Stacking cans of Coca-Cola Zero in his Tsuen Wan grocery shop, Lai Wai-kwong has been wondering whether the new cold drink will boost sales at his small business. Things do not look promising. He sells three cans for HK$10, or HK$3.33 per can, which yields a 10 per cent profit margin. But supermarkets are selling eight cans for HK$20.90, or HK$2.61 per can. What's more, shoppers receive a free bottle of lemon tea with their buy. Supermarket chains have more bargaining power with suppliers than mom-and-pop shops like Mr Lai's. Small shops pay 10 to 20 per cent more for soft drinks from wholesalers than the chains. The chains also enjoy exclusive distribution of some products, which Mr Lai is barred from selling. To survive, he has been forced to cut his margins further so he can compete. After deducting his monthly rent of HK$11,000 and other expenses, Mr Lai says he is left with less than HK$5,000 a month for his family of four. The government recently began drafting a cross-sector competition law aimed at cracking down on unfair practices. Some of the targeted sectors include supermarkets and petrol stations, which have been cited for alleged collusion and other anti-competitive practices. What the government is focusing on when considering a competition law are seven unfair practices: price fixing, bid rigging, market allocation, sales and production quotas, joint boycotts, unfair or discriminatory standards, and abusing a dominant position. Under the proposed law, an independent competition committee of appointed members will be set up as a regulatory body to monitor a system of checks and balances. The idea is that such a law should alleviate some of the unfair practices experienced by businessmen like Mr Lai, who must compete with a few companies enjoying huge market shares. 'Competition law? I don't know if it can really help me,' Mr Lai said. 'I just know that Shek Wai Kok is a small estate, yet we already have two big supermarkets and a convenience store here, leaving very little business for a small grocery store like mine.' The government has made three proposals as a framework: setting up an authority with power to investigate and adjudicate cases of anti-competitive conduct, bringing cases to court and setting up a special tribunal. The government expects to table a bill in the legislature by the end of this year and lawmakers will have six months to scrutinise it. Simon Shi Kai-biu, president of the Hong Kong Small and Medium Enterprises Association, which has about 1,000 members, fears the legislation will lead to higher costs and frivolous lawsuits. 'Most of the time big companies ask a third party to tell suppliers not to sell stocks to their competitors and it is very hard to collect evidence,' he said. 'Besides, these big companies have plenty of money to hire lawyers to handle lawsuits.' Mr Shi also doubts that small companies have the courage to file complaints, as they will be required to testify in court. Another concern is whether a cross-sector competition law will be effective when applied to cases involving different industries. 'The government must be dreaming if it believes that a blanket law can solve all the problems,' Mr Shi said. 'It should draw up a legislation which is tailor-made to regulate each industry, but not all.' Despite criticism about the effectiveness of the proposed fair-trade law, Sin Yat-ming, of the Chinese University's department of marketing, said Hong Kong needed a cross-sector competition law because a study found the city's retailers - especially supermarkets - abused their market power with suppliers. Supermarkets were found responsible for an overwhelming majority of the unfair practices experienced by suppliers, according to the survey by the university. About 70 per cent of the suppliers were found to have a supermarket as their main retailer. The study, which was conducted in December, asked about the suppliers' experiences with their top retailer in the past seven years. Of the 121 suppliers of consumer goods surveyed, more than half had been compelled by their top retailer to lower their prices to allow the retailer to maintain its profit. Nearly 40 per cent of the suppliers had been forced by their top retailers not to sell to other companies. 'The findings clearly show that suppliers and retailers in Hong Kong's retailing industry do not operate on an equal footing,' Professor Sin said. 'It's an unfair power dynamic where retailers are making too many demands on suppliers.' He added that the law was needed to ensure fair play between suppliers and retailers. The petrol industry has also been scrutinised for possible anti-competitive practices. A study was commissioned by the government in 2005 to look at the structure, operating cost and retail pricing of the fuel market. It concluded that there was no evidence of a price-fixing cartel. However, it acknowledged that the fuel market was highly concentrated, with three companies - Shell, Esso ExxonMobil and Caltex - selling more than 80 per cent of petrol and diesel. The idea of a competition law in Hong Kong was floated more than 10 years ago. The Consumer Council recommended in 1996 that the government adopt a comprehensive competition policy and enact a general competition law. A competition policy advisory group was formed, but no concrete steps were taken until last November when a public consultation was launched. Most submissions received during the three-month consultation period indicated support for the introduction of a cross-sector law. But some small and medium-sized enterprises expressed concern about becoming targets of complaints. Secretary for Economic Development and Labour Stephen Ip Shu-kwan told a legislative panel last month that the law would have clear guidelines, spell out anti-competitive practices and include investigative powers. However, unlike laws in the United States, Australia, and Britain, the proposed legislation would exclude mergers and acquisitions. Claimants would have to file civil lawsuits for compensation. A mechanism for exemptions will be established in cases of wider economic or public interest, as well as definitions of anti-competitive practices to be covered by the law and penalties for breaches. Exemptions will also be given to parties with a market share of less than 20 per cent. Targeted sectors such as supermarkets and petrol stations said they supported such legislation, which would ensure a level playing field for businesses in the city. ParknShop said competition legislation could only be justified if it led to cheaper prices and improved services, while its main competitor, Wellcome, said any new law or policy must clearly benefit the public and avoid unnecessary complexity and administrative burdens for government and business. Fuel suppliers Shell and ExxonMobil both reiterated their backing for a comprehensive competition law. 'If there is a need to legislate, we feel a competition law should apply to all sectors,' an ExxonMobil spokesman said. Shell said it was already used to an environment with a competition law as many of the more than 150 markets in which it operated already had such legislation in place. It remains unclear who will bear the cost of legal proceedings. A spokeswoman for the Economic Development and Labour Bureau said: 'We are now working on the drafting of appropriate legislation, having regard to the views expressed during the public consultation exercise.' Democratic legislator Fred Li Wah-ming, who has been urging the government to introduce the law, believed the legal fees should be covered by public money. 'The regulatory body conducts investigation and decides if the matter should be taken to court, and the legal procedures and the legal cost should be handled by the committee which will be subsidised by the government,' he said. But he stressed nothing conclusive had been decided so far and further discussion was needed to rule on who would be responsible for the legal costs. 'If a small company dares to file a complaint to the regulatory body, I don't think the complainant will be daunted when asked to testify in court. I think some smaller enterprises are being misled by those associations or groups which represent their interests,' he said. The Consumer Council also believes the legal costs should be settled by the committee. 'The commission should be like the Office of the Telecommunication Authority which receives complaints, conducts investigations and recommends prosecution if necessary. It is the committee that files the lawsuit and the legal costs should be settled by the regulatory body,' a spokesman for the council said. Charles Li Kui-wai, an associate professor in City University of Hong Kong's department of economics and finance, agreed. He suggested that the competition committee should operate like the Independent Commission Against Corruption. 'The legal costs should be covered by the committee which is subsidised by public money. A lawsuit should be filed by the regulatory body after it has found enough evidence to prosecute,' he said. Economics professor Ho Lok-sang, of Lingnan University, said heavy fines should be introduced to resolve concerns over the effectiveness of the proposed legislation. 'The penalties must be very heavy to create a deterrent effect such as the case of Microsoft,' he said. In March 2004, the European Commission concluded that Microsoft had broken EU competition laws by leveraging its near monopoly in the market for personal computer operating systems on to the markets for work group server operating systems and media players. The software giant was ordered to offer a version of its operating system without a media player and to share more technical interfacing information with its competitors. It was also fined Euro497 million (HK$5.2 billion). 'If the penalties are heavy enough, enterprises as big as Microsoft will also fear the law,' Professor Ho said.