rule does not apply to statutory bodies unless they are specifically brought within the scope of this Rule, nor does it apply to persons or activities specified in a regulation made by the Chief Executive in Council.

Further, schedule 1 to the Competition Ordinance sets out the following general exclusions in respect of the First Conduct Rule:

  1. agreements enhancing overall economic efficiency;
  2. compliance with legal requirements;
  3. services of general economic interest;
  4. mergers; and
  5. agreements of lesser significance.

The Competition Ordinance also provides for block exemption orders and public policy and international obligations exemptions.

Undertakings are not required to apply to the Competition Commission in order to secure the benefit of a particular exclusion or exemption. Nevertheless, they may elect to apply to the Commission for a decision as to whether an exclusion or exemption applies.

What's next?

The imminent implementation of the Competition Ordinance is a significant step in the evolution of Hong Kong’s fledgling antitrust regime and puts Hong Kong on a similar footing to many other jurisdictions, such as the European Union, the United States and Australia.

Multinational enterprises doing business in Hong Kong can no longer afford to ignore the Special Administrative Region as a jurisdiction that has no competition regime or antitrust enforcement. In the next issue, we will discuss the Second Conduct Rule in greater detail.

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