Hong Kong Competition Ordinance. One Year On

Transcription

1 Hong Kong Competition Ordinance One Year On January 2017

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3 Hong Kong Competition Commission s enforcement We now have exercised the gamut of our investigation powers, raids, search and seize. Anna Wu Chairman of the HKCC Hong Kong Competition Ordinance One year on The Hong Kong Competition Commission (HKCC) has had an active first year in enforcing the Competition Ordinance (CO). It has already exercised all of its investigatory powers and has looked at a large number of complaints, inquiries and cases across a variety of sectors. While no case has yet been brought to the Competition Tribunal (Tribunal), senior staff of the HKCC have indicated that the first cases will likely be brought to the Tribunal in the first half of 2017 and that the HKCC would expect to take two to three cases per year to the Tribunal. Investigations, complaints and initial assessments This is also an exhilarating moment for Hong Kong as a whole with many signs that a culture of fair competition is developing and the community is becoming more aware of competition law. We have just embarked on our journey with a fully-fledged competition regime in Hong Kong. Rose Webb CEO of the HKCC Large number of complaints / inquiries investigated Conducted 6 dawn raids Initiated 2 market studies Proposed its 1 st block exemption By 14 December 2016 (first anniversary of enforcement): nearly 1,900 complaints / inquiries received. 130 complaints / inquiries moved to the initial assessment stage. At least 13 cases under in-depth investigation, with 40 formal notices for information / documents issued. Following a softer enforcement period up until mid-2016, the HKCC has conducted a series of unannounced inspections (or so-called dawn raids). The HKCC has conducted 2 market studies in response to public concerns over alleged collusive activities in: (1) the residential building renovation/maintenance market (published in May 2016) and (2) the auto-fuel market (to be published in early 2017). Following an application by the Hong Kong Liner Shipping Association, the HKCC has published its first proposed block exemption order for certain liner shipping agreements. While there has been public discussion around a potential second block exemption for the insurance sector, the Hong Kong Federation of Insurers confirmed that it does not intend to apply for a block exemption at this stage. Freshfields Bruckhaus Deringer 1

4 Type of complaints/inquiries received by HKCC as at 14 December approx 950 Anti-competitive agreements approx 380 Abuse conduct approx 570 General state of competition and others On the investigatory side, the HKCC has shown a clear shift from giving warnings to businesses to a more aggressive approach, marked in particular by reports of dawn raids towards the second half of Nonetheless, the HKCC has also continued to engage actively with stakeholders to resolve potential competition concerns outside of formal investigations. Trade and professional associations have been a particular focus of engagement, with the HKCC reviewing more than 350 published practices of associations in Hong Kong. As a result of these efforts, by 14 December 2016, 19 trade associations have removed price restriction clauses or fee scales. Another area of focus has been the HKCC s efforts against bid-rigging: in May 2016, the Commission launched its Fighting Bid-rigging Cartels campaign, which involved TV announcements and tips for businesses as well as other public awareness initiatives (e.g. educational videos, radio programmes and roving exhibitions). Key industry sectors involved Number of HKCC s initial assessment cases by sector as at 31 March 2016 Sector Professional & technical services 21% 16% Transport, logistics & storage Food & groceries 2% 4% 4% 6% 10% 10% Real eastate & property management Construction & infrastructure Banking, financial and insurance products & services Apparel, footwear, jewellery, watches & accessories Travel & hospitality 8% 8% 9% Household goods & electrical appliances Information technology Others As at 14 December 2016, the HKCC reported that the top two sectors for cases undergoing initial assessment were (i) property and property management and (ii) professional and technical services. 2

5 Sector by sector analysis Enforcement actions and inquiries by the HKCC have spanned across a range of sectors, such as: Auto-fuel industry The HKCC is conducting a market study into the auto-fuel market, the results of which are yet to be published. It remains to be seen whether it will share the concerns about existing pricing practices raised by the Consumer Council in its June 2016 report (further discussed below). Banking & financial services The Hong Kong Monetary Authority s investigation into the fixing of the Hong Kong Interbank Offered Rate (HIBOR) (concluded in 2014) and various global antitrust investigations into the banking and financial services sector may result in further scrutiny of this sector going forward. Electronic appliances & household goods Chain electronic stores reportedly started to undercut recommended resale prices on certain smart phones following the entry into force of the CO amid concerns over price fixing and resale price maintenance (RPM). Food & groceries In November 2016, the Legislative Council approved a non-binding motion calling the HKCC to investigate into potential abuses of market power by a property developer that owns certain wet markets. Prior to this, the HKCC has reportedly already commenced investigations into potential anti-competitive behaviour concerning certain wet markets. 3

6 Gold & jewellery The gold associations made well-reported efforts to comply with the CO by removing their daily reference price. Nonetheless, complaints to the HKCC relating to potential RPM and various forms of collusion appear to continue. Information technology In the second half of 2016, the HKCC has reportedly conducted several dawn raids amid alleged bid-rigging practices in this sector. Real estate, construction, infrastructure & property management The HKCC published the findings of its market study in May 2016, in which it concluded that bid-manipulation practices were prevalent in the residential building renovation and maintenance market. On 28 November, the HKCC also published an advisory bulletin calling upon two trade associations for architects and planners to remove certain provisions in their respective codes of conduct that restricted their members to set their own fees and take on clients. Shipping For the first time, the HKCC has proposed a block exemption order. This follows an application by the Hong Kong Liner Shipping Association (HKLSA) to exempt vessel sharing agreements (VSAs) and vessel discussion agreements (VDAs) from the CO. The proposed exemption is limited to VSAs where the parties do not collectively exceed a 40% market share. The proposal adopts a less permissive approach than some other jurisdictions in Asia (e.g. China, Singapore and South Korea). The HKCC is currently assessing the 15 submissions that it has received as part of a public consultation process on the block exemption which ended on 14 December. * Sectors above are listed in alphabetical order. 4

7 Other enforcement agencies The Communications Authority Whilst much attention has been paid to the HKCC during the past year, the Communications Authority (CA) shares concurrent jurisdiction with the HKCC in enforcing the CO in the telecommunications and broadcasting sectors. Importantly, only the telecommunications sector is currently subject to merger control in Hong Kong. According to public information, since the enforcement of the CO, the CA has reviewed two merger cases relating to the telecommunications sector: the indirect acquisition of New World Telecommunications by Hong Kong Broadband Network and the indirect acquisition of Wharf T&T by private investment firms MBK Partners and TPG the CA has decided not to commence investigations for either acquisition. Meanwhile, in October 2016, the CA reported to the Legislative Council that it is processing five cases relating to alleged anti-competitive behaviour. The Consumer Council As Hong Kong s long-standing agency for consumer protection, the Consumer Council has been very vocal about competition issues affecting Hong Kong consumers. In June 2016, the Consumer Council published a report on auto-fuel prices, which found that while prices had overall decreased, these reductions had not fully reflected the corresponding price reductions in international crude oil or imported auto-fuel since July The Consumer Council also expressed general concerns about existing pricing practices in the sector and encouraged the HKCC to make further recommendations to promote competition upon conclusion of its ongoing (separate) market study. In November 2016, the Consumer Council released a report on e-commerce which expressed concerns over the growing market power of certain e-commerce platforms which could give rise to competition issues such as raised prices, restrictions in choice and anti-competitive discriminatory treatment. The report covers online search engines, travel and airline online booking platforms as well as food delivery companies. It would not be surprising for the HKCC to draw references from this report and begin its own market study or even individual investigations in the e-commerce sector amid growing scrutiny by global competition agencies in this sector. The Independent Commission Against Corruption The HKCC has not been alone in investigating alleged bid-rigging activities. Given that these types of cases often involve bribery, the Independent Commission Against Corruption investigated the Garden Vista bid-rigging case which resulted in a sub-contractor being imprisoned for 35 months. Cooperation with international antitrust agencies In December 2016, the HKCC signed a memorandum of understanding with the Canadian Competition Bureau to enhance cooperation between the two authorities. This is the HKCC s first international cooperation arrangement with another antitrust agency since the entry of the CO. It is expected that the HKCC will enter into similar arrangements with other international antitrust agencies. 5

8 The Judiciary Although the first year of enforcement of the CO has been a quiet year for the Tribunal a specialist court to hear and adjudicate on competition cases important competition developments have nonetheless taken place in the judiciary. Two cases are noteworthy in this regard: On 29 January 2016, the Court of First Instance (CFI) overruled the CA s 2013 decision that Television Broadcasts Limited (TVB) had violated the competition provisions in the Broadcasting Ordinance. The decision was taken on purely procedural grounds and clarified that the CA had violated the Hong Kong Bill of Right by not providing TVB with a hearing by an independent and impartial tribunal. The CA s competition analysis itself was upheld by the CFI. While private standalone actions are not available under the CO, a travel agent has nonetheless challenged the Travel Industry Council (TIC) for allegedly anti-competitive conduct using other laws, in particular the Companies Ordinance. At the core of the lawsuit was the Refund Production Scheme for Inbound Tour Group Shoppers, which prohibits travel agents from bringing mainland Chinese inbound tour groups to shops that are not registered with the TIC. This is clearly an attempt to work around the current inability to pursue private rights of action under the CO and the outcome of this case will be followed closely. 6

9 Outlook for 2017 While 2016 has seen a solid start for the HKCC, we believe that enforcement activities will likely increase in Our outlook for 2017 is the following: Cartels and RPM remain top priority The HKCC s focus will be on serious anti-competitive conduct, in particular bid-rigging, as well as RPM. With a number of investigations already having proceeded to the in-depth stage, the HKCC will likely bring its first cases to the Tribunal in the first half of Continued focus on consumer-facing markets In line with its published enforcement policy and guidance, the main focus of the HKCC s activities will likely continue to remain on consumer-facing markets. Possible enforcement actions against abuse of market power While often considered to be the more difficult cases to prove, the second year of enforcement could also see actions in relation to the Second Conduct Rule, in particular with respect to local incumbent firms. In August 2016, Rose Webb, CEO of the HKCC, stated that the HKCC is looking at abuse of substantial market power by incumbents, so we mean by companies here in Hong Kong. Increasing use of investigatory powers: moving to a more aggressive approach The HKCC can be expected to continue to exercise its broad investigatory powers, in particular the use of dawn raids, as it continues to move from a soft to harder-edged enforcement approach. Appointment of new HKCC senior management and impact on activity Finally, there will be a number of new HKCC officials, including a new CEO, in It remains to be seen whether this change in leadership could adversely impact on the HKCC s output in With the Competition Commission ramping up enforcement, it is important not only to have robust and effective competition compliance procedures in place but also to be prepared for the worst case scenario of a dawn raid. Advance preparations will be essential to protect your company s rights of defence on the day and ensure that you have an immediate contingency plan ready. Alastair Mordaunt Head of Hong Kong Competition Practice, Freshfields 7

10 Our Asia contacts Alastair Mordaunt Partner, Head of Hong Kong Competition practice T E alastair.mordaunt@freshfields.com Lisa Eger Associate T E lisa.eger@freshfields.com Nicholas French Partner, Co-head of China Antitrust T E nicholas.french@freshfields.com Josh Chamberlain Associate T E josh.chamberlain@freshfields.com William Robinson Partner T E william.robinson@freshfields.com Joy Wong Associate T E joy.wong@freshfields.com Ninette Dodoo Counsel, Co-head of China Antitrust T / E ninette.dodoo@freshfields.com Alda Tsang Associate T E alda.tsang@freshfields.com 8

11 The team at Freshfields Bruckhaus Deringer is praised for its reasoned, practical and commercial advice, and good understanding of the local market. The firm s international client base and reputation in corporate M&A also makes it a popular choice for merger control work. Band 1 Hong Kong competition and antitrust Asia Pacific Legal 500, 2015 and 2016

12 freshfields.com This material is provided by the international law firm Freshfields Bruckhaus Deringer LLP (a limited liability partnership organised under the law of England and Wales) (the UK LLP) and the offices and associated entities of the UK LLP practising under the Freshfields Bruckhaus Deringer name in a number of jurisdictions, and Freshfields Bruckhaus Deringer US LLP, together referred to in the material as Freshfields. For regulatory information please refer to The UK LLP has offices or associated entities in Austria, Bahrain, Belgium, China, England, France, Germany, Hong Kong, Italy, Japan, the Netherlands, Russia, Singapore, Spain, the United Arab Emirates and Vietnam. Freshfields Bruckhaus Deringer US LLP has offices in New York City and Washington DC. This material is for general information only and is not intended to provide legal advice. Freshfields Bruckhaus Deringer llp, January 2017, 05922