Background

In its recently published advisory bulletin (“Advisory Bulletin”), the Hong Kong Competition Commission (“Commission”) called for the review of membership admission criteria and procedure of trade associations, including those in relation to trade, sporting, professional, and industry associations/bodies (collectively, “Trade Associations”), which may give rise to competition concerns under the Competition Ordinance (Cap. 619) (“Ordinance”).

Membership of a Trade Association is often a pre-condition for participating and competing in a market. In other words, imposing unreasonable and unjustifiably strict admission criteria and procedures may de facto constitute an anti-competition boycott for excluded undertakings. For instance, individuals and businesses excluded from membership may be deprived from applying for and receiving government subsidies or other advantages which are only available to members. For membership of a sporting association, non-members may be excluded from assessing certain sporting facilities or participating in international sporting events.

In the Commission’s Guideline on the First Conduct Rule, it is expressly provided that the requirements for setting the rules for admission should be as follows:

1. Transparent;
   
2. Proportionate;
   
3. Non-discriminatory;
   
4. Based on objective standards; and
   
5. Subject to appeal in the event of a refusal to admit a party to membership.

Given the irregularities relating to the rules for admission, the Commission has set out further guidance as to how the above requirements could be satisfied.

The requirements

Transparency

It is put forward by the Commission that the admission criteria should be listed out specifically and exhaustively without room for ambiguity and discretion. The application procedure should also be predictable and transparent such that the procedural formalities such as the information and documentation needed for submission, the relevant deadlines, and the review and appeal mechanisms available for applicants are clearly, readily, and freely accessible by and made known to both present and aspiring members, if not the general public as a whole. The Commission also noted that, where unsuccessful applicants are not informed of the reasons for refusal, they would be unable to determine as to whether the rules for admission have indeed been applied to their own selves fairly and objectively. In this respect, the application procedure could not be said to be transparent and could potentially be conducive of discriminatory treatment and thus anti-competitive.

To achieve transparency, a practical guideline is set out by the Commission recommending that such rules for admission should be published in a prominent and publicly accessible part of the Trade Associations’ websites, or else, they should be made available on a timely manner upon request. Corresponding review and appeal mechanisms may also be imposed to ensure the transparency of the entire application procedure.

Proportionality

The criteria of proportionality do not only apply to procedure requirements but also, the substantive criteria as well as the admission fee for joining the membership. Such rules should not be set at a level where applicants find them difficult to fulfil with great onerousness. With regards to the admission fee, it should reasonably reflect the actual costs incurred in processing the applications and should not therefore be prohibitively high and unjustifiable. Where it is the case that even present members find it hard to meet the requirements of the rules, such rules may be disproportionate and hence concerns may be raised under the Ordinance.

Non-discriminatory

Trade Associations should ensure that their rules for admission are non-discriminatory in the sense that, similar applications for membership receive similar treatments in a way that is the opposite of arbitrariness when they are processed. In furtherance, the admission should be open to all prospective applicants where applications are refused, reasoned decision should be provided to better safeguard against discriminatory treatment.

Based on objective standards

To further safeguard against discriminatory treatment, the Commission suggests that the rules for admission of members should be objective, unbiased and fair. Such rules for admission should have a legitimate aim and should not be used to exclude specific (groups of) competitors or otherwise limit competition. The admission criteria should also be proportionate in light of the legitimate objective of guaranteeing the quality of its members. To determine whether this requirement is complied with, Trade Associations should review and assess whether they can articulate the justification for each aspect of the admission criteria and admission procedures.

Appeal procedure

Another requirement is that where applicants for membership of Trade Associations are refused, they should be provided with reasons for refusal and have the option to appeal against the Trade Associations’ decision to an appeals body. The rationale is that it would be impossible for the refused party to verify the basis on which their application is denied and whether the criteria in the rules for admission have actually been applied fairly and objectively.

The appeals body should be subject to the same requirements of transparency, proportionality, non-discriminatory treatment and objectivity as explained above. The fee charged for an appeal should also be reasonable and reflective of the administrative costs of the appeal. Trade Associations should justify the level of the appeal fee charged so that the appeal fee itself would not create a barrier for applicants to appeal. Further, the appeals body should be made up of individuals who are not members of the Trade Associations or competitors of the applicant. At a minimum, the appeals body should not include individuals who are part of the body that made the initial decision to refuse admission of the applicant.

The Commission’s advice and actions to be taken by Trade Associations

Members and Trade Associations may both incur liability under the Ordinance where anti-competitive decisions are made or be given effect to. The same applies equally to Trade Associations with statutory or regulatory functions or those accredited or in any way funded by public funds. Albeit the fact that some Trade Associations which are indeed statutory bodies could be exempted from the application of the conduct rules under the Ordinance, in the event that members do implement anti-competitive decisions, they could nevertheless be held as having the object or effect of harming competition under the Ordinance.

Considering the above, Trade Associations should actively review their admission criteria and procedures and to amend them when necessary in accordance with the guidance provided in the Advisory Bulletin and to ensure compliance with the Ordinance. The Commission also encourages parties to report any anti-competitive rules for admission or other practices to the Commission. If Trade Associations suspect that they may have contravened the Ordinance, they may benefit from lenient treatment if they come forward voluntarily to the Commission and cooperate with the Commission in its investigation.

Where the Commission has reasonable cause to suspect that any Trade Association or its members have been contravening the above requirements, the Commission will take enforcement actions against such parties pursuant to the Ordinance.

Key takeaway

It is common that Trade Associations have different rules for admission criteria and admission procedures. However, care should be taken as to whether such rules and procedures are fair and are not anti-competitive. In light of the Advisory Bulletin, Trade Associations should promptly review in detail their rules for admission criteria and admission procedures to avoid contravening the Ordinance. Parties in grievance may also rely on this Advisory Bulletin to assess whether they have been discriminated by Trade Associations. If in doubt, Trade Associations and/or any interested parties should seek legal advice to assess their liability (if any) and remedial action(s) to be taken. Ultimately, the Advisory Bulletin only provides a general guideline and the application of the above requirements differs in different circumstances.