Winning the argument

PUBLISHED : Tuesday, 05 April, 2011, 12:00am
UPDATED : Tuesday, 05 April, 2011, 12:00am


Ever since the 1990s, there have been calls for a competition law in Hong Kong to promote fair competition in the marketplace and consumer welfare. The government was initially reluctant to go along that route, despite many countries and jurisdictions - including the mainland, Taiwan and Singapore - already having in place a competition law of one kind or another.

The turnaround only occurred in 2006, when a competition policy review committee recommended cross-sector legislation.

One would have thought that, after all the hurdles and delay, the path for legislation had finally been cleared, but this is not so. The competition bill might get derailed because of strong business opposition resting on both scepticism and fear, and a weak countervailing voice from the community. If the bill fails, it will be a great setback for consumer interests.

Sceptics criticise the bill for not addressing mergers and monopolies, and for providing for exclusions and exemptions.

Indeed, the bill is not an anti-trust law, except for the regulation of mergers or acquisitions in the telecommunications industry.

However, this was the result of compromise during the 2006 and 2008 public consultations. The irony would be that, if even such a limited competition law is not enacted, monopolistic behaviour will further proliferate.

Merger and acquisition provisions can certainly strengthen the law but if the insistence about such provisions would be likely to delay legislation, it would be better to pass a bill focusing on anti-competitive acts now.

The bill prohibits two main types of anti-competitive conduct: agreements that restrict competition, such as price-fixing, bid-rigging, market allocation and output restriction (the first conduct rule); and the abuse of market power (the second conduct rule).

If such conduct prevails, consumers may pay excessive prices and have fewer choices. Product quality may suffer because of less incentive to compete and innovate. Small and medium-sized enterprises will also be hurt.

The government has adopted a 'general prohibitions' instead of a 'per se infringement' approach so as to offer the greatest flexibility to cater for the circumstances of different sectors and changing business practices, as is common in overseas jurisdictions.

To enhance the clarity of the law and facilitate compliance, the bill has included a non-exhaustive list of anti-competitive conduct to supplement the general prohibition provisions.

It has also made it a statutory requirement for the future competition commission to draw up regulatory guidelines on the interpretation and implementation of the law.

A good competition law should not encourage exclusions and exemptions. However, any law has to cater for special circumstances.

The bill now empowers the future competition commission to grant block-exemption orders. On public policy grounds, it empowers the Chief Executive in Council to make exemption orders which will be subject to negative vetting by the legislature. This seems a fair way of providing checks and balances.

SMEs worry that they will inadvertently fall into the legal trap and that big corporations will use private lawsuits to force them out of business.

Some suggest exempting SMEs from the bill. But this would make a mockery of legislation which should be applied to all undertakings, large and small.

The crux of the matter is to make the law more easily understood by SMEs, and the government has an important role in public and corporate education, especially given the complicated and technical content of the bill.

Experience from more advanced jurisdictions does not lend credence to their fears, and SMEs need to be better assured that they will not bear the brunt of law enforcement. Taking away private lawsuits may be welcomed now as a relief to doubting enterprises, but it would also eliminate one important channel of seeking legal redress.

Some business bodies have asked that the proposed maximum penalty, based on 10 per cent of global business turnover of the undertaking, be lowered.

While such a provision is based on European Union practice, there is room for adjustment.

The Hong Kong General Chamber of Commerce suggests following the Canadian system of using the 'cease and desist order' as one form of remedy in some less well-defined anti-competitive conducts to tide over any period of compliance uncertainty.

If this could secure wider business confidence in the bill, it is worthy of consideration.

Anthony Cheung Bing-leung is an executive councillor and chairman of the Hong Kong Consumer Council