If the proposed Competition Bill is passed by the government, small businesses could be in major danger. Shirley Zhao reports

Although more than 50 flower shops line the streets of the Prince Edward flower market, customers have little trouble comparing prices. Every blossom costs exactly the same in almost every shop. This, of course, only happens when the most popular flowers are in bloom. Yet the same thing happens on Sai Yeung Choi Street South in Mong Kok, crammed with electronics shops selling phones, laptops and the latest hi-tech gadgetry. The difference from shop to shop is usually only the colour of the bag in which your purchases are sold.

But the owners of these flower and electronics shops could be accused of price fixing, a practice which runs contrary to the First Conduct Rules of the proposed Competition Bill.

It is still uncertain if this controversial bill will be passed before Chief Executive Donald Tsang Yam-kuen ends his term on June 30, 2012, but its passing would mean, theoretically, that major supermarkets PARKnSHOP and Wellcome cannot ‘coincidentally’ raise the prices of their bagged rice, say $30 per bag and $32 per bag respectively, to $35 per bag for all. The same goes for companies in much larger industries in Hong Kong, such as oil and steel.

Wong Oi-lin, a frequent shopper at the flower market, applauds the new bill. “Look at these seedlings,” says Wong. “Their prices are the same in every shop. It’s impossible for me to compare among them. I don’t even have to bother going to different shops anymore.”
“But it’s a free market,” says flower shop owner Ada Chung, fretting at the possibility of breaking the law. “We don’t need laws in a free market.” Yet Pringle Chiu, another flower shop owner, disagrees, saying the qualities of the same species of a flower will vary in different shops, ‘so it’s unfair to put the better ones and not-so-good ones at the same price level’.

Published in July last year, the bill includes two sets of rules that prohibit anti-competitive behaviour. The first set prohibits behaviour like price fixing, market sharing, competitors dividing the market among themselves, and bid rigging (where a contract is promised to one bidder while the presence of other bidders are still active). The second prohibits abuses by companies with ‘a substantial degree of market power’, including tie-in sales, where customers can only buy a product they need under the condition that another product is also bought, no matter if they need it or not; and predatory pricing, where a company sells a product at a very low price to drive competitors out of the market. The bill also prohibits mergers and acquisitions, but this rule only applies to telecommunications companies.

In addition, the bill provides two judicial enforcement bodies: the Competition Commission and the Competition Tribunal. The former is to investigate and bring cases to the latter, which will hear and make the final decisions.

Such provisions are supposed to benefit consumers and small-and-medium enterprises (SMEs), but fearing the bill will cause more damage on themselves rather than on big corporations, local SMEs have voiced their concerns and outwardly opposed its passing.
Last month, the Hong Kong Business Community Joint Conference (HKBCJC), which consists of 48 business associations, established a task force focusing on the Competition Bill and urged the government to withdraw the bill, saying it could make consumers its final victim.
“Competition law is unnecessary for the current Hong Kong,” says Stephen Kwok Chun-pong, president of Hong Kong Small and Medium Enterprises Association, one of the members of the HKBCJC. “So far, small and medium businesses are still major participants of Hong Kong’s market. Imposing competition law on them will affect their long-established operation system, making them hard to survive.”

Connie Lau Yin-hing, the chief executive of the Consumer Council, responded to the opposition. She tells Time Out: “We would like to ask: ‘Why shouldn’t Hong Kong need a competition law?’ Almost all advanced economic systems have their own competition law. It can prevent anti-competitive behaviour, thus making the market fairer and [more beneficial] for consumers.”

One major controversy of the Competition Bill is the provision that it allows individuals to bypass the Competition Commission and file lawsuits directly to the Competition Tribunal against companies that conduct anti-competitive activities. SMEs fear that the big companies, with all their mighty legal resources, could sue smaller companies on the weakest grounds, thus leaving the sued companies to deal with hefty legal costs in hiring lawyers to respond.

“Many big companies have their own legal consultants or legal departments to handle investigations and lawsuits,” Kwok tells Time Out. “But small and medium companies don’t, and they have to employ all these legal resources that will incur excessive costs. It will lead to two ends: either they will close down or they will charge higher on their products and make consumers pay for the extra costs. This is how the Competition Bill can help the sharks prey on us.”

However, in its Responses to Objections to the Hong Kong Competition Bill, Hong Kong Polytechnic University’s Asian Competition Law and Economics Centre (ACLEC) argues that smaller businesses are ‘most unlikely’ to face stand-alone charges resulting from the bill, because the right of charging independently in most other competition law regimes has not led to high private charge rates, and the bill also states that the commission can intervene in private cases if it thinks the claims are without merit.

The tribunal, tellingly, can also dismiss such claims.

Lau argues against such criticism, saying the right of stand-alone lawsuits actually opens a door for smaller companies to file suits against the bigger companies. “If all suits come only through the commission, the commission will be packed and unable to deal with these cases,” says Lau. She also argues that the Consumer Council has suggested the provision of the private lawsuit’s rights take effect later, so as to provide a longer transition time.

The bill’s other major problem, according to Kwok, is that it is too general and not clear enough. If the government hustles to pass the bill, it can be easily distorted and abused. “The Competition Bill is only a frame without specifically defined conduct and guidance at the moment,” says Kwok. “The process of legislation is not right if a law is implemented without completion.”

Naturally, the ACLEC disagrees, stating the provisions in the bill are ‘entirely congruent’ with competition laws in other jurisdictions like mainland China and Singapore which have proved ‘flexible and suitable to all types of economy’.

According to Connie Lau, the Competition Commission and the Competition Tribunal will ensure that the law is carried out properly in a fair and legal process. But it is this very enforcement that has the SMEs concerned. “The commission can do whatever it likes to the law, so the current bill is not legally binding,” argues Kwok.

Lau says the commission cannot be set up until the bill is passed, and the guidance it provides will be based on the bill. “Hong Kong is a society based on the rule of law. No organisation can abuse its power,” says Lau.

In the cases of the flower and electronic markets, Lau has asked the shop owners not to worry: “The bottom line is whether there is evidence that these shop owners have reached an agreement to set their prices the same. If it’s purchasing from the same producer that makes you set the same price, it’s not price fixing.”