Hong Kong Competition Commission issues first block exemption order

Out-Law News | 15 Aug 2017 | 10:13 am | 2 min. read

The Hong Kong Competition Commission has issued a block exemption order (BEO) for agreements between shipping lines on operational arrangements, known as vessel sharing agreements (VSAs).Mohammed Talib

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 issued the order in light of its assessment of the economic efficiencies generated by VSAs, it said. These efficiencies relate to the broader service coverage and higher service frequency that shipping lines could offer their customers by using VSAs, it said.

Activities relating to a VSA 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 from the VSA on giving reasonable notice.

The Commission's decision was in response to an application for a BEO from the Hong Kong Liner Shipping Association (HKLSA).

The HKLSA had sought a BEO covering both VSAs and voluntary discussion agreements (VDAs). VDAs are agreements pursuant to which shipping lines discuss certain commercial matters relating to particular shipping routes.

The Commission decided not to issue a BEO for VDAs nor a revised VDA scope that was proposed by the HKLSA in a supplementary submission to the Commission, on the basis that it "was not demonstrated that the relevant VDA activities meet the terms of efficiency exclusion", it said.

The Commission has, however, given guidance in a statement of reasons on which VDA activities could give rise to competition concerns, and which are unlikely to contravene the Ordinance.

The BEO will be in place for five years and will be reviewed after four years or "at any time [the Commission] considers appropriate".

Hong Kong-based competition expert Mohammed Talib of Pinsent Masons, the law firm behind Out-Law.com said: "This is the Commission's first block exemption decision. It largely follows the draft order issued in September last year, and also the EU approach."

"The shipping industry is a significant one in Hong Kong and this might not be the end of the matter if the industry challenges the decision not grant a BEO for VDAs in court," 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.