On June 14, 2012, Hong Kong’s Legislative Council (“LegCo”) passed the Competition Ordinance. The Ordinance prohibits anti-competitive agreements and abusive conduct in Hong Kong and is modeled largely on the EU regime. However, merger control initially will apply only to the telecommunications sector.

Agreements and concerted practices that have the object or effect of preventing, restricting or distorting competition in Hong Kong are prohibited (“First Conduct Rule”). For so-called “serious anti-competitive conduct” (price fixing, market sharing, output restrictions and bid-rigging) anti-competitive effects are presumed. Also prohibited is the abuse of market power in or outside Hong Kong that has the object or effect of preventing, restricting or distorting competition in Hong Kong (“Second Conduct Rule”). The prohibition does not apply only to dominant companies but also to companies with a “substantial degree of market power.”

There are exclusions for agreements that enhance overall efficiency, for compliance with other legal requirements and for the operation of services of general economic interest. Agreements and conduct of “lesser significance”—companies with a combined turnover (in or outside Hong Kong) of less than HKD 200 million (USD 25.8 million) (First Conduct Rule) and HKD 40 million (USD5.2 million) (Second Conduct Rule)—are excluded from the scope of the Ordinance provided they do not involve “serious anti-competitive conduct.” The main provisions of the Ordinance do not apply to most of Hong Kong’s more than 500 statutory bodies.

Penalties for breach of the Ordinance include fines of up to 10 percent of the Hong Kong turnover of the undertaking concerned for each year in which the contravention occurred (up to a maximum of 3 years). Penalties also may be imposed on the individuals involved. The Ordinance also provides for a leniency procedure that will allow the Competition Commission to grant immunity from fines in return for cooperation.

Follow-on claims will be possible. However, for the time being, it will not be possible to bring private stand-alone actions. No time frame has been set for the implementation of the Ordinance, but it is anticipated that the substantive provisions will not enter into force before mid-2013 at the earliest. The text of the Competition Ordinance can be found here.