Hong Kong's Legislative Council last week enacted the
city-state's long-awaited Competition Ordinance. While MNCs
will be unaffected, practitioners say that Hong Kong businesses
should begin reviewing their practices.
Competition Ordinance has more than 170 provisions, only a
few deal with restrictions. The vast majority set out
procedures for two regulatory bodies, the Competition Commission and the Competition
The two conduct rules in Part 2 of the Competition Ordinance
designate restrictions, and are very broadly drafted. According
to John Hickin, a partner at Mayer Brown JSM, this is
deliberate because it will give the Commission some latitude in
determining what sort of behavior it wants to crack down
But the general quality of the conduct rules concern
businesses. Shirley Yuen, CEO of the Hong Kong General Chamber
of Commerce, said, "the Chamber believes that the law still
leaves much to be desired in terms of clarity, and although a
rough framework has now been put in place, it needs to be
shaped to best suit and serve Hong Kong’s
The first conduct rule generally prohibits agreements that
prevent, restrict or distort competition. However the
Commission will decide whether the rule will cover vertical
arrangements, such as those between entities in a supply chain
or distributorship arrangements.
Yuen said that it is critical to remove this uncertainty as
soon as possible. Currently businesses do not know whether, and
to what extent, distribution, franchising, joint purchasing,
R&D, commercialisation, resale price maintenance, exclusive
dealing and other agreements will be treated under the law.
The second conduct rule specifies abuse of market power
rather than market dominance. Hickin said that this is because
there is a lower threshold for the Tribunal and the Commission
to determine if a business has substantial market power.
Marc Waha, partner at Norton Rose Hong Kong, said that he
has seen concern about the definition of market power. "The
government has said it wants to refer a low percentage of
market share because it wants to go after supermarkets and
retailers," he said. "Clearly the rest of the business
community is uneasy because there is a lot of missing
But the Hong Kong law goes further than most competition
laws. Sébastien J. Evrard, an antitrust partner at Jones
Day’s Beijing office, said that in other
jurisdictions, substantial market power laws generally require
at least a 40% market share threshold.
But the threshold is lower in Hong Kong. Multinational
corporations with market shares between 25 to 40% are not
subject to abuse of dominance provisions around the world, but
they may be in Hong Kong. However, Evrard clarified that the
law does not prohibit having large market shares or a monopoly.
Instead, they only become illegal when there is a monopoly that
applies unfair prices or bundles products.
Noncompliance can incur a penalty of up to 10 percent annual
turnover obtained in Hong Kong, based on the gross turnover of
the undertakings concerned, for each year of infringement up to
a maximum of three years. Individuals can be disqualified for
up to five years from acting as a director or being directly or
indirectly involved in the management of a company.
Other sanctions can include forcing divestiture of business
operations, assets or shares or appointing a third party to
take control of property.
However Yuen said that the penalty cap to 10 % of Hong Kong
turnover does not go far enough to make the law proportionate.
Instead, the cap should be on the local turnover in the goods
or service concerned.
But Waha said that law-abiding corporates, especially listed
companies, do not need the prospect of high sanctions to take
the Competition Ordinance seriously. "If they are perceived as
non-compliant, then they will be sanctioned by shareholders
before any competition authority is involved," he added.
"As in all jurisdictions that have introduced a competition
law (except for China), there will be a rush for exemption
applications," said Waha.
The ordinance provides for several exemptions. Practitioners
noted that there is effectively an exemption for government
entities, which is unusual.
Statutory authorities are also exempt, but the government
can bring certain statutory authorities back within the scheme
of the law if nominated. The Chief Executive can also grant
exemptions if there are public policy reasons. This is often
available to entities entrusted with the provision of services
of general economic interest, such as utilities.
The Competition Ordinance specifies a procedure to apply for
block exemptions, which will be determined by the Commission in
due course. In other jurisdictions, block exemption orders have
been made available to the insurance sector, shipping lines and
other businesses where there is justification, said Hickin.
Other exemptions are specified in Schedule 1 of the law.
Companies are exempt from the first conduct rule if its
undertakings in any calendar year do not exceed HK $200
million. They are exempt from the second if its undertakings do
not exceed HK $40 million. However, Hickin warned that these
exemptions are not absolute. "It does not apply to hardcore
cartel activity," he said.
Practitioners agree that the law’s impact on
MNCs is limited. MNCs are subject to competition laws around
the world, and tend to adopt a consistent policy, Evrard
But compliance could be more difficult for Hong Kong
companies. Yuen said that the Competition Ordinance will impact
the cost of doing business, as companies hire legal and
compliance experts to ensure that their contracts and business
operations do not breach the law.
"Many practices that have been ingrained in how people have
done business will no longer be viable," said Hickin. "By way
of example, the competition law will have a real impact on the
way businesses make pricing decisions, and even the extent to
which they can share information with competitors."
However corporates have time to comply. Waha predicted that
it will be six to ten months before appointments to the
Commission are made, and does not expect enforcement until
2014. "It will be maybe five to ten years before we start
seeing market changes due to the Competition Ordinance," he