Posted: 31 Dec 2015
After many years of debate, Hong Kong finally has a Competition Commission. But what will it mean for consumers and the economy at large? And why are more than 95 percent of the government’s statutory bodies exempt? Joy Ming King finds out
A bitter wind sends a shiver down your spine as you cross the street and you’re suddenly seized with a craving for your favourite chicken soup. You visit a nearby supermarket chain to buy the soup, only to find it’s clearly overpriced. Determined to sate your craving, you march into a nearby competitor and your heart sinks again – it’s the exact same price as the first store.
One month ago, you couldn’t do anything in this situation aside from ball your fists and mutter spitefully about evil monopolies dominating Hong Kong. But with the implementation of the city’s first cross-sector competition law on December 14, the rules of the game have changed, for better or for worse. Following more than 20 years of debate and consistent pressure from international financial institutions, the Competition Ordinance (Cap 619) was passed in a tight Legislative Council vote in June 2012. Now it’s active, the law will be enforced by the newly-established Competition Commission, a statutory body of 14 members handpicked by the Chief Executive, CY Leung.
Though the law encompasses three rules, the one most relevant to consumers and most businesses is the ‘first conduct’ rule, banning four anti-competitive practices – price-fixing, restricting the output of goods and services, sharing markets and bid-rigging. The ‘second conduct’ rule restricts large businesses from abusing their market power to limit competition, while the ‘merger’ rule prevents business mergers that will greatly reduce competition.
Designed to promote market competitiveness, competition legislation has existed in many countries around the world for decades, with Canada enacting the first such statute in 1889. Despite the policy’s diverse and global history, Hong Kong’s own competition law has drawn unusually fierce debate and criticism, from its early conception as a government-commissioned study on monopolies under the Consumer Council in 1993 until its final implementation this month. One of its critics is Lam Cheuk-ting, the chief executive of the Democratic Party and recently-elected North District councillor. As a co-founder of the Coalition of HK Owners Against Corruption and Bid-Rigging and a former Independent Commission Against Corruption (ICAC) investigator, Lam is experienced with high-profile cases of bid-rigging. That is the name given to the practice of two or more businesses pretending to be competing for a contract, giving the customer the illusion of choice and reducing their bargaining power. This behaviour has proven to be a major livelihood issue plaguing Hong Kong society – most famously incurring astronomical costs on residents of housing apartments involved in construction or renovation projects. While Lam welcomes the legislation as a step forward, he also doubts the effectiveness of the new commission in combating bid-rigging.
“The Competition Commission’s statutory power, resources and manpower are very limited,” says Lam. “I’m worried that the competition law cannot effectively combat bid-rigging. I believe there needs to be an interdepartmental, multi-policy approach to target bid-rigging groups, allowing the market to slowly return to normality.” Lam has previously described bid-rigging in Hong Kong as a deeply-rooted and systemic issue, involving ‘many professionals, including lawyers and former law-enforcers’.
“The ICAC, the Home Affairs Department, the police, the Urban Renewal Authority, the Buildings Department – they should all join forces to combat bid-rigging as the problem involves them all,” he claims.
However, the Competition Commission’s new executive director, Rasul Butt, is keen to affirm the body’s ability to enforce the law, citing its access to ‘a range of investigative tools, including the power to require a person to provide books and records, the power to require a person to attend before the commission to answer questions and the ability to seek search warrants from the court’. Still, there are concerns that its initial annual budget of $83million is insufficient to tackle the notoriously protracted and convoluted cases of competition-related crimes, especially when compared to the far bigger budgets of government competition regulators in other nations. For example, Britain’s version of the commission, the Competition and Markets Authority, has an annual budget of over $800million.
Aside from the commission’s effectiveness as a law enforcer, the wisdom of the legislation itself has been accused of harming consumers and promoting vicious competition. The ban on price fixing has received flak for also prohibiting suppliers from enforcing a ‘minimum retail price’, a common safety measure suppliers adopt to prevent a race-to-the-bottom in retail prices. With the implementation of the competition law, larger retailers – such as chain stores – are free to drive down prices as much as they desire, potentially pricing out smaller retailers that can’t afford to do the same and inadvertently reducing competition in the market. Indeed, several large electronics retailers launched steep discount sales shortly before the law was implemented.
Meanwhile, there are also deep-seated fears in the city that a potential market collapse could be caused by a downward spiral of prices, especially more tightly controlled prices in industries such as jewellery and goldsmithing. Traditionally, groups representing the jewellery trade, such as the Hong Kong Jewellers and Goldsmiths Association and the Kowloon Pearls, Precious Stones, Jade, Gold and Silver Ornament Merchants Association determine and publicly list the standardised price of jewellery gold daily. Jewellers citywide can then sell products according to the determined price. However, due to fears of violating the competition law’s ban on price-fixing, the two associations have ended their practice of announcing the standardised price of gold and are currently applying to the commission to be exempted from the law.
One of the most controversial aspects of the Competition Law is the near-blanket exemption of the city’s 581 statutory bodies, of which only six are subjected to the new legislation – including Ocean Park and Matilda and War Memorial Hospital. Many of the 575 exempted statutory bodies compete with private-sector businesses, such as the Trade Development Council, which has been accused of outcompeting private exhibition service providers. Nonetheless, executive director Butt warns that statutory bodies are not entirely above the law. “During the passage of the legislation, the government has stated that exempted statutory bodies should still adhere to the competition rules,” he reminds. “Indeed, [statutory] bodies are required to offer assistance in the commission’s investigations, and in this respect they are not exempt. Furthermore, the exclusion does not extend to undertakings that might enter into anti-competitive arrangements with any of the exempted bodies.”
The new competition legislation has received a decidedly mild welcome. Plenty of voices are criticising the commission for being significantly under-resourced and its legislation under-representative, with many calling for the exemptions for statutory bodies to end. It would seem that the bottom of Hong Kong’s competition problems lie with a more deeply-rooted contradiction in government policy.The problem is exemplified in the fact that, while gambling is illegal, it is allowed within the confines of the Jockey Club – forming a powerful government-granted monopoly. Following the weakly-received launch of the competition law, it’s becoming ever clearer how messy, uneven government policy creates loopholes that render well-intended legislation sadly ineffective.
Find out more about the new Competition Commission at compcomm.hk.
http://www.timeout.com.hk/big-smog/features/75197/what-will-the-new-competition-commission-mean-for-the-hong-kong-market.html
