Review of Competition Policy

Transcription

1 Review of Competition Policy As a trade association representing the interests of industry, FHKI fully recognises the need to maintain a level playing field, which is of utmost importance in driving Hong Kong s economic development, particularly in attracting investors to invest in Hong Kong. FHKI observes that Hong Kong has a highly contested domestic market and intense competition exists in most economic sectors. In such a competitive business environment, collusion among business entities is virtually impossible. In terms of promoting fair competition in the marketplace and eliminating anti-competition business practices, FHKI believes that a sector-specific approach, which is currently adopted by the Government, is far more effective than introducing a comprehensive competition law. The telecommunications industry is a case in point. Through a properly designed regulatory regime, local consumers have over the years enjoyed immense benefits from the healthy competition in the telecommunications industry. This successful case has exemplified the superiority of a sector-specific approach in promoting fair competition. In considering that introducing a comprehensive competition law may give rise to a host of deleterious effects on the economy and on conducting business in Hong Kong, FHKI is against enacting such a law. The shortcomings of a comprehensive competition law are elaborated in the Annex. FHKI notes that there are already laws in Hong Kong to protect consumer interests and to prohibit certain unscrupulous and deceptive business practices as well as bid-rigging in public procurement. The Government may consider putting together the relevant provisions of these legislations to form a new law, with a view to strengthening consumer protection and expanding the scope of regulation on anti-competition acts. FHKI agrees that the composition, operation and power of COMPAG should be expanded and improved to enhance its role as a competition watchdog. Instead of comprising mainly government officials and operating in an opaque way, the body should have a wider representation to include business leaders, legal professionals, economists and representatives of consumer advocacy groups as its members. In addition, COMPAG should be given the authority and instrument to conduct investigations on complaints about alleged anti-competition behaviours. 1

2 If such investigations find prima facie evidence that fair competition is obstructed with consumers suffering from real economic loss, then COMPAG may initiate a formal hearing to determine whether the accusation is substantiated that warrants a remedy. As a safeguard against non-meritorious lawsuits, the defeated parties should be required to bear the legal costs of the other side in full. April

3 ANNEX Why a Sector-Specific Approach is Better than a Comprehensive Competition Law in Promoting Fair Competition in Hong Kong An Analysis 1. A single piece of legislation cannot deal with all competition-related matters across different economic sectors Every economic sector is unique in one way or another. The types of anti-competition practices that warrant regulation and the means of regulation vary considerably, depending on the nature of respective sectors in question and the environment in which they operate. It is unlikely for a comprehensive competition law to be able to deal with all facets of anti-competition matters across different industries and economic sectors. The experience of economies which have enacted a comprehensive competition law shows that in actual implementation of such a law, exemptions would have to be given to specific sectors in consideration of public interest. For instance, in the United States, the Federal Government and its subordinate organisations, some specified practices of agricultural co-operatives, the insurance industry, airlines and shipping companies are exempted. Moreover, practically all utility services and industries of strategic importance are excluded from the Singapore s competition law. It is questionable why a comprehensive competition law is needed when a wide spectrum of industries is not covered by the legislation. Until today, some anti-competition practices, such as substantial restriction of competition and abuse of dominant market position, do not have a concrete definition that is recognised internationally. Since the respective circumstances and needs of each industry are different, criteria to define a particular anti-competition practice which appear to be relevant in one industry may not be the same in another. If a competition law is enacted that applies across the board to regulate the anti-competition practices in all industries, companies may be plunged into uncertainties. 2. Hong Kong has already provided a highly competitive market environment even without a comprehensive competition law In terms of competition, Hong Kong does not compare any less unfavourably with places enforcing a competition law. For many years, Hong Kong has been rated by the American Heritage Foundation as the freest economy in the world. In addition, since 2001, Hong Kong has been rated by the Frazer Institute of Canada and the Cato Institute of the United States as the world s freest economy.

4 Even without a comprehensive competition law, Hong Kong does not fall behind its rivals in promoting a competitive market environment. Hong Kong as a free-market economy offers a great many business opportunities for both local and multi-national players. The easy access of goods and services from the Mainland and overseas to Hong Kong has made the local business environment fiercely competitive and rendered anti-competition acts virtually impossible. The absence of price competition in certain economic sector is due primarily to the inherent features of the industry. Legislative means will not change the basis of competition of these sectors. Hong Kong s petroleum retailing industry is a typical example. Convenience, prices and service of the refilling stations are the three main factors that affect customers choice of petroleum suppliers. Since taxes already constitute over one-half of the pump price and locations of refilling stations are scattered, there is little room for competition among the suppliers in this sector. The limited availability of new refilling sites for open bidding also restricts the number of new players in the market. Unless these barriers to competition are broken down, any competition laws, no matter how comprehensive, are unlikely to change the basis of competition to benefit consumers. 3. Competition law may harm the economy While it is difficult to tell whether the enactment of a competition law will attract more business activities to Hong Kong, the adverse impacts of such a law on the economy have been extensively examined and documented in other advanced economies. Prof Milton Friedman, a Nobel Prize winner, stated that despite his initial agreement with the underlying principles of antitrust laws, he had finally come to the conclusion that they did more harm than good and therefore should not exist. 1 Mr Alan Greenspan, ex-chairman of the US Federal Reserve, argued that the very existence of antitrust laws discouraged businessmen from bring productive for society, out of fear that their business actions would be determined illegal and dismantled by government. He says, no one will ever know what new products, processes, machines, and cost-saving mergers failed to come into existence, killed by the Sherman Act before they were born. No one can ever compute the price that all of us have paid for that Act which, by inducing less effective use of capital, has kept our standard of living lower than would 1 The Business Community's Suicidal Impulse, by Milton Friedman in Cato Policy Report, Vol. XXI, No.2, March/April 1999.

5 otherwise have been possible. 2 The US and European antitrust experience have demonstrated that competition laws had often turned out to protect the less efficient companies from competition, instead of promoting the interest of the consumers. The merger of GE Commercial Aviation Services/Honeywell which was tried separately in the US and EU is a case in point. GE Commercial Aviation Services is one of the world s largest aircraft-leasing companies, while Honeywell is a leading firm in the production of avionics. The merger was cleared in the US with the court finding that it was not price-raising and must have been efficient. Nevertheless, the European Commission blocked the merger for fear that the merged companies, which would become more efficient, would put other market participants in a disadvantageous position in competition. This case illustrates that a cumbersome competition law could defeat efficiency improvement of an entire industry. 4. Enforcement costs are high The administrative and compliance costs associated with the introduction of a competition law are also a concern. The administration of a competition law requires expertise and a large organisation to support the enforcement. The establishment of such a bureaucracy will increase the burden on society financially, and the related compliance costs to be borne by companies will undermine their competitiveness in the global market. Contrary to the popular belief that introducing a competition law would benefit SMEs, there is evidence that the law would provide a convenient avenue for large corporations to sue their smaller counterparts for anti-competition. Since many SMEs cannot afford to pay the huge legal costs involved in such lawsuits, large corporations could easily eliminate competitors in the courtrooms without having to fight with them in the marketplace. 5. A sector-specific approach is superior to a comprehensive competition law The desirability of fair competition does not necessarily call for a comprehensive competition law. There are indeed better ways to achieve this aim. These include introducing legislations to tackle specific anti-competition acts found in individual industries, stipulating pro-competition conditions in business licences of trades vulnerable to anti-competition, or formulating codes of practice for self-regulation by individual industries. An all-embracing law is not as flexible as sector-specific legislations, administrative guides or codes of conduct. 2 Antitrust, Alan Greenspan, 12 June 1998.

6 Overseas studies have found that a sector-specific approach is preferable to a comprehensive competition law in dealing with complex regulatory issues. The experience of Australia, Chile, New Zealand, UK, and the US suggested that sector-specific rules remain desirable for tackling some pricing and other operational issues in the telecommunications sector. In New Zealand, which relied exclusively on its competition law, competition in certain services had been hampered by the lack of clear rules and specialised regulatory authorities. 3 3 Regulation and Competition How Antitrust and Sector Regulation Affect Telecom Competition by Michel Kerf, Isabel Neto, and Damien Géradin in Public Policy for the Private Sector No. 296, June 2005.

7 Conclusion Anti-competition practices should be analysed thoroughly in their particular context to ascertain whether they restrict market access or contestability, and whether they are calculated to gain monopolistic power or just aim to raise efficiency. Restricting certain forms of business activities or practices across the board in a blanket manner by legislation is unnecessary and may risk undermining Hong Kong s free and open trade policy, and ultimately its competitiveness. A comprehensive competition law is unlikely to solve competition-related problems in all industries and sectors. Murky and conflicting case laws will create a great deal of uncertainty. Moreover, setting up a related law enforcement agency will impose substantial financial burden on both the government and society. As Hong Kong s business environment is highly competitive, anti-competition activities are rare occurrences that do not merit an across-the-board competition law. Sector-specific legislation and self-regulatory codes of conduct are better alternatives to stamp out anti-competition problems.