Draft Guidelines under the Competition Ordinance - 2014 - Frequently Asked Questions

  1. What has been the general response from businesses to the engagement exercise conducted in recent months? How has this exercise shaped the Draft Guidelines?
  2. The Competition Commission (Commission) engaged with a significant number of stakeholders during the engagement exercise including small and medium sized enterprises (SMEs), business chambers, industry associations and professional advisers. The feedback received, both in meetings and in writing, was of great assistance in terms of helping the Commission understand stakeholders’ expectations for Draft Guidelines and identifying areas where guidance might be particularly useful.

    For example, as a direct consequence of the feedback we received from stakeholders, guidance on information sharing, joint ventures and the activities of trade associations has been given increased prominence in the Draft Guidelines. The Draft Guidelines, while they draw on international best practice, are very much tailored to the business environment of Hong Kong as a result of the engagement exercise.

    However, the engagement exercise also confirmed the need for the Commission to publish other guidance material in addition to the Draft Guidelines particularly targeted at SMEs. We will release further material in that respect in the coming months and prior to the commencement of the Ordinance.

  3. What is the relationship between the Guidelines and the Ordinance? What happens if the Guidelines are not complied with?
  4. The Guidelines are not part of the Ordinance. They represent the Commission’s interpretation of the Ordinance and provide guidance to businesses on how it will administer the Ordinance. The Guidelines will not change the law and it will be up to the Competition Tribunal and other courts to determine the position at law if businesses disagree with the approach adopted by the Commission.

  5. Are there any industry-specific guidelines? What will the Commission do to help businesses understand and comply with the Ordinance?
  6. With the exception of the Draft Merger Guideline, the Draft Guidelines apply to all sectors of the Hong Kong economy and do not distinguish between particular sectors or industries. The Commission will apply the laws in the same manner to all sectors.

    The Commission will develop additional publications tailored to sectors or particular classes of business, such as SMEs, and self-assessment tools to enhance their understanding of and compliance with the Ordinance. Additionally the Commission will produce other publications including policies on leniency and enforcement priorities.

  7. When will the Competition Ordinance (the Ordinance) come into force?
  8. Upon receipt of the submissions on the Draft Guidelines, the Commission will refine and produce final Draft Guidelines for consultation with the Legislative Council and other persons the Commission considers appropriate pursuant to the Ordinance. The Commission targets to finish all its preparation work by the first half of 2015, paving the way for the full implementation of the Ordinance at a date to be set by the Government.

  9. What are the Commission’s enforcement priorities? How will the Commission handle complaints and investigations?

  10. The Commission will conduct evidence based independent investigations based on complaints, monitoring, whistleblowing and self-reporting. A policy on enforcement priorities will be released prior to the commencement of the competition rules.

    The Commission will endeavor to keep its investigations confidential with an aim to protect both the complainants and subjects of investigations. Outcomes from its investigations, such as warning notices or commitments, will, however, be published.

  11. What is the Commission’s position on vertical agreements? Will resale price restrictions be considered a breach of the Ordinance?
  12. As compared with cartel arrangements, only a small number of vertical arrangements result in harm to competition. While only a small number of vertical arrangements will harm competition, the harm they cause can be as serious as all other forms of anti-competitive conduct. As a general matter, vertical arrangements will be assessed by reference to their effects on competition in the market and will be analysed case by case.

    The Commission considers that vertical agreements are only likely to harm competition where the parties to the arrangement have some measure of market power.

    As regards resale price restrictions, generally speaking, fixed or minimum resale price arrangements – known as resale price maintenance (RPM) – are more likely to have an adverse impact and will be considered by the Commission as having the object of harming competition. Companies which cannot justify these arrangements on efficiency grounds will infringe the Ordinance.

    Recommended resale prices or maximum resale prices are however less likely to give rise to concerns.

  13. It is noted that the Commission has not indicated any particular market share threshold for what constitutes "substantial market power" in the Draft Guidelines. What is the Commission’s position on this?
  14. Market power is assessed on a case by case basis and market share is only one factor in the assessment. The Commission needs to look at the particular circumstances of the market in question including whether barriers to entry are high or low. Moreover, there are many ways to assess market shares, economists can differ on market share calculations.

  15. What types of information sharing would be considered to be anti-competitive?
  16. There may be legitimate reasons for competitors to share certain types of data, e.g. for benchmarking, quality standards or facilitating best practices.

    Competitors should not exchange, including indirectly, commercially sensitive information or information concerning their market strategies. Where they do, they run the risk of infringing the Ordinance.

    Where competitors share information concerning their intentions as regards future pricing (for example, that they plan to raise their prices by a particular amount), the Commission will likely consider this to be a form of indirect price fixing.

  17. Are there any indications on “likely” block exemptions in the Draft Guidelines?
  18. The Commission can only make block exemptions based on evidence that economic efficiencies listed in Schedule 1 are satisfied, and it is also required to publish any drafts of such orders for pubic consultation. There is no legal basis for such a process to begin before the Ordinance is fully in force. However, the Draft Guidelines have provided general guidance on exemptions and exclusions processes.

    Additionally, a block exemption order only confirms that conduct is excluded from the First Conduct Rule. Thus, if undertakings are entitled to the benefit of an exclusion from the First Conduct Rule, they will not be contravening the First Conduct Rule when the Ordinance comes into full effect.

  19. What preparations can businesses make to comply with the requirements of the Ordinance? Can businesses seek advice from the Commission?
  20. While businesses are encouraged to approach the Commission for general guidance, it is not the Commission’s function to provide specific advice to companies about their business activities and practices and any resulting risks. Businesses should take proactive steps to understand the Ordinance, identify risk areas and set up self-compliance programmes in time. Companies may also wish to raise issues through representative bodies such as industry associations and chambers.

    The Commission, in addition to the guidelines required by law, will be developing educational material and tool kits to assist businesses. It will also be working with industry associations so that they can assist their members in complying with the Ordinance.

  21. Will the enforcement of the Ordinance mean that consumers will no longer be charged “excessive” prices?
  22. While the Ordinance provides a legal framework to curb possible anti-competitive conduct so as to safeguard competition for the market, it is not a regime to regulate prices in the marketplace. However, the Commission believes the more competition there is in the market, the more consumers will be supplied with goods and services at the best possible price.

    Nevertheless, prices are something that the Commission watches carefully to see if the totality of the evidence points to price fixing or other anti-competitive conduct which are forbidden under the Ordinance.

  23. How will the Commission share concurrent jurisdiction with the Communications Authority (CA) on competition issues relating to the telecommunications and broadcasting sectors?
  24. In publishing the six Guidelines, the Commission is already working cooperatively with the CA. The Commission and the CA are preparing a Memorandum of Understanding (MoU) on matters that cover the manner of how the two bodies will cooperate and pursue enforcement actions. The MoU will be released as a draft for public comment.