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Hong Kong Competition Commission Releases Draft Competition Ordinance Guidelines

On October 9, 2014, the Hong Kong Competition Commission and Communications Authority published draft guidelines under the Hong Kong Competition Ordinance.  The guidelines will not be the law; instead, they represent the Commission’s interpretation of the Ordinance and its policies on how the Ordinance will be enforced.  The guidelines will, nevertheless, certainly be influential as the Competition Ordinance takes effect and the Commission tests the enforcement waters.  According to a press release that accompanied the guidelines, their publication “marks a significant milestone in the Commission’s preparatory work towards the full implementation of the Ordinance.”  This blog previously reported on the Hong Kong Competition Ordinance, enacted in 2012, here.

As released, the draft guidelines are divided into two categories: substantive guidelines on the Ordinance’s two conduct rules and its merger rule; and procedural guidelines on complaints, investigations, and other related Commission actions.

The Ordinance’s first conduct rule bans agreements between competitors that harm competition in Hong Kong.   As the guideline interprets this rule, vertical agreements pose less of an anticompetitive concern than horizontal agreements, and are less likely to actually cause harm (unless the parties involved have considerable market power).  One exception is resale price maintenance arrangements, where a supplier fixes the price at which a retailer may sell.  This is a type of vertical agreement that the Commission considers inherently harmful to consumers.

The second conduct rule concerns abuse of market power in a manner that prevents, restricts, or distorts competition.  In its draft guideline, the Commission sets forth an approach to assess potential abuses by defining the relevant market and evaluating market power.  The guideline proposes consideration of factors like product markets and geographic boundaries.  Under this model, determination of relevant market will be a fact-specific inquiry.  Rather than setting thresholds that define substantial market power under the Ordinance, the Commission will base determinations on whether or not the allegedly abusive entity is constrained by competition in its market.

The Ordinance merger rule proscribes mergers that have a substantial negative impact on competition.  The draft guidelines present a road map of how the Commission will evaluate mergers, permitting corporations to evaluate their own conduct and anticipate whether or not their anticipated transactions will raise competition concerns.

The draft guidelines also explain how complaints concerning competition should be provided to the Commission and describe its procedure for investigating those complaints.  The Commission, for example, will be empowered to collect evidence to determine the merits of a complaint and evaluate whether or not an activity has a negative impact on competition.  The Commission may also receive evidence from in-person hearings or from a search of the premises of the subject of the investigation.  Also, according to the draft guidelines, the Commission may make exceptions for certain activities in limited circumstances where it determines they do not pose an insurmountable threat to competition.

The Commission accepted comments on the guidelines from interested parties; the period for comments closed on December 10.  Submissions were posted on the Commission’s website, and where appropriate, the Commission will use public comments to revise the guidelines.  The end result will be a final set of guidelines and implementation of the Ordinance, in 2015.