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Never too late to formulate a proper competition law

Legco is now entering the final stage of its deliberation on the Competition Bill, which is intended to ensure healthy competition in Hong Kong. Nevertheless, the Bill still contains many uncertainties and ambiguities which will not only threaten the survival of enterprises (especially SMEs), but also raise concerns that they may be inadvertently caught. The Chamber believes it is inappropriate for the government to adopt the approach of passing the Bill first and issuing relevant guidelines later. Since the introduction of the Bill in 2010, we have repeatedly pointed out that a number of critical wording in the Bill should be clearly defined, and suggested corresponding explicit provisions. However, we feel deeply disappointed that the government has not attached much importance to our reasonable proposal which requires minimal amendments to the Bill.

The Chamber is very concerned about the proposed cap on the pecuniary penalty at 10% of the local turnover for each year of infringement up to a maximum of three years. It is not clearly stipulated in the Bill that if the subsidiary of a business has breached the competition law, the penalty will be calculated based on the turnover of that subsidiary or the whole group. If it is the latter case, the deterrent effect is overwhelmingly excessive. This will not only undermine Hong Kong’s competitiveness, but also impede businesses’ healthy expansion to various sectors. If the offender is the regional headquarters of an enterprise, there may be different interpretations of what “local turnover” is. In other jurisdictions, relevant provisions are stipulated precisely and the penalty calculation is clearly described in the guidelines. Due to the lack of guidelines and the government’s will to pass the ambiguous Bill in haste, it is difficult for the business community to feel comfortable.

In addition, under the current proposal, agreements between undertakings with an annual turnover not exceeding $200 million will not be subject to the First Conduct Rule.  Nonetheless, the Chamber remains worried that the proposed threshold has not gone far enough to protect SMEs.  For the Second Conduct Rule, the government has set out a “minimum” market share threshold of 25% regarding “substantial degree of market power.”  The threshold is rather low when considering Hong Kong being a small and open economy.  As there is only a limited number of players in certain sectors, businesses may easily run the risk of falling foul of the new law simply because their market share exceeds the threshold.  The government should consider adopting different “minimum” market share thresholds for such sectors.

With the current legislative year coming to an end, ifthe Bill is not passed, it will lapse and need to be reintroduced to the next Legco.  The Chamber will continue lobbying the government to carefully review the Bill instead of rushing it through within the current Legco term.  I believe it is never too late to formulate a proper competition law.  The government should listen to opinions from the public and the business community and formulate a clear and transparent competition law to benefit both citizens and businesses.

Posted on 2012/05/02