Hong Kong: Competition Commission

The Competition Commission (the Commission) in Hong Kong began enforcing the city’s first economy-wide competition law in December 2015. Although less than a year has passed since full operations commenced, the Commission has already achieved good progress in different aspects of its work, and there has been increased awareness of the new law and concrete changes to business practices in Hong Kong. This article outlines some of the Commission’s activities over the past 11 months.

Commencement of the Competition Ordinance

Immediately prior to the full commencement of the Competition Ordinance (the Ordinance) on 14 December 2015, the Commission undertook a wide-ranging outreach and publicity campaign. This included launching a revamped website (www.compcomm.hk), conducting a series of seminars and the broadcast of a TV advertisement supported by extensive advertising in a range of other publications. Commission staff also actively engaged with stakeholders through workshops, seminars and conferences organised by trade associations, chambers of commerce and law firms.

It was clear to us that as the commencement day approached there was increasing awareness of and interest in the Ordinance across Hong Kong. The Commission received over 200 complaints and inquiries in the first two days of full operation. Additionally, the media reported on price wars that broke out in various consumer retail goods, such as sneakers and mobile phones, on the same day as the law commenced, suggesting that this was a result of the removal of long-standing resale price arrangements.

Early enforcement activities

In the 11 months after commencement, the Commission received over 1,800 complaints and queries about potentially anticompetitive conduct. The Commission also received intelligence from other regulators, whistle-blowers and leniency applicants. These various sources have led to a number of investigations into potential contraventions of the Ordinance in areas of the Commission’s compliance focus, including alleged cartel conduct. The Commission has also made use of its investigation and compulsory evidence gathering powers, laying the ground for our first enforcement case.

In keeping with its proportionate approach to addressing anticompetitive conduct, the Commission also resolved one early case involving newspaper hawkers. In May 2016, the Newspaper Hawker Association withdrew a letter it sent to its members recommending a retail price of certain branded cigarettes, as well as a related notice on its social media platform as a result of the Commission’s engagement with it. Given the circumstances, the Commission was content to resolve the case by issuing a warning to the hawkers.

Trade associations project

Trade and professional associations (associations) in Hong Kong have a significant role in the city’s economy, with their members representing the vast majority of Hong Kong’s businesses. The Commission initiated a project in 2015 to educate trade and professional associations with a view to encouraging compliance with the Ordinance.

The project commenced with the publication of a brochure in June 2015, which was sent to over 500 associations, followed by a series of engagement meetings and seminars. The Commission reviewed the published practices of over 350 associations with websites and identified over 20 associations who publicly restricted price competition. The Commission then wrote to a number of these high-risk associations to ensure that they were aware of its concerns.

The Commission was encouraged by the subsequent shift in business practices across a range of industries including various professional services, transport, real estate and insurance. As at November 2016, the Commission was aware of 19 associations who have removed fee scales or other price restrictions. However, in some cases, practices had not changed and the Commission publicly called on two professional associations to rectify practices that raised competition concerns.

Report of study into aspects of the building maintenance market

Bid-rigging has been a grave public concern in Hong Kong. In recent years, there have been many media reports and other publicity suggesting the residential building renovation and maintenance sector was rife with bid-rigging activities. In view of these concerns, the Commission undertook a study into certain aspects of the market as it operated prior to the Ordinance coming into full effect and published its findings in May 2016.

The Commission’s screening analyses of 500 tenders revealed certain patterns that appeared unlikely to emerge under functioning competition. The overall result of the study is consistent with the widespread concern that bid-manipulation practices were prevalent in this market in the recent past. If the Commission were to encounter similar patterns today it would likely be concerned about potential breaches of the First Conduct Rule and investigate certain tenders more closely. Besides guiding the Commission’s future investigations, the results also reinforced the need to advocate and educate the public on the topic.

Bid-rigging campaign

With an aim to raise public awareness, as well as to educate on ways to detect and prevent bid-rigging, the Commission launched a multi-pronged ‘Fighting Bid-rigging Cartels’ campaign (the Campaign) in May 2016, following the release of the above-mentioned market study results.

The Campaign featured a TV announcement, two brochures, educational videos and radio programmes on how to identify and prevent bid-rigging. The Campaign was also supported by extensive online and outdoor advertising to enhance public awareness. These materials are available on the Commission’s website at www.compcomm.hk. To further educate and reach out to the community, a territory-wide roving exhibition and seminars on the topic were held for different audiences. In August, publicity posters were sent to the owners’ corporations of over 15,000 residential and commercial properties in Hong Kong to spread the message.

The Commission’s advocacy campaign has been effective in fostering a compliance culture and bringing cartel conduct to our attention. This is reflected by the significant increase of the number of complaints received on bid-rigging in the last couple of months.

Applications for a block exemption order by Liner Shipping Companies

On 17 December 2015, the Commission received an application from the Hong Kong Liner Shipping Association (HKLSA) for a block exemption order in respect of liner shipping agreements. The HKLSA sought a block exemption in respect of both vessel-sharing agreements and voluntary discussion agreements.

On 14 September 2016, the Commission published notice of a proposed block exemption order for vessel-sharing agreements, together with a statement of reasons outlining the Commission’s preliminary views as a result of its preliminary assessment of the application and in light of the economic efficiencies generated by this category of liner shipping agreement. The Commission indicated that it did not propose to issue a block exemption for voluntary discussion agreements. A consultation in relation to the proposed decision came to an end on 14 December 2016. A final decision on whether to issue a block exemption order will be made after consideration of the representations received.

Ongoing outreach and advocacy

The Commission has an ongoing role to inform the Hong Kong public and businesses about the benefits of competition to the Hong Kong economy and the need for them to be aware of and to comply with the Ordinance. The Commission has, therefore, been actively engaging its stakeholders through meetings and seminars, educational materials and special projects. In the past year, the Commission has won numerous local and international awards for its outreach and publicity activities and advocacy will remain a major focus of the Commission’s work going forward.

One of the Commission’s functions is to advise the government on competition matters. This can be done through direct engagement with government departments and public bodies on issues of public concern that relate to competition, the making of submissions in response to public consultations on government policies or laws, and the formulation of criteria that can be incorporated into the policy-making process. Our advice on the supply of liquefied petroleum gas to the public housing sector affecting the lives of over 150,000 people was released in September 2016. The Commission will continue to proactively consider issues of public concern and advise the government on competition matters.

Looking forward

In addition to a keen public focus on our enforcement outcomes, we are experiencing increasing awareness by legislators, the government and the public of the importance of competition policy, as well as competition law, and the Commission expects to be drawn into a number of debates on important policy issues. Like many other competition authorities, there are demands on the Commission to look at a range of sectors of the economy and commence other market studies in addition to its current study on auto fuel.

A lot needs to be done but the Commission has made a good start. It was an exciting year for the Commission in which we have fully settled into our law enforcement role. Going forward, the Commission will continue to carry out its various functions to ensure a level playing field for everyone in Hong Kong.