On 9 October 2014 the Hong Kong Competition Commission published Draft Guidelines required under the Hong Kong Competition Ordinance. The publication of the Draft Guidelines brings Hong Kong a significant step closer to the full implementation of the Ordinance. The Guidelines at a glance The Draft Guidelines outline how the Commission expects to interpret and give effect to the Ordinance. The Commission has released the following documents for public consultation: 1. Draft Guideline on the First Conduct Rule The First Conduct Rule targets anti-competitive agreements having an adverse impact on competition in Hong Kong. This Draft Guideline focuses on conduct which the Commission regards as having a serious anti-competitive effect, such as, agreements between competitors to fix prices, share markets, restrict output or rig bids. The Draft Guideline provides some illustrative examples of when information exchange between competitors is unlikely to contravene the Ordinance. The Draft Guideline also provides some comment on vertical agreements. Importantly, it states that, as a general rule, the Commission would treat resale price maintenance as anti- competitive “by object” – meaning that suppliers will need to point to efficiency justifications if they want to control the price at which dealers sell. 2. Draft Guidelines on the Second Conduct Rule The Second Conduct Rule prohibits abuse of market power having an adverse impact on competition in Hong Kong. This Draft Guideline contains a statement of the Commission’s approach to market definition (relevant to both the First and Second Conduct Rules). The Draft Guideline does not include a market share threshold below which firms will be presumed not to have substantial market power or a market share threshold above which a firm will be presumed to have substantial market power. The Commission states that it will instead adopt an economics based approach to assessing substantial market power. 3. Draft Guideline on Complaints This Draft Guideline sets out the procedure for making complaints to the Commission. 4. Draft Guideline on Investigations This Draft Guideline outlines how the Commission will gather evidence and sets out a three stage investigative process: (i) receiving an assessing a complaint; (ii) an initial assessment phase; and (iii) an investigation phase. It also details how the Commission can utilise its compulsory evidence gathering powers and the procedure for publication of Warning Notices. 5. Draft Guideline on Applications (Exclusions and Exemptions) This Draft Guideline sets out how the Commission intends to: (i) apply its discretion under the Ordinance on whether to accept an application for a Decision or Block exemption Order; and (ii) exercise its power to issue Block Exemption Orders. The Commission states that block exemptions will not be issued before the prohibitions in the Ordinance are in force. 6. Draft Guidelines 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. The Merger Rule only applies to mergers where an undertaking that directly or indirectly holds a “carrier licence” within the meaning of the Telecommunications Ordinance is involved in the merger. This Draft Guideline sets out the Commission’s approach (and the approach of the Communications Authority, which shares concurrent jurisdiction) to competition assessment of mergers; the procedure for obtaining informal advice and formal review process. What is next? The Commission is holding a public consultation on the draft Guidelines. The Commission has laid down a deadline of 10 November 2014 to submit comments on the Guidelines on Complaints, Investigations and Applications and a deadline of 10 December 2014 to submit comments on the Draft Guidelines on the First Conduct Rule, Second Conduct Rule and Merger Rule. After the public consultation the Commission has stated that it will then refine and finalise the Draft Guidelines for consultation with the Hong Kong Legislative Council and other “appropriate persons”. Following this consultation process the Commission will adopt and issue final Guidelines. The Guidelines must be finalised before the Ordinance comes into effect. Over the coming months the Commission also proposes to publish (i) brochures and self-assessment tools aimed at small business; (ii) policies on leniency; and (iii) its enforcement priorities. The Commission is aiming to complete all preparatory work for the implementation of the Ordinance in the first half of 2015. The date for implementation of the Ordinance will be set by the Hong Kong government but is anticipated to be in late 2015. What it means for you This transitional period is an opportunity for you to consider:
- Firstly, any possible risks and whether your company’s conduct is compliant with the Ordinance. And then, depending on the answer, design appropriate remedial measures.
- Whether to submit comments to the Commission in response to the Draft Guidelines.
* David Fleming and Stephen Crosswell are partners, Eva Crook-Santner is an associate in Baker & McKenzie’s Hong Kong office.