SCED's speech at Asian Competition Forum 8th Annual Conference (English only)

     Following is the speech by the Secretary for Commerce and Economic Development, Mr Gregory So, at the Asian Competition Forum 8th Annual Conference today (December 10):

Mark (Williams), distinguished speakers, ladies and gentlemen,

     First of all let me thank you for inviting me to speak to you at the opening of the eighth Asian Competition Forum Conference. This is my fifth year of joining the conference. In the last few years, I have talked about the importance and significance of having a competition law introduced into Hong Kong. This year, I am most pleased to share with you the very good news and our joy of harvest - we have finally enacted the Competition Ordinance in June this year.

     The theme of this year's conference is "Establishing Sound Enforcement Priorities and Processes". Now that we have the law enacted, it is most timely for us to give thoughts on the implementation process of which enforcement is a key part. In the next few minutes, I will give you a brief account of the newly enacted Competition Ordinance, our reflections on the lessons learnt during the process, and our plan on the next steps ahead.

Enactment of the Competition Ordinance

     After two rounds of public consultations respectively in 2006 and 2008, and backed by wide public support, we introduced the Competition Bill into the Legislative Council in 2010.

     The Bill has attracted a lot of attention from the Members as well as the public at large. At one stage, we had more than two-thirds of all Legislative Council Members sitting on the Bills Committee set up to examine the Bill. The discussion at the Legislative Council continued for more than one and a half years - 38 meetings have been held and five public hearing sessions have been conducted. We listened, we reflected, and we debated. This enduring and challenging process finally bore fruits on June 14 this year, the date the Bill was passed.

     The newly enacted Competition Ordinance provides a solid legal framework to curb anti-competitive conduct in various sectors, and to set up the Competition Commission and the Competition Tribunal responsible for enforcement of the legislation. It is a major milestone in enhancing the competition regulatory regime in Hong Kong, bringing us on par with over 120 economies worldwide, signifying the determination of the Government in maintaining fair and free competition in the market.

     The one question that is most frequently asked by sceptics of competition law after the passage of the Bill is "Do you think the law is a toothless tiger?" There have been views that the adjustments, or compromises as they called it, made to the Bill during the legislative process were the result of the Government's bowing to the business sector in exchange for a smooth sail of a watered-down Bill in the legislature.

     For me, a person who has witnessed and also participated in the competition law development in Hong Kong from public consultations to the birth of the law, I can confidently say that our competition law is not a toothless tiger. It might not be a panacea to every problem in our economy, but it is an effective tool that would pounce on its target and hit the nail on the head by curtailing anti-competitive activities. Our prohibition against cartels, that is the first conduct rule, is on par with the international best practices. Our prohibition against abuse of market power, that is the second conduct rule, is one of most stringent regimes in terms of market share threshold. Our enforcement agency, the future Competition Commission, will be equipped with a full range of investigation and enforcement powers. None of these key provisions in the Bill has been amended or relaxed during the legislative process.

Building enforcement priorities in the Competition Ordinance

     So you may wonder what we have actually done to address the concerns of the stakeholders and secure the passage of the Bill. Amongst others, we have carried out different publicity programmes to rally public support and enhance understanding. I and my colleagues have also attended numerous briefing and consultation sessions to explain to and answer questions from the stakeholders. But the greatest lesson I think we have learnt from the process is the art of balancing public aspirations and interests of different stakeholders without compromising our position.

     As many of you may know, during the legislative process, the business sector, particularly small and medium enterprises (SMEs), has been very anxious about the introduction of a competition law and its potential implications. First, they were concerned about the catch-all general prohibition approach adopted in the Bill as they might unwittingly breach the law. They have argued that the indiscriminate treatment of more serious anti-competitive activities and less severe ones under the first conduct rule would be a huge burden for them as inadvertent breach of a less serious nature might still attract a heavy fine. Second, they have asked for more certainty on the triggering threshold under the second conduct rule for fear that even a small company could breach this prohibition in a very narrowly defined market. And finally, many SMEs considered themselves too small to cause any significant impact on competition in Hong Kong. Some went further to suggest a complete exemption for SMEs from the Bill.

     As negative as they might have first appeared, many stakeholders in the business community are not against the competition law and are indeed supporters of the fair competition principles. Many SMEs have shared their stories with us about how they were victimised by cartels in the upstream of the supply chain and by companies possessing market power. They would also want to see these anti-competitive practices stopped just as much as we do.

     Their real concerns were about certainty. They wanted certainty about the rules of the game and they wanted certainty about how these rules would be enforced. In other words, they wanted to see enforcement priorities and processes be clearly established into the law.

     When drafting the Competition Bill, we have conducted extensive research into international best practices, and considered the catch-all general prohibitions were more suitable for Hong Kong. This notwithstanding, other jurisdictions adopting the same approach do not attach the same emphasis on all types of breaches under these general prohibitions. Some activities are identified as "hard-core" offences which the enforcement agencies would tackle with priority. It is also not uncommon for other jurisdictions to provide "de minimis" arrangements, some in their regulatory guidelines and some in subsidiary legislation, so that agreements or undertakings below certain thresholds are generally not considered to have an appreciable impact on competition and not subject to enforcement action by the competition authorities.

General prohibition against anti-competitive agreements

     Taking account of overseas experience and the concerns of the SMEs, we have introduced adjustments to the Bill in two main aspects. First, we have defined under the Competition Ordinance four types of serious anti-competitive activities, namely price-fixing, bid-rigging, market allocation and output control. These activities are widely recognised in overseas jurisdictions as almost always having an adverse impact on competition. For other less severe anti-competitive conducts under the first conduct rule, such as restrictions on advertising, we have introduced a new instrument of warning notice, under which the concerned undertaking will be provided with an opportunity to cease the contravening acts within the prescribed period before any further enforcement actions.

     The beauty of this mechanism is that enforcement against hard-core activities would not be compromised since all existing enforcement options in the competition law would continue to be available. As a new competition agency, it is important for the future Competition Commission to champion its credibility and focus its resources to cases of importance. The differential treatment of serious and less serious activities helps the Commission to channel their resources to the more serious anti-competitive activities, and also provides an efficient and flexible solution for curbing less serious ones.

De minimis arrangements

     Secondly, we cannot accept a blanket exemption for all SMEs because if they act collectively, it could also cause significant impact on competition. Despite their small size, SMEs may also engage in anti-competitive activities of serious nature. Therefore, we have instead provided a de minimis framework in Schedule 1 to the Ordinance so that agreements between undertakings with a combined turnover not more than $200 million would be excluded from the application of the first conduct rule. But the exclusion does not apply to agreements involving serious anti-competitive activities. For the second conduct rule, with reference to the statistics on local SMEs from the Census and Statistics Department, we have drawn the line at $40 million so that any small undertaking with an annual turnover below that threshold would be excluded from the application of the second conduct rule.

     The de minimis arrangement we have set out in the Ordinance provides the certainty requested by the SMEs, and at the same time preserves the flexibility for the Commission to take action against serious anti-competitive activities, and the flexibility for the Government to amend the thresholds as and when necessary by way of subsidiary legislation.

     These are the two examples of how we balance public aspirations and interests of the business sector, particularly the SMEs, without compromising the overall integrity and effectiveness of the Bill. Despite some of the less-than-positive initial comments when these proposals were first rolled out, action spoke louder than words. The Competition Bill was eventually passed at the legislature with 31 votes of support and zero objections.

Next steps

     The enactment of the Competition Ordinance has laid the foundation of the competition law regime in Hong Kong. Other important building blocks would be the effective discharge of functions of the Competition Commission and Competition Tribunal, the creation and nurturing of a pool of experts of competition affairs, and ultimately the development of a fair competition culture.

     To facilitate the public sector and the business sector to familiarise themselves with the new legal requirements and make necessary adjustments, we will implement the Ordinance in phases, with the provisions relating to the institutional arrangements coming into force first, followed by the operation of competition rules, sanctions and relevant proceedings.

     We just tabled the Competition Ordinance (Commencement) Notice 2012 at the Legislative Council for negative vetting on November 28. The commencement notice brings into operation on January 18, 2013, those provisions in relation to the short title, commencement of the Ordinance, interpretation, guidelines to be issued by the Commission, and other provisions related to the establishment and operation of the Commission. Those provisions in relation to the Tribunal will be brought into operation on August 1, 2013.

     During the transitional period, the Commission will prepare regulatory guidelines and carry out consultation as well as conduct publicity programmes to promote public understanding of the Ordinance. Subsidiary legislation relating to the Tribunal proceedings will be prepared and other necessary arrangements will be made to pave the way for the full operation of the Tribunal. We expect that the preparatory process would at least take one year to be completed.

     I think it is fair to say that the Asian Competition Forum has walked with us all the way on introducing a competition law in Hong Kong. I would encourage you all to continue to render your support to the work of the Competition Commission. Your expertise and experience as competition law experts and practitioners in the region would be most valuable to the Commission.

     I wish you all every success in this conference, and a pleasant stay in Hong Kong.

     Thank you.

Ends/Monday, December 10, 2012
Issued at HKT 18:56