Bad Buy

Dan Ryan (SCMP, 7 July 2010)

For over five years, the Lion Rock Institute has been trying to draw public attention to the flaws in the government’s plan to introduce a cross-sector competition law in Hong Kong. The central problem with the proposed law is that it is based on a misdiagnosis of what causes monopolies. Our view has always been that the creation of monopolies and the reduction in competition in Hong Kong are ultimately the result of government action. Unfair competition occurs where the government offers sweetheart deals to companies (for example, Hong Kong Disneyland and Cyberport), restricts the entry of new competitors into a particular market (the stock exchange, Hong Kong Jockey Club), or underwrites organisations which compete against private businesses (the Trade Development Council).

The proposed competition law does nothing to address any of these concerns. The focus of the government’s law instead is on agreements between purely private businesses – agreements to sell goods at the same price, for example. The assumption is that these types of agreements must automatically result in a reduction in competition. Yet one must acknowledge that economists differ as to whether such agreements can be said to cause economic harm. We believe that all agreements to sell goods at the same price provide an opportunity for a third party to enter the market and sell the same or replacement goods at a lower cost.

It is unfair to prosecute businesses through a law that is based on contested economic theory. A more sensible approach would have been to limit the application of any competition law to those markets where the government restricts the entry of new competitors. Yet, regardless of which side you stand on these economic arguments, from a purely legal perspective, it is simply impossible to accept the competition bill as it is worded. Indeed, it is impossible for anyone who cares about the rule of law in Hong Kong to support this proposed law.

Say the government decided to introduce a patriotism bill but did not actually define patriotism and instead gave an unelected patriotism commission the open-ended right to decide what types of conduct “prevent, restrict or distort patriotism in Hong Kong”. Change “patriotism” to “competition” and that is exactly what the competition bill proposes.

More troubling is the justification by officials for such vague laws by claiming that it is important that one is “not too prescriptive” about what type of conduct is unpatriotic (sorry, anti-competitive), otherwise businesses engaged in such conduct will “just find ways to get around such laws”.

It is odd that no one from the government has actually been able to point out any current examples of anti-competitive conduct by private businesses.

And it would be no reassurance at all if a patriotism commission says it will provide exemptions for particular types of unpatriotic conduct or that, if anyone is concerned about whether their planned conduct would be considered unpatriotic or not, all they need to do is apply to the patriotic commission for approval. Yet that is exactly the framework of powers the competition commission will have under the proposed law.

Vaguely worded laws where bureaucrats have wide discretion to punish a range of conduct are the hallmark of third-rate legal systems. The absence of these types of laws is ultimately what preserves the integrity of Hong Kong’s legal system and distinguishes it from that found across the border.

It is true that if the competition law is passed it will not be as immediately dramatic as the passing of a patriotism law but, because the nature of the law is the same, it will have the same corrosive effect on the rule of law in Hong Kong. But no doubt legislators will simply dismiss such concerns with the tired line that competition, like patriotism, is a good thing – and who could possibly be against a law to promote it?

Dan Ryan is director of The Lion Rock Institute, Hong Kong’s leading free-market think tank.

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