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Notices, enforcement and the making of the Hong Kong competition ordinance

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Abstract

Created by the Hong Kong competition ordinance 2012 (Ordinance), the infringement notice and the warning notice are novel tools of competition law enforcement. Their use, however, involves serious tradeoffs. On the one hand, the notices promote a speedier, more flexible and cheaper resolution of investigations in competition law cases. On the other hand, they may curtail deterrent effects while injecting greater discretion and uncertainty into the enforcement process. This article investigates the extent to which such tradeoffs were identified and weighed by the designers of the notices in the lawmaking process. Written records of the legislative debates on the Ordinance were collected and their content analysed systematically. The findings suggest that although the participating actors largely agreed upon and fluently articulated the benefits of the notices, they either ignored or neglected their potential risks. The development of competitive markets in Hong Kong requires that those risks be well understood and managed.

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Notes

  1. Competition Ordinance (Cap. 619) (hereinafter ‘Ordinance’). The Ordinance has now entered the process of implementation. It is expected that it will become effective in the second part of 2015.

  2. Polinsky and Shavell 2007, p. 435–437; Wils 2008, p. 335–352; Polinsky and Rubinfeld 1988, p. 109–116. Enforcement notices and warrant letters have also been examined in the context of regulatory non-compliance in the United Kingdom, see Macrory 2006.

  3. Yves and Agapi 2013, p. 347–374; Cook 2006, p. 227–228; Papp 2012, p. 956–958. Although this argument has been put forward in the context of commitment decisions under EU Competition Law it can still apply reasonably well to the case of the WN and IN in the context of the Ordinance, see Sect. 3 of this article.

  4. Buccirossi et al. 2011, p. 166–170. In addition, Buccirossi et al. Deterrence in Competition Law (Discussion Paper SP II 2009) http://www.econstor.eu/handle/10419/51212 Accessed 15 December 2014.

  5. Connor and Lande 2012, p. 456–457. Also, Connor and Lande 2006, p. 984–987.

  6. Connor 2008, p. 595.

  7. Ordinance, note 1 above, s142. The Commission has been granted a wide range of powers, among others, to draft guidelines, advocate compliance with the Ordinance, advise the government in relation to the Ordinance, conduct market studies, and promote research on competition law in Hong Kong, Ordinance s130.

  8. Ordinance s134(2) and s135.

  9. Ordinance ss60–65 and sch 2.

  10. Ordinance ss79–81.

  11. Ordinance ss66–78 and 80, respectively.

  12. Ordinance s6.

  13. Ordinance s2(1); Hong Kong Competition Commission, ‘Draft Guidelines on The First Conduct Rule—2014’, p. 17–19.

  14. Ordinance s21. To the extent that this article focuses on the IN and WN this section does not offer an extensive examination into the different rules of the Ordinance such as, among others, the conduct rules, the merger rule and rules on exclusions and exemptions. For further details about the Ordinance and competition policy in Hong Kong beyond the content of this section see Kwok 2014, 541–567; Cheng 2014, 88–94; and more generally Williams 2005; draft guidelines under the Competition Ordinance issued by the Hong Kong Competition Commission http://www.compcomm.hk/en/draft_guidelines_2014.html. Accessed 11 March 2015.

  15. Ordinance s67(1) and s 2(1). However, the Commission cannot issue an IN if it has already started proceedings in the Tribunal in respect to the alleged violations, Ordinance s67(1)(b).

  16. Ordinance s67(2).

  17. Ordinance s69.

  18. Ordinance s67(3).

  19. Ordinance s68.

  20. Ordinance s75.

  21. Ordinance s68 and s76(2).

  22. Ordinance s73.

  23. Ordinance s82(1).

  24. Ordinance s82(2). Such proceedings may be brought only in respect to the alleged misconduct that followed, but not that preceded, the expiration of the warning period, Ordinance s82(5).

  25. Ordinance s83.

  26. Ordinance s67(3)(a) and s67(4).

  27. Ordinance ss92–93.

  28. Ordinance ss91–92 and s93(1). Although the Tribunal may set the penalty to ‘any amount it considers appropriate’ this penalty cannot exceed in total a 10 % of the turnover of the undertaking concerned for each year of contravention and up to a maximum of three years; the turnover is calculated by looking at the total gross revenues of an undertaking obtained in Hong Kong, Ordinance s93(3) and s93 (4).

  29. Ordinance ss101–105.

  30. Ordinance s96(1).

  31. Ordinance sch3(1)(p) and s105.

  32. Ordinance ss108–109.

  33. Ordinance s110.

  34. Ordinance s110(3)(e).

  35. Ordinance s67(3)(b).

  36. Relevant readings in connection with this issue are listed in note 2 above.

  37. Legislative Council Brief, Competition Bill, Submitted by the Commerce and Economic Development Bureau, 2 July 2010, File Ref.: CITB CR 05/62/56, paragraph 7; Legal Service Division on the Competition Bill, ‘Paper for the House Committee Meeting on 8 October 2010’ LC Paper No. LS93/09–10, 1–9, paragraph 11; and the Report of the Bills Committee on Competition Bill, ‘Paper for the House Committee meeting on 18 May 2012’ LC Paper No. CB(1)1882/11-12, 1–53, paragraph 7.

  38. Bills Committee on Competition Bill, ‘Overview of Major Components of the Competition Bill’ CB(1)320/10–11(02), 1–17, paragraph 4.

  39. Note 3 above.

  40. HK Competition Commission, ‘Draft Guideline on The First Conduct Rule—2014’, 1 and ‘Draft Guideline on The Second Conduct Rule—2014’, p. 1.

  41. Wils 2004, p. 212–222.

  42. The basis for this statement is the author’s interpretation of recent public speech delivered by Mr. Justice Gofrey Lam, President of the Hong Kong Competition Tribunal, at the 10th Annual Conference of the Asian Competition Forum, 8–9 December 2014, Hong Kong. A similar interpretation is presented in Kwok 2014, p. 547–548 (Sect. 2.3) and p. 563–567 (Sect. 3.8).

  43. Ma 2010, p. 231. (the author finds that de facto but not de iure independence is a relevant factor in explaining the effectiveness of antitrust enforcement); also Feld and Voigt 2003, p. 497–527; Voigt 2009, p. 1233.

  44. Williams 2009, p. 544–546. The pernicious influence of cartels is also illustrated by a number of cases investigated by the Hong Kong Independent Commission Against Corruption in the past, cases which seem to have involved the participation of not only private actors but also government officials, HKSAR v Cheung Kwok Chung, Court of Appeal [2004] HKEC 38; HKSAR v Wong Hung Ki, Court of Appeal, [2010] HKEC 706; Sit Kam Tai v Gammon iron gate Co Ltd, Court of First Instance, [2010] HKEC 1207.

  45. Buccirossi et al. 2011, p. 168. For more extensive readings on sanctions and deterrence see Polinsky and Shavell 2007; Becker 1968.

  46. Buccirossi et al. 2011, p. 167–170.

  47. Legislative Council Brief, Competition Bill, Submitted by the Commerce and Economic Development Bureau, 2 July 2010, File Ref.: CITB CR 05/62/56, paragraph 4 (indented letters added). The objective is reiterated in similar terms in other reports including the Report of the Legal Service Division on the Competition Bill, ‘Paper for the House Committee Meeting on 8 October 2010’ LC Paper No. LS93/09–10, 1–9, paragraph 7; the Report of the Bills Committee on Competition Bill, ‘Paper for the House Committee meeting on 18 May 2012’ LC Paper No. CB(1)1882/11-12, 1–53, paragraph 5.

  48. Buccirossi et al. 2011, p. 167–170.

  49. Buccirossi et al. 2011, p. 167–170. Drawing from the Competition Policy Indexes (Institutional CPI) in Buccirossi et al. 2011 we measured the ability of the Ordinance to deter anticompetitive conduct under two distinct, extreme scenarios. In scenario A the Commission investigates the competition cases and the Tribunal resolves all those cases and imposes pecuniary and other sanctions on infringers. In scenario B the investigation and resolution of cases is conducted solely by the Commission through the notices. The results show that the ability of the Ordinance to deter in scenario B is about 45 % lower than in scenario A. This drop in deterrent effects in scenario B is largely due to (1) the absence (at least in functional terms) of the specialised Tribunal (2) a single entity, namely the Commission, investigating and resolving the cases, and (3) the lack of monetary sanctions on infringers and of disqualification orders. These are factors that deteriorate the deterrent properties of the Ordinance and make it less effective.

  50. Williams 2009, p. 547–548 (citing diverse sources).

  51. See http://legco.gov.hk/yr09-10/english/bc/bc12/general/bc12.htm. Accessed December 2012.

  52. See http://app.legco.gov.hk/Bills/english/index.aspx. Accessed April 2013.

  53. The English versions of such terms are used in this article. For the Chinese-only records we used the corresponding Chinese search terms: infringement notice ‘違章通知書’, Warning notice ‘告誡通知’, Statutory Body ‘法定團體’, SMEs ‘中小企’. The relevant Chinese content has been translated into English by the author with the assistance of a Chinese native speaker.

  54. http://www.tid.gov.hk/english/aboutus/publications/industrialsupp/hktio.html. Accessed January 2013; and other relevant sites on the internet.

  55. http://www.cr.gov.hk/en/electronic/mobile_search.html. Accessed in different periods until July 2013.

  56. ‘Home Affairs Bureau, Review of Advisory and Statutory Bodies’ (2005) LC Paper No. CB(2)2176/04–05(04).

  57. The documents include a letter signed by 22 faculty members. This letter was counted as if written by a single, individual actor.

  58. Issues involving the SMEs and Statutory Bodies proved highly controversial in the making of the Competition Ordinance as reported by the local media: T Chong, ‘Two-tier plan for competition law’ SCMP (Hong Kong, 11 February 2012); T Chong, ‘Broader exemption sought for SMEs’ SCMP (Hong Kong, 11 February 2012); B Chan, ‘How much bite will HK’s competition law really have?’ SCMP (Hong Kong, 27 January 2012, A11); Editorial, ‘Competition bill needs more work’ SCMP (Hong Kong, 27 October 2011); T Chong, ‘Competition bill is weakening, watchdog says’ SCMP (Hong Kong, 25 October 2011); T Chong, ‘Revolt looms over competition law’ SCMP (Hong Kong, 19 October 2011).

  59. Graphs no.1 and no.2 contain a total of 131 and 124 paragraphs, respectively. A reference date could not be found in five of the IN paragraphs and three of the WN paragraphs.

  60. Bills Committee on Competition Bill, ‘Responses to Concerns on the Competition Bill’ (25 October 2011) LC Paper No. CB(1)91/11-12(01) 1–10.

  61. The amount of paragraphs containing a viewpoint or sentiment on the IN is originally 62 out of a total of 136 paragraphs. But since the IN was a very different instrument at an early stage before the proposal submitted by the Government on 25 October 2011 (see note 60 above and text) the content analysis of those paragraphs stated before that date was excluded (among the excluded paragraphs, 9 paragraphs showed a sentiment (5 support; 1 opposition; 3 objections); 20 paragraphs showed technical or other content). The reason for excluding those paragraphs is to ensure that for the remaining paragraphs (paragraphs on or after 25 October 2011) the actors’ sentiment was stated over largely the same IN tool. Such problem was not found in the context of the WN.

  62. Bills Committee on Competition Bill, ‘Minutes of the 24th Meeting held on 15 November 2011’ LC Paper No. CB(1)1427/11-12, Appendix, p. 12.

  63. Bills Committee on Competition Bill, ‘Minutes of the twenty-first meeting held on Tuesday 11 October 2011’ LC Paper No. CB(1)516/11-12, 1–17, Appendix p. 2.

  64. Report of the Bills Committee on Competition Bill, ‘Paper for the House Committee meeting on 18 May 2012’ LC Paper No.CB(1)1882/11-12, -120, p. 4, paragraph 10(c).

  65. Legislative Council, ‘Official Record of Proceedings on 6 June 2012’ 14339, p. 14627.

  66. Bills Committee on Competition Bill, ‘Minutes of the 29th Meeting held on 16 January 2012’ LC Paper No. CB(1)2131/11-12, Appendix, p. 7.

  67. Bills Committee on Competition Bill, ‘Minutes of the 23rd Meeting held on 8 November 2011’ LC Paper No. CB(1)920/11-12, Appendix, p. 10.

  68. Submission to the Bills Committee on Competition Bill, 28 March 2012, LC Paper No. CB(1)1577/11-12(01), 1–8, p. 7–8.

  69. Submissions to the Bills Committee on Competition Bill, 8 November 2012, LC Paper No. CB(1)372/11-12(03), 1–4, p. 2.

  70. Bills Committee on the Competition Bill, ‘Responses to Follow-up Questions Arising From Previous Meetings, 22 November 2011’ LC Paper No. CB(1)389/11-12(02), Appendix D, p. 5 (straight brackets added).

  71. Bills Committee on the Competition Bill, ‘Responses to Follow-up Questions Arising From Previous Meetings, 22 November 2011’ LC Paper No. CB(1)389/11-12(02), Appendix D, p. 5.

  72. Note 39 and note 3 above.

  73. Bills Committee on Competition Bill, ‘Follow-up Questions on Amendments on the Competition Bill on 25 October 2011’ LC Paper No. CB(1)389/11-12(01), 1–4, p. 3.

  74. Bills Committee on Competition Bill, ‘Minutes of the twenty-eighth meeting held on Tuesday, 3 March 2012’ LC Paper No. CB(1)1976/11-12; 1–11, Appendix, p. 5.

  75. Bills Committee on Competition Bill, ‘Minutes of the twenty-eighth meeting held on Tuesday, 3 March 2012’ LC Paper No. CB(1)1976/11-12; 1–11, Appendix, p. 6.

  76. Note 43 above.

  77. Note 41 above.

  78. Submission to the Bills Committee on Competition Bill, 29 December 2012, LC Paper No. CB(1)905/11-12(01), 1–5, p. 4.

  79. Legislative Council, Official Record of Proceedings on 6 June 2012,14339, p. 14644.

  80. Submission to the Bills Committee on Competition Bill, 10 November 2011, LC Paper No. CB(1)372/11-12(04), 1–3, p. 2.

  81. Bills Committee on Competition Bill, ‘Minutes of the twenty-seventh meeting held on Tuesday, 20 December 2011’ LC Paper No. CB(1)1726/11-12, 1–13, Appendix, p. 6; Bills Committee on Competition Bill, ‘List of follow-up actions arising from the discussion at the meeting on 20 December 2011’ CB(1)725/11-12(01), 1–3, p. 2.

  82. Bills Committee on Competition Bill, ‘Minutes of the 28th Meeting held on 3 January 2012’ LC Paper No. CB(1)1976/11-12, Appendix, p. 7–10 (straight brackets added).

  83. Legislative Council, Official Record of Proceedings on 6 June 2012, 14339, p. 14534–14535.

  84. Note 41 above.

  85. Note 39 and note 3 above.

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Acknowledgments

I would like to thank Mr Qilin Zhang for his useful research assistance. I am also grateful to Dr. Sudeep Gosh, Professor Mark Williams and the two anonymous reviewers for the valuable comments that they have provided to improve this article. Financial support granted by the Hong Kong Polytechnic University (Competitive Research Grants) is gratefully acknowledged. Claims and errors are the sole responsibility of the author.

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    Félix E. Mezzanotte

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Mezzanotte, F.E. Notices, enforcement and the making of the Hong Kong competition ordinance. China-EU Law J 4, 201–222 (2015). https://doi.org/10.1007/s12689-015-0058-z

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