Is Hong Kong's proposed competition law a good idea?

Hong KongÆs government said in early May it would introduce legislation to set up a competition law. Hong Kong is one of the few major economies that does not have such a law û but for years it resisted setting one up, saying that the economy was too small to warrant one. But after much criticism for allowing sectors such as electricity, property and supermarkets to be dominated by a handful of tycoons, it looks like the government is willing to discuss the subject. We asked competition law specialist Kirstie Nicholson of Lovells Shanghai office to discuss the proposal.

What do you think of the proposed anti-competition law?

The proposal for a cross-sector competition law in Hong Kong is to be generally welcomed. The proposed law will help introduce a level-playing field of competition in Hong Kong with resulting benefits for both businesses and consumers. Importantly, the authorities will have, for the first time, the powers to investigate and punish anti-competitive practices in any industry in Hong Kong.

Is it similar to such laws in other countries? And does it appear to be as effective as it perhaps needs to be?

The proposed competition law prohibits anti-competitive agreements between competing undertakings and abusive conduct by undertakings with substantial market power (there is no requirement of ôdominanceö given the relatively small size of Hong Kong). In this respect, the proposal is broadly in line with the competition law of other jurisdictions, such as the EU. No list of prohibited activities is included in the proposal, though it is suggested that guidelines will be issued on how the prohibitions will be interpreted and enforced: in principal the proposal for such guidelines is a good thing, though it remains to be seen how helpful they will be in practice.

It is probably safe to assume that the authorities will take action against undertakings engaging in the types of ôhard coreö activities that have already been prohibited for many years in other jurisdictions, such as the EU (for example, bid rigging, price fixing etc). In addition, the effect, or purpose, of the agreement or activity in question must be ôa substantial adverse effect on competitionö. Accordingly, there will be no per se infringements and investigations will be carried out on a case-by-case basis. This approach is, at least in part, aimed at relieving the concerns of small- and medium-sized enterprises, and will give the authorities flexibility to apply the proposed competition law in a more commercially realistic way.

What are some of the specifics of the proposal?

In addition to the two general prohibitions mentioned above, the proposal also sets out detailed proposals for the regulatory structure of the proposed law, including the establishment of an independent competition commission, investigation committee and competition tribunal together with the protection of the rights of defence of undertakings being investigated. In this respect it is significant that it is proposed that a specialist Competition Tribunal, made up of relevant experts, will be established to deal both with the appeal of decisions and third party actions, and this should lead to a more consistent and efficient application of the law at this level.

The proposal also includes details of the proposed penalties for breaches of the prohibitions in the new law; only civil not criminal penalties are provided for. The proposal sets out a relatively low maximum fine of HK$10 million that may be imposed by the commission, though the commission may apply to the tribunal to impose more serious penalties. It is proposed that, on such an application by the commission, the tribunal may impose various penalties including higher fines (no firm maximum is set though a cap of 10% of total turnover, in line with jurisdictions such as the EU, is suggested), and disqualify relevant individuals from holding directorships or managerial roles in any company for up to five years. It is not clear in what circumstances the commission may apply to the Tribunal for such higher penalties.

Finally, it is worth mentioning that while there is no firm proposal for a merger control regime to be introduced in Hong Kong, the possibility is not entirely ruled out and comments on this are sought. It will be particularly interesting to see what level of support there is for the introduction of merger control rules and whether any are ultimately adopted.

Is this law generally viewed as essential to regulate industries where anti-competitive issues exist? Or does the business community view the proposal as intrusive, or unnecessary?

While there have been some concerns raised by the business community about the introduction of a competition law and the potential burden resulting from further regulation, there generally seems to be support for a cross-sector competition law and a recognition of the potential resulting benefits. Ultimately, it will be the practical application of the new competition law by the authorities that will determine its effect on businesses.