Competition Law Must Get the Balance on Enforcement Right

Businesses, especially small and medium-sized ones, need clear guidance on how the ordinance will affect them if it is to work to the benefit of all Hongkongers.

As the debate on how the Competition Ordinance should be applied and administered draws to a close, expect business angst to intensify after the roll-out of the ordinance on December 14, as the reality of achieving compliance begins to dawn on companies, especially small and medium-sized enterprises.

To be fair, the Competition Commission, the body set up to oversee all competition-related policies to ensure a level playing field, has been doing its best to educate and inform businesses and the public on what to expect. Unfortunately, we’re not quite there yet.

Anyone who has been following developments will note that the law, as it currently stands, is fraught with grey areas. To its credit, the commission has acknowledged this, which it attributes to the sweeping nature of the prohibitions in the new law. The fact that this is a brand new piece of legislation, with no case law or precedential facts to speak of, makes it easy to understand why there is a real cause for concern. On one view, anyone supposedly still engaging in anti-competitive behaviour after December 14 should be fair game. However, acknowledging that it takes time to really understand the new law, and for a “compliance culture” to become embedded, the commission has issued an enforcement policy setting out the principles and issues on which it would be dealing with cases.

Yet, there is still a lack of clarity on what type of cases the commission will choose to enforce. We believe there are genuine concerns about the potential risk of selective prosecution. To understand the hazards inherent in competition laws, it is useful to draw on an article by Dr Sylvester Petro in The Freeman, a magazine of the Foundation for Economic Education. Although written in 1957, and mostly US-centric, there is much that Hong Kong could draw on, if the ordinance is to serve its intended purpose.

A key takeaway is the natural propensity to go after so-called “big business” because this offers a convenient target, and because it is sometimes politically expedient to do so. Were this to happen in Hong Kong, imagine the deterrent effect it would have on businesses’ ability to engage in such rudimentary commercial endeavours as the pursuit of growth and the expansion of market share. Ironically, the implementation of a competition law may give rise to the unintended and serious consequence of inhibiting pro-competitive conduct, instead of promoting it. On the other hand, there has been speculation, arising from concerns, about the likelihood that the commission will seek to achieve “early wins” by targeting smaller companies. The probability of being stranded on the wrong side of the law can be quite high in the case of small outfits as they struggle to come to grips with the new law and all its complexities.

For the chamber and the general business community, it is an important starting point in considering how to implement the ordinance to ensure that it does not seek to rewrite Hong Kong’s economic policy. Hong Kong has long recognised the risks of regulatory error when trying to second-guess the market, and has had a presumption that markets get it right more often than regulators. In terms of competition policy, this is relevant in how the commission should approach the question of over- and under-enforcement when determining its policy, and the types of conduct that should be targeted.

We have urged the commission not to cast the net too wide (that is, overapply the law or refrain from applying appropriate exemptions and safe harbours that would allow businesses more certainty as to what is prohibited) or “use a net that will catch minnows” (that is, conduct that does not have the potential to substantially restrict competition or be economically efficient).

Ultimately, the law will stand the best prospect of maintaining and increasing competition in Hong Kong only if the balance is properly struck on enforcement, and businesses – small, medium and large – have as much clarity as possible on what is prohibited so that they can focus compliance efforts effectively. This is all the more important for SMEs with limited resources for compliance, which comprise some 98 per cent of the businesses in Hong Kong.


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