Competition law starts in Hong Kong today
Today is a landmark day in the legal and economic history of Hong Kong. The Competition Ordinance comes into full force and the Competition Commission commences full operation.
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Naturally as Chief Executive Officer of the Competition Commission I am very proud and excited that this long awaited day has finally arrived. However it is a significant change for everyone in the Hong Kong SAR. We are all the beneficiaries of this important law.
Hong Kong has long been one of the freest economies in the world. While competition has deep roots in Hong Kong, we should not assume it always comes naturally. Nor can we assume it exists in all markets, especially those that are not exposed to international trade.
Unless competition is protected and nurtured, some businesses can build barriers which prevent or restrict competition. That is why more than 120 countries around the world, including nearly all our neighbours in Asia, have adopted competition laws. Today Hong Kong joins their rank.
Competitive and dynamic markets increase productivity and promote economic growth across the globe. Where competition is strong, productivity is strong. In order to compete effectively, businesses must become more efficient and develop new products that consumers want. If firms do not control their costs and innovate, they will lose customers to other firms and new entrants.
Effective competition benefits all consumers in Hong Kong, including Small and Medium Enterprises (SMEs) which are themselves consumers, by bringing lower prices, more choices and better quality goods and services. It creates a level playing field allowing all to compete equally.
The path to the commencement of the law today has been a long one. Hong Kong has had competition law regime for the telecommunications and broadcasting sector since 2000. Consumers in Hong Kong have seen the benefit of this in the number of competing providers and the range of telecommunication services offered to consumers.
The Competition Bill, covering the whole of the Hong Kong economy, was introduced into the Legislative Council in 2010 and was passed by the Legislative Council on 14 June 2012. It was a deliberate design that the new law was not brought into immediate effect but to allow a substantial period of time (in the end three and half years) to enable businesses in Hong Kong to adequately understand the requirements and take necessary steps to comply.
The Hon Anna Wu Hung-yuk was appointed Chairperson of the Competition Commission and thirteen other Members were appointed for a three year term commencing May 2013. Since 2014, the Commission has recruited around fifty staff members with a variety of backgrounds in Hong Kong and from overseas. They all stand ready to commence full operations today.
Now that the Competition Ordinance is in full force, what exactly is competition law and how will it affect Hong Kong?
The Competition Ordinance contains three typical prohibitions that can be found in competition laws around the world. The first is about anti-competitive agreements (First Conduct Rule), the second concerns abuse of substantial market power (Second Conduct Rule) and the third, mergers that substantially lessen competition (Merger Rule). At present the Merger Rule applies only to certain undertakings in the telecommunications sector.
While a range of anti-competitive arrangements are prohibited by the First Conduct Rule, the conduct that will cause the most concern can be distilled down to one word: Cartel. Regardless of their size businesses should make sure they never agree with their competitors to engage in this conduct which can take the forms of fixing prices, sharing markets, rigging bids and restricting output.
Cartels undermine the competitive process. The Commission will take action to stamp out cartels where they impact Hong Kong. To this end, we have recently published our leniency policy outlining the immunity available to those who are the first to report a cartel.
The Second Conduct Rule is concerned with the behaviour of those (usually large) enterprises who may have substantial market power. Such businesses have a special responsibility not to abuse their market power to harm competition through actions like predatory pricing and anti-competitive tying and bundling. SMEs need not be concerned with complying with the Second Conduct Rule as they are unlikely to have substantial market power. However, SMEs may well be the victims of this type of anti-competitive conduct.
Experience from other jurisdictions has demonstrated the benefits of implementing competition law. The UK Competition and Markets Authority (CMA) estimates that its competition investigations and guidance and compliance activities saved UK consumers at least GBP195.1 million between 2012 and 2015. Research by UK academics in 2011 estimated that for each cartel case investigated by the Office of Fair Trading (predecessor of the CMA) 28 other cartels were deterred from being formed.
The Competition Commission is committed to using a combination of enforcement actions and advocacy to achieve the goals of the Competition Ordinance. The combination is selected and adjusted as appropriate to help businesses and consumers understand the value of competition law and the consequences for failure to comply with the law. Engagement with businesses, trade and professional associations, business chambers and the general public have been a major focus of our work and will continue to be such going forward.
You might also be interested in watching some of our videos. One that I would particularly recommend is our ten part television series “Competing with Integrity”. Each of the one minute educational spots dramatises an example of potential anti-competitive conduct, and explains why they may risk contravening the Competition Ordinance.
If you have a question about possible anti-competitive practices or are concerned that they may be harming your business, you can bring this to the attention of the Competition Commission by phone or filling in a complaint form available on our website. We are open for business and ready to hear from the people of Hong Kong.
A sense of fair play is deeply ingrained in the collective psyche of the people of Hong Kong. As of today, the Competition Ordinance is here to bring the true benefits of a level playing field and vibrant and competitive markets to us all.
The Four Don’ts
- Don’t fix prices: includes agreeing on actual prices, a formula to calculate prices or elements of price such as discounts, rebates, promotions or credit terms
- Don’t share markets: includes allocating customers by product or geographic area, agreeing not to compete for each other’s customers and agreeing not to enter or expand into a competitor’s market
- Don’t rig bids: includes agreeing who should “win” a bid, supporting the designated winner by refraining from bidding, withdrawing bids or submitting bids with higher prices or unacceptable terms
- Don’t restrict output: includes restricting the volume or type of particular goods or services