Submission to the Legislative Council Bills Committee on Competition Bill Regarding Legislation of Competition Law

Submission to the Legislative Council Bills Committee on Competition Bill Regarding Legislation of Competition Law

Friday, Nov 19, 2010

For well over 5 years The Lion Rock Institute has devoted considerable time and effort in trying to explain to the Hong Kong government, members of the legislature as well as the general public why the proposal to introduce a cross-sector competition law regulator is flawed from both an economic and legal perspective.

 

Flawed Economics
From an economic perspective some of the issues we have highlighted include the following:
The government has never gone beyond vague and unsubstantiated assertions about the supposed economic benefits of this law.
The government has made vague allegations but has never specifically identified any company or any particular behavior by a company which can clearly be said to be economically harmful and which would demonstrate the need for the proposed law.
The government has never produced a credible cost-benefit analysis demonstrating the case for the proposed competition law.
The government has never explained why it has ignored the opinions of leading Nobel Prize-winning economists such as Friedrich Hayek, Ronald Coase, Milton Friedman and James Buchanan who are clearly on the record as being against competition laws.
The Fraser Institute of Canada has clearly said that the introduction of the competition law will lead to a reduction in economic freedom in the territory and threaten Hong Kong’s “world’s freest economy” status.
Many of the leading proponents of the proposed competition law are lawyers whose understanding of economics is poor but who have a clear financial interest in seeing the bill passed.
The true causes of “cartels”, “monopolies” and “prevention, reduction or distortion of competition” in Hong Kong are always government intervention or protection of particular industries which the competition law does nothing to address. If the Hong Kong government were serious about increasing competition it would be better off opening up industries where it restricts the entry of new competitors (e.g. Hong Kong Exchange) or phasing out the direct or indirect support it provides to particular organizations (e.g. Trade Development Council) or putting in place measures to restrict it from offering sweat-heart deals to particular companies in future (e.g. Hong Kong Disneyland, Cyberport).
Bad Law
From a legal perspective some of the issues we have highlighted include the following:
The law contains numerous broad and vaguely-drafted provisions which give the to-be-established competition authorities wide, open-ended and inherently arbitrary powers to decide on what type of current or future commercial conduct or commercial agreements will and will not be permitted in Hong Kong.
The proposed “competition” law notoriously does not even contain a definition of the term “competition”. The law nevertheless allows the competition commission to penalize companies which “prevent, restrict or distort competition”. One immediately sees the problems with this approach if, for example, the government were to decide to pass a patriotism law which allowed the government to penalize companies which “prevent, restrict or distort patriotism” but contained no definition of patriotism. The same would be true for laws which penalized behavior which prevented, restricted or distorted other laudatory terms like “harmony” or “motherhood”.  Like competition, everyone is in favor of these concepts in theory, but unless the power given to authorities to penalize business or people is clearly defined action which seeks to take action in their name will inevitably lead to infringement of individual political and property rights.
While the government has said that the competition commission will offer additional guidance in future, there are open questions as to whether delegating so much effective law-making power to the competition commission infringes the Basic Law.
The vagueness of the provisions creates considerable business uncertainty and creates a risk that any existing or future deal could be invalidated wholly or partially by the authorities.
As a result, the introduction of the proposed competition law will inevitably result in a dramatic increase in litigation and increase the compliance cost and legal risks for doing business in Hong Kong.
The competition law will clearly benefit the legal community. They are not experts in economics and never argue the economic merits of the proposal. If they did not stand to gain financially they would, I believe, clearly be against the proposed law because it clearly contrary to fundamental legal principles.
The vagueness of the law and the ability of the commission to except particular companies or forms of behavior will lead to increasingly politicization of the market, invite lobbying and advantage politically favored companies. The competition law is really politics masquerading as law. It will do nothing to increase genuine competition in Hong Kong.
Additional Writings
We have attached some selected articles from both leading local and international publications discussing the proposed Hong Kong competition law or competition laws generally:
1. 聯手加價與競爭法皆不可取 by Peter Wong & Wong Kin-Ming, HKEJ, Feb 04, 2008
2. 「褪色一哥」給香港的啟示 by Peter Wong, HKEJ, Feb 11, 2008
3. 認真了解市場上的價格差異 by Wong Kin-Ming, HKEJ, 2008-04-21
4. 自由競爭勝公平競爭 by Shih Wing-Ching, AM730, 2008-05-08
5. 沒有競爭法 香港仍勝出 by Shih Wing-Ching, AM730, May 09, 2008
6. 沒有公平的競爭法 by Peter Wong, HKEJ, May 12, 2008
7. “Obstacle Course” by Dan Ryan, published in South China Morning Post, May 29, 2008
8. “How to Make Hong Kong Uncompetitive” by Dan Ryan, published in The Wall Street Journal, April 2, 2008
9. 從iPhone到《競爭法》 by Wong Kin-Ming, HKEJ, Jul 07, 2008
10. 競爭法使中小企得不償失 by Shih Wing-Ching, HKEJ, Aug 04, 2008
11. “Cartel Crusade Lacks Definition” by Dan Ryan, published in Australian Financial Review, August 4, 2009
12. 容我向Neway 致敬 by Peter Wong, HKEJ, Mar 10, 2010
13. 利字當頭:港鐵陷害 by Simon Lee, Apple Daily, Jun 30, 2010
14. 反競爭法在針對誰 by Peter Wong, HKJE, Jun 30, 2010
15. “Bad Buy” by Dan Ryan, published in South China Morning Post, July 8, 2010
16. “Competition Law and (Dis)order” by Dan Ryan, published in The Wall Street Journal, July 15, 2010
We have also attached our original submission to the Commerce, Industry and Tourism Branch dated August 5, 2008.
*****
We thank you for your time and would be pleased to discuss further with any committee members who may have questions.
Yours sincerely,
Dan Ryan

Flawed Economics

From an economic perspective some of the issues we have highlighted include the following:The government has never gone beyond vague and unsubstantiated assertions about the supposed economic benefits of this law. The government has made vague allegations but has never specifically identified any company or any particular behavior by a company which can clearly be said to be economically harmful and which would demonstrate the need for the proposed law. 

The government has never produced a credible cost-benefit analysis demonstrating the case for the proposed competition law. 

The government has never explained why it has ignored the opinions of leading Nobel Prize-winning economists such as Friedrich Hayek, Ronald Coase, Milton Friedman and James Buchanan who are clearly on the record as being against competition laws. 

The Fraser Institute of Canada has clearly said that the introduction of the competition law will lead to a reduction in economic freedom in the territory and threaten Hong Kong’s “world’s freest economy” status.

Many of the leading proponents of the proposed competition law are lawyers whose understanding of economics is poor but who have a clear financial interest in seeing the bill passed.

The true causes of “cartels”, “monopolies” and “prevention, reduction or distortion of competition” in Hong Kong are always government intervention or protection of particular industries which the competition law does nothing to address. If the Hong Kong government were serious about increasing competition it would be better off opening up industries where it restricts the entry of new competitors (e.g. Hong Kong Exchange) or phasing out the direct or indirect support it provides to particular organizations (e.g. Trade Development Council) or putting in place measures to restrict it from offering sweat-heart deals to particular companies in future (e.g. Hong Kong Disneyland, Cyberport). 

Bad Law

From a legal perspective some of the issues we have highlighted include the following:

The law contains numerous broad and vaguely-drafted provisions which give the to-be-established competition authorities wide, open-ended and inherently arbitrary powers to decide on what type of current or future commercial conduct or commercial agreements will and will not be permitted in Hong Kong.  The proposed “competition” law notoriously does not even contain a definition of the term “competition”. The law nevertheless allows the competition commission to penalize companies which “prevent, restrict or distort competition”. One immediately sees the problems with this approach if, for example, the government were to decide to pass a patriotism law which allowed the government to penalize companies which “prevent, restrict or distort patriotism” but contained no definition of patriotism. The same would be true for laws which penalized behavior which prevented, restricted or distorted other laudatory terms like “harmony” or “motherhood”.  Like competition, everyone is in favor of these concepts in theory, but unless the power given to authorities to penalize business or people is clearly defined action which seeks to take action in their name will inevitably lead to infringement of individual political and property rights.

While the government has said that the competition commission will offer additional guidance in future, there are open questions as to whether delegating so much effective law-making power to the competition commission infringes the Basic Law. The vagueness of the provisions creates considerable business uncertainty and creates a risk that any existing or future deal could be invalidated wholly or partially by the authorities. 
As a result, the introduction of the proposed competition law will inevitably result in a dramatic increase in litigation and increase the compliance cost and legal risks for doing business in Hong Kong.

The competition law will clearly benefit the legal community. They are not experts in economics and never argue the economic merits of the proposal. If they did not stand to gain financially they would, I believe, clearly be against the proposed law because it clearly contrary to fundamental legal principles. 

The vagueness of the law and the ability of the commission to except particular companies or forms of behavior will lead to increasingly politicization of the market, invite lobbying and advantage politically favored companies. The competition law is really politics masquerading as law. It will do nothing to increase genuine competition in Hong Kong. 

 

Additional Writings

We have attached some selected articles from both leading local and international publications discussing the proposed Hong Kong competition law or competition laws generally:

1. 聯手加價與競爭法皆不可取 by Peter Wong & Wong Kin-Ming, HKEJ, Feb 04, 2008

2. 「褪色一哥」給香港的啟示 by Peter Wong, HKEJ, Feb 11, 2008

3. 認真了解市場上的價格差異 by Wong Kin-Ming, HKEJ, 2008-04-21

4. 自由競爭勝公平競爭 by Shih Wing-Ching, AM730, 2008-05-08

5. 沒有競爭法 香港仍勝出 by Shih Wing-Ching, AM730, May 09, 2008 

6. 沒有公平的競爭法 by Peter Wong, HKEJ, May 12, 2008

7. “Obstacle Course” by Dan Ryan, published in South China Morning Post, May 29, 2008

8. “How to Make Hong Kong Uncompetitive” by Dan Ryan, published in The Wall Street Journal, April 2, 2008

9. 從iPhone到《競爭法》 by Wong Kin-Ming, HKEJ, Jul 07, 2008

10. 競爭法使中小企得不償失 by Shih Wing-Ching, HKEJ, Aug 04, 2008

11. “Cartel Crusade Lacks Definition” by Dan Ryan, published in Australian Financial Review, August 4, 2009

12. 容我向Neway 致敬 by Peter Wong, HKEJ, Mar 10, 2010

13. 利字當頭:港鐵陷害 by Simon Lee, Apple Daily, Jun 30, 2010

14. 反競爭法在針對誰 by Peter Wong, HKJE, Jun 30, 2010

15. “Bad Buy” by Dan Ryan, published in South China Morning Post, July 8, 2010

16. “Competition Law and (Dis)order” by Dan Ryan, published in The Wall Street Journal, July 15, 2010

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Submission for Consultation of the proposed competition law