DECEMBER 31, 2014
Photo: Chris Lusher
Economists and business people alike have concerns about changes to the upcoming competition law.
The business community braces for yet another round of changes to the competition law and the powers of the Competition Commission. Uncertainty reigns as operators try to understand open-ended regulations, complex definitions and a regime far from the light-touch version promised in the early part of the century. ICF’s Andrew Amersekera and Bill Stacey of The Lion Rock Institute met with business leaders to cut through the haze.
Bill Stacey, Chairman of Lion Rock Institute, didn’t mince words, calling the legislation a “tragedy” to Hong Kong. Remembering the Statement on Competition Policy published in 1998 by the Government’s Competition Policy Advisory Group, Mr Stacey says the Law and guidelines have deviated from the original ‘promise’.
Bait and switch
Andrew Amerasekera, Managing Consultant of ICF International, notes that “Hong Kong guidance broadly follows precedents established elsewhere.”
Mr Stacey put it more bluntly.
“This really is a full scale importation of Competition Law from the global mainstream to Hong Kong,” explains Mr Stacey. “The promise was not that we will have something close to the US. The promise from the Government, for everyone here who was involved in the consultation before the Competition Law [was implemented], was that we would have something unique and appropriate for Hong Kong.”
Also promised was that the Competition Law would be narrow in scope, administratively simple, have a limited compliance burden and low cost for business. But this all seem to have been ignored.
Far from the narrow law originally promised, “the Competition Law was quite broadly drafted”, says Mr Stacey. “And the guidelines which are very open-ended, further exaggerating the problem.”
However, Mr Amerasekera argued that open-ended guidelines can still be positive as he sees them as a message from the Government saying that “substantial market power is not necessarily a bad thing so long as you can justify it with evidence that it is good for Hong Kong’s economy and there is an efficiency benefit.”
Can’t hide from politics
Anna Wu, an incumbent ExCo member and the Chairperson of the Competition Commission, was the Vice Chair of the Consumer Council at the time (from 1993 to 1996) when the Council was asked by the Government to study the need for an antitrust law. The report from the Council came out in favour of a general competition law in Hong Kong.
“If you appoint Anna Wu to run the Commission, then of course you will have a big, active, interventionist, expansive application [of the Competition Law].” Mr Stacey considers the responsibility to be on the Government by appointing Ms Wu to head the Competition Commission. She now tries to decide the guidelines to interpret the Competition Law. If the government chooses someone with an activist bent, the next question pertains to how much power that person will have to give reign to their interventionist inclinations.
Raw power
Just this November, LegCo passed an amendment legislation to give the Competition Tribunal all the powers, rights and privileges of the Court of First Instance, meaning the Tribunal is now operating with the same powers as the Court to issue orders. On December 10th, the consultation on the draft guidelines of how the Competition Commission will interpret the 2012 Competition Law was closed to further submissions. The guidelines fall on the First and Second Conduct Rules and the Merger Rule*, and how the Competition Commission will handle complaints, conduct investigations and consider applications for exclusions and exemptions.
“The problem here right from the very beginning is that the Competition Law in general in Hong Kong is being hijacked by a relatively small number of people that have a vision for the law,” says Mr Stacey.
There is also fear that the Competition Commission will be compromised by political forces when there are strong voices from the public over certain instances of business conduct. In this case, it would seem inevitable that the Commission will be perceived as taking sides in political debates in the future. One way to avoid being drawn into accusations of political favouritism is to strengthen the evidence gathering elements as suggested by Mr Amerasekera. He also urges the Competition Commission to clarify definitions pertaining to excessive pricing to fend off controversy in the future.
Concerns uncalled for
Some have claimed restricted markets, such as those in energy and telecommunications, as justification to push forward implementation of the Competition Law but others don’t see the value. “They [markets in question] are very much creatures of government regulations. How much competition there is and what pricing structure is imposed to the market. These are not determined by the companies; they are determined by legislation,” Mr Stacey rebutts.
The business community has also defended the vertical and horizontal agreements that are regulated by the Law and guidelines. For example, citing the findings from the Market Study on the Airline Industry conducted by ICF at the request of the Competition Commission of Singapore in 2012, Mr Amerasekera notes that joint ventures between airlines operating through Singapore have resulted in net economic benefit.
For vertical agreements, they are never a concern for competition anywhere according to economic theory, says Mr Stacey. The Hong Kong General Chamber of Commerce has also urged the Commission to exempt vertical agreements, saying it is “rarely problematic for market competition”.
Red tape wrap up
The concern now to businesses is the administrative burden that has been placed on them to understand how they will have to comply with the Competition Law. But when the Law and the guidelines are broadly defined, the cost of understanding it will be high, let alone the litigation cost involved with the Tribunal.
When markets continue to evolve in the world and technology is redefining business practice, there is a doubt whether Hong Kong should impose the classical competition rules imported from the West.
“Once you get on this roller coaster of the Government determining the structure of the market and designing the market in every way, it is very hard [for the market to be efficient],” Mr Stacey says. It remains to be seen if this roller coaster will throw Hong Kong’s economy off track.
*In general, the First Conduct Rule prohibits agreements and concerted practices that will restrict competition in Hong Kong, such as price-fixing, market-sharing, bid-rigging and out-put restriction. The Second Conduct Rule prohibits a business with substantial market power from abusing the power by engaging in activities to restrict competition in Hong Kong. The Merger Rule, which will only be applied in the telecommunications sector, prohibits mergers or acquisitions that will restrict competition.
http://harbourtimes.com/openpublish/competition-law-20141231
