A freer market for HK

PUBLISHED : Friday, 27 May, 2011, 12:00am
UPDATED : Friday, 27 May, 2011, 12:00am


For Father's Day, you went to buy boxes of a certain brand of chocolate for your father and uncles. You tried to hunt down the best bargain, but everywhere you went - whether supermarket, convenience store or drugstore - you found the same price: HK$248 for four boxes.

It is a common frustration for bargain-savvy Hongkongers. But the push is on for a law that would make commerce more competitive.

The proposed 'competition law' seeks to level the playing field for companies in Hong Kong by restricting behaviour that obstructs open and fair competition. But it would also be 'a law for consumers', the Consumer Council says.

'Without a competition law, the price of goods can never be genuinely lowered,' says Connie Lau Yin-hing, the council's chief executive. 'The spirit of the law is to deter businesses from making anti-competitive agreements that could harm consumers.'

Just look around. You can see plenty of examples in daily life that could fit the definition of 'anti-competitive behaviour'.

It is built into the price of noodles you eat. On January 28, 2008, the Hong Kong & Kowloon Vermicelli & Noodle Manufacturing Industry Merchants' General Association posted an advertisement in newspapers 'strongly advising' producers to raise their prices: 'Due to the drastic increase of raw materials such as egg and rice ... after a number of meetings between the association and the sector, we strongly advise members to raise the price of your produce - both retail and wholesale - by 20 to 25 per cent accordingly.'

Anti-competitive behaviour is in the markets where you shop. Last November, the Court of Final Appeal in effect approved bid-rigging when it upheld an acquittal of 17 stallholders who had been charged with conspiracy to defraud. They had agreed to refrain from bidding against each other at an auction for spaces in Tai Po Hui Market.

Anti-competitive behaviour could affect renovations to the flat you live in. The city's new mandatory building and windows inspection scheme, started early last year, and which involves more than 17,000 buildings aged 30 years or more, invites widespread bid-rigging because contractors can decide how to share the work tendered for the inspection and renovation-work projects.

With the court in the Tai Po Hui Market case signalling that bid-rigging was legal, there seems to be little power to act against contractors.

'That's why we need to pass the fair competition law as soon as possible,' lawmaker and barrister Ronny Tong Ka-wah says. 'That will give us the authority to regulate any activities that limit competition.'

Anti-competitive behaviour also affects the books your children learn from. The Consumer Council's Lau said that a recent controversy over textbook pricing, in which publishers were criticised for bundling textbooks with other teaching materials, unveiled blatant anti-competitive behaviour. 'Without a competition law, the administration has no power to investigate the case,' she said. 'So publishers can all bundle their sales of textbooks forever.'

Lawmakers have been promoting the idea of a competition law since the 1990s. Hong Kong Chief Executive Donald Tsang Yam-kuen did so prominently in his election platform when he ran for the top job in 2007. Yet the proposed competition law will not go into effect before 2014 - and then it will only do so if the Legislative Council can pass a bill within the current legislative term, which ends in July next year.

If the bill becomes law, it will take two more years to set up the instruments to make it work, including a competition commission and a competition tribunal, says Greg So Kam-leung, undersecretary for commerce and economic development.

The bill is opposed by big businesses. Jeffrey Lam Kin-fung, lawmaker for the commercial sector, says the current draft jeopardises the business environment and deters foreign investment.

'The draft law is full of loopholes and lacks clarity; it will fail in catching anti-competitive business giants,' says Lam, who represents the Hong Kong General Chamber of Commerce. 'The maximum penalty - 10 per cent of global turnover - is huge as well. If that is how it is, small companies will suffer from the vagueness of the law and overseas companies will prefer going to Singapore. Hong Kong's market is small after all, so why would they take the risk?'

For proponents, however, the new measures cannot come quickly enough.

'Over 120 countries in the world have a competition law,' says Thomas Cheng Kin-hon, chairman of the Consumer Council's competition policy group and a law professor at the University of Hong Kong.

'Which countries do not? North Korea, Cambodia, the Philippines.'

The proposed bill would mainly regulate two types of anti-competitive behaviour in Hong Kong.

The first rule on conduct would tackle agreements and concerted practices, including price fixing, bid-rigging and sharing of a market or sources of supply.

That same-priced chocolate - if the price were proved to be the result of an agreement, and not a coincidence - would be 'price fixing'.

Another rule in the proposed bill would take on businesses that unfairly wield a substantial degree of market power, such as by driving out competitors by setting ultra-low prices. It would also deter unfair bundling practices - such as forcing people to buy a computer with same-brand software installed, effectively preventing consumers from buying another brand of software.

But it is by no means a foregone conclusion that the competition bill will be passed in the current legislative term, given the level of often vehement opposition to it and calls for drastic amendments to it.

Some hardcore opponents among business chambers and in the legislature have threatened to block the bill altogether. They say the draft has too many loopholes that could inadvertently handcuff the business environment in a city that takes pride in its economic freedom. In particular, critics say the bill's definitions of infringements are too vague. And these critics oppose a provision that would allow private lawsuits.

Hong Kong does have competition regulations on the books, but they apply only to the broadcasting and telecommunications industries.

And the existing rules lack the teeth of a general competition law.

In 2004, the Office of the Telecommunications Authority looked into residents' complaints about alleged bundling of broadband internet access and basic telephone services at the Banyan Garden estate in Cheung Sha Wan, Kowloon. Residents said they had to pay the same management fees whether or not they used the services of the operators selected by Citybase Management, which oversees the buildings.

The telecoms authority found that the two providers and the estate - all subsidiaries of Cheung Kong (Holdings) - had placed competitors of the broadband operator at a disadvantage. But without a general competition law, the authority said, the anti-competitive behaviour by the property management company - which was not a telecoms licensee - was 'perfectly legal' and the authority was unable to take any action.

A Hong Kong-based think tank promoting non-intervention says the proposed law is the wrong way to make Hong Kong more competitive.

'We like competition and we like law, but not a competition law,' says Dan Ryan, director of the Lion Rock Institute. 'Why can the government decide on pricing?'

A lawyer from Australia who has lived in Hong Kong for more than 10 years, Ryan acknowledges that markets get distorted by the domination of property tycoons' giant conglomerates. But he says the government bears responsibility for this.

'Some policies implicitly favour the conglomerates,' Ryan says. 'And land policies are politicised. We need consistency in land auctions, not having them held by bureaucrats.'

He says that the way the law was drafted illustrates favouritism and double standards in the government's policies.

'If the government wants competition, why is it allowing Hong Kong Exchanges & Clearing to stay unchallenged?' he asks. Hong Kong used to have four stock exchanges before merging them in 1986 into a single exchange, and even more earlier.

In 1997, the government appointed the law firm founded by the stock exchange's chairman, Ronald Arculli - then Arculli, Fong & Ng, which later merged with King & Wood - to help prepare the competition law.

The current draft bill would adopt an 'opt-in' approach. Not all statutory boards (the Airport Authority and the Trade Development Council are statutory boards) would have to comply with the competition law - just those selected by the government. Officials have not yet compiled a list of the boards to be regulated.

Ryan says pricing should not be regulated by a legal mechanism. 'Producers and consumers should be free to decide on the price they want to sell and buy at,' he says. 'The market is not perfect, but it is not for bureaucrats to weigh into.'


The fine, in Singapore dollars, levied against 16 bus operators for fixing ticket prices in 2009

Source: Competition Commission of Singapore