The reach of any Hong Kong competition law, no matter how broadly conceived, would run into difficulties at the border. But the growing interconnectedness of the Hong Kong and mainland economies has brought an explosion in the cross-boundary flow of goods and services. Companies from both places are increasingly active in - if not dependant on - the adjacent market.

At the same time, officials in Beijing have rolled out a series of consumer-protection laws and currently have major antimonopoly legislation in the pipeline. All of which complicates a discussion of the effects a Hong Kong competition law would have on cross-border business activity.

Import monopolies like that enjoyed by Ng Fung Hong pose a particular challenge. Such an arrangement by design limits competition and may not be in the best interests of consumers. But because it is a product of government policy, it would likely fall beyond the scope of a competition law.

Still, this is not to say such monopolies can't be dismantled. Hong Kong's former colonial government, for example, restricted licences to import rice to a small coterie of tightly controlled dry goods traders for decades. Launched in the post World War II years in response to rice runs by a nervous public, the system effectively set up a rice Raj, with the government distributing import quotas to a few dozen importers that were required to warehouse around 20 per cent of their total quota as reserve stock.

In 2003, Hong Kong removed limits on rice import quantities as well as the number of importers and wholesalers. Lee Kwong-lam, whose family-run dry goods firm Tung Tai Hong held a rice import license for more than 30 years, says the effect was immediate. The two dominant supermarkets, ParknShop and Wellcome, quickly gained the upper hand by leveraging their buying volumes to pit suppliers and wholesalers against each other.

'Now full competition has started a price war that has all but destroyed the market,' said Mr Lee. Ironically, the former monopolist now seeks the protection a competition law would provide. 'We urgently need a competition law but it's not an easy thing to introduce,' he said. 'Too many parties have too many vested interests and fairness is the main thing the government should consider.'

A breakup of the fresh pork import monopoly might follow a similar course, and any competition authority would likely take a keen interest in the subsequent market reaction. Indeed, the reform process is already underway. In January 2002, the Ministry of Commerce took the preliminary step of opening the fast-growing market for frozen and chilled pork, which up until then was also monopolised by Ng Fung Hong. In the first four months of that year, 34 new companies began importing frozen pork into Hong Kong.

About the same time in early May, in an effort to increase market share, both supermarket chains slashed their retail prices on pork. Fearful for their margins, pig buyers supplying local wet markets responded by boycotting the live pig auctions conducted by Ng Fung Hong at local slaughterhouses. Within a day, retail outlets across town ran out of fresh pork. The boycott quickly dissolved, but fresh pork prices plunged and have yet to recover.

A review of the incident by the Competition Policy Advisory Group, chaired by then Financial Secretary Antony Leung, concluded: 'Even if the supermarkets practise predatory pricing, they are not likely to carry it through, as any significant price lift after an initial price lowering would induce market stalls for selling fresh pork to re-enter the market, given that there is little barrier to entry.'

The report also noted, apparently without irony: 'There is likely to be a higher degree of competition in the trading of mainland live pigs [hence fresh pork] if there is more than one importer.'

The conundrum for Hong Kong as it considers introducing a full-fledged competition authority is how it would handle cross-border cases. While companies in Hong Kong can collude to fix prices or keep out new entrants to a market without repercussions, a draft anti-monopoly law currently being considered by officials in Beijing would expressly ban such egregiously anticompetitive practices on the mainland.

While China's legislation has been in the works since 2003 and a timetable for its enactment remains uncertain, it raises a host of potential local concerns. 'Markets are free-flowing and don't recognise traditional borders,' said one expert who has worked on competition issues in Hong Kong.

Indeed, a common market is budding in the Pearl River Delta region. Hong Kong companies are increasingly active in cross-border business in sectors like retail distribution, airport and container handling services and residential property developments. Were the mainland to move forward with a competition law, leaving Hong Kong behind, how authorities would carry out investigations involving Hong Kong companies remains an open question.

As the expert asks: 'What sort of arrangement is the Hong Kong government going to have in terms of co-operation with the PRC competition authorities?'

In other regions, cross-border investigations are typically dealt with on a bilateral basis between competition authorities. This can happen to the extent that authorities grant permission for multi-jurisdictional use of wiretaps and hidden cameras to gather evidence of a cartel or other anticompetitive forces. But without a legal framework or counterpart authority to assist other territories with their investigations, Hong Kong may be vulnerable as a haven for anticompetitive schemes.

Worse yet, the lack of deterrent legislation may mean cartels are actively targeting Hong Kong. In one prominent example, a multinational vitamins cartel that operated throughout much of the 1990s was found to have inflicted especially profound losses in Asian regions without competition laws. In a 2002 report, researchers at the World Trade Institute in Switzerland estimated that for some US$618.61 million worth of vitamins imported to Hong Kong between 1990-99, local consumers overpaid by US$178.48 million, a far greater margin than economies with active anti-cartel policies in place.

The main thrust of competition legislation in any territory is domestic regulation. But especially in an international economy, given the huge amount of inward and outward investment flow, the transnational implications of such a policy are considerable. From sorting out basics like the local pork market to maintaining a level playing field across borders, the challenges of enforcing a competition law won't be ones that Hong Kong faces alone.