15 May, 2018
Various antitrust developments made headlines across Asia during the first half of 2018, but arguably some of the most impactful changes have occurred in China, where there has been a major restructuring of the antitrust regulators. In this e-bulletin, we provide a quick round-up of some of the key developments in the PRC and Hong Kong competition law regimes.
PRC
Consolidation of antitrust authorities
In March 2018, the PRC government announced an extensive restructuring of various ministries and agencies and the establishment of a new State Administration for Market Regulation (SAMR).
These reforms include the consolidation of antitrust regulatory functions under the SAMR. These functions were previously divided between: (i) the National Development and Reform Commission (NDRC), responsible for regulating price-related monopolistic behavior; (ii) the State Administration for Industry and Commerce (SAIC), responsible for regulating non-price related monopolistic behavior; and (iii) the Ministry of Commerce (MOFCOM), responsible for merger control.
This consolidation is expected to lead to more effective and efficient enforcement of the Anti-Monopoly Law (AML), as well as streamlining various areas of overlap that previously existed between the three regulators, such as the drafting of guidelines.
The new bureau has started to commence operations, having begun to issue merger control decisions in place of MOFCOM. According to a notice issued by MOFCOM on 8 May 2018, all merger control and AML related documents must be directed to the SAMR as of 14 May 2018.
The new SAMR bureau is staffed by members of the three existing antitrust regulators, which should reduce any uncertainty or discrepancies in the substantive application of the AML (including on merger control procedures) during and after the restructure.
Going forwards, the SAMR will most likely become the key regulator across a wide range of different areas of business in addition to antitrust, including business registration, product safety, food safety, quality inspection, certification and accreditation. A new State Intellectual Property Office (SIPO) will also be established under the SAMR, to formulate China's framework for the protection of intellectual property. For more discussion on the various functions of the SAMR, please refer to our earlier e-bulletin, China’s massive government restructure explained.
Fines for failure to file
MOFCOM issued a number of fines for failure to notify relevant transactions under the merger control regime in the first half of 2018. Most notably, three of these penalties relate to transactions that were completed in the early stages of the AML's enactment, between 2009 and 2011, signaling perhaps that further enforcement action against past infringements may be yet to come.
These decisions relate to: (i) China Merchants International Container Terminal (Qingdao) and Qingdao New Qianwan Container Terminal each fined RMB 200,000 for their failure to notify a joint venture completed in 2009; (ii) China Merchants International Container Terminal (Qingdao) and Qingdao Port (Group) each fined RMB 200,000 for their failure to notify a joint venture completed in 2010; and (iii) Yihai Kerry and CJ Cheiljedang each fined RMB 150,000 for their failure to notify a joint venture completed in 2011.
MOFCOM officials have made various public statements regarding their determination to pursue merger non-notifications. There have also been suggestions that the maximum fines for failure to file may be increased following the eagerly anticipated reforms of the AML. Merger non-notification is therefore expected to continue to be an enforcement focus of the SAMR in the near future.
Hong Kong
Upcoming review of the Ordinance and new guidance from the Commission
The Competition Commission of Hong Kong (the Commission) is expected to conduct a review of the Competition Ordinance (the Ordinance) within 2018. This review comes 3 years after the Ordinance came into full force in December 2015, as originally intended by the legislature upon the introduction of the law.
According to various public statements made by Commission officials, there are several key areas of focus for the upcoming review, including the possible introduction of independent private legal actions based on the Ordinance without requiring the Commission to have first successfully prosecuted the contravention (so-called "standalone claims", which are currently not available under the Ordinance). This contrasts with the right to bring a "follow-on action" based on an existing finding of a contravention by the Commission, which are permitted under section 110 the Ordinance.
The Commission is also understood to be in the midst of preparing new guidelines in relation to fining standards, as well as reviewing its existing Leniency Policy for Undertakings Engaged in Cartel Conduct (the Leniency Policy). Changes that may be introduced include greater transparency around the options available to the Commission to cooperate or settle with parties that are not otherwise able to benefit from full immunity under the Leniency Policy, as well as other factors that the Commission may consider in fining, such as whether the relevant party has in place a robust compliance system.
Developments in ongoing enforcement cases
The substantive hearings for the first two enforcement cases of the Commission are expected to take place before the Competition Tribunal (the Tribunal) later this year, in June/July and November/December respectively. The developments of these two cases are being closely watched, as they shall serve as important precedents for future enforcement actions undertaken by the Commission. In particular, various significant procedural decisions have already been made in interlocutory hearings before the Tribunal.
In March 2018, the Tribunal handed down a decision (CTEA 1/2017) regarding the application by one of the respondents in the Commission's first case for disclosure of various categories of documents that had been withheld by the Commission. In its decision, the Tribunal held inter alia that the Commission was not required to disclose any without prejudice communications between the Commission and respondents under its Leniency Policy (i.e. "leniency documents'), nor any without prejudice communications between the Commission and any respondent where a leniency/cooperation agreement had not been reached. However, the Commission was required to disclose the original complaint form, based on which the investigation was commenced, since the identity of the complainant has already been disclosed by the Commission during the proceedings. The Tribunal rejected the Commission's argument that its internal reports, minutes and correspondence as a whole were not subject to disclosure due to irrelevance or public interest immunity, and required the Commission to list all relevant documents and assert public interest immunity on an individual basis.
For an overview of the background of the two cases and other earlier developments in the proceedings, please refer to our earlier e-bulletin, The Hong Kong Competition Ordinance – Two Years On.
Advisory bulletin on potential infringements in employment-related practices
In April 2018, the Commission published an advisory bulletin to provide guidance on potential infringements arising from employment-related practices.
In particular, the Commission pointed out that: (i) any agreement in relation to any element of employee remuneration, or any exchange of information in relation to employee remuneration, is akin to price fixing in the market for labour; and (ii) any agreement in relation to recruitment of each other's employees, or any exchange of information in relation to such intentions, is akin to market sharing by allocating sources of supply.
For further details on the Commission's advisory bulletin, as well as recommendations on employment practices, please refer to our earlier e-bulletin, The Hong Kong Competition Commission Signals a Warning on Potentially Anti-Competitive Employment Practices.
Continued focus on bid-rigging and market sharing
The Commission has continued to focus its advocacy efforts over the past six months on two specific categories of Serious Anti-Competitive Conduct (SACC): bid rigging and market sharing.
Pertinently, these two categories of infringements form the basis of the first two enforcement cases, respectively.
In addition to regular road shows and seminars hosted by the Commission in relation to these two categories of SACC, in December 2017 the Commission published a guidance document for businesses conducting tenders for procurement of goods or services.
This guidance contains model "non-collusion clauses" and "non-collusive tendering certificates" that may be included in any invitations to tender in order to promote fair bidding practices, as well as suggestions for relevant clauses in formal agreements.
For further information, please contact:
Mark Jephcott, Partner, Herbert Smith Freehills
mark.jephcott@hsf.com
