Competition law developments in East Asia - February 2016

This month’s editors: Maxime Vanhollebeke, Pearl Yeung, Serena Gingell, Michael Kim, Sophie Chen, Yui Ota, Lydia Fung and Arthur So.

Below is an excerpt from our monthly Competition Report.  More detailed commentary on these issues and other recent competition law developments in the Asian region is to be found in this month’s edition of our report available on a free subscription basis (see further below).

This month the Japan Fair Trade Commission recommended the repeal of exemptions which benefits liner shipping operators under Japan’s Antimonopoly Act. The recommendation, although consistent with the EU progressive removal of exemptions in the industry which started in 2008, contrasts starkly with Singapore’s recent decision to renew similar exemptions until 2020.

For many years, liner shipping conferences allowing the fixing of freight rates have been exempted in most jurisdictions worldwide, on the basis that these arrangements bring stability to market prices and ensure the reliability of service. Consortium agreements, which provide for operational coordination but does not extend to prices, also benefitted from a similar exemption as they allow the parties to coordinate their activities and achieve economies of scale.

So far, Asian jurisdictions have adopted a similar approach. Exemptions in favour of price coordination and operational coordination among carriers continue to apply in Japan, Korea, Singapore and Taiwan, while other jurisdictions such as Malaysia only exempt non-price coordination. While no formal exemption exists under China’s Antimonopoly Law, the authorities have yet to challenge coordination among shipping lines, whose conduct is also governed by maritime regulations.

In Hong Kong, a block exemption application is currently pending before the Competition Commission in respect of both categories of agreement. It remains to be seen as to whether Hong Kong will draw the same conclusion as its economic rival Singapore, or whether it will follow the more stringent EU approach, which is now being advocated in Japan.

Following its establishment on 1 February, the Philippine Competition Commission issued two circulars, respectively on 12 and 16 February, setting out merger control procedures under the Philippine Competition Act.  The two circulars provide transitory procedures which will apply pending the adoption of final implementing regulations by the Commission.  Both circulars will become effective fifteen days after publication.  The first circular is of general application while the second relates specifically to M&A transactions involving companies listed on the Philippine Stock Exchange.

The Act introduces a full merger control regime, with a mandatory notification requirement imposed on parties involved in transactions whose value exceeds P1 billion ($22 million).  While the Act provides that additional thresholds may be specified in the implementing regulations, the Commission has decided not to do so in its transitional rules, retaining at this time the statutory notification threshold based on a transaction’s value.

The Act provides that transactions consummated in violation of the notification requirement shall be null and void.  This led to some legal uncertainty following the entry into force of the Act last year, as notification procedures were not yet in place and the Philippine Competition Commission had yet to be established.  The main effect of the two circulars is to bring legal certainty.  In this respect, the Commission confirms that transactions concluded or otherwise implemented after the Act came into effect but before the circulars were issued are exempt from the notification requirement.  As regards future transactions, and pending the adoption of final implementing rules, parties are required to notify and provide basic information.  However, all notified transactions will be automatically cleared.  Once notified, transactions may proceed to be executed and implemented.

Apart from rendering the transaction void, a failure to notify will subject the parties to, among other things, a fine between one per cent and five per cent of the transaction value, as set out under section 17 of the Competition Act.