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The rise of antitrust enforcement in Hong Kong – lessons learned and where to next?

This year has been the most active yet for the Hong Kong Competition Commission: so far it has filed two enforcement actions before the Competition Tribunal involving IT services and text books (bringing the total number of actions brought by the Commission to six), issued its first infringement notice and accepted its first set of commitments. The Commission has now also concluded one of its most high-profile investigations to date, into the Hong Kong Seaport Alliance, resulting in a second commitments decision.

During a recent Competition Lawyers Forum event (virtually) hosted by Freshfields Hong Kong, we discussed a number of these interesting developments with Dr. Derek Ritzmann,1 an expert at Economics Partners, and looked ahead to what the Commission might turn its focus to going forward.

Practical takeaways from the Hong Kong Seaport Alliance investigation 

This investigation concerned a contractual joint venture between port terminal operators in Hong Kong to enter into the Hong Kong Seaport Alliance, with the aim of enhancing efficiencies and the regional competitiveness of Kwai Tsing port. The Commission announced in January 2019 that it had opened a formal investigation due to concerns that the Alliance might involve a contravention of the First Conduct Rule (which governs anti-competitive agreements and concerted practices) under the Hong Kong Competition Ordinance.

Nearly two years later, the Commission has concluded this high-profile investigation, accepting a set of behavioural commitments by the parties which include price caps and maintaining service levels.

Some practical takeaways from this case are:

1. An effects analysis may be favoured in appropriate, non-“hardcore” cases

Although this case involved a horizontal co-operation agreement that envisaged close operational, financial and commercial coordination between the parties, the Commission applied an effects analysis – finding that the Alliance was unlikely to give rise to anti-competitive effects in two of the three main markets under consideration due to the parties’ low combined market shares.

This outcome should not be taken to suggest that companies are free to engage in horizontal cooperation so long as their market shares are low.  More likely is that the Commission’s analysis of the Alliance was driven by the fact that it did not involve classic “hardcore” conduct, but rather related to a “merger like” joint venture similar to alliances seen in the airline industry – and that it was therefore better suited to an effects analysis.  The Commission will no doubt continue to take a vigilant and aggressive approach towards more traditional “hardcore” conduct going forward, irrespective of the parties’ size.  This is supported by the fact that the Commission, in the Notice of Acceptance, reserved its position as to whether other arrangements of this kind could, depending on the relevant circumstances, instead be analysed as by-object infringements.

2. The Commission will adopt a rigorous and methodical application of the Efficiency Exclusion 

While past cases have failed to satisfy the Efficiency Exclusion (under Schedule 1 of the Competition Ordinance) due to a lack of evidence, the Commission in this case found that a number of the claimed efficiencies did exist and would likely benefit shipping line customers.  However, the Exclusion was not relevant for two of the three main markets because no anti-competitive effects were identified. And for the third market, the Commission found that the Exclusion did not apply, notwithstanding the existence of certain efficiencies, as the parties failed to show that the fourth condition had been satisfied – i.e. that the Alliance will not afford them the possibility of eliminating competition in respect of a substantial part of the goods or services in question. 

This suggests that the Commission will apply the conditions of the Exclusion methodically and with rigour even where substantial efficiencies have been identified, and is a strong indicator that meeting the requirements of the Exclusion will be far from easy.  Companies that hope to make use of the Exclusion will therefore need to take care not only to identify and assess clear and measurable efficiencies arising from any contemplated cooperation, but also to ensure that each of the remaining conditions of the Exclusion test have been met.

3. Obtaining a decision will take time

It is notable that the Commission took nearly two years to make a determination in relation to the Alliance.  Companies seeking to collaborate in similar ways going forward face a clear dilemma: do they seek legal clarity through applying for a formal decision and put off implementation until a determination is made, or do they rely on their own self-assessment and press ahead despite the uncertainty of how the Commission may view the conduct?   

It would no doubt be helpful for companies in this position to be able to obtain some comfort from the Commission, on an informal basis, that their contemplated conduct can proceed without antitrust risk (similar to the “business review letter” practice in the United States, for example).  The Commission has introduced an informal guidance process for cooperative measures necessitated by the Covid-19 pandemic (see our previous blog post) – however, whether or not such a process might be extended in the future to circumstances beyond the health crisis remains to be seen.

When will there be a case under the Second Conduct Rule?

The Second Conduct Rule applies to abuses by companies with a “substantial degree of market power” (SDMP).  So far, the Commission has not taken a case to the Competition Tribunal under this rule – although it has recently referred in its Annual Report to the existence of a number of initial assessments / investigations into potential abuses of SDMP.  

Until the Tribunal makes its first finding (or the Commission provides guidance by way of its own enforcement activity, e.g. through a commitments or infringement notice procedure), there will be some uncertainty as to what amounts to SDMP, and whether this will be a different, potentially lower, standard than what is required under EU and US law (which refers to “dominance” and “monopoly”, respectively). The difference in terminology seems unlikely to be any real indicator that different standards will apply, particularly as similar phrases of “substantial market power” and “significant and durable market power” are used in EU and US guidance documents regarding this type of conduct.   The bigger question is perhaps whether the Commission will agree with European case law, which has established a presumption of dominance where a company has a market share of 50% or more, and/or the European Commission’s view (as set out in its Guidance on Article 102 Enforcement Priorities) that companies with a market share of less than 40% are unlikely to be dominant. So far, the Hong Kong Commission has deliberately stayed away from providing any such guidance – likely because other factors, such as market dynamics and barriers to entry, are equally (and sometimes more) important than market shares. Until there is clarity on this issue, companies may need to take a relatively cautious approach in their compliance activities in relation to the market share level at which SDMP may arise.

Where to next?

Looking ahead, it is expected that the Commission’s enforcement activities will continue to be focused on cartel conduct and driven by cases brought to its attention, rather than a proactive and sector-specific approach – and the Commission’s updated leniency policy that was introduced earlier this year will make it more attractive for both companies and individuals to come forward with information about such conduct.  With land and real estate being scarce commodities in Hong Kong, it is possible that related sectors (following the recent run of cases in relation to building maintenance and renovation) will continue to be high on the Commission’s priority list. 

Other sectors of potential focus include financial services given its overall importance to Hong Kong (and it is perhaps worth noting in this regard that the Commission signed a memorandum of understanding with the Securities and Futures Commission earlier in the year to provide a platform for cooperation going forward).

The future may also see the Commission looking to, and following, regulatory interventions in larger jurisdictions, where the activities of foreign multi-nationals are seen to have a direct impact on Hong Kong markets and consumers. This was the approach taken in the Commission’s recent investigation into the practices of online travel agents and subsequent commitments decision in May this year, which followed the decade-long investigations carried out by national competition authorities in Europe on the issue of wide most-favoured nation clauses being agreed between online travel agents and accommodation providers.


1. Dr. Derek Ritzmann is an economic expert at Economics Partners, working across the Asia-Pacific region and based in Hong Kong.  He has been practising as an economist for over 20 years and specialises in the economics of competition, regulation and arbitration – and was an early employee and the first Chief Economist of the Competition Commission in Hong Kong in 2014-2016