SMEs have reason to fear competition bill

PUBLISHED : Friday, 14 January, 2011, 12:00am
UPDATED : Friday, 14 January, 2011, 12:00am

With the Hong Kong government and many others jumping on the bandwagon for better market competition, small and medium-sized enterprises in the city have been reassured that they have little to fear from the competition bill as the law will safeguard their survival.

Yet, if the Singapore experience is any indication, I am afraid SMEs have a legitimate concern about its operation, should the law come into effect in its existing form. SMEs will easily fall foul of the law and have to pay a large sum of money for legal advice and high compliance costs.

Since the Singapore competition law took effect in 2006, its competition commission has issued eight decisions, six of which ruled that the practices in question contravened the Competition Act. Among the six rulings, all except one involved SMEs, either exclusively, or along with larger companies. They include the Singapore Medical Association for issuing guidelines on fees; the Institute of Estate Agents for fee guidelines; 14 electrical and building works companies for bid-rigging; 16 coach operators and their trade association for price-fixing; and six pest control companies for bid-rigging.

Perhaps most worrying for SMEs in Hong Kong are cases involving pricing recommendations of the trade associations representing doctors and estate agents. Despite the Singapore Medical Association's goodwill to equip patients with pricing information on consultation and surgical fees, and prevent private doctors from overcharging, the competition commission ruled the guidelines would create a cluster effect undermining competition.

All these cases suggest that SMEs and trade associations in Hong Kong will land in trouble as such practices are quite common among them.

What is disturbing is the lack of clarity about the definitions of anti-competitive behaviour. For example, the first conduct rule prohibits agreements, decisions or concerted practices that restrict or distort competition in Hong Kong. Exemptions will be given to those practices likely to enhance overall economic efficiency. However, it is difficult to draw a fine line between market distortion and enhancement.

The law will inevitably result in a dramatic increase in litigation and increase the compliance cost and legal risks of doing business in Hong Kong, possibly deterring investors from doing business here.

The government should address the concerns of SMEs. Instead of importing the bill from the European Union's competition law in a wholesale manner, it should draw on the international experience which befits Hong Kong as a small, open and highly competitive economy. A Canadian model which prohibits specific types of hardcore conduct first, such as price-fixing, bid-rigging and market allocation, and deals with other minor anti-competitive behaviour through another approach, may serve as a good reference.

We want a competition law that supports the city's economy and enhances market competition, not an intrusive regulatory regime that will do the contrary.

Jeffrey Lam Kin-fung is a legislative councillor for the commercial (first) functional constituency and a member of Economic Synergy