The Competition Commission (Commission) received 64 submissions on the Draft Guidelines from a range of stakeholders including trade associations, Chambers of Commerce, political parties, public bodies, professional advisory bodies, private organisations as well as individuals. These submissions, together with the feedback from meetings with a range of parties, have assisted the Commission to identify areas where amendment of the Draft Guidelines was merited to clarify particular points or provide additional guidance.
In response to the submissions, the Commission has added further clarifications and explanations in the Revised Draft Guidelines. It has also refined existing hypothetical examples and included additional ones to provide additional guidance on the Commission’s approach.
The Commission received feedback and requests for clarifications regarding a number of specific areas in the Draft Guidelines. Among the submissions received, the Draft Guideline on the First Conduct Rule (FCR) attracted the majority of comments. Further guidance was requested on a range of topics such as collective bargaining, exchange of information, resale price maintenance (RPM) and common types of joint ventures.
Further information has been provided on these areas. We have also refined a number of the existing hypothetical examples and added new ones.
The formal Guidelines required under the Competition Ordinance (Ordinance) do not provide specific guidance for individual industry sectors in Hong Kong.
The legal and economic tests to assess competition concerns have proven around the world to be flexible enough to be applied to a range of economies and industries. With the exception of the Guideline on the Merger Rule, the Guidelines are designed to be applicable across all sectors of the Hong Kong economy.
However, the Commission is aware that there may be areas specific to a particular sector where guidance would be useful. The Commission welcomes queries from the public regarding matters which may be within the scope of the Ordinance including in relation to sector-specific concerns. The Commission has already answered many sector-specific queries both in writing and in meetings and will continue to do so.
In addition, although the hypothetical examples in the Guidelines are drafted based on a purely hypothetical scenario in a particular industry, they may be applied by analogy to other industries.
The Commission will continue to meet with industry associations and chambers to offer assistance on particular issues and concerns, as well as assist them with the production of their own publications and compliance information.
The Revised Draft Guideline on the First Conduct Rule (FCR) notes that the FCR prohibits separate “undertakings” from entering anti-competitive agreements. The Commission is of the view that an employee is an integral part of his or her employer undertaking and therefore an agreement between a group of employees and their employer is outside the scope of the FCR. Where a trade union acts on behalf of a number of employees in collective negotiations with an employer, arrangements agreed with respect to salaries and conditions of work would also fall outside the FCR.
The Revised Draft Guideline on the FCR provides additional guidance to enable businesses to distinguish between legitimate commercial negotiations andanti-competitive exchanges of information, particularly with regard to commercially sensitive information. Additional detail is also provided on the indirect exchange of commercially sensitive information.
The Commission maintains its view that RPM arrangements have an inherent potential to harm competition in Hong Kong. The Commission considers that RPM may have the object of harming competition and there may be circumstances when it amounts to Serious Anti-competitive Conduct. Additional examples have been provided in the Revised Draft Guideline on the FCR of situations where RPM arrangements will be assessed as having the object of harming competition and/or where they might amount to Serious Anti-competitive Conduct.
Nonetheless, there may be some circumstances where a specific RPM arrangement does not have the object of harming competition because of its context and the purpose pursued by the arrangement. Where this is the case the Commission will assess whether the RPM causes harm to competition by way of its effects on the market. Again, the Revised Draft Guideline on the FCR provides hypothetical examples.
RPM does not ‘automatically’ contravene the FCR. Depending on the facts of the case, an RPM arrangement having the object or effect of harming competition might be excluded from the FCR by reference to efficiencies.
In response to a number of submissions, the Revised Draft Guideline on the FCR provides additional guidance on certain types of joint ventures, namely, joint selling, distribution and marketing agreements and joint tendering arrangements. The Commission notes that joint tendering, for example through consortia arrangements, is common in certain sectors in Hong Kong and is in many cases legitimate.
The Revised Draft Guideline on the FCR also includes new sections on franchising and selective distribution agreements, which are particularly prevalent in the retail sector.
The Commission maintains its view that market share does not alone determine whether an undertaking has substantial market power. Factors such as ease of entry and expansion, availability of supply-side substitution and buyer power have the capacity to prevent a firm with a high market share from having a substantial degree of market power.
In addition, market structures in Hong Kong vary widely. There is a risk that applying a particular market share percentage across sectors would become the focal point of analysis of substantial market power, and could lead to an incorrect assessment regarding the existence or absence of substantial market power in a particular market.
The Commission is focused on preparing for the full implementation of the Ordinance. It will consider whether any preparatory work can be done regarding block exemptions before the Competition Rules are in effect as part of this process.
The Commission will present the Revised Draft Guidelines to the Legislative Council for consultation in late April and proceed to finalise the Guidelines after taking into consideration any additional comments.
The Commission will also continue to roll out advocacy and education programmes for businesses and the general public, and enhance its enforcement and operational capability internally.
The Commission aims to complete all its preparation work by mid-2015 paving the way for the full implementation of the Ordinance at a date to be set by the Government.
At the moment the Commission has not yet commenced operations but it is monitoring various situations and conducting studies and research on certain issues. Parties with concerns about potentially anti-competitive practices are welcome to contact the Commission. The Commission is keeping records of all information it receives with a view to its future operations under the Ordinance.
The Commission has been actively reaching out to the public and businesses, in particular SMEs, to explain the key elements and benefits of the Ordinance. Since mid-2014 the Commission has conducted over 130 briefings and meetings with the major Chambers of Commerce, a large range of industry associations, representatives of SMEs and a wide variety of professional bodies.
The five seminars held for SMEs and the public were particularly well attended. A brochure “The Competition Ordinance and SMEs” was published in December 2014 to assist SMEs in understanding their rights and obligations under the Ordinance. An educational video on cartels was uploaded to YouTube and attracted over 51,000 views. The Commission has also been working with trade, industry and SME associations to enable them to assist their members to comply with the law.
The Commission will continue to prepare and release policies, publications and self-assessment tools to assist businesses, and in particular SMEs, to comply with the new law. These will include operational documents such as a leniency policy and a statement of the Commission’s enforcement priorities. It will also roll out educational programmes to engage with its stakeholders through meetings and seminars, participation in events targeting SMEs as well as liaison with trade and industry associations.
The drafting of the Memorandum of Understanding between the Commission and the Communications Authority is well advanced.
The leniency policy and enforcement priorities are in preparation and will be released in the coming months prior to the full implementation of the Ordinance.