RESTRICTED
WORLD TRADE WT/WGTCP/W/53
4December 1997
ORGANIZATION(97-5330)
Original: English Working Group ontheInteraction
between Trade andCompetition Policy
SUBMISSION FROM HONG KONG, CHINA
Thefollowing communication, dated 27November 1997, wasreceived fromtheHong Kong
Economic andTrade Office withtherequest thatitbecirculated toMembers.
_______________
Competition Policy forHong Kong, China
Introduction
1. Hong Kong, China (HKC) hasrecently completed acomprehensive review ofhowbestto
promote competition intheeconomy. Thisnoteoutlines theGovernment 'slatestthinking onthematter.
Economic philosophies
2. HKC'stradeandcompetition policies arebothgrounded ontheeconomic philosophies offree
andopentrade andminimum government intervention. Theingredients aresimple: lowpredictable
taxessothatbusinessmen cankeeptheprofits oftheirrisktaking; nosubsidies orsupport forbusiness;
notariffs andnonon-tariff barriers toimports; noexchange controls; nointerference intheeconomy
other thanalightprudential framework; theruleoflawapplied without fearorfavour; freedom of
communicationandinformation,andstrictadherencetoallWorldTradeOrganizationprinciples,notably
most favoured nation andnational treatment.
3. TheHong Kong Special Administrative Region Government (HKSARG) firmly believes that
business decisions arebestlefttobusinessmen. Thisphilosophy fitstheneeds ofHKC which isonly
averysmall region 1,040 sq.km.insize,withnoresources beyond afineportandsixmillion people.
Butthisisnotaphilosophy ofbenign neglect. Norisitonewhich carries nopainorpenalty. The
HKSARG facesdifficult decisions onwhether, when andhowtointervene. These pressures areexactly
onesthattheGovernment hasgonethrough inreviewing HKC'scompetition policy.
Objectives
4. Theultimate objective ofcompetition policy istopromote economic efficiency orthebest
useofresources fromthesociety 'sperspective. Economic efficiency isaverybroad concept initself
andcarries various dimensions. Forexample, itmaymean:
(a) increasing theoutput obtained from agiven input (technical efficiency);
(b) improving theallocation ofresources between different uses(allocative efficiency);WT/WGTCP/W/53
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(c) improving managerial orother kinds ofefficiency; and/or
(d) improving responsiveness tochanging demand andsupply conditions (dynamic
efficiency).
5. Since economic efficiency isinherently dynamic incontext, theinteraction between competition
andeconomic efficiency requires more careful study. Forexample, certain business behaviour which
appears anti-competitive fromastaticangle mayactually bedriven bythedynamic forces ofcompetition
inthemarket, andhence notatvariance witheconomic efficiency inthedynamic sense. Thus, amarket
which appears tobemonopolistic ortheexistence ofafirmwhich dominates themarket isnotnecessarily
anti-competitive provided themarket isaccessible andcontestable.
Other objectives
6. Manyeconomieshaveincludedthefollowingasobjectivesoftheirdomesticcompetitionpolicies:
(a) promoting faircompetition orfairtrade;
(b) protecting consumers orenhancing consumer welfare;
(c) ensuringsmall-andmedium-sizedenterpriseshaveanequitableopportunitytoparticipate
intheeconomy;
(d) maintaining "trading order"; protecting thelawful rights andinterests ofbusiness
operators; stimulating creative initiative ofentrepreneurs; etc.;
(e) contributing tointernational competitiveness; promoting competitive prices; etc.;
and
(f) enhancing economic stability andgrowth.
7. Whilst recognizing theforegoing asdesirable, theHKSARG would treatthemasancillary rather
thanthecoreobjectives ofcompetition policy. Forinstance, consumer protection isaself-standing
policy objective anddoesnotalways coincide withthecompetition policy objective (ofpromoting
economic efficiency). Incasethere areconflicting objectives, whether within thebroad purview of
competition policy orbetween competition policy andother policies, theGovernment would make a
policy judgment based onwhatisbestfortheeconomy asawhole .
Existing policy
8. HKC iscommitted tothepromotion ofcompetition. Thisisthemeans toenhance economic
efficiency, which istheultimate, shared objective ofHKC'scompetition andtrade policies. A
fundamental testofwhether competition exists iswhether themarket isaccessible andcontestable.
9. Although competition thrives bestonthefreeforce ofthemarket, some degree ofgovernment
involvement issometimes called for.Itisnecessary, forinstance, fortheGovernment toputinplace
apackage oflegislation tooutlaw deceptive trade practices andprotect thefundamental rights of
consumers. There mayalsobecircumstances where averyhighlevelofinvestment isinvolved (as
inthebroadcasting business), where prudential supervision orregulatory efficiency isneeded (asin
thebanking andfinancial services sectors), orwhere thelonger terminterest ofconsumers isatstake
(asintheprovision ofutility services). Insuchcircumstances, theHKSARG willensure thatthe
monopolistic oroligopolistic situation thatisallowed toexistdoesnotunduly compromise, amongst
other things, thequality ofservices andtheprice thatconsumers havetopay.WT/WGTCP/W/53
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10. Theneeds, requirements andcharacteristics ofindividual sectors vary. Accordingly, HKC
adopts asector-specific approach tosafeguard competition. TheGovernment alsoreviews these
regulatory measures periodically toensure theystillmeettheneeds ofprevailing circumstances. Where
possible, itwillundertake liberalization initiatives topromote competition inthesesectors. Forexample:
(a) followingacomprehensivepolicyreviewontelecommunicationsin1992,theHKSARG
introduced competition intothelocalfixednetwork services. TheGovernment believes
thisstepwillpromote economic efficiency intheindustry andposition HKC toserve
asthepreeminent communications hubfortheregion intothenextcentury. Since
July1995, theGovernment hasgranted licences tofouroperators toprovide localfixed
telecommunications network services;
(b) theHKSARG began in1993 toamend domestic radio andtelevision broadcasting
licences, asandwhen theyaredueforrenewal, toinclude a"freecompetition clause".
Suchclause ensures thatbroadcasters donotengage inunfair oranti-competitive trade
practices; and
(c) since 1991, theHKSARG has,where economically viable, granted busandferry
franchises foranewnetwork ofroutes through open tenders. With effect from
September 1997, allbusroutes havebeenoperating onanon-exclusive basis andall
franchisees arenolonger subject toaprofit control scheme.
11. Whilst promoting competition isimportant, itisameans rather thananendinitself. The
HKSARG hastostrike adelicate balance between thepromotion ofcompetition andother government
policies andweigh these against whatisbestfortheeconomy asawhole.
Developing acomprehensive competition policy
12. Following acritical review ofHKC'scompetition policy, theGovernment hasrecently decided
toreinforce theexisting policy bymaking itmore explicit, more transparent andensuring thatitis
applied inamore comprehensive andconsistent manner.
13. Todevelop acomprehensive competition policy forHKC, theHKSARG has,inter alia,
undertaken to:
(a) develop andpromulgate apolicy statement tosetouttheobjectives ofHKC's
competition policy andprovide pointers forgovernment units tofollow;
(b) require alldepartments andpolicy-making unitstocritically review theirareasofwork
toidentify andremove asfaraspossible anti-competitive practices orpractices not
conducive tocreating acompetitive environment; and
(c) require allgovernment unitstohighlight inallmajor submissions theimplications on
competition ofallnewpolicy proposals.
14. TheGovernment intends toplayanexemplary, proactive andleading roleinpromoting
competition anddismounting barriers tocompetition. Toensure thatvarious policy-making unitscan
forge ahead inaunited front towards promoting competition atthegovernment level, theFinancial
Secretary, equivalent toaminister offinance, willalsobeleading ahigh-level inter-department advisory
group.WT/WGTCP/W/53
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15. Asforrestrictivebusinesspracticesintheprivatesector,theHKSARGwillworkcloselytogether
withthepublic watch dog,theConsumer Council, tocontinue tomonitor trade practices, draw up
sector-specific codes ofpractice orregulatory regimes, andassist byreferring cases totheGovernment
forexamination.
16. Asexplained,theneedsandcharacteristicsofindividualsectorsvaryextensively.TheHKSARG
willcontinue toreinforce itscomprehensive competition policy withsector-specific enforcement
measures notlimited tolaws.Thisbasically means thatifanti-competitive behaviour exists ina
particular sector, theHKSARG willexhaust allmeans available before resorting tothemore
interventionist approach ofregulating bylaws. These other means include drawing upbinding codes
ofpractice specifically catered totheneeds andcharacteristics ofthesector concerned, imposing fair
competition principles inrelevant licensing orfranchising conditions, orevenraising public awareness
through themedia. TheGovernment believes thatthisapproach tocompetition ismore inlinewith
ourfreeandopenmarket philosophies, andismore flexible andindepth thanageneral broad brush
approach tolegislating against all.
Enforcement ofcompetition policy
17. HKC believes thatanall-embracing piece oflegislation oncompetition isnotappropriate at
thisstage oftheeconomy 'sdevelopment. Ageneral competition lawisnottheonlyornecessarily
mosteffective means topromote competition. Ifchoices exist, astheydo,HKC prefers toencourage
industries toself-regulate, saybyadopting binding codes ofpractice.
18. Experience inHKC suggests thatself-regulatory regimes doworkinthattheycommand respect
among members andcanbindthemtoadopting standards tomeetsocial expectations. Suchschemes
already existforoutbound travel agents andafewprofessions. Foranopen, transparent andsmall
economy likeHKC, public pressure often plays auseful counterbalancing role. Hence, withabitof
persuasion andpressure fromtheGovernment andpublic watchdogs, thereisnoreason tobelieve that
theseself-regulatory regimes could noteffectively bindtheirmembers intoadopting fairandcompetitive
market principles.
19. Another form ofcontrol canbeachieved through various government licensing orcontrol
schemes. Again itwould notbedifficult toinsert pro-competitive provisions intothese sectors, as
theHKSARG hasalready doneforthebroadcasting andpublic transport sectors.
20. Incasethepotential foranti-competitive practices clearly exists andpublic interest isatstake,
theHKSARG iswilling tointervene bylaw. Indeed, HKC already hasprovisions inapiece ofdraft
legislationthatseekstooutlawprice-fixing,discriminatorypricingandthelikeinthetelecommunications
sector.
21. HKC seesitscurrent approach asaverypragmatic oneentirely inlinewiththewell-tried
economic philosophies offreeandopentradeandminimum government intervention. TheGovernment
isnotaverse toadopting competition laws. Butitdoesnotbelieve thesituation issuchastomerit
theadoption ofabroad-brush legislative approach. TheGovernment prefers alessintrusive butmore
in-depth sector-specific approach, whilst maintaining abroad policy overview toensure overall
consistency.
Wayforward
22. HKCadoptsafreemarketandminimuminterventionistapproachtothepromotionofcompetition.
Asistypical ofitstradepolicy, theGovernment adheres totheprinciples ofmaintaining alevel-playing
fieldforall;seeking toapply thecompetition policy inatransparent, consistent andcomprehensiveWT/WGTCP/W/53
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manner; relying onmarket mechanisms toallocate resources intheeconomy; minimizing government
intervention; andencouraging self-regulation inthedrive topromote competition.
23. HKC appreciates thatdifferent economies adopt different means toattain theircompetition
policy objectives. Itrespects suchdifferences inchoice because eacheconomy hasitsowncharacteristics
andconstraints, provided ofcourse thatthebasic tenets ofourmultilateral trading system (likestrict
adherence tothemost favoured nation andnational treatment rules) arenotcompromised.
24. ThisWorking Group provides anexcellent forum toexchange ideasonhowdifferent economies
might contribute tothegenerally-shared objective ofpromoting competition asameans ofenhancing
economic efficiency. Thiswould alsoreinforce ourtradepolicies byhelping toensure thatthebenefits
oftrade liberalization befullyrealised.