Hong Kong, as a global hub for trade and commerce, plays a significant role in the fashion industry, particularly in the manufacturing and distribution of fashion goods. While the city does not have legislation specifically tailored to the fashion sector, a range of general laws and regulations govern the various aspects of the supply chain, from production to retail. This article provides an overview of the key legal frameworks and contractual arrangements that fashion businesses operating in Hong Kong need to navigate. It also explores related areas such as distribution and agency agreements, import and export regulations, corporate social responsibility, and occupational health and safety laws, offering insight into the legal landscape that shapes the fashion industry in this vibrant city.
Manufacturing and Supply Chain
What legal framework governs the development, manufacture, and supply chain for fashion goods? What are the typical contractual arrangements for these relationships?
The fashion goods supply chain in Hong Kong involves various business activities, ranging from development and manufacturing to distribution and sales. Although Hong Kong does not have legislation specific to fashion goods, the laws that apply will depend on the specific activities involved. Generally, the development, manufacture, and supply chains for fashion goods are governed by general contract law in Hong Kong. Parties are typically free to negotiate contract terms, subject to certain statutory requirements, such as restrictions on the exclusion or limitation of liability and implied terms in contracts related to the sale of goods and services. Common contractual arrangements in fashion goods supply chains include distribution agreements, sale of goods agreements, sales representative agreements (or agency agreements), and franchise agreements. These contracts often use standard terms and conditions provided by the supplier or purchaser, with varying levels of negotiation depending on the parties involved.
Distribution and Agency Agreements
What legal framework governs distribution and agency agreements for fashion goods?
Distribution and agency agreements for fashion goods in Hong Kong are regulated under general contract law, which includes statutory rules and common law principles.
Distribution agreements must also comply with Hong Kong’s competition law, particularly the Competition Ordinance (Cap 619). This ordinance prohibits anti-competitive practices and abuse of market power in Hong Kong. Companies should ensure that clauses related to exclusive dealings or selective distribution, which are common in the fashion industry, do not violate the Competition Ordinance. Agency agreements, on the other hand, are generally not subject to this ordinance.
Agency agreements are governed by common law principles relating to agency relationships, which define the duties and powers of an agent to bind the principal, as well as the rights of the principal and third parties in these transactions. Parties can often contract out of certain common law provisions, as allowed by law. Additionally, the Factors Ordinance (Cap 48) covers the rights and obligations of mercantile agents, who are agents engaged in buying, selling, or consigning goods for sale, or raising money against the security of goods.
What are the most common distribution and agency structures for fashion goods, and what contractual terms usually apply?
Distributors are often appointed either on an exclusive or non-exclusive basis. High-end fashion brands frequently use selective distribution systems, which offer a balanced approach between exclusive and non-exclusive distribution. In a selective distribution system, the supplier agrees to provide goods only to distributors who meet specific criteria, such as financial stability and profitability. This system helps maintain brand image by allowing suppliers to have greater control over the resale of their products. However, since selective distribution limits which suppliers and distributors can participate, parties should consider whether their arrangements have any competition law implications.
Common contractual terms in distribution and agency agreements for fashion goods include exclusivity, intellectual property ownership, product classification, trademark usage, contract duration, terms of sale, payment terms, delivery conditions, distributor or agent obligations, subcontracting, termination clauses, assignability, and dispute resolution mechanisms.
Import and Export
Are there any special import and export rules or restrictions for fashion goods?
There are no specific import and export regulations for fashion goods in Hong Kong. However, certain items, such as jewellery or watches containing radioactive substances, may require an import licence. Additionally, Hong Kong Customs actively inspect and seize suspected counterfeit fashion goods at the border.
Corporate Social Responsibility and Sustainability
What are the requirements and disclosure obligations regarding corporate social responsibility and sustainability for fashion and luxury brands in Hong Kong? What due diligence is recommended or required?
Hong Kong does not have specific corporate social responsibility (CSR) or sustainability requirements for fashion and luxury brands. However, under the Companies Ordinance (Cap 622), companies registered in Hong Kong, particularly public companies and larger private companies, must include business reviews in their annual directors’ reports. These reviews should cover the company’s environmental policies and performance, as well as its key relationships with employees, customers, suppliers, and others that significantly impact the company’s success. Listed companies on the Hong Kong Stock Exchange are required to produce annual environmental and social governance (ESG) reports, which include certain 'comply or explain' disclosures.
Occupational Health and Safety
What occupational health and safety laws should fashion companies be aware of across their supply chains?
The Occupational Safety and Health Ordinance (Cap 509) and the Occupational Safety and Health Regulation (Cap 509A) apply to almost all workplaces in Hong Kong.
This ordinance requires employers to ensure a safe and healthy workplace, including the safety of workplace plants, systems, and access. Employers must also manage the safe use, handling, storage, and transportation of plants or substances, and provide necessary information, instruction, training, and supervision to ensure workplace safety and health.
The regulation further details requirements related to fire prevention, accident prevention, workplace hygiene, environmental control, and first aid provisions. The Commissioner for Labour has the authority to issue improvement notices requiring specific measures or arrangements to be implemented. They can also issue suspension notices against workplace activities posing imminent danger to employees. Failure to comply with these notices is a criminal offence, punishable by fines of up to HK$500,000 and imprisonment for up to 12 months.
Woodburn Accountants & Advisors is one of China’s most trusted business setup advisory firms.
Woodburn Accountants & Advisors is specialized in inbound investment to China and Hong Kong. We focus on eliminating the complexities of corporate services and compliance administration. We help clients with services ranging from trademark registration and company incorporation to the full outsourcing solution for accounting, tax, and human resource services. Our advisory services can be tailor-made based on the companies’ objectives, goals and needs which vary depending on the stage they are at on their journey.
Talk to an expert
Schedule a 30-mins complimentary, no-obligation call to see how Woodburn can help you. Book a call with our Head of Business Advisory - Kristina Koehler-Coluccia.
Topics we can advise on include:
Company Registration
Cloud Accounting & Financial Reporting
Cloud Payroll Services
Tax & Audit Services
Recruitment
Employer-of-Record
Visa Application
Trademark Registration
Switch to Woodburn
Partner with Woodburn (cross referral)
Our calls are automatically scheduled via Zoom - or via Teams, WeChat or WhatsApp upon direct request.
Our advisory calls are available from Monday-Friday from 8am to 5pm CEST and Wednesday until 9pm CEST.