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Defining and Regulating Hardcore Cartels in Hong Kong: Agency Reconciling the Divergence between Legislators and International Standard

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In 2012, Hong Kong passed the Competition Ordinance, the region’s first cross-sector competition law. In the statute, the government introduced a legal term called “Serious Anti-competitive Conduct” which includes four conducts, namely price fixing, output restriction, market allocation and bid rigging. At a glance, this legal term is very similar to another term called “Hardcore Cartels” introduced by OECD in 1998. In fact, the two terms are different because “Hardcore Cartels” includes only the four conducts formed horizontally (e.g. between competitors) while “Serious Anti-Competitive Conduct” includes the four conducts formed both horizontally and vertically (e.g. between distributors and retailers). This created a divergence between the international standard and Hong Kong legislators. Based on the definition of “Serious Anti-Competitive Conduct,” Hong Kong legislators formed a dual-track system by imposing differentiable statutory regulations to conducts that the legislators believed to be more and less serious. Thereafter, the local law enforcement agency created two more terms known as “Cartel Conduct” and “The Four Don’ts” based off the statute. This is identified as an attempt of the agency to reconcile the divergence. After reviewing the legislation history, this paper suggested that the divergence was formed by ignorance when the Hong Kong government proposed to the legislators to introduce the term “Serious Anti-Competitive Conduct” in the statute in response to the concern of SMEs. Furthermore,this paper analyzes the divergence based on rule of evidence developed in the U.S. judicial experience and suggests that the divergence is unjustified. Also, this paper points out the limitations of the agency’s attempt to reconcile the divergence. This paper concludes that the divergence and reconciliation all together unintendedly created more legal uncertainties and discouraged companies to form some agreements that may induce net procompetitive effects. Thus, this paper urges for amending the definition of “Serious Anti-Competitive Conduct” in Hong Kong’s Competition Ordinance.