Competition Ordinance – Hong Kong’s Commercial Sphere
3E Accounting explains what Competition Ordinance is all about and why it is necessary for Hong Kong’s commercial sphere.
Hong Kong’s Competition Ordinance (the Ordinance) aims to extend competition protection towards businesses on par with global standards. A fair and competitive free market economy is the ideal arena for innovative and evolutionary commerce. Healthy competition ensures businesses thrive by creating demand, increasing efficiency, and maintaining product quality. The Ordinance, which came into effect on 14 December 2015, aims to safeguard both businesses and consumers from predatory and harmful activities. Any activity that destabilizes or harms a competitive marketplace is thus prohibited by law.
The Competition Rules
Undermining competition in business is illegal, and the Ordinance recognizes three anti-competitive conduct. These are:
- The First Conduct Rule (S6 (1) of the Ordinance) – prohibits bids rigging, price-fixing, restricting output, etc. The objective is to ensure that competition is not distorted, prevented or restricted in any way.
- The Second Conduct Rule (S21 of the Ordinance) – prohibits employing market power in an abusive or coercive manner that results in harm to competition.
- The Merger Rule – prohibits mergers that can substantially and negatively impact competition. It is currently limited in scope to carrier licenses that fall under the ambit of the Telecommunications Sector in Hong Kong.
The First Conduct Rule prohibits any activity that would harm the competitive market in Hong Kong. Such activities include vertical price restrictions, exclusivity in distribution or allocation, and the formation of cartels, which are illegal. It also covers harm that may accrue from any restrictive activities of trade associations, joint ventures, etc.
It is usually large firms that fall afoul of the Second Conduct Rule with activities that contravene the Ordinance. Some of these activities include margin squeezing, predatory pricing, exclusive dealing or even an outright refusal to deal. Sharing commercial secrets are also frowned upon if they act to cooperate with competitors rather than driving active competition.
The Responsibility of Businesses
The Ordinance aims to protect against unfair competition and businesses that have fallen victim to such activities can complain to the Competition Commission (the Commission). The Commission implements the Ordinance and will take swift action to ensure all such practices are eradicated. It is an independent body that prioritizes a fair and competitive market economy in Hong Kong.
The Commission has published a compliance toolkit and other supporting material to ensure easy understanding and application of the Ordinance. It strongly advocates that all businesses have a proactive responsibility to avoid harmful activities. The Commission uses the catchphrase ‘The Four Don’ts’ to highlight activities that small-medium enterprises (SMEs) must actively avoid. These are price-fixing, market share fixing, restricting output and rigging bids.
In the event that the Ordinance is contravened, sanctions can be imposed by the Competition Tribunal. The sanctions are wide-ranging and include damages, disqualification of directors and other board members, pecuniary penalties, etc. To know more about complying with the Competition Ordinance, Contact 3E Accounting today. Our experts are on hand to answer your queries and guide you on the proper path towards compliance and success.