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Cablegate: Hong Kong Opens Public Consultation Phase On

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DE RUEHHK #4730/01 3470939
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R 130939Z DEC 06
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 9785
RUCPDOC/USDOC WASHDC
INFO RUEHBJ/AMEMBASSY BEIJING 9922
RUEHCN/AMCONSUL CHENGDU 0982
RUEHGZ/AMCONSUL GUANGZHOU 0254
RUEHGH/AMCONSUL SHANGHAI
RUEHSH/AMCONSUL SHENYANG 3451
RUEHGV/USMISSION GENEVA 1083
RUCPDOC/USDOC WASHDC
RUEHIN/AIT TAIPEI 4275

UNCLAS SECTION 01 OF 03 HONG KONG 004730

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STATE FOR EAP/CM
STATE PASS USTR STRATFORD/WINTERS/CELICO
USDOC FOR ITA OCEA MACQUEEN
USMISSION GENEVA FOR USTR

E.O. 12958: N/A
TAGS: ECON ETRD WTO HK
SUBJECT: HONG KONG OPENS PUBLIC CONSULTATION PHASE ON
COMPETITION LAW


1. SUMMARY. At a public forum on November 21, Financial
Secretary Henry Tang encouraged all interested parties to

SIPDIS
give their views on how best to safeguard competition in Hong
Kong. Tang's announcement represents a continuation of the
Hong Kong Government's (HKG's) step-by-step examination of
Hong Kong's competition policy and follows a June 2006 report
issued by Hong Kong's Competition Policy Review Committee
(CPRC), set up in June of 2005, to review Hong Kong's current
competition policy. The CPRC report recommended introducing
a new cross-sector competition law and a regulatory body to
enforce it. Hong Kong's Economic Development and Labor
Bureau has published a 68-page public discussion document on
the way forward for competition policy in Hong Kong,
"Promoting Competition - Maintaining our Economic Drive."
The document which includes "20 Key Questions" for interested
parties to consider and respond to can be found at the
following website: www.edlb.gov.hk. The deadline for
submission of views is February 5, 2007. USG agencies wishing
to learn more about the proposed Hong Kong law, or wishing to
comment can contact Economic Officer Craig Reilly in the U.S.
Consulate General Hong Kong at ReillyCT@state.gov. END
SUMMARY.


CPRC Report Issued in June 2006
-------------------------------

2. On November 21, Financial Secretary Henry Tang launched
Hong Kong's three-month public consultation phase "On the Way
Forward for Hong Kong's Competition Policy." Tang explained
that in June 2005 the Hong Kong Government (HKG) had
appointed a Competition Policy Review Committee (CPRC) to
review Hong Kong's current competition policy. The CPRC
completed its review and issued a report in June 2006. The
report's questions and recommendations centered around three
major subjects:

-Does Hong Kong need a new competition law, and if so, how
such a law might be framed;
-The regulatory framework for competition law;
-Enforcement and other regulatory issues

Does Hong Kong Need a New Competition Law?
------------------------------------------

3. So far Hong Kong's approach to enacting competition law
has resulted in the development of sector-specifc regulations
that cover only the broadcasting and telecommunications
sectors. These regulations allow for full investigation and,
where appropriate, the sanctioning of anti-competitive
conduct, but only in those two sectors. Hong Kong still has
no legal framework for the implementation of cross-sector
competition policy. In its report on Hong Kong's competitive
environment, the CPRC acknowledged arguments in support of
maintaining the current sector-specific approach to
implementing competition policy, such as: Introducing a new
cross-sector law could increase the cost of doing business
locally, particularly for small to medium-sized enterprises
(SMEs), and could affect Hong Kong's regional
competitiveness; Hong Kong is already a free and competitive
market and there is no need to interfere with normal business
operations in a market place that already works well; and,
There are other ways to enhance competition in local markets
without introducing a new competition law. While noting that
a new competition law ought not create significant additional
burden on local businesses, nor interfere with normal
business practices or economically efficient market
structures, the CPRC recommended that the HKG consider
introducing a cross-sector competition law in Hong Kong.

4. The CPRC also addressed whether the scope of any new
competition law should cover only specific types of
anti-competitive conduct, or should it also include the
regulation of market structures and mergers and acquisitions.
The CPRC recommended that the government take an incremental
approach. Legislation should focus on preventing
anti-competitive conduct - rather than seek to "open up"
markets to competition; it also recommended against including

HONG KONG 00004730 002 OF 003


mergers and acquisitions regulations in the competition law.
The CPRC proposed that competition law should cover seven
specific types of conduct: 1. Price Fixing 2. Bid Rigging
3. Market Allocation 4. Sales and Production Quotas 5.
Joint Boycotts 6. Unfair or Discriminatory Standards 7.
Abuse of Dominant Position.

The Regulatory Framework for Competition Law
-------------------------------------------

5. The CPRC listed three principal options that could be
considered as a regulatory framework for the enforcement of
any new competition law for Hong Kong.

- A single authority with power to investigate and adjudicate.
- Separate enforcement and adjudication functions.
- Adjudication by a specialist tribunal.

Whichever option might be adopted, the CPRC recognized that
the regulatory authority would require full-time staff and
sufficient resources to enforce the law effectively, as well
as provide guidance and information to business and consumers
alike on how the law would apply in practice.

Enforcement and Other Regulatory Issues
---------------------------------------

6. The CPRC also examined a variety of enforcement and
regulatory issues -- handling complaints, the regulator's
formal powers of investigation, whether breaches of a new
competition law be considered civil or criminal infringements
and what levels of penalties would be suitable -- to mention
a few.

Business Groups Weigh in on Competition Policy
--------------------------------------------- -

7. Following the introductory remarks by Financial Secretary
Tang, several leading members of the Hong Kong business
community held a panel discussion on the Competition Law.
Three major viewpoints emerged from this panel discussion on
the question of the whether Hong Kong needs a new competition
law.

- "If It's Not Broke Don't Fix It" - Represented by the Hong
Kong Federation of Industry. Hong Kong is one of the most
free and open economies in the world the Federation averred.
While supporting open, fair competition is a laudable goal,
competition legislation could be costly to local businesses
and would affect Hong Kong businesses' international
competitiveness. This point of view holds that passage of a
cross-sector competition law will add a regulatory layer over
Hong Kong's businesses and may add to the cost of doing
business, particularly an increase in legal costs as
companies strive to abide by the rules and fend off legal
actions.

- "The Message is Essential" - Represented by the British
Chamber of Commerce in Hong Kong. Anti-competitive behavior
is not a major issue in Hong Kong, but Hong Kong is a small
market and some sectors are dominated by major players.
Competition legislation could send a clear message to
international businesses that there is a level playing field
in Hong Kong. However, Hong Kong should take care not to
implement an overly bureaucratic system that leads to
unwanted cost increases. The "small government, open market"
approach has been effective in Hong Kong and permits
international competitiveness. The optics of this
legislation is important - it sends the message that Hong
Kong is internationally competitive and protects the consumer.

- "Competition Law is needed to prevent anti-competitive
behavior" - Represented by Hong Kong's small to medium
enterprises (SMEs) who are concerned about monopolies and
anti-competitive behavior. SMEs support legislation to
ensure open, competitive markets but do have concerns about
high legal costs. SMEs also can be disproportionately
impacted by malicious complaints. SMEs are in favor of

HONG KONG 00004730 003 OF 003


enacting a cross-sector competition law but also request the
HKG to support legal defense fund and education for SMEs to
stay within law.

Cunningham

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