Toothless Competition Law

In sum total, the proposals contained in the public consultation document are a far cry from the recommendations of the Consumer Council’s Report issued in November 1996 under the Chris Patten administration.

The key recommendations of that Report, as excerpted from the book “Land and the Ruling Class in Hong Kong” (Page 99), are as follows:-

“The Council recommended the enactment of a competition law to cover horizontal and vertical collusive agreements and abuse of dominant position, to be in the form of Articles 1 and 2 as follows:-

(1) To prohibit explicit agreements between firms that are intended or have the effect of preventing, restricting or distorting competition. These would include horizontal agreements such as those involved in price-fixing cartels, bid-rigging etc. and vertical agreements such as resale price maintenance, exclusive dealership, tie-in sales, long-term supply contracts etc.;

(2) To prohibit any abuse by one or more undertakings of a dominant position that prevents, restricts or distorts competition. This would address monopoly pricing and vertical restraints such as tie-in sales enforced through market dominance.

The Council reckoned that without these articles, the competition legislation would be much less effective and, more importantly, would not be accepted as adequate in the international arena. In addition to these two articles, the Council also recommended the inclusion of an article controlling the abuse of collective dominance and an article for the control of mergers and acquisitions.”

Apart from setting the threshold for investigating possible abuse of substantial market power at a market share of 40 percent (Proposal 27), the other proposals contained in the consultation document fall dismally short of the 1996 recommendations. Even with the threshold established, the Competition Commission would still have to be satisfied first that the conduct has the “purpose or effect” (of substantially lessening competition) before any investigation would proceed.

Proposal 26 of the consultation document specifically seeks to exclude vertical agreements (i.e. agreements made between supplier and acquirer in the supply chain), meaning that resale price maintenance (RPM) practices now prevalent in the supermarket industry will likely not be condemned. For further details on how RPM works and on the lack of competition in the supermarket industry, please refer to Pages 77 to 80 of ‘Land and the Ruling Class in Hong Kong’.

No specific provision about controlling the abuse of collective dominance is proposed in the document. It shows that the property cartel cannot be further away from the administration’s mind.

As for the control of mergers and acquisitions, the Competition Policy Review Committee’s recommendation not to tamper with market structures and not to include a merger regulation in the law is reiterated in the consultation document, although no firm proposal is put forward. However, three options are laid out. One is to provide for the investigation of a completed merger should there be serious competition concerns (similar to the Telecommunication Ordinance); the second is to have that provision in place but with delayed enforcement; the third is not to include a merger regulation at all. Neither of the first two options appears to have the conviction that a measure of control is needed on mergers and acquisitions before they happen.

Apart from the lack of “biting” proposals, there are other balmy provisions that are designed to placate vested interests.

Proposal 25 averts naming specifics of types of anti-competitive agreements that would come under the radar and entrusts the Competition Commission with the responsibility to issue guidelines. The degree of independence of this Commission will depend entirely on whom government eventually appoints as its members.

Proposal 46 allows a party to apply to have an anti-competition agreement exempted on grounds that economic benefits would outweigh potential harm caused. Of course, no explanation is given about to whom the economic benefits would accrue and who would potentially be harmed.

Proposal 48 exempts all essential public services from competition regulation on the grounds of public interest. This makes it clear that the utilities companies and the bus and ferry companies will be quite ‘safe’.

Proposal 49 vests overriding power in the CE to exclude a conduct that is anti-competitive from being prohibited on grounds of public policy considerations. What is the point of having an ‘independent’ Competition Commission and a Competition Tribunal at all, one wonders?

One funny aspect of the consultation document is the illogical obsession with the possibility that small and medium enterprises might be anxious about the proposed Competition Law. When has one ever heard of a small business concern having the ability to substantially lessen competition, let alone abusing its market power? SMEs would be lucky to be able to keep their heads above water in fighting off keen competitors!

Related reading: No Tiresome Competition Here