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Tuesday, December 15, 2015, 08:25

Competition watchdog set to sharpen its teeth

By Oswald Chan in Hong Kong
Competition watchdog set to sharpen its teeth
Smartphone shops in Mo ng Kok offer discounts on Monday as the Competition Ordinance comes into force. (Parker Zheng / China Daily)

With Hong Kong’s first cross-sector competition law coming into force on Monday — two years after its enactment — an international law firm predicts that the Competition Commission may choose to gather adequate experience before initiating more complex legal cases involving conglomerates.

It also advised small businesses to tread carefully on market information sharing to avoid breaching market rules.

“The enactment of the Competition Ordinance may exert big influences on the city’s small businesses because their traditional business practices may breach the ordinance. Small businesses need to change their practices that contravene market competition,” warned Hannah Ha Cheuk-ling, a Hong Kong-based partner and co-head of the anti-trust and competition team for Asia at global law firm Mayer Brown JSM.

One high-risk area is the exchange of market information among small businesses and trade associations. On occasions such as committee meetings, working groups, conferences and briefings, the above two parties may have many opportunities to share market information that may be deemed anti-competitive behavior. The burden is being put on the shoulders of the recipients to prove they did not use the information received, and this can be burdensome for small businesses.

“Small businesses have to take appropriate steps to instill more formality (for example dialogue recording) within the above-listed formal and informal meetings so that these occasions will not be regarded as the venue for improper information exchange,” Ha said.

The Competition Ordinance was enacted in June 2012, providing a three-year transition period for local businesses to get familiar with the new legislation.

The Competition Commission, established in April 2013, is tasked with investigating and prosecuting enterprises involved in anti-competition practices. The Competition Tribunal, set up the following August, will adjudicate and determine penalties for such cases. The First Conduct Rule, Second Conduct Rule and the Merger Rule clauses of the Competition Ordinance seek to enhance the competitiveness of the Hong Kong economy.

The First Conduct Rule targets all cartel activities such as price-fixing, output limitation, market information-sharing and bid-rigging, while the second prevents undertakings with substantial market power (market share of over 25 percent) from abusing that power to gain further market share. The Merger Rule prohibits mergers that may substantially reduce competition.

Regarding the Second Conduct Rule, Mayer Brown JSM expects the Competition Commission to focus on whether companies have engaged in exclusory activities rather than exploitative behavior.

“We expect the Competition Commission to try those easy cases first. It wants its work to be judged based on what kind of impact it can make on conglomerates’ businesses,” said John Hickin, also a partner at Mayer Brown JSM and co-head of its Competition Law Group in Asia. He was involved in the consultation regarding the cross-sector Competition Bill.
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