After years of talk, it seems likely that mainland China and Hong Kong will, within the next year or so, acquire their first competition (antitrust) laws of comprehensive application, complete with specialized enforcement authorities.
Such laws have existed in America for more than a century, in Western Europe for almost half as long, and have become increasingly significant in Asia since the 1980s.
The widely-held view is that such laws are, when applied properly, of real public benefit in promoting the competitive process. They typically punish anti-competitive behaviour (abuse of dominance or agreements to restrict competition) and prevent dominant positions from arising through mergers.
The problem lies, however, in deciding efficiently and accurately what amounts to “dominance”, “abuse” or an undue “restriction.”
In America and Europe it took decades for the basic principles to be resolved by litigation. Even now these principles are largely settled, cases are still bitterly fought at great expense, with serious unpredictability as to outcome.
Do these experiences offer any lessons for the Chinese and Hong Kong governments?
The first and most obvious point is that, even when applied in good faith, such laws may well stifle competition and innovation if action is taken without a really sound understanding of the relevant market and related economic phenomena.
In this regard, Hong Kong is clearly alive to the danger of being amateurs and has brought in advisors from a jurisdiction with a sophisticated competition law regime (Australia) to help it finalize the draft legislation. Presumably it decided that Australian laws are more relevant to Hong Kong than those of Europe or the US. It also seems likely – based on experiences with Hong Kong competition law in the telecommunications sector – that they will be open to employing outside talent in the administration as well.
In contrast, the Chinese government is unlikely to have foreign nationals involved in its enforcement authority, although the statutory text itself has clearly taken on board outside influences – the key provisions look familiar to EU lawyers.
One important similarity which both laws appear likely to share is that enforcement will be, at least primarily, and at least in the early years, a matter for the authorities. There will be little or no practical scope for people claiming to be victims to bring lucrative civil litigation based on antitrust complaints. This avoids the danger of the courts being overloaded with cases which most judges will be ill-equipped to handle well. However, it does create the danger that cases will be selected on political grounds.
For example, a cynical view sometimes heard in Hong Kong at the moment is that sectors well represented in the Legislative Council and government are unlikely to find themselves on the sharp end of an investigation in the early years.
A related worry in China is that foreign companies may be targeted by protectionist forces, a concern fed by complaints in local media from time to time about alleged abuse of market power by foreign companies. Furthermore, some suggest that the way in which the draft legislative provisions restricting local government protectionism were significantly watered down in 2006 means Beijing is less willing to assert control over such conduct.
Time will tell whether the cynics in either jurisdiction are right but the fact that these concerns exist emphasizes the need for objectivity and political independence in the selection of cases.
There will be some questionable decisions in the early years and a battle of ideas (and cruder forces) will develop, with the true meaning and full impact of the laws taking decades to emerge.
In this regard, a further danger is that the process itself will impose costs. In addition to the obvious expenses inherent in creating a new bureaucracy, the main risk in Hong Kong is probably that which the US system is prone to: great involvement of professionals, a no-stone-left-unturned approach to evidence and, as a result, excessive expense and management distraction. In China, the issue of administrative and judicial independence will most likely be more important.
In short, these laws have great potential for creating public benefit but whether they will in fact do so remains very much an open question.