haffa 10dec final · road to full implementation… 3 ordinance enacted (2012) commission...
TRANSCRIPT
Competition OrdinanceOur Rights and Responsibilities
The views expressed are those of the speaker and do not necessarily reflect those of the Competition Commission
Philip F. MONAGHANExecutive Director (General Counsel), Competition Commission
10 December 2014
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• The road to full implementation of the Ordinance• The Competition Rules and the Draft Guidelines –our rights and responsibilities under the new regime
• Ensuring competition compliance in your organisation
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Outline
Road to full implementation…
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Ordinance enacted (2012)
Commission established (2013)
Draft Guidelines published (2014)
Guidelines finalised and adopted (2015)
Competition rules implemented (2015)
Draft Guidelines issued for public comment
9 October 2014
• Commission has sought public comment on Draft Guidelines (consultation period ends today)
• Guidelines aim to assist HK businesses comply with Ordinance Take account of feedback from stakeholders during
Commission engagement process Make liberal use of hypothetical examples to explain
key concepts• Industry and sector neutral• Represent Commission’s interpretation of Ordinance – not
binding on Tribunal• Other policy documents and publications to come:
Leniency Agreement Policy SME Guide MOU with Communications Authority Enforcement Priorities
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First half of 2015
• Commission to revise Draft Guidelines in light of comments received
• Consult Legislative Council on revised Draft Guidelines
• Commission will finalise Guidelines and complete internal preparations in first half of 2015
• Tribunal Rules, other subsidiary legislation (e.g. on “turnover”, statutory bodies etc)
• Government to issue Commencement Notice for Competition Rules
• Companies should be ready, willing and able to comply from Day 1!
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What’s next?
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The Competition Rules and the Draft Guidelines…
Draft Guideline on Complaints
• Complaints important source of information on possible infringements of Ordinance
• No formal requirements for making of complaints• However, complaints unlikely to proceed to further
assessment if complainant does not provide sufficient information
• Commission has discretion whether to pursue complaint Commission will pursue those complaints which it
considers most likely to result in benefit to consumers and the Hong Kong economy
Commission considers it reasonable not to pursue all complaints that may potentially, if investigated further, uncover a contravention
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Draft Guideline on Investigations• Commission proposes 3 stage investigative process:
Receiving and assessing complaint (see Draft Guideline on Complaints)
Initial Assessment Phase, where Commission relies on public information or information provided voluntarily
Investigation Phase, where Commission may use compulsory evidence gathering powers
• Commission will protect confidentiality of investigations and promote transparency of outcomes To promote public understanding, Commission
will publish outcomes of investigations including Warning Notices
• Guideline does not deal with enforcement priorities
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Draft Guideline on Applications
• Ordinance provides for various exclusions and exemptions
• Commission may issue Decisions on application (fee will be charged) Block exemption orders
• Businesses are encouraged to self‐assess whether the Ordinance’s exemptions/exclusions apply
• Commission will exercise power to issue decision/block exemption order only in certain circumstances
• Commission not empowered to provide for block exemptions in draft Guideline, can only do so once the Ordinance is fully in force
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First Conduct Rule• Prohibits an undertaking from making or giving effect to an agreement if the agreement has the object or effect of harming competition in Hong Kong
• First Conduct Rule also also applies to concerted practices; and decisions of associations of undertakings
Draft Guideline on the First Conduct Rule
• First Conduct Rule captures horizontal arrangements (arrangements between competitors)
• Examples of horizontal arrangements having the “object” of harming competition: Horizontal “cartel" agreements involving price fixing, market sharing, bid
rigging, output restrictions Exchange of future price information Group boycotts
• Other horizontal arrangements generally assessed by reference to their effects e.g. Certain joint ventures Joint purchasing arrangements Standard terms and standardisation agreements
• Serious Anti‐competitive Conduct – includes horizontal cartel arrangements• Other anti‐competitive conduct subject to:
Exclusion for agreements of “lesser significance”; and Warning Notice mechanism
First Conduct Rule – horizontal agreements
• First Conduct Rule applies to vertical arrangements (arrangements between businesses at different levels of supply chain)
• Vertical arrangements having the “object” of harming competition: Resale price maintenance (RPM)
Efficiency justification may however be possible for RPM• Other than RPM, vertical arrangements generally assessed by reference to their
effects e.g. Recommended and maximum resale price restrictions Exclusive distribution
• In certain cases, RPM may be Serious Anti‐competitive Conduct• Generally, vertical agreements not considered to be Serious Anti‐competitive
Conduct and therefore subject to: Exclusion for agreements of “lesser significance”; and Warning Notice mechanism
First Conduct Rule – vertical agreements
FCR hypothetical examplesMarket sharing• A group of coach companies decide to allocate a number of routes
between themselves & agree not to provide services or pursue customers on routes allocated to a particular company or to launch new routes without consulting each other
• Agreement to allocate geographic markets has object of harming competition ‐ removes choice of supplier for consumers leading to higher prices
• Economic efficiency exclusion under Ordinance very unlikely to apply –while agreement might be considered to avoid overlapping routes, consumers unlikely to derive any benefit
RPM• A confectionary products producer wishes to introduce a range of “K‐Pop” candy
products in Hong Kong – it has less than 5% of HK market• It requires its retailers to sell its products at a fixed introductory price of “$5 a
pop”, which is less than the price of competing brands • Although there is a risk this RPM arrangement may be considered to have an
anti‐competitive object, the economic efficiency exclusion may apply(arrangement allows a new product to establish itself)
There’s no such thing as a free lunch…
Second Conduct Rule• Prohibits undertakings with substantial market power in a market from abusingthat power by engaging in conduct which has the object or effect of harming competition in Hong Kong
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Draft Guideline on Second Conduct Rule
• Draft Guideline explains Commission’s approach to market definition Generally we will only look at demand‐side substitutes Market definition is a tool and not an end in itself
• Commission takes economic approach to assessing SMP “Ability profitability to charge prices above competitive levels for a
sustained period” Market share is only one indicator of SMP – ease of entry and expansion
in market, countervailing buyer power also important No market share thresholds above/below which a firm will be presumed
to have/not have SMP • Meaning of “abuse” is open but examples given in Guideline include:
Predatory pricing Anti‐competitive tying and bundling Margin squeeze and refusals to deal Exclusive dealing
Second Conduct Rule – key elements
SCR example: substantial market power
• A butcher shop has a 70% market share for the supply of meat in a particular locality
• This locality amounts to a distinct geographic market because customers are not willing to travel to other localities to purchase meat
• The butcher shop’s market share alone might suggest SMP
• However, barriers to entry are low and another butcher shop could easily begin to operate in the area
• This would prevent the first butcher shop from profitably charging prices above competitive levels for a sustained period
• The butcher shop does not have SMP whatever its market share might suggest
SCR example: predatory pricing
• KowloonVend has majority of vending machine sales in Hong Kong
• New Vending enters the market in competition with KowloonVend and KowloonVend’s sales begin to decline
• In response, KowloonVend cuts its prices in half – its prices are now so low that it is not covering its costs and loses money with every sale
• New Vending cannot compete with these low prices and goes out of business
• If KowloonVend has a substantial degree of market power, its conduct may be considered predatory and a violation of the SCR
• Our aim is to ensure all businesses, big or small, are ready, willing and able to comply when the Conduct Rules come into force
• Phased implementation allows you to review practices and make the necessary adjustments: Understand the Conduct Rules Ensure a compliance culture from top to
bottom Identify risk areas/conduct Adjust conduct if necessary ahead of
commencement
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Ensuring effective compliance
• Board Members and Senior Management should take responsibility for instilling compliance commitment throughout the business
• Key messages to deliver to your colleagues:– Cartels don’t make money – no guarantee a penalty would be lower
than the cartel ‘profits’– Penalties hurt – risk of director disqualification and reputational
impact– Short term gains – anti‐competitive practices are inefficient – weaken
incentives to control costs and innovate– Other costs of cartel discovery – triggers insurance and banking
contract clauses; market announcements; business distraction; senior staff must devote time
• Consider those colleagues most at risk– Sales staff– Participants in JVs– Those attending trade association meetings
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Risk awareness
Getting prepared for full implementation
1. Inform yourself about the Competition Ordinance 2. Educate your employees on the core principles – consider a compliance
programme3. If you are concerned about arrangements that you currently have in
place, consider whether you should change them to ensure compliance –seek external legal advice if necessary
4. Encourage your trade association to adopt a culture of compliance and to keep members informed about the Competition Ordinance
5. Keep an eye on our website – we will be publishing more information and risk assessment tools
6. Contact us if you have any questions – we welcome your comments on our Draft Guidelines
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Thank you!
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