After much deliberation, the Hong Kong competition law is finally expected to come into force in 2015. Meanwhile, we can expect China to continue to ramp up antitrust enforcement of the PRC’s Anti-Monopoly Law with the focus so far having been on cartel behaviour and resale price maintenance.
These two developments are very likely to be viewed by many international companies as the “new normal” in terms of antitrust enforcement in Asia.
Hong Kong – the emergence of a new competition regime
The Hong Kong Competition Ordinance has been given fresh impetus following publication of draft Guidelines in October 2014 that were intended to flesh out the provisions contained in the Ordinance. Following the publication of the draft Guidelines, it now seems that there is a timetable in place and full entry into force is expected to take place in late summer 2015.
The draft Guidelines, according to the Hong Kong Competition Commission, draw on the best practices from other established competition law regimes. However, there are some important gaps and key questions that remain to be answered prior to the coming into force of the Ordinance in 2015.
- there is no safe harbour/block exemption for vertical agreements which means that companies may need to self-assess the competitive effects of all such agreements. This will be time-consuming and add to compliance costs given the careful consideration that may need to be given to the analysis;
- unlike in other jurisdictions such as the EU and China, there is currently no indicative market share threshold to assess whether a company may hold a substantial degree of market power (the Hong Kong equivalent of dominance in the EU) and is subject to a special responsibility not to engage in conduct that may lessen competition in Hong Kong. Silence on this point, which is substantially out of line with most established antitrust regimes, creates considerable uncertainty, particularly when a threshold as low as 25 per cent was debated in the legislative passage of the Ordinance;
- it remains unclear from the Ordinance and the draft Guidance published to date whether company directors and employees are susceptible to potentially substantial pecuniary penalties for infringement of the key competition rules in the Ordinance. More light may be shed on this point when the Commission publishes its Guidelines on the leniency process in early 2015; and
- a number of important parts of the competition framework are not yet in place. These include guidance on the availability of whistle-blowing procedures (leniency), a broader statement on the Commission’s enforcement policies and international co-ordination. It is to be hoped that a fuller picture of the Hong Kong competition regime will emerge upon publication of this further guidance.
It is to be seen whether all of the current uncertainties will be resolved in the next 12 months in the run-up to the coming into force of the Ordinance. If not, companies will need to consider how best to ensure compliance in the absence of clear bright lines on some key issues.
The Hong Kong Competition Commission is a very powerful regulator and all eyes will now be on how it exercises its powers in one of the world’s foremost economic centres
China – the shifting sands of antitrust enforcement
Since 2013, the China antitrust agencies have significantly intensified their enforcement activities, such that between January 2013 and July 2014, the agencies concluded more cases than in the entire period prior to that since the introduction of the China antitrust law in August 2008. The general increase in enforcement activity has been accompanied by a significant increase in fines.
A number of factors suggest that the sharp increase in enforcement activity is expected to continue into 2015.
The enforcement activity is likely to be driven by an expected increase in the number of complaints and leniency applications that may give rise to further investigations. In particular:
- the National Development and Reform Commission (the NDRC) - the antitrust agency responsible for price-related infringements such as price fixing - has made available for consumers a nation-wide price complaint platform and the information received is stored in a database. As a result, it is expected that price-related complaints will be pursued and investigated more systematically and efficiently in China as the system comes into play;
- the agencies are further encouraging third party complaints by increasing the monetary reward for those that supply evidence; and
- leniency programmes are increasingly being used to incentivise companies to self-report antitrust violations in exchange for more lenient treatment.
Further indicators of an expected ramping up in enforcement include:
- the Chinese authorities having entered into various co-operation agreements with competition authorities internationally, which increases the risk that an investigation in another jurisdiction will spark similar antitrust investigations in China; and
- in 2014, an investigation was concluded that was triggered by private litigation. This may indicate a new trend in antitrust enforcement where regulator action will follow on from private litigation. This is the opposite of the international norm where litigation is generally the ‘follow-on’ piece.
The agencies have indicated that enforcement action will focus on sectors that impact “people’s livelihood”. Specifically, SAIC (the State Administration For Industry and Commerce) - the antitrust agency responsible for non-price related infringements - announced that it is focusing on telecommunications, public transportation and public utility sectors. Similarly, the NDRC has stated that, among other things, it will focus on aviation, household chemicals, automobile, telecommunications, pharmaceuticals and home appliances.
Regarding the type of violations, recent investigations have shown that the agencies are increasingly looking into the conduct of international companies and are focusing on:
- price fixing:
an example is the imposition of significant fines in relation to Japanese automotive parts makers, where two companies received full immunity;
the NDRC has conducted several high profile investigations, including in relation to contact lenses; and
- information exchange:
the agencies have indicated that they are increasingly concerned about the exchange of commercially sensitive information in the context of trade organisations.
In terms of procedures in China, international companies need to be mindful of some perceived differences in rights of defence and the speed at which the agencies may conduct and conclude investigations.
Looking ahead to 2015
While competition laws will be familiar to multi-national companies, there may be challenges for employees and local teams in transitioning to the new antitrust regimes. There are some steps that you can take to ease the transition, including:
- ensuring your compliance programmes are tailored to the nuances of the Chinese and Hong Kong antitrust regimes; and
- reviewing your commercial agreements to ensure that all the terms and conditions are consistent with Chinese and Hong Kong antitrust law principles especially concerning resale price maintenance.
International companies are increasingly finding they are subject of investigations by sophisticated antitrust agencies in China; there’s very much a sense of an antitrust regime coming of age and companies need to pay close attention