Compliance with the Competition Ordinance cannot be achieved at a flick of a switch; companies should start preparations before the law’s full implementation in mid-December, says Anna Wu, Chairperson of Hong Kong’s Competition Commission

By Nan-Hie In

The Competition Ordinance, which was passed by the city’s legislature in 2012, will come into full force on December 14th, a cross-sector competition regime to safeguard a level-playing field and free access to the Hong Kong market.

For Anna Wu Hung-yuk, the Chairperson of Hong Kong’s Competition Commission (HKCC), it has been a long journey to get to this point. Wu has a long history of public service in Hong Kong, previously chairing the Mandatory Provident Fund Schemes Authority, Equal Opportunities Commission and the Consumer Council. A lawyer by training, she first got involved in competition law in the 1990s during her tenure at the consumer watchdog.

“We did quite a lot of sector studies ranging from telecommunications and broadcasting, fuel, building maintenance, supermarkets and so forth and it was from there that I learned a lot about competition policy and law, and one thing led to another,” she explains at a recent AmCham talk about this new regime.

The Executive Councillor says that after years of debate and consultation, the city finally has the law, which is a good start. She also praised the AmCham’s contributions to the drafting of the law. “Consultations and reports from the Chamber have shaped many aspects of our competition law when it was enacted in 2012.”

The final stage is to undergo the negative vetting process at the Legislative Council for the remaining provisions of the Ordinance to go into effect. Its passage is likely.

The rules

The Ordinance defines three key rules for competition in Hong Kong. The First Conduct Rule bars anti-competitive agreements amongst competitors or parties at different levels of the supply chain. “The most serious of these are cartel agreements that seek to fix price, share market, limit output or rig bids; these are regarded as serious anti-competitive conduct and [this rule is] applicable to all businesses, big, small or medium,” explains Wu.

The Second Conduct Rule states that businesses with substantial degree of market power must not abuse that power. For example, exploiting that power to the detriment of consumers or restricting competition is prohibited. “It is only when an undertaking seeks to use that power, for example, to exclude the competitor from the market, that concerns may arise,” she says.

Thirdly there is the Merger Rule, which only applies to the telecommunications industry. “This prohibits mergers that may substantially lessen competition [in Hong Kong].”

There are varying degrees of consequences for those liable for anti-competitive conduct, from notices to the offending company, to more severe sanctions such as being taken to the Hong Kong Competition Tribunal.

The Tribunal has a range of powers that include fining an undertaking a pecuniary penalty up to 10 percent of its annual turnover and disqualifying directors of the undertaking.

The introduction of competition law in Hong Kong is long overdue, says Wu. “It is a very curious anomaly for this place of free enterprise to not have one but we have it today which makes it a bit easier to tell everyone around the world that we have a competition regime that uses the same principles in America, the UK, the EU and Singapore.”

More to come

The HKCC will publish various documents in the run-up to the law’s full implementation. In July this year, the statutory body released a revised set of guidelines on the competition rules and how the authority will interpret and apply the relevant provisions of the Ordinance. More statements are expected to be released shortly, like the commission’s leniency policy.

The policy will outline how a cartel member who comes forward to report cartel conducts and divulge how the cartel operates, can receive leniency under the policy, especially if the information provided cuts short the authority’s investigation time, resource application and so forth.

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The Chairperson says this policy is vital for the law enforcement agency to tackle cartels. “They are usually organized and implemented in secret, making them very difficult to detect, so it is necessary to design a practical and effective set of policies to deal with this kind of conduct and to tell people what we will do when given significant information,” she explains. Many competition authorities around the world have this type of arrangement.

Also to be released soon: an enforcement priority document to reveal how the HKCC intends to use its limited resources by prioritizing areas for its enforcement efforts. Much focus will be on serious anti-competitive conduct.

“We are going to be influenced by a number of factors. These will include: whether there has been substantial harm to consumers, whether or not it would drive high productivity gains, whether or not there have been situations affecting entry to the market, and if serious barriers that have been built up,” she says.

Advice for companies

Before the critical date of commencement, there are various steps companies could take to ensure they are in compliance with the latest rules and regulations. Firstly, bring the competition compliance to the board’s attention.

“In recent years if you look at topics like anti-bribery and corruption, health and safety measures, environmental concerns, equal opportunity and diversity issues, they all gained prominence on a board level and as a result, structures and policies across companies [were installed] to help them better manage the myriad of risks that businesses face today,” Wu says. She urges companies to put the competition law on the board agenda and keep it there as it also produces value for companies.

Secondly, look at the organization’s corporate culture, including its compliance culture. “If your company doesn’t yet have a competition compliance program, now is the time to consider putting that in place. Don’t wait for a court to order it.”

She cites the case of a tech giant in the US that became liable for its central role in cartel conduct of e-book pricing, which resulted in a courtordered external monitor of the company to oversee its anti-trust compliance and to conduct annual compliance audits. “This is not what you would prefer; the ideal way is to design your own culture and processes and this is a good way of mitigating your risks both in your business and also in court,” the Chairperson explains.

Changing the company’s culture is never easy but she shares three suggestions to stir shifts within the organization. Start by showing the company’s commitment to compliance of the regime from top-down. “A policy or company statement from the board to the whole of the organization would help the message to get through; not only should directors be familiar with it but salesmen on the street need to [be aware of it].”

Also, conduct a risk assessment of the company’s existing practices and its long-term contracts to identify any provisions that could be troublesome and amend them now. “When the law comes to effect on December 14th, it should cut through the middle of long-term company contracts, which will give you a lot more problems,” she says.

It would be wise to consult experts such as lawyers, auditors and tax advisors to help you decide whether changes need to be made before mid- December.

Thirdly, install appropriate processes to mitigate and change those practices which may likely contravene the new law. This could require staff training and enshrining oversight systems in the organization for ongoing compliance to detect potential risk areas.

Asked how the authority will go against business titans in Hong Kong with unlimited resources, industry giants that can hire an army of top lawyers for its defense, Wu acknowledged that limited resources is the HKCC’s biggest restraint. “We have good in-house lawyers and where appropriate, we will also seek the help of senior barristers to take our cases for us so we have made that type of preparation,” she says. However, the Chairperson claims the HKCC still needs more money to cover its litigation expenses. Ultimately the city has to foot the bill.

“We need to manage our budget and build a track record and pattern over the kind of needs we have,” says Wu. “The government has not said no but that they need some justification so that is where I am at; hopefully it will be resolved.”

Nan-Hie In is a freelance journalist based in Hong Kong covering current affairs, lifestyle and entertainment in Asia. A regular contributor to local and international media outlets, she has written for the South China Morning Post, CNN (Business Traveller), the China Daily, HongKong.Coconuts.co, Prestige and more.