Information Paper for
LegCo Panel on Trade and Industry
Consumer Council’s Study Report on
‘Competition Policy: The Key To Hong Kong’s Future Economic Success’

INTRODUCTION

This paper briefs Members on the recommendations of the Consumer Council’s study report entitled ‘Competition Policy: The Key To Hong Kong’s Future Economic Success’ which was published on 25 November 1996 and the Government’s next steps in preparing the Government Response.

BACKGROUND

2. Since 1993, the Government has commissioned the Consumer Council to conduct a series of studies on competition. Six sector-specific studies on banking, supermarkets, domestic water heating and cooking fuel market, telecommunications, television broadcasting and private residential property market have been published. The Government has responded, positively and constructively, to five reports and the Government Response to the one on private residential property market will be published by end January 1997.

3. The last in the series is a study on the overall assessment of the competition environment in Hong Kong. The study report was published by the Consumer Council on 25 November 1996.

SUMMARY OF THE REPORT

Objectives of the Study

4. The objectives of the study are to examine whether Hong Kong needs a comprehensive competition policy and competition law, and if so, what framework should be adopted and what law should be enacted. The study presents its case against the backdrop of a structurally-changed Hong Kong economy (a predominantly service economy versus a manufacturing economy), an intensely more competitive international trade environment and an increased link between trade and competition policies. A copy of the Report has been circulated to Members for information.

Recommendations

Competition Policy

5. The Report recommends the adoption of a comprehensive competition policy for Hong Kong which should -

  1. be conduct-oriented in approach, as opposed to traditional competition policies which are based on structure (e.g. concentration ratio) or performance (e.g. abnormal profits);
  2. be pragmatic in approach, providing exemption for those agreements that do not restrict competition or which are in the public interest;
  3. reflect the small and open nature of the economy and the importance of international competition;
  4. be supported by a legal framework (i.e. the enactment of a competition law);
  5. be supported by institutions that are small and cost-effective; and
  6. be conducive to efforts by Hong Kong to seek the adoption of policies in the international forums to promote world trade.

6. Specifically, the Report recommends -

  1. action to promote an understanding of the aims of competition policy within the Government, the business community and members of the public;
  2. a new system or procedure to ensure all Government policies and decisions give regard to the implications on competition; and
  3. scrutiny of existing regulations to ensure they are still necessary and effective.

Competition Law

7. The Report recommends the enactment of a competition law to cover horizontal and vertical collusive agreements and abuse of dominant position, to be expressed in the following Articles -

  1. to prohibit explicit agreements between firms that are intended or have the effect of preventing, restricting or distorting competition. These include horizontal agreements such as price-fixing, bid-rigging, etc. and vertical agreements such as resale price maintenance, exclusive dealership, tie-in sales and long-term supply contracts; and
  2. to prohibit any abuse by one or more undertakings of a dominant position that prevents, restricts or distorts competition. Monopoly pricing and tie-in sales enforced through market dominance are examples of such behaviour.

8. As regards provisions dealing with collective dominance (complex monopoly) and mergers and acquisitions, the Report concludes that on balance there may not be sufficient justification for introducing legislative provisions to control these areas at this stage. In the light of public reaction to the Report, the Government should then decide on the timing of legislation to implement provisions covering collective dominance and mergers and acquisitions.

Administrative Framework

9. The Report recommends the establishment of a Competition Authority, an independent body outside the Government, to investigate and decide on possible breaches of the competition law and advise the Government on competition policy. In the light of the findings of investigations, the Competition Authority may propose remedies or undertakings to the businesses concerned. The Report recommends that the Authority should also have powers to ask firms to cease and desist from breaches of the competition law but it is inconclusive as to whether the Authority should also have injunctive powers or powers to impose fines or award compensation to third parties. The Report also recommends that an Appeal Body be set up to hear appeals against decisions by the Competition Authority.

NEXT STEPS

10. Trade and Industry Branch has set up an inter-departmental working group comprising representatives from relevant Government branches/departments to examine the recommendations of the report and prepare the Government Response. Comments from the public and interested parties have also been invited.

Trade and Industry Branch
January 1997
[A:[COMPETITION]\panel]

Last Updated on 21 August 1998