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Speech by SCED at Asian Competition Forum - Workshop on the Government's Competition Law Proposals (English only)
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    Following is the speech by the Secretary for Commerce and Economic Development, Mr Frederick Ma, at Asian Competition Forum - Workshop on the Government's Competition Law Proposals at Hong Kong Polytechnic University this morning (June 12):

Ladies and gentlemen, good morning.

    First of all let me thank you for inviting me to join you here at this seminar today. There has been a very encouraging reaction to the proposals that we published last month for a competition law for Hong Kong, and I would like briefly to share with you some insights into the feedback that we have received so far.

    First, however, by way of introduction, it might be helpful if I review briefly where we currently stand in the process of taking forward the competition law.

Current Situation íV Public Consultation

    This process began with the publication of the report of the Competition Policy Review Committee in June 2006. That report recommended that in taking forward competition legislation, our key objectives should be to reinforce business and consumer confidence, enhance Hong Kong's pro-market environment and provide a level playing-field for all by combating anti-competitive conduct.

    Based on the review committee's recommendations, in November 2006 we issued a public discussion document entitled "Promoting Competition - Maintaining Our Economic Drive". The purpose of this document was to encourage the community to put forward views on the way forward for competition policy in Hong Kong. The document asked 20 key questions, such as: "Does Hong Kong need a new competition law?" and "Should a new competition law define in detail the specific types of conduct to be covered or simply set out a general prohibition against such conduct?"

    The responses from the public to these questions demonstrated a good understanding of the key elements of competition policy. This suggested that there is a high level of interest and concern in our community about this issue. Furthermore, the reaction of the business sector was on the whole quite positive - although some concerns were raised about the need to avoid excessive regulation and to minimise the burden of compliance, particularly for small and medium-sized enterprises, or SMEs.

    On the basis of the public response to the discussion document, we have drawn up 50 detailed proposals for the major provisions that we consider would form the basis of a competition law for Hong Kong. We hope that by publishing these proposals, we can alleviate some of the concerns that have been expressed with regard to the potential effect of the competition law. We also wish to give the public an opportunity to submit their views on the proposed shape and substance of the proposed legislation before we proceed to draft a Competition Bill for introduction into the Legislative Council.

    Against this background, I would now like to describe some of the key proposals, and to remind you that these are indeed still proposals on which we are keen to receive feedback from all sectors of the community.

The Institutional Arrangements

    For the competition law to work in practice, we will need to establish a credible and effective competition authority with an appropriate mandate and the powers necessary to allow it to enforce the law. During the public consultation exercise, there was a general consensus among respondents that such an authority should also have a high degree of independence.

    Our proposal therefore is to establish an independent Competition Commission with an appointed board consisting of no fewer than seven members, appointed by the Chief Executive. This board would be served by a full-time "executive" arm, which would be responsible for the day to day running of the commission's affairs.

    During the last public consultation exercise, many respondents stressed the importance of efficiency and consistency in dealing with breaches of the law. From this perspective, many also took the view that the regulator should not only have the power to investigate possible infringements, but also determine whether or not an infringement had taken place, and where appropriate, to impose sanctions. This is the approach that we have proposed for Hong Kong, and, of course, is an approach that is also used in many other jurisdictions, including the EU and the UK. It is also similar to the regimes that we have in Hong Kong governing areas such as the telecommunications, broadcasting and securities industries.

    However, whilst efficiency and consistency are important, there is also a need to ensure that there are proper checks and balances on the quite extensive powers of the proposed commission. To this end, we propose to put in place what could be called a "double" safeguard.

    First, within the commission itself, we propose that there be a formal separation between the investigation and adjudication of infringements through the establishment of an investigation committee, which would be responsible for conducting investigations. This committee would be chaired by a commission member, who would then not participate in the decision on whether or not an infringement had taken place and if so, what the appropriate remedy should be.

    Second, we propose that a Competition Tribunal be established to hear applications for review of the decisions of the commission. Under our proposals, the tribunal members would be either "judicial" members or experts in economics, commerce or competition law. The judicial members would be appointed by the Chief Executive on the recommendation of the Chief Justice, with the other members being appointed directly by the CE.

    We believe that the arrangements that we have proposed should strike a suitable balance between providing for an efficient administration and allowing for appropriate avenues of redress for both complainants and those who are suspected of infringing the competition law. At this stage we are also proposing that the sanctions that may be imposed on parties that infringe the law be limited to civil remedies, and this was the view that was taken by most respondents in the previous public consultation exercise.

    Here I would like to clarify a misunderstanding that seems to have arisen regarding the levels of penalty that we are proposing.

    In the consultation paper, we propose limiting the fining power of the Competition Commission to $10 million. This has been taken by some to indicate that we are "not serious" about penalising anti-competitive conduct, given that $10 million is seen as a negligible amount to Hong Kong's larger companies.

    However, should the commission consider that a more severe remedy is required, it may apply to the Competition Tribunal to impose a fine of up to 10% of the turnover of the party concerned during the period when the infringement occurred. This sets the potential financial penalty at a level that could run into the hundreds of millions in the case of a large company. I think that this shows that we are indeed "serious" about penalising anti-competitive conduct.

Anti-competitive Conduct

    The next major issue addressed in the consultation paper is the question of what exactly should constitute anti-competitive conduct.

    As with the level of penalty, there has been some misunderstanding of our proposals in this regard - specifically, there is concern that whereas in 2006 our proposals indicated that we would address the so-called "seven deadly sins", we have now trimmed the list down to just four types of conduct.

    Let me emphasise right away that our proposal is to address all types of agreement, concerted practice or abuse of market power that have the purpose or effect of substantially lessening competition. The so-called seven deadly sins listed in the 2006 discussion documents were simply examples of different types of anti-competitive conduct that could be addressed. There are many more such examples, and the point is that we would propose to address them all.

    I believe that if you read the consultation paper that we issued last month, you will find that we are very clear on this point. We recognise that anti-competitive conduct can take many forms, which can change over time. Therefore we consider it not feasible to set out in the law all the possible forms of agreement or other conduct that would be prohibited. Rather, we propose to set out a general prohibition against agreements, concerted practices and the abuse of substantial market power.

    At the same time, we realise that business and consumers alike would like to have as clear an idea as possible about the exact types of conduct that could be considered to be infringements of the law.

    In this regard, we propose to stipulate that the commission would be required to issue guidelines that would give examples of the types of conduct that would commonly be considered anti-competitive. Such guidelines could be written in plain language and could include actual examples from other jurisdictions of cases of anti-competitive conduct, thereby helping stakeholders to understand better the likely effect of the law.

Exemptions

    One more important issue that I would like to touch upon this morning is the issue of exemptions from the application of the competition law.

    In our 2006 discussion document, we noted that there might well be circumstances in which exemptions from the law could be justified in the public interest. The document set out examples of how other administrations, notably the United Kingdom, Australia and Singapore, addressed this issue.

    As a general point, under our proposed framework, the prohibitions on anti-competitive conduct would only apply to what we call "undertakings", which we propose to define as individuals, companies or other entities engaging in economic activities. By this token, any party that does not engage in economic activities is automatically exempt from the coverage of the law, such as many of the regulatory bodies in Hong Kong, whether they are government agencies or statutory bodies.

    Furthermore, in the other jurisdictions that we have studied, it is recognised that there are good grounds for excluding services that are provided in the interests of public benefit. Therefore, appropriate mechanisms exist to ensure that such services are not subject to the possibility of unfounded or misconceived complaints.

    In view of these considerations, and acknowledging that the public's main concern is over anti-competitive conduct in the private sector, we have proposed that the Government and statutory bodies be excluded from the application of the competition law. We further propose that once we have experience of implementing the law, we should review this situation, so that if any problem areas have arisen, we can consider how best to deal with these.

    Contrary to views that have been put forward in some recent press articles, this proposed exclusion does not extend to the major public utility and transport services run by private companies. However, in line with international practice, we propose that the competition law allow for services of what is termed "general economic interest" to be exempted. Whether a particular activity would qualify for this exemption would need to be assessed by the Competition Commission, having regard to the nature of the service and the case law and guidelines that govern such exemptions in other jurisdictions.

The way forward

    As I said earlier, the consultation paper contains 50 proposals, and it would take me much longer than we have at our disposal this morning to discuss all these in any depth. I have focused on some of the areas in which we have already received significant feedback from the public and in the media, but I am sure there are other areas of equal interest that we will be able to address in the remaining two months or so of the consultation period.

    Whilst the Government is firmly committed to introducing a general competition law in Hong Kong, we still have an open mind on the detailed drafting and implementation of this law. We aim to introduce the Competition Bill into the Legislative Council in the 2008-09 legislative session, but this still leaves us good time to listen to your views and to take on board your suggestions as to how we might ensure that the new law is effective and in meeting the needs of our community.

Concluding Remarks

    Ladies and gentlemen, I have enjoyed speaking to you this morning, and I hope that I have been able to clarify for you the Government's thinking on some of the key questions that have already been raised in the public discussion of our proposals for a competition law. My colleagues and I look forward to hearing your presentations and to participating in further discussion on this important issue. Once again, let me thank you for giving me the opportunity to speak to you today. I am sure that you will find today's seminar to be a stimulating and productive event.

    Thank you.

Ends/Thursday, June 12, 2008
Issued at HKT 12:30

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