Force and effect

PUBLISHED : Monday, 22 November, 2010, 12:00am
UPDATED : Monday, 22 November, 2010, 12:00am

Open and vigorous competition has many benefits. It results in competitive prices, better quality, more choices and new products and services. This is good for fair-dealing businesses and consumers. After years of deliberation and two rounds of detailed consultations, which confirmed wide community support for a cross-sector competition law, the Competition Bill was gazetted and introduced into the Legislative Council by the government in July. The objective is to establish a credible and impartial framework which allows for effective and efficient enforcement of the competition law.

Currently, the bill is being scrutinised by a Legco bills committee that consists of 40 Legco members. At the last committee meeting, in which the government was invited to introduce the bill, some Legco members raised concerns about the clarity and level of penalty provided in the bill. As it is important for the community to understand how competition law works, I would like to address these concerns.

The scope of the bill is to prohibit and deter businesses in all sectors from adopting abusive or other anti-competitive practices which have the object or effect of preventing, restricting or distorting competition in Hong Kong. The bill provides for general prohibitions in two major areas of anti-competitive conduct, namely agreements, decisions or concerted practices (the first conduct rule) and the abuse of a substantial degree of market power in a market (the second conduct rule).

This approach of general prohibitions is appropriate for a cross-sector competition law. It offers the greatest flexibility to cater for the circumstances of different sectors and the rapidly changing business practices in various markets. In fact, this approach is adopted by overseas competition jurisdictions, from which Hong Kong can draw reference given their abundant case law and long history of experiences. This adds to the clarity of the proposed law.

To further enhance the clarity of the law and to facilitate compliance by the business sector, the bill has included a non-exhaustive list of examples of anti-competitive conduct, and has made it a statutory requirement for the future Competition Commission to draw up regulatory guidelines after consultation. In addition, a transitional period will be given to allow for educational work and the business sectors to make adjustments.

To effectively deter businesses from engaging in anti-competitive conduct, the bill empowers the Competition Tribunal, a superior court of record, to apply a full range of remedies for contravention of a competition rule.

These include pecuniary penalties with a maximum of 10 per cent of the global turnover of the business of the year in which the contravention occurs. Again, this approach of using global turnover is widely adopted by other competition jurisdictions including the European Union and Britain. But some expressed a concern that this is too high.

The 10 per cent fine is the upper limit. For a fine to have any deterrent effect at all, the court must be free to hand down an appropriate penalty. In doing so, the bill already requires the court, in determining the punishment, to consider the nature and extent of the anti-competitive conduct, the loss or damage caused by the conduct, the circumstances in which the conduct took place, and whether the business had previously contravened the law.

Keeping in mind that the bill does not impose criminal sanctions for anti-competitive conduct, civil penalties must be of appropriate amounts to create a sufficient deterrent effect.

Questions were also raised as to why the penalties are not confined to the turnover in the relevant market or locality in which the contravention occurs. The calculation of revenue from a particular market involves complex accounting issues, which may not lend itself to readily available divisible lines. What should be the scope of the relevant line of business? If a sales manager participates in a cartel, should the line of business be the manager's own personal sales, the sales of his division, or of his subsidiary? Introducing the line of business concept will actually create even more uncertainty for businesses and needless protracted litigation to determine the precise meaning of line of business. It is also subject to manipulation.

Assessing fines based on global turnover is an approach adopted by most overseas jurisdictions to achieve the desired deterrent effect. Multinational corporations are accustomed to this approach.

To do otherwise would invite manipulation, and Hong Kong should not allow conglomerates a loophole to harm our local businesses or consumers by imposing lower fines. In any event, the Competition Tribunal will be empowered to come to a fair decision after due consideration of the factors stated here.

Hong Kong thrives on competition. We value competition as a cornerstone of Hong Kong's economic success. The Competition Bill aims to deter and prohibit anti-competitive conduct in the markets. With this law, fair-dealing businesses will be given a new impetus to flourish and grow in our open and competitive markets.

Greg So Kam-leung is the undersecretary for commerce and economic development