2000 –2001 - COMPAG · 6 Monitoring Trends and Developments in the International Scene 77 7 Further Work 79 ... technology. Digital Terrestrial Broadcasting will increase the ...

Competition PolicyAdvisory Group Report

2000–2001

Contents

1 Introduction 49

2 New Initiatives to Promote Competition 51

3 Progress of Initiatives Reported in CompetitionPolicy Advisory Group Reports 1998 and 1999–2000 55

4 Tracking Competition-related Complaints 69

5 Collaboration with the Consumer Council 75

6 Monitoring Trends and Developments in theInternational Scene 77

7 Further Work 79

Annex I Terms of Reference and Membership of the Competition Policy Advisory Group

Annex II Statement on Competition Policy

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1 Introduction

1.1 This report sets out the work carried out by the Government topromote competition since the publication of the CompetitionPolicy Advisory Group (COMPAG) Report 1999-2000 in April2000. It covers -

(a) new initiatives proposed by bureaux and departments topromote competition;

(b) progress of initiatives reported in COMPAG Reports 1998and 1999-2000;

(c) competition-related complaints reported to COMPAG, andthe outcome of previous cases;

(d) collaboration with the Consumer Council; and

(e) trends and developments on competition issues in theinternational scene.

Background

1.2 The Government is fully committed to the promotion ofcompetition. The objective of the Government’s competitionpolicy is to enhance economic efficiency and free flow of trade,thereby also benefiting consumer welfare.

1.3 COMPAG was set up under the chairmanship of the FinancialSecretary in December 1997 to review competition issues that havesubstantial policy or systemic implications. Its terms of referenceand membership are set out in Annex I. In May 1998, COMPAGpromulgated the Statement on Competition Policy (“PolicyStatement” and a copy of which is at Annex II) which offers somespecific pointers to facilitate compliance with the competitionpolicy by both the public and private sectors. All bureaux anddepartments are responsible for overseeing competition issues

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2 New Initiatives to Promote Competition

2.1 In 2000-01, COMPAG again sought returns from bureaux anddepartments on new initiatives to promote competition. Theirreturns are summarised below -

Broadcasting

(1) Digital Terrestrial BroadcastingThe number of terrestrial television and radio channels is limitedby spectrum constraint and the existing analogue transmissiontechnology. Digital Terrestrial Broadcasting will increase thenumber of programme channels to facilitate competition and offermore choices for consumers. With the successful completion of thetechnical trials on digital broadcasting and having regard to thefindings of two consultancy studies, the Information Technologyand Broadcasting Bureau (ITBB) formulated policy proposals ondigital terrestrial broadcasting which are set out in a publicconsultation paper issued on 1 December 2000.

The consultation ended on 28 February 2001, with a total of 23submissions received. ITBB is examining the submissions in detailand will take full account of the submissions in formulating thepolicy framework for digital broadcasting services in Hong Kong.

(2) Broadcasting Satellite ServicesFollowing the 1998 review of Television Policy, a policy decisionwas made to introduce broadcasting satellite services (BSS) inHong Kong. In June 2000, the Government issued a licence underthe Telecommunications Ordinance for the launching andoperation of a satellite carrying four BSS transponders. Thesatellite is scheduled to be launched in mid-2002. The launch ofBSS will provide an additional transmission platform for

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within their portfolio in accordance with the Policy Statement.Where necessary, the Government will promptly take sector-specific measures, including licensing conditions, codes of practice,and legislation to rectify anti-competitive behaviours and topromote competition.

1.4 In 2000-01, COMPAG focused on the following areas of work:

(a) encouraging new initiatives to promote competition;

(b) identifying areas that may not be fully compatible with thecompetition policy, and reviewing scope for refinement;

(c) keeping under review the various competition-related issuesexamined in 1999 and early 2000;

(d) keeping track of competition-related cases or complaintsreceived from different sources, and reviewing, on a needbasis, those cases which have policy or systemicimplications; and

(e) monitoring discussions in international fora on competitionissues that may have a bearing on Hong Kong.

1.5 As from July 2000, following the reorganisation of the formerTrade and Industry Bureau, the secretariat of COMPAG has beentransferred to the Economic Services Bureau.

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Financial Services

(5) Retail Payment SystemThe Hong Kong Monetary Authority (HKMA) is conducting acomprehensive review of retail payment systems in Hong Kong.The review will examine the various channels through whichretail payments are made and the likely future trends in theirutilisation. It will assess, amongst other things the efficiency,pricing and costs, the degree of market access and level ofcompetition in the provision of retail payment services; whetherthere are any competition-related deficiencies operating againstthe public interest; and the implications on efficiency andcompetition of any further moves towards standardisation,consolidation or sharing of facilities in the provision of retailpayment services.

Miscellaneous

(6) Admission of Talents SchemeUnlike foreign nationals, Mainland residents are normally notallowed entry into Hong Kong for employment in private firms.The Security Bureau implemented the Admission of TalentsScheme in December 1999 with a view to enhancing Hong Kong’scompetitiveness as a manufacturing or service centre, in particularin technology-based and high-value added activities by admittingtalents, particularly those from the Mainland, for employment.Talents from the Mainland, not confined to any particular sectorsare allowed entry quota-free as long as they meet the relevantadmission criteria. As at the end of May 2001, 515 applicationswere received out of which 149 have been approved.

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broadcasters. ITBB intends to issue a guidance note within thisyear for those interested in leasing the BSS transponders for theprovision of BSS.

Telecommunications

(3) Strenghthening of the Pro-competition Regime of theTelecommunications SectorThe Telecommunications (Amendment) Ordinance 2000, enactedon 16 June 2000, strengthens competition safeguards regardinganti-competitive practices, abuse of dominant position, misleadingor deceptive conduct and non-discrimination.

In deciding whether there is an anti-competitive behaviour orabuse of a dominant position in certain sectors of the market, theTelecommunications Authority (TA) will make an assessment ofmarket conditions such as market share, ability to impose pricechanges without regard to competitors, barriers to entry, etc.,which may involve wider economic issues. TheTelecommunications (Amendment) Ordinance 2000 thereforealso strengthens competition safeguards by providing for theestablishment of an appeal board to review the merits of TA’sdecisions, determinations and directions in relation to competitionmatters.

Legal Services

(4) Solicitors’ Right of Audience in the Higher CourtsBarristers have unlimited right of audience in courts whereassolicitors’ rights of audience are generally limited to the lowercourts. The Law Society has proposed a relaxation of themonopoly of the barristers’ right of audience in the higher courts.The Department of Justice will consult the Bar Association andthe Law Society before deciding on the way forward.

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Progress of Initiatives Reported in CompetitionPolicy Advisory Group Reports 1998 and 3 1999-2000

3.1 There were a number of initiatives reported in the COMPAGReports 1998 and 1999-2000. The progress of these initiatives is setout below.

(1) Electricity supplyA consultancy study to establish whether additionalinterconnection between Hong Kong’s two electricity supplycompanies and encouragement of competition in the electricitysupply sector would be in the interests of consumers was completedin November 1999. Public comments were invited. Afterreviewing the public comments received, including those from theConsumer Council, the Economic Services Bureau (ESB) publiclystated that it would conduct further studies on increasedinterconnection. It also hopes to map out the broad direction forthe electricity supply sector before the next interim review of theScheme of Control Agreements scheduled for 2003.

To take forward further the issue of increased interconnection, adetailed Investigation Study on a number of planning, reliabilityand logistics issues and the timeframe required for the constructionof additional interconnectors between the two power companieswas commissioned by the Electrical and Mechanical ServicesDepartment (EMSD) in February 2001. At the same time, ESBand EMSD are examining market restructuring experience inother places with a view to identifying practicable options for theHong Kong market in future.

(2) Gas SupplyESB and EMSD are watching developments relating to theproposed liquefied natural gas terminal project at East Shenzhen.In the light of this project, they have started to identify for further

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same time, the Insurance Authority (IA) has been reviewing fromtime to time, in consultation with the Hong Kong Federation ofInsurers (HKFI), the Code of Conduct for Insurers issued by HKFIin March 1999. It has also undertaken to encourage representativebodies of the insurance industry to promote the public’s awarenessof their rights and obligations under insurance contracts.

To formalize the existing practice of disclosing individual insurers’statistics in the annual reports of the OCI, the InsuranceCompanies (Amendment) Ordinance 2000 was enacted and cameinto operation in June 2000. The Amendment Ordinanceempowers the IA to disclose, in the public interests, statisticsrelating to individual insurers. To educate the public on theregulatory framework of insurance intermediaries in Hong Kong,the IA issued two educational publications for distribution to thepublic in August 2000, namely a leaflet entitled “Know theInsurance Agents and Brokers at Your Service” and an informationbooklet on “Insurance Intermediaries in Hong Kong”. Televisionand radio commercials were also launched to reinforce theeducation campaign.

(6) Use of private sector services by the Housing Department Following Housing Authority (HA)’s endorsement of the taskforce’s recommendation to increase the involvement of the privatesector in public housing estate management and maintenanceservices, a brand new list of Property Services Companies has beenestablished on 31 March 2000. Currently 28 companies have beensuccessfully admitted to the list.

Up to the present moment, three batches of Property ServiceContract have been awarded. Subsequently seven PropertyServices Companies were appointed to take up the management of24 estates with a total of more than 100,000 flats in October 2000,December 2000 and May 2001 respectively.

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examination, issues relating to the broad institutional,infrastructural regulatory framework necessary for possibleintroduction of a natural gas-based common carrier system.

(3) Admission criteria for barristers The Legal Practitioners (Amendment) Bill, with Committee StageAmendments, was passed by the Legislative Council in June 2000and becomes the Legal Practitioners (Amendment) Ordinance2000 in relation to the practice of solicitors. The parts of theOrdinance pertaining to the removal of privileges conferred onbarristers or advocates from the United Kingdom, Scotland andIreland will come into operation on a day to be appointed by theSecretary for Justice. This shall not be earlier than 1 November2001 to allow sufficient time for preparation of new examinations,rules and regulations for all applicants.

(4) Contracting out of insolvency work The Official Receiver’s Office started contracting out compulsorywinding up cases with assets below $200,000 in the year 2000-01.Firms meeting the pre-qualification criteria were allowed toparticipate in the tender exercise. For cases with assets above$200,000, eligible firms continued to be allocated cases on a rosterbasis. Separately, the Government commissioned in March 2001 aconsultancy study to review the role of the Official Receiver. Thestudy will examine, among other things, the desirability of a two-tier licensing system for insolvency practitioners as proposed bythe Law Reform Commission.

(5) Practices in the insurance industry Since 1999, the Office of the Commissioner of Insurance (OCI)has included in its annual reports business statistics of individualinsurers in addition to the aggregate figures. It has also releasedprovisional statistics of the insurance industry as a whole on aquarterly basis commencing from the first quarter of 1999. At the

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(9) Selection of consultants for traffic assignments In order to have a larger pool of prospective consultants to carryout the Government’s traffic assignments, the Civil EngineeringDepartment and the Transport Department (TD) are jointlyestablishing a series of Base District Traffic Models for use by allconsultants interested in such traffic assignments. The projectconsultant completed the Models at the end of July 2000. TheseModels have been taken on board in two recent assignments.

(10) Private school The Government approved in March 1999 a package of proposalsto foster the development of a strong private school sector. Newinitiatives included the allocation of government-built schoolpremises to school sponsoring bodies to operate Direct SubsidyScheme (DSS) schools, provision of land grant at nominalpremium and a capital grant for construction of school premises tofacilitate the establishment of non-profit making privateindependent schools (PIS), and enhancing financial assistance toDSS schools.

In furtherance of these initiatives, the Education and ManpowerBureau (EMB) has since 1999 invited prospective school sponsorsto apply for operation of DSS schools and PISs. A good number ofapplications were received. In the past two rounds of SchoolAllocation Exercise, a total of nine Government-built schoolpremises were allocated to school sponsors for the operation ofDSS schools, and five sites were allocated for the construction andoperation of PIS. Apart from these, two school sponsors have beenallocated sites for the construction and operation of DSS schoolsin 2000. School sponsors allocated sites for the operation of PISsor DSS schools will receive a capital grant for the construction ofthe school premises.

Given the encouraging response received in the last two rounds ofSchool Allocation Exercise and the generally positive reaction

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The progress of the phased service transfer programme willcontinue. The fourth batch of Property Services Contract for tenestates was put to tender in early May 2001.

(7) Entry qualifications for Authorised Persons under the BuildingsOrdinance The Buildings Department (BD) has completed at the end of 2000a review of the existing system of Authorised Persons (APs) underthe Buildings Ordinance. The existing system is intended toprovide assurance for the safety, health and environmentalstandards of private buildings by allowing only persons possessingthe relevant qualification, experience and competence to carry outthe relevant duties under the Buildings Ordinance. As the primaryobjective of the AP registration system is to protect the generalpublic, and not individual trade or profession, the Planning andLands Bureau and BD consider that there is no question of unfaircompetition to maintain a high standard of entry qualifications forAPs.

(8) Use of British Standards in the construction industry The Works Bureau (WB) commissioned a consultancy study inNovember 1999 to formulate measures to set up a centralconstruction standardisation body in Hong Kong to oversee andco-ordinate the development of construction standards. The mainstudy was completed in July 2000. The consultant’s findings andrecommendations were presented to the Construction IndustryReview Committee in September 2000. The Committee supportedthe setting up of the standardisation body. It further recommendedthat the setting up of such body should be led by the proposedindustry co-ordinating body. The WB will offer support to theproposed industry co-ordinating body to take the matter forward.

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that registered importers can only sell rice by wholesale toregistered wholesalers have been lifted.

(13) Off-street driving schools The TD invited tenders for a new off-street driving school inTsuen Wan in July 1999 and awarded the contract to a newoperator in October 1999. The new driving school commencedoperation in April 2000. TD will continue to monitor the marketsituation.

(14) Fuel supplyIn response to the Consumer Council’s Report on the state ofcompetition in the motor gasoline, diesel and liquefied petroleumgas (LPG) markets, the ESB set up in January 2000 theCompetition Subcommittee under the Energy AdvisoryCommittee to provide a forum for more focused discussion oncompetition-related issues in the energy sector. In response to therecommendations of the Subcommittee, the Administration hastaken a number of measures to facilitate new entrants to the fuelmarket. These include removing the requirement for bidders forpetrol filling station (PFS) to possess a special import licence oradduce evidence of a guaranteed supply from a licensed oil supplieras from July 2000; putting up existing PFSs for open tender uponexpiry of current leases, instead of renewing existing leases;identifying more sites for PFS; and adopting a flexible approach inhandling applications for the change of land use to set up PFSs,subject to compliance with relevant regulatory requirementsincluding those relating to safety, planning standards and theenvironment.

(15) Use of central LPG in public housing estates The Housing Department (HD), in conjunction with otherbureaux and departments, has looked into the feasibility ofproviding central LPG in public housing estates. It is noted that

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from the education sector and the public to the initiative,Government-built school premises and/or sites for thedevelopment of DSS schools and PISs will continue to beallocated in future exercises.

In the current round of exercise, 24 Government-built schoolpremises, one site for both aided school sponsors and DSS schoolsponsors to apply, eight Government-built secondary schoolpremises for the operation of DSS senior secondary schools, andfour sites for the development of PISs will be allocated. Theoutcome of this round of exercise will be available in May/Junethis year.

The EMB/Education Department are now reviewing the terms ofDSS with a view to enabling DSS schools to provide better qualityeducation and to facilitating existing aided schools to join DSS.

(11) Alcoholic strength restrictions in the sale of intoxicating liquors The Customs and Excise Department will conduct consultationwith the trade in the latter part of 2001 on the proposed legislativeamendments to remove the requirement of minimum alcoholicstrength on a number of Chinese intoxicating liquors, and torequire clear labelling of alcoholic strength and ingredients onevery liquor container.

(12) Rice Control Scheme In consultation with the Rice Advisory Committee, the Trade andIndustry Department is taking steps with a view to fully liberalisingthe rice trade by 2003. The level of rice reserve has been broughtdown from 40,000 tonnes in 2000 to the current 19,000 tonnes inphases. The registration criteria for rice importers have beenrelaxed, lowering the market entry requirements, and as a resultthe number of registered importers has increased from 40 in 2000to 55 in 2001. As from 1 January 2001, the restrictions whereby arice importer cannot also be a rice wholesaler and vice versa and

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successful applicants for satellite-based operation and cable-basedoperation respectively. In line with the policy decision toprogressively liberalise the telecommunications market, we wouldissue licences for the operation of external telecommunicationsfacilities with effect from 1 January 2003, based on submarine orover land cables to those who have acquired capacity through thepurchase of right to use the cables.

(18) Third Generation Mobile Services The TA conducted two rounds of consultation in March andOctober 2000 on the licensing and regulatory framework of thirdgeneration (3G) mobile services. It has also conducted an industryworkshop on the open network requirement in January 2001.Having considered the views received and the policy objectives ofthe licensing exercise, the Government announced the licensingand regulatory framework in February 2001.

Under the announced framework, the Government decided toadopt a hybrid method to issue four 3G licences. There will be apre-qualification process to ensure the quality of the 3G networksbuilt, and a spectrum auctioning exercise to ensure that thespectrum is allocated fairly and efficiently. Spectrum auctioningwill be conducted on the basis of a royalty percentage biddingsubject to minimum guaranteed payment. This auctioning methodwill best promote entry to the 3G market by alleviating thefinancial burden of operators. Successful 3G licensees will also berequired to open up 30% of their 3G network capacity for use bynon-affiliated Mobile Virtual Network Operators and contentproviders to provide a vibrant and competitive 3G market at boththe content creation and service application levels.

The necessary legislation to provide the legal backing for thelicensing exercise is being scrutinized by the Legislative Council.The TA aims to invite applications after the enactment of thelegislation.

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doing so may entail potential loss of substantial amount of land forflat production, impact on land requirement and planningflexibility, complicate design and lead to a longer developmentlead time because of the need to accommodate LPG storagecompounds. It would also be difficult to identify suitable sites forcommon LPG storage facilities in a district given theenvironmental and safety concerns. In view of the abovedifficulties, the HA and HD would continue their present practiceon gas supply and would only invite tender for the exclusive rightto supply LPG to public housing developments in comparativelyremote areas where towngas is not available. However, wherepractical and appropriate, efforts would be made to introduce morecompetition in gas supply to housing estate development.

(16) New sites for auto LPG filling stations The Government tendered five sites in December 1999 fordevelopment as dedicated auto LPG filling stations at nil landpremium on condition that auto LPG would be sold in accordancewith a pricing formula made up of the international LPG price andan operating cost factor, the latter of which is bid by the tenderers.This initiative aims to facilitate the implementation of theprogramme to replace existing diesel taxis with LPG ones as part ofthe Government’s clean air programme. At the same time, itencourages competition in the auto LPG market by facilitating theentry of potential new-comers. The retail price of auto LPGcharged by the dedicated auto LPG filling stations sets abenchmark for other suppliers of auto LPG and helps keep theoverall price at a competitive level.

(17) External Telecommunications Services and Facilities In April 2000, the Telecommunications Authority (TA) issued anew invitation for applications for licences to operate externaltelecommunications facilities based on satellites or investment innew submarine/overland cables. So far, there have been 16 and 18

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(22) Interest Rate Rules In July 1999, HKMA announced that the remaining interest raterules (IRRs) would be deregulated in two phases, subject to astable financial and economic environment. Phase one of thederegulation, covering 24-hour and up to six days’ time deposits,took place on 3 July 2000. Phase two of the deregulation, coveringcurrent and savings accounts, has taken place as scheduled in July2001. Once Phase two of the deregulation is implemented, interestrates on all types of deposits will be determined by competitivemarket forces.

(23) Stamp duty on stock transactions To maintain the competitiveness of Hong Kong in the globalfinancial marketplace, the Financial Secretary proposed in the2000-01 budget to reduce the rate of stamp duty on stocktransactions by 10% from the existing 0.25% to 0.225% per roundtransaction. The relevant legislative amendments came into effecton 7 April 2000.

(24) Level of brokerage for securities transaction At present, a minimum brokerage commission of 0.25% of thevalue of transaction is charged to both the buyer and seller for allsecurities transactions. The Board of Hong Kong Exchanges andClearing Limited passed a resolution on 17 May 2000 to removethe minimum brokerage commission rule with effect from 1 April2002.

(25) Access of restricted licence banks to the Real Time GrossSettlement System The legal arrangements for admission of Restricted Licence Banks(RLBs) into the Real Time Gross Settlement (RTGS) system werefinalised in May 2000. RLBs with a clear business need can applyto the HKMA for access to the RTGS.

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(19) Television services In August 1999, the Information Technology and BroadcastingBureau issued a guidance note to invite applications for theprovision of new television services. Having carefully examinedthe applications received, the Government granted new domesticpay television programme service licences at the end of 2000,increasing the number of domestic pay TV operators in HongKong from two to five.

(20) Competition safeguards in the Broadcasting Bill The Broadcasting Bill, containing competition provisions whichprohibit a licensee from engaging in anti-competitive conduct andfrom abusing its dominant position in the television market, waspassed by the Legislative Council in June 2000. To facilitate theindustry in understanding the new competition provisions, theBroadcasting Authority (BA) issued for industry and publicconsultation two sets of draft competition guidelines indicatingthe manner in which the BA proposes to perform its statutoryfunctions under the competition provisions. Upon conclusion ofthe consultation exercise, the BA promulgated the competitionguidelines on 16 February 2001 and the competition provisionscame into operation on the same date.

(21) One-building condition on foreign banks The Hong Kong Monetary Authority (HKMA) relaxed the one-building condition on foreign banks in September 1999. Foreignbanks are now allowed to operate up to a maximum of threebranches. The restriction on the number of back and regionaloffices that a foreign bank can maintain has also been lifted.Further relaxation will be considered subject to a review in thefirst half of 2001.

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with effect from 1 July 2000. The Working Group will-reconvenein May 2001 to consider whether they should be re-appointed foranother year.

(29) Use of new materials in works projects In June 2000, the Architectural Services Department (Arch SD)completed a review of the arrangement of using new materials “onprobation” for its works projects, instead of the previousarrangement which only allowed for the use of materials “deemedsuitable”. Arch SD will continue to investigate and expand the listof new materials for use in its projects.

(30) Release of motor maintenance manuals by vehiclemanufacturers In response to the request of the Working Group on VehicleMaintenance Standards (comprising representatives of theTransport Bureau (TB), the Environment and Food Bureau andrelevant departments), the Hong Kong Motor Traders Associationagreed to release information on the emission system of Pre-Eurodiesel vehicle and the trade considered the information to beadequate in meeting their needs and was satisfied with thearrangement. As for maintenance information on petrol and Eurodiesel vehicles, TB’s research indicates that third-partypublications covering different aspects of almost all runningmodels of vehicles, e.g. ignition systems, braking system,carburetor and fuel injection systems, electric and air conditioningsystems, are readily available in Hong Kong.

The Hong Kong Institute of Vocational Education (HKIVE) hasalso established the Automotive Engineering Database Centre inlate 2000. Technical data for petrol and diesel vehicles availablethere can be used both for training purpose as well as for generalreference of the vehicle maintenance trade in their dailyoperation. The HKIVE will continue to expand the database and

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(26) Conveyancing services Since August 2000, the Housing Society had agreed to allow allsolicitors’ firms, which satisfied their pre-qualification criteria, toprovide conveyancing services for their housing schemes atcharges negotiated between individual solicitors’ firms and thebeneficiaries.

(27) Estate duty on proceeds from life insurance policies In the past, life insurance proceeds paid in Hong Kong weresubject to estate duty, while those proceeds paid outside HongKong were exempted. The Financial Secretary proposed in the1999-2000 budget to exempt all life insurance proceeds from estateduty irrespective of where they were paid. The relevant legislativeamendments came into effect on 1 April 1999. This taxconcession has helped to ensure a level playing field for all lifeinsurers in Hong Kong, incorporated locally or elsewhere, as wellas equal treatment to all life insurance policy holders and theirbeneficiaries.

(28) Voluntary Medical Insurance Scheme for Civil Servants In April 2000, the Civil Service Bureau invited the insurancecompanies, which had been appointed as the carriers for theVoluntary Medical Insurance Scheme for Civil Servants, to submitproposals for the next term. The ten insurance companies with topten gross premiums of medical insurance business in 1998 werealso invited to submit proposals. The extended scope of invitationhad facilitated and encouraged competition. In June 2000, thethree existing and three interested insurance companies (ascompared to three existing insurance companies in 1999) made apresentation to the Working Group under the StandingCommittee on Medical and Dental Facilities (SCMDF). TheWorking Group subsequently made recommendations to appointthe three existing companies and a new one to the SCMDF forendorsement. All four carriers were appointed for a one-year term

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4 Tracking Competition-related Complaints

4.1 Apart from ensuring that bureaux and departments reviewregularly policy and practices against the Government’scompetition policy objectives, COMPAG also keeps track ofcompetition-related complaints or allegations of restrictivepractices in the public and private sectors. As a general rule,investigations into and follow up actions on the complaints arecarried out by the relevant bureaux and departments. COMPAGwill also give advice to bureaux and departments.

4.2 COMPAG’s efforts in tracking competition-related complaintshave been complemented by the work of the Consumer Council(“the Council”), whose Trade Practices Division is responsible forexamining business practices which may prevent, restrict or distortcompetition with a view to tendering advice to the Governmenton measures to promote healthy competition. The Council keepsCOMPAG informed of competition-related complaints it receives,liaises with the relevant bureaux and departments in handling thecomplaints, and, where necessary, refers recommendations havingcompetition policy implications to COMPAG and the relevantbureaux and departments for consideration.

4.3 During the period from April 2000 to March 2001, a total of eightcompetition-related complaints were received by or referred toCOMPAG by different parties, including bureaux and departmentsand the Council. COMPAG has examined all these complaintsand the follow up measures taken by the concerned parties. It hasalso given advice to the relevant bureaux and departments. Thesecomplaints are summarised below.

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develop the Centre with a view to providing comprehensivetechnical support to the vehicle maintenance trade.

(31) Management of the public cargo working areas (PCWAs) PCWAs are managed by the Marine Department (MD). In thepast, berths were allocated to PCWA operators on a first-come-first-served basis. In 1997, MD introduced a programme ofmanagement reform to the PCWAs with a view to improving theefficiency and productivity of their operations. The first phase ofthe reform, completed in early 1998, succeeded in the allocation ofberths in eight PCWAs to the operators for a period of three yearsthrough a tendering exercise. The second phase of the reform,completed in May 1999, rationalised the landside managementand the fee structure. The third phase of the reform, completed inearly 2001, further rationalised the berth size operations toimprove their efficiency.

(32) Allocation of clinics in public housing estates With effect from 1 January 2000, medical and dental clinics inpublic housing estates are let by open tender. The newarrangement has encouraged wider competition. The HA willreview the new arrangement after two years of operation.

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choice in terms of price (as price differentials continued to exist)and more importantly, in terms of contents (with each newspaperdiffering in coverage of particular types of news, editorial style andspecial columns).

(3) Exclusive dealing in the supply of karaoke musicOn 6 November 2000, the Council referred to the COMPAGSecretariat its findings in respect of a complaint alleging that somehit songs, in the form of karaoke discs, were only available at alimited number of large-scale chain karaoke lounges. Havingexamined the case, the Council found that there was no clearjustification for government intervention. The relevantconsiderations were - the tenuous nature of market boundaries fordifferent types of karaoke operations; the market power ofrecording companies supplying karaoke discs to counter balancethat of karaoke lounges; and the fact that recording companieswere unlikely to adopt a strategy to increase the market power ofcertain karaoke lounges to the extent which would threaten themaximum distribution of their products.

(4) High rentals of motorcycle parking spaces in a private car parkOn 8 November 2000, the Council referred to the COMPAGSecretariat its findings in respect of a complaint about the highrental charges for motorcycle parking spaces set by the private carpark operator in a housing development under the HousingAuthority’s Private Sector Participation Scheme. Havingexamined the issue, the Council found that other motorcycleparking spaces were available within a maximum of 15 minutes’walking distance from the housing development. The Councilconcluded that there was no apparent distortion to competition asa consequence of either restrictive practices or governmentregulatory policies.

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Substantiated Complaint

(1) Increase in transaction fees for the Easy Pay System (EPS)In April 2000, the Council received complaints from merchantsagainst the increase in transaction fees for the EPS. On 10 August2000, the Council issued the “Report on Complaints against the EasyPay System”, and concluded that the increase in transaction feeswas an instance of misuse of market power by the EPS operator,who did not face competitive pressure in the supply of debit cardnetwork services. The Council considered that there should becompetition amongst debit card network members, and there was aneed for greater transparency and accountability in the operationof the network. Separately, the Hong Kong Monetary Authority(HKMA) announced in August 2000 that it would shortlycommence a comprehensive review of retail payment services inHong Kong, in consultation with relevant interested parties,including the Council. COMPAG had requested the HKMA toreport their findings to it in due course.

Unsubstantiated Complaints

(2) Uniform price increase by newspapersOn 18 October 2000, some 12 Chinese-language newspapersincreased their prices by $1. In the announcements published byindividual newspapers, some had made references to the statementthat the increase was a result of “a common decision among membersof the industry.” The Council had received complaints about theuniform price increase. The COMPAG Secretariat had referredthe matter to the Home Affairs Bureau (HAB) which had policyresponsibility over newspaper registration. HAB considered thatwith 47 registered newspapers, there was keen competition in theindustry. Though the price-setting amongst the newspapersconcerned had increased the cost for consumers, they still had a

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No further competition-related follow up action wasconsidered necessary

(7) Sales Practice of a Telecommunication Service OperatorIn November 2000, the Telecommunications Authority (TA)received a complaint from one telecommunication serviceoperator against the sales practices of another operator.Investigation revealed that the case was more related to misleadingconduct, instead of anti-competition behaviour, and that it hadsubsequently been resolved by TA.

Complaint being considered

(8) Exchange rate adjustment mechanism adoptd by shippingconferencesIn October 2000, a company lodged a complaint with the Councilabout a “Yen Appreciation Surcharge” (YAS) imposed by acontainer liner company on cargo shipments from Japan to hedgeagainst exchange rate risks. The complainant alleged that theimposition of the surcharge was the result of a cartel, and that thesurcharge did not reflect contemporary movements in theexchange rate. In response to the Council’s enquiry, the HongKong Shippers’ Council (HKSC) advised that the surcharge was auniform charge laid down by an association of shipping companies,known as the Intra-Asia Discussion Agreement (IADA). Inresponse to the Council’s enquiry, the Secretariat of IADA saidthat the mechanism in calculating the surcharge was transparentto the HKSC. However, as the complainant was not a member ofHKSC, it had not been provided with the details of the surchargemechanism. The Council found that the existing mechanism wasnot transparent to all parties. It is in the process of finalising areport on this case.

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(5) Prohibition of red minibus operation on certain routesIn May 2000, the Hong Kong Public Light Buses Owners andDrivers Association complained to the Transport Bureau (TB)against the prohibition of red minibuses from operating in newtowns and new housing estates and from using new expresswaysand trunk roads. It claimed that this was in contravention of faircompetition. TB subsequently replied to the Association,explaining that public light buses played a supplementary role inthe public transport network. On traffic management grounds,there was a need to regulate its operation. TB’s current policy wasto identify suitable routes for green minibus operation, andencourage the conversion of red minibuses to green minibuses.The banning of red minibuses from using new expressways andtrunk roads would continue to be applied with flexibility, subjectto traffic and transport situations.

(6) Franchised bus servicesOn 20 June 2000, a member of the public wrote to the Chairmanof the Legislative Council Panel on Transport and with a copy tothe COMPAG Secretariat, complaining about the lack of genuinecompetition in most franchised bus routes, as each bus route wasoperated by only one bus company. Having consulted TB on theircurrent policy and reported the case to COMPAG in September2000, the COMPAG Secretariat issued a reply to the complainantin October 2000, relaying TB’s comments that a bus network hadto be considered in its totality to facilitate route development andlong term investment planning by bus operators, so as to ensurethat socially desirable but unprofitable routes were adequatelyserviced. Against this background, it was not practicable to awardnew bus routes on an individual route basis.

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5 Collaboration with the Consumer Council

5.1 In 2000-01, the Consumer Council (“the Council”) continued tomaintain a close working relationship with COMPAG, bureauxand departments on matters to enhance competition. Apart fromworking together to monitor the state of competition-related issuesand complaints (see Chapters 3 & 4), the Council alsoparticipated and contributed to COMPAG’s discussions on anumber of issues as a full member. Moreover, the Council drewCOMPAG’s attention to other inquiries it had carried out arisingfrom complaints made to the Council alleging anti-competitivepractices. Details of those matters are summarised below.

(1) Competition in the market for lift maintenance servicesThe Council kept COMPAG informed of its on-going discussionswith the trade and the Electrical and Mechanical ServicesDepartment (EMSD) with a view to enhancing thecompetitiveness of the lift maintenance market. This work arosefrom past allegations of limited competition in the market formaintenance of lifts. Suggestions had been put forward to theindustry and government on options to improve the availability ofproprietary information and spare parts necessary for competitionin the market. Discussions are continuing among EMSD, theCouncil and industry representatives with a view to resolving thematter.

(2) Competition safeguards in banking, securities and futuresmarketsIn June 2000, in response to a consultation exercise on theSecurities and Futures Bill, the Council put forward its views tothe Financial Services Bureau for consideration.

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Outstanding Complaint from COMPAG Report 1999-2000

(9) Transport Department’s proposal to contract out its licensingservices On 29 February 2000, a company providing financing andrefinancing services to vehicle owners wrote to the HKMA toexpress concerns about the proposal of the Transport Department(TD) to contract out its licensing services. The company wasconcerned that a bank might win the contract for the licensingservices, and this might remove the level playing field in thevehicle finance sector, as the appointed bank could then provideone-stop service, including financing services, to vehicle ownersupon their renewal of licences. The case was referred to the TD,which considered that to a certain extent, the company’s concernmight be valid. In the light of the annual pre-budget rush forrenewal of licences, TD was undertaking a comprehensive reviewof its licensing arrangements. TD may conduct consultations withthe relevant sectors in considering the way forward in due course.TD’s comments were reported to COMPAG on 1 June 2000.COMPAG had advised that TD should draw up clear guidelines inany outsourcing exercise to ensure equity and transparency, and toencourage competition by outsourcing extensively and signingcontracts of limited duration.

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Monitoring Trends and Developments in the6 International Scene

6.1 Issues relating to the interface of trade and competition policiescontinued to be the focus of discussions in major international forasuch as the World Trade Organisation (WTO) and the AsiaPacific Economic Co-operation (APEC). COMPAG hascontinued to monitor these discussions.

6.2 On the WTO front, deliberations of the Working Group on theInteraction between Trade and Competition Policy (WGTCP)focused on the development dimensions of competition policy, therelevance of the WTO principles of non-discrimination andtransparency to competition policy implementation, andapproaches to promoting international cooperation. While thesignificance of a sound competition policy for economicdevelopment was generally agreed, members’ views oninternational cooperation and multilateral rule making remaineddivergent. “Hong Kong, China” continued to advocate a balancedwork programme, contending that both anti-competitivegovernmental measures and restrictive business practices should beaddressed in a balanced manner.

6.3 On the APEC front, discussions mainly focused onimplementation of the APEC Principles to Enhance Competitionand Regulatory Reform, and technical assistance to developingeconomies. “Hong Kong, China” shared with Members itsexperience in implementing the APEC principles to EnhanceCompetition and Regulatory Reform and contributed toconsiderations for taking the Principles forward.

6.4 Hong Kong has continued to play an active and constructive rolein these discussions. Drawing on our experience, Hong Kong’srepresentatives have also, where appropriate, shared with other

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(3) Ready Mixed ConcreteSome Housing Authority (HA) contractors have claimed that acartel exists in the ready mixed concrete market. In view of this,HA commissioned a consultant in 1999 to conduct a researchmainly on the structure of the ready mixed concrete market and itsimpact on HA’s flat production. The Council was contacted byHA in this regard and it had provided comments in relation to theHA consultant’s recommendations on competition aspects.

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7 Further Work

7.1 In 2001-02, COMPAG will continue to -

(a) encourage new initiatives to promote competition;

(b) identify areas that may not be fully compatible with thecompetition policy, and review scope for refinement;

(c) keep under review the various competition-related issuesexamined in previous years;

(d) keep track of competition-related cases or complaintsreceived from different sources, and review, on a need basis,those cases which have policy or systemic implications; and

(e) monitor trends and developments in the discussions oncompetition policy in the international scene that mayhave a bearing on Hong Kong.

7.2 In addition, the COMPAG Secretariat plans to organise seminarsand training programmes on competition issues for Governmentofficers. It also plans to increase publicity on Government’scompetition policy and the work of COMPAG.

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participants the merits of a sectoral and results-oriented approachto promoting competition.

Annex I

Competition Policy Advisory GroupTerms of Reference and Membership

Terms of Reference

(a) To agree and promulgate a policy statement on the promotion ofcompetition in Hong Kong.

(b) To identify areas in the economy, particularly within the existinggovernment framework, that may not be fully compatible with thepromotion of competition and economic efficiency, and review scopefor refinement.

(c) To consider and review initiatives from bureaux and departments, orothers as appropriate, on how to promote competition in HongKong.

(d ) To consider competition-related matters which may have a bearingon government policy.

Membership

Chairman ➢ Financial Secretary

Members ➢ Secretary for Commerce and Industry➢ Secretary for the Treasury➢ Secretary for Economic Services➢ Director-General of Trade and Industry➢ Government Economist➢ Consumer Council (since April 2000)

Secretary ➢ Principal Assistant Secretary for Economic Services

Observers ➢ On a need basis

This Report is accessible from the Internet(http://www.info.gov.hk/esb/refer/papers/report.htm). Hard copies are alsoavailable at the District Offices. Requests for more hard copies should beaddressed to:

Secretary, COMPAGc/o Economic Services BureauGovernment SecretariatGovernment of the Hong Kong Special

Administrative Region2nd Floor, Main WingCentral Government OfficesTel: 2810 2507Fax: 2123 9438E-mail: [email protected]

Members of the public may lodge competition-related complaintswith:‧ the relevant bureaux or departments; or

‧ the Trade Practices Division of the Consumer Council22/F, K. Wah Centre, 191 Java RoadNorth Point, Hong KongTel : 2856 3113Fax : 2102 4523E-mail : [email protected]

Annex II