The need for a law
- The Consumer Council (the Council) strongly supports the enactment of a cross-sector competition law for Hong Kong. It is common practice for market economies around the world to have in place a basic set of rules, in the form of cross sector general competition laws, to protect the integrity of the free market system so as to facilitate economic efficiency and benefit consumer interest.
- Enactment of a cross-sector competition law will not jeopardize Hong Kong's favourable business environment and should, instead, enhance its competitiveness. This is reinforced by the fact that according to the 2006 Heritage Foundation Country Competitiveness Rankings, the US has the highest ranking in competitiveness, but is also one of the earliest economies to have a cross-sector competition law. In the Foundation's survey, Ireland, a small economy similar to Hong Kong and the United Kingdom are ranked 5 like Hong Kong, while Australia and Singapore (which has recently enacted a cross sector competition law, ranked 7. These economies are considered by the Heritage Foundation to be among the world's most market-oriented jurisdictions and they have cross-sector competition laws. Clearly, competition laws are a factor in maintaining competitiveness and a successful economy.
- The Government's discussion document notes that in unregulated sectors of the economy, in the absence of supporting legislation, COMPAG has been unable to determine the extent to which complaints of anticompetitive conduct might be justified.
- It is clear that if Hong Kong had a cross-sector competition law with an appropriate competition authority that had investigative powers, similar to those existing in other comparable advanced economies, the authority would be in a position to obtain information that could establish the veracity of the allegations on anti-competitive conducts, one way or the other. In the absence of such a law and an authority, and its regulated information gathering powers the industry will continue to be subject to innuendo and uninformed opinion, as far as allegations of anti-competitive conduct is concerned.
- A competition law is little different to any other law that acts as a deterrent to forms of behaviour that are considered at odds with accepted community standards and which law abiding citizens and corporations would naturally avoid breaching. The Council is aware of concerns expressed by some, that the introduction of a competition law will be burdensome due to compliance costs. However, as with any law that is in place, any law abiding citizen or corporation can reduce those costs to the minimal by not breaching the law in the first place.
Scope of the law
Cross-sector law
- The Council does not support a sector specific approach and considers that such an approach is inconsistent with the objective of sound competition policy. Currently, in the absence of a cross-sector competition law in Hong Kong, collusive arrangements such as explicit agreements to set prices or share markets amongst competitors, which bring harm to consumer welfare and economic efficiency, are not illegal and are permissible in all markets except the telecommunications and broadcasting sectors, and bid rigging against public bodies. This is clearly a situation that needs to be remedied. The current sector-specific approach relies on various government agencies having responsibility for competition oversight of particular industries under their purview. Yet anti-competitive conduct could occur in any sector. Therefore, the various government agencies may be unable to respond quickly to convergence that takes place between different industries. Also, there are no strong grounds for targeting only certain individual sectors or industries for regulation.
Market conduct
- The Council considers that the scope of the legislation should focus on market conduct. Anti-competitive conduct provisions in the new law should apply basic competition law principles, similar to those used in other jurisdictions, and in the Telecommunications Ordinance and Broadcasting Ordinance competition provisions, where there are general prohibitions against anti-competitive competitor agreements; and abuse of dominant market position. Such an approach serves to monitor and regulate the anti-competitive conducts that might arise in the marketplace. As anti-competitive market practices can rapidly evolve in the market causing harm to SMEs and consumer welfare, a prescriptive approach to prohibitions is not suitable because there will be no legal backing for the competition authority to act, even under critical circumstances. However, it is important for the competition authority to issue guidelines on how it addresses the general prohibitions, to satisfy the business community's need for certainty.
Market structure
- In relation to market structure, the Council agrees that the proposed law should not seek to regulate 'natural monopolies' as government should maintain oversight to protect public interest through other regimes or through the Competition Policy Advisory Group, the continued existence of which is recommended by the Council even after the enactment of a cross-sector competition law and creation of a competition authority.
Reserve power
- However, the Council considers it to be prudent for the Government to have in place a legislative 'reserve power' for oversight where a merger or acquisition might arise and have a detrimental effect on public interest. Government should be vested with the power to give directions to the competition authority to examine the matter and take remedial actions as appropriate for the circumstances; for example making divestiture orders or issuing injunctions to prevent the action from going ahead.
Exemptions
- The Council also considers that the proposed law should have procedures for exempting parties, be they private entities or government agencies, from the application of the law, in limited circumstances, where it can be demonstrated that the conduct delivers an overall benefit to the public that outweighs the detriment to competition. This should provide a degree of comfort to some SMEs that have voiced concern at the introduction of the law, and their need to join with other SMEs to increase their competitiveness in the marketplace.
Regulatory framework of implementing competition law
- It is usually the case in other similar advanced economies that a competition authority is an autonomous government body that is overseen by a board of members, with experience in commercial, legal and economic areas, and that it is supported by a body of investigative staff. The Council considers that a Hong Kong competition authority should be comprised of a full time chairman, and investigative staff, assisted by members of the community, with relevant experience, serving on the board; all appointed by the HKSAR Chief Executive.
- With regard to the powers that the regulatory authority should have over allegations of anticompetitive conduct, Council considers that
- the competition authority should itself have the power to adjudicate and hand down sanctions, rather than taking a matter through the courts, as is the practice in some other jurisdictions; and that
- the competition authority's decisions should be subject to appeal on the merits of the competition authority's decision by a specialist competition appeals tribunal, constituted within the courts system.
Enforcement and other regulatory issues
Competition Authority to enforce law
- Some SMEs were misinformed that the new competition law would put them under constant threat of big businesses bringing actions against them. This is hardly credible as SMEs by definition do not have the market power to abuse, and competition laws are structured around the prevention of abuse of dominant position. Hence there would be no justification for action against SMEs and they are more likely to be the beneficiaries of the law. Furthermore, the proposal before the public is that only the regulatory authority should have the power to conduct formal investigations; and the Council supports such a proposal to help minimise trivial, frivolous or malicious complaints. The right to private action should be limited so that it could be pursued only after the competition authority had made a decision that the conduct in questions constitutes an infringement of the competition law.
- Nevertheless, the Council considers that in order to ensure that complaints are properly attended to, and that complainants' rights to justice are protected, certain organizations such as SME associations could be given special status to refer complaints to the competition authority. The authority would then be bound to follow set procedures and strict time limits in carrying out an investigation into a complaint. The existence of designated complainants with the power to make super complaints would serve an important role in acting as public watchdogs, represent complainants who lack the capacity to pursue complaints to fruition, or are concerned to maintain confidentiality; and would serve a role as screening agents, sorting out frivolous complaints and collecting preliminary evidence or information to be put to the competition authority.
Power to obtain information
- Access to information in investigating allegations of anti-competitive conduct is crucial and the Council considers that the competition authority should have the power to obtain documents, examine witnesses under oath; and require the production of relevant information to assist in the proper examination of alleged anticompetitive conduct. To safeguard these powers strong sanctions should be brought to bear on any persons who act so as to frustrate the legitimate actions of the competition authority and its staff, and intimidate witnesses, such as 'whistleblowers'. By the same token, there should be stringent confidentiality provisions governing the actions of the staff of the competition authority in preserving confidentiality of information given to them, including the identity of witnesses, where confidentiality is sought.
Leniency programme
- Furthermore, the Council strongly supports the use of a leniency programme by the competition authority as a means of encouraging cartel participants to disclose the existence and activities of cartels, and receive immunity (if certain conditions are met) from action in relation to the cartel. This is a common method used in other competition law jurisdictions by competition authorities as a means of obtaining evidence on cartel activities.
Civil penalty
- The Council considers that breaches of the competition provisions of the new law should only be considered as civil infringements. As an investigative and decision making body, the competition authority is not in a position to be able to convict persons of a criminal offence. Criminal prosecution is a matter that should be left to the court system. Therefore, any orders that the competition authority makes in regard to what it considers to be breaches of the competition provisions in the law, would have to be treated under civil law, and made subject to review on the merits through the recommended competition appeals tribunal. (The recommendation that persons who frustrate the lawful actions of the authority in performing its tasks, or who intimidate witnesses, should be found guilty of a criminal offence does not conflict with the above recommendation, because the actions of interference and intimidation would be prosecuted in a court of law and have similarities with other criminal offences in the wider community.)
- As a basic rule, the Council considers that monetary penalties should be commensurate with the economic benefits that have accrued from the breach, and also at a level that acts as a deterrent. In addition, the Council believes as a matter of principle that the right of action for damages following a successful action for anticompetitive conduct should exist for aggrieved persons.
Sector regulator and competition authority
- Although the future competition authority is to have jurisdiction over all aspects of the economy (with the exception of natural monopolies), the current sectoral regulators, such as OFTA and the Broadcasting Authority (or the future Communications Authority), have accumulated considerable specialized expertise on their respective industries. Therefore, the Council proposes that the sectoral regulators retain their current role of enforcing sector-specific competition laws. The future competition authority is to exercise concurrent jurisdiction with the sectoral regulators. In light of their expertise, during the initial stages of enforcement of the cross-sector competition law, the future competition authority will, through administrative arrangement, defer to the sectoral regulators until such time as may be appropriate in the future.
Continuing Competition Policy Oversight
- Notwithstanding the creation of a cross sector competition law, and a competition authority to administer that law, the Council considers that it is important to appreciate that there will still be a need for competition policy oversight by Government to implement a continual process of review in new policy formulation and in reviewing current policies. For example, opening up the energy sector in Hong Kong to competition. The Council suggests that the Competition Policy Advisory Group, or a newly constituted body, should exist to take charge of such an important function.
- This body should also shoulder the responsibility of public education on the benefits to the economy of a competition law. The urgent need for education is brought about due to the many distorted messages that have been circulated in the community, concerning the concept of a competition law in general, as well as the proposals put forward by the government discussion document. There is a need to enhance proper understanding of a competition law by members of the public, the private sector, including SMEs and big corporations, and professionals.
- This body should also be tasked to look at manpower planning, training and continuing education in this sphere.
