In November 1996, the Consumer Council published a Competition Policy Report urging the government to enact competition laws on collusive agreements, abuse of dominant position, abuse of collective dominance and control of markets through mergers and acquisitions. The report was the first of its kind in Hong Kong, which at present does not have any laws governing monopolies, cartel-like supply structures and other anti-competitive practices.
On January 15 1997 the Legislative Council passed a motion urging that the recommendations in the report be further considered. If a draft bill is proposed, however, it is not expected to reach the Legislative Council until after July 1997.
The report makes five main recommendations to be part of a Hong Kong competition law:
Against restrictive agreements: This provision would prohibit, and render automatically void, all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition. Particular areas of concern include agreements which:
- directly or indirectly fix purchase or selling prices or any other trading conditions;
- limit or control production, markets, technical development or investment;
- share markets or sources of supply;
- apply dissimilar conditions to equivalent transactions with other trading partners, thereby placing them at a competitive disadvantage; and
- make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
Exemptions may be granted either by means of individual applications for exemption by the undertakings concerned to the proposed regulatory authority, or by means of block exemptions granted by the authority for general classes of agreements, or for agreements involving goods and services which account for less than a threshold market share.
Against abuse of market power: This provision would prohibit any abuse by an undertaking in a dominant position which prevents, restricts or distorts competition. A dominant position is defined as a position of economic strength enjoyed by an undertaking which enables it to hinder the maintenance of effective competition in the relevant market by allowing it to behave to an appreciable extent independently of its competitors and customers.
The restrictive practices covered are similar to those for companies acting collusively and include:
- unfair purchase or selling prices or unfair trading conditions;
- limiting production, markets or technical development to the prejudice of consumers;
- applying discriminatory conditions to equivalent transactions; and
- tie-in contracts.
Against the exploitation of a complex monopoly: This prohibits the exploitation of a complex monopoly. This is deemed to happen if a group of companies jointly accounting for a large part of the relevant market for any goods or services conduct their affairs, whether voluntarily or not, and whether by agreement or not, in any way to prevent, restrict or distort competition in connection with the production of goods or the supply of services, whether or not they themselves are affected by the competition and whether the competition is between persons interested as producers or suppliers or between person interested as customers of producers or suppliers.
Mergers and acquisitions: In the case of a merger between two distinct undertakings, or the acquisition of one undertaking by another, which may give rise to a dominant position that may be expected to prevent, restrict or distort competition in the market for any goods or services, the relevant authority will have the power to investigate these possible effects and take action to remedy or prevent any adverse consequences for effective competition. The action may involve requiring specific undertakings from the combined entity or, where such undertakings are insufficient, may involve blocking the relevant merger or acquisition.
Establishment of Competition Authority and Appeals Body: The report also recommends the establishment of a Competition Authority responsible for investigating possible breaches of the competition statutes and with appropriate enforcement powers, including the power to impose fines and/or to allow aggrieved third parties to sue for damages.
An Appeals Body would also be established to hear appeals against decisions by the Competition Authority, and would either function in a way similar to a civil court, or operate as a commission. The commission could consist of a panel of three persons expert in the legal, business and economic fields who would review oral and written evidence from both sides before rendering a decision. The commission's decisions may be further challenged before the court for judicial review on the procedural, as opposed to the substantive, aspects of the case.
Anne WY Chen and Jade Ho