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Views sought on HK's proposed block exemption to retain container shipping

THE Hong Kong Competition Commission has published its first proposed block exemption order (BEO) for certain liner shipping agreements, accompanied with a statement of preliminary views setting out reasons for its proposed decision, according to global legal services organisation Mayer Brown JSM.

Views sought on HK's proposed block exemption to retain container shipping

THE Hong Kong Competition Commission has published its first proposed block exemption order (BEO) for certain liner shipping agreements, accompanied with a statement of preliminary views setting out reasons for its proposed decision, according to global legal services organisation Mayer Brown JSM.

Views sought on HK's proposed block exemption to retain container shipping
03 October 2016 - 21:47

Views sought on HK's proposed block exemption to retain container shipping
THE Hong Kong Competition Commission has published its first proposed block exemption order (BEO) for certain liner shipping agreements, accompanied with a statement of preliminary views setting out reasons for its proposed decision, according to global legal services organisation Mayer Brown JSM.
The publication of the proposals follows the BEO application made by the Hong Kong Liner Shipping Association (HKLSA) on December 17 2015. 
The Commission also invites interested parties to submit representations about the proposed BEO as well as the Commission's provisional position on the BEO application.
Under section 15 of the Competition Ordinance (Cap. 619) (the "Ordinance"), the Commission may issue a BEO for a category of agreement (which has potential to harm competition) where it is satisfied that such category of agreement enhances overall economic efficiency. Agreements that fall within the scope of a BEO will be exempted from the application of the first conduct rule.
The law firm explains that the Commission intends to issue a BEO for vessel sharing agreements (VSAs), but not for voluntary discussion agreements (VDAs), which were both sought to be exempted.
VSAs are agreements between shipping lines on certain operational arrangements (ie, joint operation of liner shipping services, capacity adjustments and joint operation or use of port terminals and related services), and are often compared to code-sharing or alliance agreements of airlines. 
VDAs are agreements between carriers for other commercial issues relating to particular shipping routes. They provide for the exchange and review of market information, supply and demand forecasts and business trends, and may also involve the issuance of pricing recommendations.
The Commission considers VSAs generate sufficient economic efficiencies to justify exclusion from the application of the first conduct rule, in that they result in, among other things, increased quality of service (through broader service coverage and higher service frequency), costs efficiencies and decreased costs of entry and expansion. 
In contrast, it was not considered that rate stability, service stability and rate and surcharge transparency as claimed to be benefits arising from VDAs justify the grant of an exemption. 
Under the proposed BEO, activities undertaken pursuant to VSAs will be exempted if the combined market shares of the parties to the VSA do not exceed 40 per cent; the VSA does not authorise or require parties to engage in anticompetitive behaviour (ie, price fixing, output restriction and market allocation); and parties to the VSA are free to withdraw from the VSA without penalty upon reasonable notice. 
The proposed BEO also provides for the basis of calculating market shares in the liner shipping market. It was proposed that the duration of the BEO would be for five years and the commission intends to review the BEO four years after its commencement.
The deadline for submitting representations to the commission is December 14, the statement said, pointing out that representations submitted will be accessible by the public on the commission's website.

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