Hongkong must have a fair trading policy have policy

IN THIS week's Legislative Council sitting, I shall move a motion debate calling for a fair trade policy and the setting up of a fair trading commission for implementation of the policy.

The motion will also seek to ''rectify any phenomenon of unreasonable market dominance, safeguard fair competition and protect the consumers' interests''.

A fair trade policy should ensure, through legislation or other means, a fair economic environment in which healthy competition is encouraged and its resultant benefits fairly enjoyed by investors and consumers.

Arguments against free trade policy stem from an oversimplified view that because fair ''policy'' is regulatory in nature, it contradicts the principle of a free market economy.

Developing economies have become aware of the growing dominance in certain domestic sectors by a handful of corporations which may use their market power to the detriment of small firms and consumers. It is well documented that suppliers in an oligopolymarket may enter into co-operative agreements to fix prices, restrain output, divide markets among themselves, or take concerted action to restrain new firms in the market.

Market distortion resulting from anti-competition like this can only be corrected through measures beyond the market. Fair trade policy is made to restore a reasonably competitive market environment. Most developed economies, for example Britain, the United States, Japan and Australia, have fair trade/anti-trust policies, and an increasing number of developing countries, notably South Korea and Taiwan, have also introduced a fair trade policy.

Though market dominance, as reflected by market concentration by a few leading firms, is a major concern what fair trade policy is against is the abuse of power by firms which occupy privileged positions due to their size or other resources.

Most competition laws recognise there are industries which can accommodate only one or a few firms, for example, industries which require huge investment or which require a substantially large market to achieve economies of scale. In such cases, governments may exempt the application of competition laws on those industries and substitute other regulations in the form of price or profit control to protect consumers' interests.

Fair trade policy and its enforcement legislation sets out standards of trade practices which society can accept or not. It also lays down what actions parties may take and what remedial measures the enforcement agency may exercise if those standards areviolated. The preventive aspect on possibly unfair trade practices is as important as its remedial or punitive aspect.

Nevertheless, proponents of fair trade policy believe competition brings about product innovation, improved efficiency, lower prices, and a more equitable share of the benefits among businesses and consumers.

Hongkong does not have a fair trade policy. The Government's promotion of competition - as reflected by the allocation of two berths at container terminal 9 to a new player and the introduction of a second telecommunication network - may be well-intentioned, however, there is no co-ordinating body within the Government to formulate policies relating to competition.

Nor are there any standards or guidelines to identify areas and means to promote competition. There is no enforcement agency to handle cases of anti-competitive trade practices. The Consumer Council is supposed to look after consumer interests, but it suffers from a lack of power to investigate or protect the interests of small investors against the unfair practices of dominant firms.

This unsatisfactory situation has been recognised by the Government. The Governor, Mr Chris Patten in his maiden policy address last October said ''a more sophisticated and prosperous community has become increasingly unwilling to accept unfair and discriminatory business practices'' and undertook to develop a comprehensive competition policy for Hongkong.

THE Government recently allocated $800,000 to the Consumer Council for carrying out research on five business sectors identified as possibly having anti-competitive trade practices - supermarkets, broadcasting, financial services, supply of energy and telecommunications. While the results are not yet in let us look at some facts and figures.

It is estimated that the two major supermarkets - Wellcome and Park'N Shop and their associate chain stores have 70 per cent of the supermarket business. Complaints have been heard from distributors that they have to pay unfair fees for their products to be put on the shelves, and from consumers about the higher prices they have to pay particularly when buying household items.

Fuel oil and liquefied gas are supplied by a few oligopolies; parallel retail pricing can easily be observed here. Towngas, which supplies about half of Hongkong's domestically-used gas, is a monopoly not covered by any controls regarding its profits and pricing.

In the banking sector, the leading four banks (there are 161 licensed banks in Hongkong) take up more than half of the available business. The Association of Banks fixes retail interest rates for banks. On the other hand, the Accident Insurance Association of Hongkong ''recommends'' the level of premiums which in practice is followed by most of its members and are ''dictated'' to consumers.

Fair trade or competition policies can be broadly classified into three categories.

Conduct policies cover the anti-competitive strategy and tactics by suppliers, such as pricing, product development, advertising, innovation and investment.

Market structure policies look into the size and number of buyers and sellers, the ease of entry into and exit from the market, etc. Measures to prevent and to rectify unreasonable market domination in this regard may involve specific policies on mergers and acquisitions if they are judged to be harmful to healthy competition.

Performance policies directly intervene in the setting of prices and distribution of goods by firms to ensure a competitive business environment is maintained and consumers' interests are protected.

We believe it is time to consider the various policy possibilities, their pros and cons, and their applicability to Hongkong.

It is important that a good policy be accompanied by an effective enforcement mechanism. Given its complicated nature, it is recommended that a fair trading commission be set up to enforce the policy. To ensure its independence, the commission should be a statutory body with salaried full-time staff.

Through the Legco debate, I hope council members will agree on the need for a fair trade policy and an enforcement agency in Hongkong. I also hope further debate will be generated on appropriate policies and enforcement measures for different sectors of the economy.

Fred Li Wah-ming is a Legislative Councillor and member of Meeting Point.