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PaRR article on competition law
Submitted by // J Wong, Partner
28 October 2014

 

Hong Kong regulator needs more enforcement experience before making big changes to competition rules, commissioner says

by Freny Patel, PaRR

  • Local adaptation difficult as competition law principles apply generally
  • Interlocking directorate less examined issue in competition law
  • No major wholesale changes to guidelines anticipated given paucity of time

Hong Kong's Competition Commission will need much more enforcement experience than it currently possesses to make major adaptations to the city's draft competition guidelines, released on 9 October, says Thomas Cheng, a member of the commission.

Cheng's comments come in the wake of criticism by some antitrust lawyers that the guidelines mirror those prevailing in Europe and do not necessarily reflect local circumstances.

A Hong Kong-based antitrust lawyer said that although the commission had taken a lot from Europe when drafting the guidelines, the guidelines needed to more faithfully reflect the characteristics of the Hong Kong market. The lawyer said Hong Kong was largely a distribution centre and a relatively small economy with many family-owned businesses and interlocking directorates.

Cheng told PaRR that local adaptation was always a difficult issue, considering that competition law principles were meant to apply generally.

He said major adaptations were generally necessary only if there were fundamental differences between the local economy and other advanced competition law jurisdictions from which legal principles are derived, such as different levels of economic development or if there were substantial state ownership in the economy, as in the case of China.

The commissioner acknowledged that while minor adjustments in specific cases may be needed in some instances, "if one is referring to more substantial adaptations, one would need much more enforcement experience to know what adaptations are needed".

It is true to say that the draft guidelines are heavily influenced by the European Union in particular, said Clifford Chance's head of antitrust in China, Richard Blewett. "Whether or not this is appropriate for Hong Kong, I do not know," he said. "However, cross-directorship is more prevalent in Hong Kong than in the UK, and it will be a policy decision as to whether the Hong Kong government will use competition law to attack cross directorship."

Cheng said that while interlocking directorates were a significant issue in Hong Kong, the commission needed to tread cautiously, considering that they were a relatively infrequently examined issue in competition law.

Interlocking directorates involve members of a corporate board serving on the boards of multiple corporations. Although the practice is not considered illegal in most jurisdictions, it could give rise to collusion and co-ordinated action among corporate executives, which could in turn reduce competition and enhance co-operation.

"There is much less experience which the commission can draw from overseas jurisdictions," Cheng told PaRR. "However, we may come across this issue as we investigate other kinds of conduct, and may gain more experience with it, which will help us when we decide to look at the issue later."

Commission chairperson Anna Wu previously told PaRR that interlocking directorates, although not illegal under Hong Kong's Competition Ordinance, may be relevant in the authority's consideration of whether a particular situation raised concerns of anticompetitive impact.

Jill Wong, a partner at Howse Williams Bowers based in Hong Kong, said the commission had given much thought in the drafting process to dealing with Hong Kong-specific issues.

The fact that the commission had mentioned a number of issues in the draft guidelines -- such as resale price maintenance, verticals, intellectual property rights, information exchange, the role of trade associations, joint buying and group boycotts, among others -- suggested that it had been reaching out to the business community, Wong said. The business community had also reached out to the commission to deal with specific issues, she said.

Antitrust lawyers do not envisage that the commission will at this stage make wholesale changes to the guidelines, given the lack of time and the urgency of ensuring that the law comes into force by 2015.


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