The Hong Kong government has produced a paper on the proposed fair competition law for a three-month public consultation. Stephen Ip, secretary for economic development and labour, said that the government is "open-minded" on the "need" of the law.

While the government's seemingly flexible stance on the proposed law is understandable, it is important for the public to realize that such legislation addresses one of the most pressing issues in the development of Hong Kong as a world-class service centre capable of meeting the needs of the rapidly growing mainland economy.

To achieve that goal, Hong Kong must maintain a transparent and fair business environment to attract the best companies in their respective fields from around the world. Steeped in the tradition set by a comprehensive and all-encompassing anti-trust law, US companies are particularly concerned about unfair practices that can upset the level playing field.

More importantly, a fair competition law is seen by some economists and business professionals as essential to maintaining the competitiveness of Hong Kong in relation to other mainland cities, including Shenzhen, Guangzhou and Shanghai. Monopolies, they say, are inefficient and will inevitably drive up prices of products and services to recoup the money they spent on cornering the marketplace.

The container port in Hong Kong is a case in point. In the early 1990s, the then Hong Kong government invited tenders for the construction of a new container port. At that time, a large US shipping company mounted a campaign calling for a modification of the tendering conditions to break the stranglehold of the existing two operators.

It argued that the oligarchy could afford to block any competition by outbidding them. They could then raise the rates to recover the cost. The shippers would have no other choice but to pay the high charges.

The high charges of the container port in Hong Kong have often been attributed to the cost of land. But, as is now obvious, the root problem stemmed from the failure to ensure fair competition by allowing new entrants into the industry. Having vanquished all competition in Hong Kong, the oligarchy was lulled into thinking that it was entitled to high profit margins and absolute control of the industry.

As such, the Hong Kong container port was ill prepared for competition from the new ports in Shenzhen and some other cities in the Pearl River Delta region. The cost structure has become so rigid that changing it would require a total corporate re-engineering.

Many studies have shown that an increasing portion of the re-export trade with the mainland has been shifted to the Shenzhen port. The loss of re-exports has a much wider implication on the overall economy than just trade. It also means the loss of business in the back end of the manufacturing process, such as quality control, packaging and logistics.

The government-appointed review committee recommended in June that Hong Kong needed legislation covering all business sectors, to be enforced by a high-level competition commission. At present, the specific fair competition laws apply only to broadcasting and telecommunications. A government advisory group has been established to process complaints of unfair competition in other economic sectors. But the group has no legal power to conduct investigations or to punish the offenders.

A new law of this magnitude has understandably raised concerns about frivolous or malicious complaints that could lead to expensive and time-consuming lawsuits. Some major business organizations have suggested a compromise targeting selected sectors where unfair trade practices are seen to be most obvious and rampant.

But the fundamental question to ask now is not the scale or scope of the proposed laws. The question is whether Hong Kong needs such a law. The answer has to be yes if Hong Kong is serious about maintaining its relevance to the mainland's economic development.

As Ip of the Hong Kong government said: "If the feedback we receive confirms our belief that now is the time to have a competition law, then, of course, we would be happy to press ahead."

Email: jamesleung@chinadaily.com.cn

(China Daily 11/18/2006 page4)