Last hurdle for competition law

PUBLISHED : Saturday, 02 June, 2012, 12:00am
UPDATED : Saturday, 02 June, 2012, 12:00am


The Legislative Council looks set to pass the competition bill within days - but whether it will be seen as a powerful tool against anti-competitive behaviour or as ineffective and watered down remains in question.

The bill - under discussion for more than a decade - bans anti-competitive practices such as price-fixing and bid-rigging. However, government concessions on the size of penalties and the introduction of a turnover threshold for prosecutions have dampened enthusiasm.

But while academics and lawmakers believe the law will usher in a more efficient environment for business and erode long-held anti-competitive practices, the small businesspeople the law was intended to help doubt they will ever be able to use it.

The bill, which could come before Legco as soon as Wednesday, has secured pledges of support from 34 of the 60 lawmakers, with the pan-democrat camp and the pro-government Democratic Alliance for the Betterment and Progress of Hong Kong lining up behind it. Lawmaker Ronny Tong Ka-wah, of the pan-democrat Civic Party, said he would support the bill despite two rounds of concessions to the business lobby.

'At least the four hardcore conducts [price-fixing, bid-rigging, market-sharing and agreeing to limit the quantity of a product in the market] will still be curbed,' Tong said. 'Having a law is better than none.'

Thomas Cheng Kin-hon, chairman of the Consumer Council's working group on the competition bill, said the law would mark the start of a shift in the city's business culture.

'Do not expect overnight changes,' Cheng, an assistant law professor at the University of Hong Kong, said. 'Some practices have been seen as the norm for years so patience is needed for businesses to familiarise themselves with new rules.'

But Coils Lam Wai-chun, owner of snack shop chain 759 Store, said he would avoid complaints to the Competition Commission, the authority being created to enforce the law.

'The law provides a channel for we suppressed small firms to seek justice, but the cost is high,' Lam said. 'Even setting legal fees aside, how can I maintain the operation of my shops during the complaint and litigation process? I have to earn my living.'

His low-cost food and drink chain, a favourite with bargain-savvy shoppers, is in the same market as the giants of the supermarket and convenience store industry.

He has been cut off by some local suppliers, including the Four Seas Group, because he sells their products more cheaply than his big competitors.

Under the law, Lam could demand an investigation into a rival or a supplier under clauses preventing the abuse of substantial market power, or the second conduct rule, banning conduct that prevents, restricts or distorts competition. But he doesn't want to risk being the first to make a complaint.

'How long would a lawsuit take? How much will it cost? There is no precedent which I can take reference to,' Lam said. Under the competition regime in some countries, a lawsuit can run for a decade.

Lam's concerns were shared by Wilson Shea Kai-chuen, president of the Hong Kong Small and Medium Enterprises Association, who said legal costs could devastate firms.

'Each time [a company calls in the lawyers] it costs at least six digits. It is a huge and fatal cost for small companies which could have only a six- or seven-digit turnover and gross profits usually lower than 10 per cent,' Shea said.

On the other side of the coin, the concerns of big businesses have been eased with a series of concessions granted by the government.

Originally, any company could have been open to prosecution, but a first round of concessions in October exempted companies with an annual turnover below HK$11 million from prosecution for 'non-hardcore' anti-competitive practices. The threshold was increased to HK$40 million in April. Companies accused of colluding in anti-competitive behaviour would have to have a combined turnover of HK$200 million to face prosecution.

The rules take 95 per cent of small- and medium-sized enterprises out of the legislation's provisions. The government also watered down penalties for breaching the law.

The original plan was to fine a company up to 10 per cent of its global turnover for however long the anti-competitive practice had gone on for.

But the maximum will now be 10 per cent of local turnover for a maximum of three years.