WORLD TRADE
ORGANIZATIONWT/WGTCP/W/141
2 August 2000
(00-3163)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM HONG KONG, CHINA
The following communication, dated 8 June 2000, has been received from the Hong Kong,
China Economic and Trade Office with the request that it be circulated to Members.
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I. INTRODUCTION
1. In response to the five points highlighted by the Chairman of this Working Group at the
informal meeting held on 27 March 2000 regarding the work programme of the Working Group,
Hong Kong, China (HKC) considers it useful to sh are with Members its experience in implementing
its competition policy over the past few years (in Part II).  Where appropriate, we will relate our
domestic experience to the five points set out by the Chairman, which we regard as very useful
pointers for Members to provide contributions.
2. In Part III of this submission, we shall look  beyond our domestic scene to examine broadly
the competition policy objectives and implementation approaches adopted by other economies.  The
intention is to probe, insofar as is possible, whether there exists a universal model or approach which
is commonly applied in different economies.  On the basis of the findings in Part III, we shall then
propose in Part IV a three-step roadmap to steer the future deliberations of this Working Group.
II. HONG KONG, CHINA'S EXPERIENCE IN ADDRESSING COMPETITION ISSUES
Overview of Hong Kong, China's Competition Policy
3. HKC is fully committed to the promotion of competition.  The ultimate objective of our
competition policy is to enhance economic efficiency and the free flow of trade, thereby also
benefiting consumer welfare.  We adopt a free  market and minimum interventionist approach.
4. A high-level inter-departmental advisory  group, the Competition Policy Advisory Group
(COMPAG) chaired by the Financial Secretary, was set up in December 1997, and tasked with the
responsibilities for reviewing competition issues that have policy or systemic implications.  As a
prime step, COMPAG has developed and promulgated a policy statement, the Statement on
Competition Policy , which sets out the objectives of HKC's competition policy and provides common
pointers to facilitate compliance with the competition policy by both the public and private sectors.
With the direction provided by COMPAG and the pr omulgation of the competition policy statement,
the public and private bodies in general have become increasingly alert to competition issues in all
quarters of the economy.  All government bureaux/departments are regularly requested to critically
review their areas of work to identify and propose remedies to anti-competitive practices, as well as tocome up with new pro-competition initiatives.  All major policy proposals submitted are also required
to include an assessment of effects on competition where appropriate.  All these have helped implant a
pro-competition culture in government entities.  As for restrictive business practices, COMPAG hasWT/WGTCP/W/141
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worked closely with all government bureaux/dep artments and the Consumer Council, a statutory
organization responsible for protecting and promoting the interests of consumers, in monitoring the
state of competition in different sectors and in handling competition-related issues.  In recognition of
the useful partnership between COMPAG and the Coun cil, the Council has become a full Member of
COMPAG starting from April 2000.  We expect that th is will foster closer collaboration between
COMPAG and the Council on the competition front.
5. As a result of the above developments, the Government has implemented a large number of
initiatives to promote competition.  In the interest of promoting transparency of the work of
COMPAG, these initiatives were detailed in annual reports published by COMPAG.  To illustrate the
wide range of measures adopted by the Hong Kong Special Administrative Region (HKSARG), we
have set out at Annex some pro-competitive steps recently introduced by the HKC to enhancecompetition in the telecommunications, broadcasting and food supply sectors.  As reflected in the
examples set out at Annex, our experience indicates that the needs, requirements and characteristics of
individual sectors vary extensively.  Accordingly, the Government adopts a sector-specific approach
to safeguard competition, whilst maintaining a broad policy overview to ensure overall consistency.
Preference for a Results rather than an Instrument-Oriented Approach
6. To sum up, we believe that competition problems are context-specific and so should be the
solutions to such problems.  We are not averse to legislative measures per se , but we do not think that
Hong Kong, China's economy suffers from private competition restraints or abuse of market
dominance to the extent that general outlawing is warranted.  We are results-oriented and consider asectoral approach more pragmatic and appropriate for promoting competition in Hong Kong, China.
Such an approach allows flexible, target-oriented and cost-effective means to be adopted to prevent or
eliminate anti-competitive practices, without the risk of over-regulating or incurring excessive legal
and administrative costs.  The Government will continue to play a proactive and leading role in
promoting competition and dismantling barriers to competition.
Interaction of Trade and Competition Policy
7. In retrospect, Hong Kong, China has been consistently advocating that this Working Group
should focus on the interactions of trade and competition policies, with a view to making them
consistent and mutually supportive.  We believe it is only right for trade and competition policies to
share the same broad objectives of promoting economic efficiency and market contestability.  We
practise what we preach.  Our trade and competition policies are both grounded on the economicphilosophies of preserving the integrity of market forces and optimal allocation of resources.  Our
experience indicates that reliance on free trade and open market policies coupled with sector-specific
steps are effective in promoting competition.
III. COMPETITION POLICY OBJECTIVES & IMPLEMENTATION INSTRUMENTS
AMONG WTO MEMBERS
8. While we are convinced that the approach currently adopted by HKC suits our needs and
characteristics, we are aware that there is no one size-fits-all model.  We have looked beyond our
domestic scene to examine the approaches adopted by other economies.  Our study shows that the
essential ingredients of a competition policy, the objectives to be achieved and the means chosen varyamong economies, depending on each economy's unique development history, socio-economic
circumstances, legal context and cultural norms.  To assess what can realistically be done within the
WTO to promote the coherence of trade and competition policies, we consider it important to
recognize the diversity among Members.WT/WGTCP/W/141
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Diversity in Competition Policy Objectives
9. Hong Kong, China's communication to this Working Group dated 16 April 1999 incorporates
a broad review of competition law/policy objectives in the United States, Europe, other developed
economies and developing economies.  In that paper, a distinction was drawn between competition
policies focusing on economic efficiency-based analys es (i.e. in terms of non-restriction of outputs of
a given product) and those with multiple objectives including non-efficiency goals such as market
integration, protection of small enterprises, and pr omoting personal and political freedom.  In reality,
due to political pressures from special interests,  and conflict over regulatory control, economies
(including those with highly competitive free-enterprise systems) rarely follow a single pro-
competitive policy in all situations.  As a generalization, contemporary competition policies are
usually multi-faceted in nature in that they feature, inter alia , some direct economic goals
(e.g. promoting competition, productive and allocative efficiency, and consumer welfare); exemptionsfor economic or other reasons; and indirect political long-term goals such as promoting pluralism and
limiting abuses of public and private powers.
Diversity in Approaches to Promoting Competition
10. The question of what should constitute an optimal approach to promote competition, in
particular whether a competition policy necessarily includes a competition law, has drawn intensive
deliberations at past WGTCP meetings.  It is stated in the 1998 Report of the Working Group that, in
the seventy-odd economies which have so far adopted domestic competition laws, the objectives,
rules, procedures and institutions of competition policies differ from economy to economy depending
on the particular legal, economic and political circumstances and specific needs of each economy.  Inother words, the adoption of a horizontal legal inst rument to safeguard competition by nearly half of
the WTO Membership does not necessarily mean a high degree of commonality in their approaches to
promote competition.  For illustrative purpose, the following salient differences between economies
with a competition statute in place have been identified in comparative researches:
(a) Broadly speaking, two forms of competition law are available: the prohibition model
and the administration model .  Under the prohibition model, the law generally
provides for what is likely to be anti-competitive while leaving to the courts to clarify
and enforce the rules and to set precedents by case law.  In contrast, the
administration model relies on a competition authority with substantial administrative
discretion as the enforcement agency to al ter anti-competitive behaviour or structure.
(b) The scope and range of exemptions differ substantially across jurisdictions.  Such
differences may be sector-related (e.g. some competition statues contain specific
exemptions for energy and transportation sectors) or restraint-related (e.g. exemptions
for export and import cartels are found in some competition laws).
(c) Some economies are more concerned about the market effects of enterprise behaviour
outside their territorial boundaries and hence have a higher proclivity than others toapply their competition laws extra-territorially.
11. In sum, domestic competition policies vary significantly across economies both in form and
in substance.  In the views of HKC, the different policy priorities, procedures, instruments and
institutional set-ups in different economies must be respected so long as they do not detract from the
widely accepted competition goals of promoting economic efficiency and market contestability.  Anymeaningful progress in the WTO context would necessarily be based on a broad respect for diversity
in domestic approaches to competition.  Attempts to harmonize the competition policies of WTO
Members might not only undermine the specific development needs of developing economies but also
the more sophisticated competition regimes of developed economies.  Viewed from this perspective,
we see merit for this Working Group to adopt a flexible  results-oriented rather than a rigid instrument-WT/WGTCP/W/141
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oriented approach in contemplating how best to address issues relating to trade and competition
interface.
IV. A 3-STEP ROADMAP TO STEER THE WGTCP'S FUTURE WORK
12. This Working Group has provided an excellent  forum to exchange ideas on how different
economies might contribute to the generally-shared objective of promoting competition.  The three
years of deliberations in this Working Group have revealed, however, the wide-ranging meanings,
expectations and priorities which Members attach to the term "competition policy" in an international
context.  While Members generally acknowledged the need to enhance the complementarities between
trade and competition policies, there was no meeting of minds as to how the WTO should proceed to
promote policy coherence. An immediate challenge for this Working Group is therefore to come up
with an approach to accommodate or address differences among Members.
13. Against the above background, HKC would like to propose a 3-step roadmap to help the
Working Group take forward its work in the right di rection and with the right approach.  Instead of
focusing from the outset on what instruments would be optimal for achieving the end goal, our
proposed roadmap aims to provide an action-oriented framework, guiding Members to buildconsensus step-by-step and to reach outcomes progressively through:
(a) firstly, agreeing on the scope of "competition policy" on the basis of respect for
differences among Members and focusing more on the objectives/functions of
competition policies rather than the means to achieve such objectives/functions;
(b) secondly, identifying, within the scope agreed, specific competition problems with
direct relevance to international trade and the fulfilment of WTO objectives;  and
(c) thirdly, exploring the feasibility of possible multilateral solutions to address the
competition problems identified, bearing in mind the WTO's range of competence,
differences among economies in approaches to promote competition, and the need toensure compatibility with other internati onal options to promote coherence of trade
and competition policies.
The rationale and key considerations behind each step of the roadmap are elaborated in the following
paragraphs.
Step 1:  Members should agree on the scope of  "competition policy" for the purpose of future
WTO deliberations
14. Past deliberations in the WGTCP reflected that different Members attached different
meanings and expectations to the term "competition policy".  While some Members preferred to focus
on measures to tackle anti-competitive strategies and behaviour of firms, others contended that
governmental measures should be recognized as the major source of distortion of competition and
hence should receive the WGTCP's priority attention.  HKC believes such a dichotomy of views is notunbridgeable.  We suggest that Members should adopt a flexible attitude, respect differences among
Members and try to agree on a broad basis for upcoming discussions by delineating the boundaries of
"competition policy".  The basis to be agreed will have to be broad enough to enable the different
priorities, needs and concerns of the full WTO Membership to be addressed.
Step 2:  Members should identi fy, within the scope agreed, sp ecific competition problems with
direct relevance to international trad e and the fulfilment of WTO objectives
15. At previous WGTCP meetings, a wide range of issues pertaining to the trade and competition
nexus have been referred to as causing harm or thre at thereof to the interests of Members.  As statedWT/WGTCP/W/141
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above, these issues appear to come under two broad categories (some Members observed that
governmental restraints and distortions continued to threaten the attainment of the objectives of trade
liberalization and pro-competition policies; some observed that following the progressive dismantling
of trade barriers, anti-competitive practices of enterprises have emerged as a prominent market access
barrier eroding the benefits of trade liberalization) .  Recognizing that these issues would continue to
attract intensive deliberations at upcoming WGTCP meetings, HKC sees merit to move beyond
intellectual discussions to consider identification of specific competition problems which are relevant
to a globalizing market.
16. Having regard to the remit of the WTO and the terms of reference of the WGTCP, we
propose that Members should focus on those anti-competitive measures or practices which
unequivocally and materially impede the fulfilment of WTO objectives, including the promotion ofinternational trade and investment.  In other words, practices or measures to be tackled in the Working
Group should:  (i) have significant and demonstrable anti-competitive impact on international trade
and investment; and (ii) be prevalent to the extent that they affect a broad cross-section of the WTO
Membership.  We hope with the help of these general guidelines, Members can collectively come up
with concrete evidence and findings to underline the priority problems to be addressed by thisWorking Group.
Step 3:  Members should explore the feasibility of possible multilateral options to address the
competition problems identified in step 2
17. A logical approach to follow up the problems identified under Step 2 is to explore how best
the WTO can contribute to addressing these problems.  The exploration of possible multilateral
options to enhance the coherence between trade and competition policies should be guided by the
following considerations:
(a) First, we need to consider whether and the extent to which the WTO is an appropriate
organization to tackle the problems identified.
(b) Second, there is a need to maximize the synergies of prospective multilateral
solutions and the existing WTO framework.  This may call for an appraisal of, among
others, how far the WTO Agreements as they stand can tackle the competition
problems uncovered in Step 2.  The identified gaps and inadequacies of existing
WTO rules will provide important pointers for possible solutions.
(c) Third, it should be recognized that rule-making is just one of the many multilateral
options available to Members.  Apart from imposing binding obligations on
Members, enhanced technical assistance and capacity building, instituting a
competition policy review mechanism, deepening exploratory work and providing for
closer cooperation between the WTO and other international fora may well offer
solutions to the problems identified in Step 2.
Conclusion
18. The proposed roadmap as outlined above is intended to provide a step-by-step and action-
oriented approach for Members to grapple with the wide range of divergence.  Central to the roadmap
is a belief that the interaction between trade and co mpetition policy is something that must be tackled
in a globalizing economy.  Central to the roadmap is also a recognition of the need to respectdifferences in competition policy objectives and approaches across economies whilst we work
collectively to find solutions acceptable to all Members.  We believe that the roadmap, if adopted by
the WGTCP, will help Members embark on future work systematically and constructively, with a
view to enhancing the consistency of trade and comp etition policy in an integrated and technology-
driven world economy.WT/WGTCP/W/141
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ANNEX
Recent Pro-competitive Measures introduced by the HKSARG in the
Telecommunications, Broadcasting and Food Supply Sectors
Telecommunications Sector
1. The Government of the Hong Kong Special Administrative Region (HKSARG) adopts pro-
competition and pro-consumer telecommunications policies with the objectives that:
(a) the widest range of quality telecommunications services should be made available to
the community at reasonable costs;
(b) telecommunications services should be provided in the most economically efficient
manner possible; and
(c) Hong Kong, China should serve as the pre-eminent communications hub for the
region now and into the next century.
The HKSARG implements the above policies through a statutory regulator - the Telecommunications
Authority (TA) .  The TA oversees the regulation of the telecommunications industry in Hong Kong,
China and administers the Telecommunications Ordinance which governs the establishment and
operation of all telecommunications services.  There are no foreign restrictions for the provision of
telecommunications services in Hong Kong, China.
2. The past five years have seen progressive liberalization of the local and external
telecommunications services markets.  Competition was first introduced in the local fixed
telecommunications network services  (FTNS) market in June 1995 through the issue of three new
licences. In January 2000, the TA issued five more licences to operate local FTNS using wirelessnetworks and an FTNS licence to the existing cable TV operator to provide telecommunications
services over its cable network.  As regards external telecommunications services, full liberalization
was achieved on 1 January 1999 with licences being issued without limit and in response to market
demand.  Furthermore, the external telecommunications facilities market  was opened up in January
2000.  The TA has issued 13 new external satellite-based FTNS licences and "Letters of Intent" to 14
external cable-based FTNS applicants who met the licensing criteria.  As we decide that there is no
physical constraint for the time being on the number of external satellite and cable-based facilitieslicences to be issued, we have recently launched another round of licensing exercise to invite new
applications for these licences.  In addition, applicat ions will be invited for licences for the provision
of external telecommunications facilities through acquiring capacity in cables from 1 January 2003.
3. Following several rounds of public consultations, the HKSARG announced in February 1999
a proposal to amend the Telecommunications Ordinance to enhance competition safeguards and toimprove interconnection and access arrangements for telecommunications operators.  The
Telecommunications (Amendment) Bill  was subsequently introduced into the Legislative Council on
12 May 1999.  The Bill seeks to, among others, enhance the TA's power to check anti-competitive
practices and to promote fair competition in th e telecommunications sector.  Major improvements
include:  (i) strengthening competition safeguards by codifying the TA's powers for the promotion of
fair competition now provided in FTNS licence in  the primary legislation;  (ii) increasing the
maximum financial penalty that the TA may impose on breaches of the licence conditions, the
Ordinance and the TA's determinations and directions by ten-fold to $200,000, $500,000 and
$1,000,000 respectively on the first, second and subsequent occasion of breach;  (iii) empowering the
TA to apply to court for a higher penalty of a sum not exceeding 10% of the turnover of the licenseeWT/WGTCP/W/141
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in the relevant telecommunications market in the period of the breach, or $10 million, whichever is
the higher;  (iv) providing for a new class of right to persons sustaining loss or damage from licensees'
anti-competitive behaviour to seek remedies through the court;  and (v) establishing an Appeal Board
to review the TA's opinions, decisions, directions or determinations on competition matters.  The Bill
was passed by the Legislative Council on 7 June.
Broadcasting Sector
4. Regulation of the broadcasting industry in Hong Kong, China is conducted by way of
licences.  Licences for commercial television, subscription television and programme service are
issued under the Television Ordinance, whereas licences for satellite television and sound
broadcasting are issued under the Telecommunications Ordinance.  The Broadcasting Authority (BA)
was established under the Broadcasting Authority Ordinance to monitor licensees' performance andensure their compliance with statutory requirements.  Its responsibilities include  administering the
Television Ordinance, issuing codes of practice and directions, monitoring broadcasts, processing
complaints and imposing sanctions where non-compliance occurs.
5. The HKSARG completed a review on television policy  in December 1998 following two
rounds of thorough consultation with the industry and the community.  The policy decision in respectof pay television and video-on-demand (VOD) markets is to lift the moratorium on the number of
licences concerned and to promote free competition.  In line with this policy direction, the
Government invited applications for the provision of new television services in August 1999.  A total
of ten applications were received and are being evaluated by the ITBB.  Evaluation results are
expected to be announced by mid-2000.
6. Separately, the Government introduced a Broadcasting Bill  into the Legislative Council in
February 2000.  The Bill aims to replace the Television Ordinance and encompasses provisions to
safeguard fair competition in an open and competitive market.  Competition safeguards contained
therein include a general clause prohibiting a licensee from engaging in anti-competitive conducts,
and a specific clause prohibiting a licensee in a dominant position in a television programme servicemarket from abusing its position.  The BA will be empowered to enforce the competition provisions.
Enforcement guidelines will be drafted by the BA for consultation with the industry.
Food Supply Sector
7. The Government has since 1955 operated a Rice Control Scheme to ensure regular and
adequate supply of rice to consumers at reasonable and stable prices, and to provide a reserve stock
for emergency and cushioning purposes.  Under the Scheme, only those stockholders (importers) who
have registered with the Government and fulfilled certain capital, financial and residency
requirements can import rice.
8. In consultation with the Rice Advisory Committee , the Government has been moving towards
the direction of increasing competition and reducing barriers of entry to the trade.  The HKSARG
launched an Optional Quota System (OQS)  in the last quarter of 1997 to allow stockholders to import
beyond or below, within a range, their respective individual import quota.  The OQS enables
stockholders to vary import levels in accordance with their assessment on the rice consumption level
for the period and their own marketing capability.  This helps to enhance competition within the rice
trade and provides more flexibility especially for the smaller stockholders to opt for a larger quota and
compete for a larger market share.
9. While the OQS has achieved its desired effect of enhancing competition in the trade in a
measured manner, the Government is aware that rice remains one of the very few commodities in
Hong Kong, China which is subject to quantitative import control, and that there is a case for further
liberalization.  Following a review of the OQS in 1999, the Government has reached agreement withWT/WGTCP/W/141
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the Rice Advisory Committee to fully open up the rice trade in 2003.  During the interim period, a
number of pro-competition measures (administrative)  will be put in place.  First, the level of rice
reserve will be brought down from the current 40,000 tonnes to 19,000 tonnes in 2001 by phases. This
would help reduce the operation cost of rice traders,  and should in turn benefit consumers in terms of
lower rice price.  Second, the current restriction on cross-ownership of importers and wholesalers willalso be lifted, enabling them to engage in both importing and wholesaling of rice.  Third, the
residency, financial and capital requirements for registration as rice importers will be relaxed, thereby
facilitating entry to the rice importing business.
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