The Hong Kong Competition Ordinance:
Fairness and Transparency in Implementation
Gilly Wong
Chief Executive
Hong Kong Consumer Council
Introduction
Since the enactment of the Hong Kong Competition Ordinance (Ordinance), the public mood has been one of great uncertainty. On the business side there has been anxiety about how the Competition Commission (Commission) will enforce the law and the effect the law will have on profitability and traditional business practices. On the consumer side, the anxiety has been about whether the law will actually bring benefits to consumer welfare.
To its credit, the Commission has attempted to calm the business community and educate the public about the Ordinance by launching a series of advocacy and promotion seminars, and releasing informational materials via a mix of media channels. Recently, it has released six Draft Guidelines for public consultation. The three procedural Guidelines describe the Commission’s procedures for handling complaints, conducting investigations and considering applications for exclusions and exemptions; and the three substantive Guidelines outline how the Commission interprets and gives effect to the competition rules in the Ordinance.
There are still concerns from representatives of small and medium enterprises that their members would be unwittingly vulnerable to the law due to their inexperience with the new rules on business conduct. Their concerns are alleviated to a certain extent because the Ordinance provides that for breaches of the First Conduct Rule that do not amount to serious anti-competitive conduct, a warning notice is mandatory before an infringement notice is issued to request the relevant undertaking or undertakings to cease the breaches within a specified period.
These safeguards acknowledge that businesses need time and a high degree of openness from the Commission in order to adapt to the new environment. While the business community’s need for transparency has been given due consideration, there is still some way to go for consumers to feel that their desire for fairness and transparency are adequately met. There are a number of areas I would like to explore.
The law is not applied in the abstract
A fundamental concern is how the law can be applied in a fair and balanced manner. There is a saying that justice not only has to be done, but also seen to be done. The Ordinance does to some extent provide that the public should be informed of the Commission’s actions. The Commission is required to produce an Annual Report which will outline a summary of complaints received; the investigations carried out by the Commission; and an outline of all proceedings brought before the Tribunal. There is also the obligation for the Commission to maintain a register of its decisions (Section 16 mergers, Section 34 decisions and block exemption orders). However, the Commission is not required to publish the findings and analyses of the cases it has investigated.
This is in stark contrast to the prevailing practice in advanced jurisdictions, where all decided cases are published with clearly documented reasoning as to how the provisions are interpreted. The substantive provisions, phrased in deliberately generic terms, have increasingly precise meanings when debated upon by competition authorities and interpreted by courts. Judicial experience is gained through vigorous debates. Eventually, uncertainty in interpretation is resolved by reference to the reasoning behind leading cases. Therefore, transparency assists in developing judicial competence.
Perhaps most important of all, transparency is crucial to do justice to the parties, as a means through which the analysis and reasoning behind the decided cases are made known. Another useful function served by transparency is to promote consistency and predictability in adjudication. Without transparency, one can only speculate the rationale behind the Commission’s findings, and such speculation can be misguided. While the law is not applied in the abstract, a high level of transparency in relation to the reasons underpinning Commission decisions should be provided to meet public expectations.
Consumers’ entitlement to fair share of efficiencies
A particular concern is that of anticompetitive conduct that might be exempted by the Commission. For the general exclusion for agreements enhancing overall economic efficiency to apply, one of the cumulative conditions was to allow consumers a fair share of the efficiencies. The Commission interprets that a “fair share” must “at a minimum compensate them for the actual or likely harm to competition” and that “the overall impact for consumers must at least be neutral”.
These phrases appear to provide the lowest threshold that consumers are not worse off. In theory and practice, the onus should be on the applicant to quantify the economic efficiencies, and to provide evidence on how much share goes to consumers. However, due to asymmetric information, some actual or likely harm to competition may not be known to the Commission. This will benefit the undertakings in the weighing exercise because some harm can escape compensation in meeting the “at least neutral” threshold. As such, the overall consumer welfare may be worse off. I would urge that, to be fair, consumers should have a substantial share of the efficiencies. The Commission, in lack of industrial knowledge, should require the undertakings to submit objective and independent data with their applications. Unquantifiable efficiencies are unreliable at best.
Quantification of efficiency and benefit claims
It can be expected that local businesses will devote considerable resources to try and convince the Commission of how efficiencies will ensue from some forms of anticompetitive conduct. When it comes to consumer benefits, it may not be concrete and expansive, apart from a theoretical potential for benefits to accrue. I would argue at the very least that consumers are entitled to expect the Commission to
- make an assessment of the consumer benefits prior to granting an exemption;
- quantify any claimed benefits being anticipated;
- provide a public record of that quantification; and
- indicate the consequences for exemption if the claimed benefits do not materialise.
In this connection, transparency and disclosure of all relevant information in the assessment process, for public input, is essential for consumers to have trust in the system. I have serious reservations as to how a convincing case can be made that an exemption should be granted on the basis of an alleged consumer benefit if
- there is no transparency as to how the decision is being arrived at; and
- the party seeking exemption is not put to the task of quantifying and ultimately achieving claimed benefits to consumers.
It may be argued that requiring a high level of disclosure of information by business would deter undertakings from providing information in the first place. However, commercially sensitive information can normally be satisfactorily redacted without compromising business interests.
How much transparency is acceptable?
As I have said, there is a need for some circumspection as far as commercially sensitive information is concerned. Likewise, not everything the Commission does on a day to day basis needs to be made openly available. The trust from the business community is absolutely necessary. A supportive environment is therefore crucial, with a recognition that the Commission will in the early stages be faced with many allegations of business conduct that may be naïve and unfounded, or even malicious.
Investigation procedures will therefore require a two-step process, where a preliminary examination should be conducted in private, with a high degree of anonymity and confidence provided to the party making the allegation, as well as the alleged infringer. Only in those cases where a preliminary finding for investigation has been clearly established and where public disclosure would not jeopardise further investigation, should information be made freely available.
Consumer advocacy
Consumer representation in decision making is often achieved through the appointment of consumer advocates to relevant decision making bodies. In this respect, I acknowledge my appointment as a Member of the Competition Commission, through my capacity as Chief Executive of the Consumer Council. The public will wish my appointment to be constructive in terms of satisfying consumer rights. Therefore, they will be alert to any indication that the appointment is merely a token representation.
To assist in this regard, a case might even be made for the Consumer Council to become directly involved in assisting the Commission with any processes that involve
- surveying consumer opinion;
- obtaining quantifiable consumer purchase or decision making data; and
- measuring post-decision consumer behaviour or market conditions.
For its part, the Consumer Council would welcome sharing its expertise in this area and become involved in the work of the Commission to assist in matters affecting consumer interest.
Conclusion
Albert Einstein once said that information is not knowledge. He was correct, and this is something we need to keep in mind as we digest what transpires over the coming years as light is shed on what has up until now being hidden behind closed doors.
However, without the appropriate levels of information being made public on what is happening in the marketplace, and how the public can accumulate knowledge on how the Commission administers this new law, we will lose sight of how businesses evolve under the newly regulated competitive environment, and whether or not we actually benefit from introduction of the law.
Thank you.