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Hong Kong Competition Commission proposes first block exemption order

The Hong Kong Competition Commission has proposed to exempt some shipping agreements from the Competition Ordinance.19 Sep 2016

The commission published a proposed block exemption order (BEO) for agreements between shipping lines on operational arrangements, known as vessel sharing agreements (VSAs).

If the BEO is finalised, VSAs will not be subject to the 'first conduct rule' under the Hong Kong Competition Ordinance, which came into force in December 2015.

The first conduct rule prohibits agreements, concerted practices or decisions of associations that have the object or effect of preventing, restricting or distorting competition.

The Commission published the proposed BEO in response to an application from the Hong Kong Liner Shipping Association, which had asked for a BEO on both VSAs and voluntary discussion agreements (VDAs), which relate to particular shipping routes.

In light of the economic efficiencies generated by VSAs, the Commission said that activities relating to these will be excluded from the first conduct rules so long as: the parties do not collectively exceed a market share threshold of 40%; the VSA does not authorise or require shipping lines to engage in cartel conduct; and shipping lines are free to withdraw without penalty, on giving reasonable notice.

The Commission was not in favour of a BEO for VDAs, as it considers that these agreements do not enhance overall economic efficiency, it said.

The BEO has been given for five years, and will be reviewed after four or "at any time [the Commission] considers appropriate".

Competition law expert Mohammed Talib of Pinsent Masons, the law firm behind Out-Law.com said the block exemption is "of fundamental importance given the importance of the shipping industry to Hong Kong"

"They have also set the threshold of the exemption so that carriers with less than a combined market share of 40% are able to benefit from it. In contrast, the EU set the threshold at 30% market share. This is suggestive of a slightly more accommodative approach and perhaps also reflects the smaller size of the Hong Kong market as a whole compared to the EU," Talib said.

The shipping industry was one of the first to make changes to comply with the new Hong Kong Ordinance, taking steps to end the co-ordination of fee levels for the use of port facilities. In November 2015 five container terminal operators agreed to stop jointly setting the level of a port security charge (PSC) that is levied on port users. As a consequence terminal operators Hongkong International Terminals, Modern Terminals, Asia Container Terminals, COSCO-HIT Terminals (Hong Kong) and CSX World Terminals Hong Kong stopped accepting paper coupons that could previously be used to pay the PSC and instead began to individually issue electronic coupons.

This move was in response to concerns that the joint setting of the PSC would be viewed by the Competition Commission as price-fixing, which is considered to be serious anti-competitive conduct and a clear contravention of the Ordinance.