NEW COMPETITION LAW EXPECTED TO EXEMPT MANY HONG

C O N F I D E N T I A L SECTION 01 OF 02 HONG KONG 000043

SIPDIS

STATE FOR EAP/CM AND EEB/BTA/TPP, STATE PASS FTC FOR
WILLIAM KOVACIC, DOJ FOR STUART CHEMTOB

E.O. 12958: DECL: 12/11/2019
TAGS: ECON EFIN EINV ETRD HK CH
SUBJECT: NEW COMPETITION LAW EXPECTED TO EXEMPT MANY HONG
KONG GOVERNMENT ENTERPRISES

REF: HONG KONG 1854

Classified By: A/CG Christopher Marut for reasons 1.4 (b) and (d).


1. (C) SUMMARY: Commerce and Economic Development (CEDB)
Bureau Undersecretary Greg So told U.S. Federal Trade
Commissioner William Kovacic on December 8 that the Hong Kong
government's (HKG) long-anticipated Competition Law will
likely be submitted to Hong Kong's Legislative Council
(LegCo) by June 2010. So solicited Kovacic's advice in
several technical areas related to regulating
anti-competitive corporate behavior, as CEDB finalizes the
draft bill. LegCo member Ronny Tong, a key proponent of the
Competition Law, told Kovacic that the HKG "unfortunately"
intended to exclude "many government-owned or controlled
enterprises" from the law's purview. This not-yet-announced
list of excluded entities has become the most controversial
element of the new law. Companies unrelated to the
government remain wary that the HKG will protect large
numbers of government-affiliated entities from scrutiny. At
a competition law forum on December 7 in Hong Kong,
regulators from the PRC described their efforts to enforce
the country's "Anti-Monopoly Law" that took effect in August

2008. End summary.


2. (C) COMMENT: Private sector discontent with the draft
Competition Law bill will likely increase, once the HKG
announces the list of government-affiliated entities it
wishes to exclude from the new law's purview. Private
corporations in various sectors of Hong Kong's economy will
likely object to such exclusions, citing "unfair" advantages
enjoyed by many government owned or controlled entities
engaged in commercial activities (e.g. the convention center
in central Hong Kong). Should the list of excluded
government-affiliated entities be substantial, as expected,
the new law may have little impact on local corporate
competition dynamics - especially in Hong Kong's relatively
high number of oligarchic economic sectors. Given the modest
expected impact of the law, industry observers question the
HKG's motives in pursuing it. They say the HKG does not want
to be in the small minority of developed economies with no
specific, pan-economy statute governing anti-competitive
corporate behavior. End comment.

Background
--------------


3. (U) Federal Trade Commissioner William Kovacic spoke at a
regional corporate competition law forum on December 7 in
Hong Kong. He also met with government officials, academics,
the local consumer council, and a LegCo member to discuss
Hong Kong's proposed Competition Law. Hong Kong currently
has no specific law that addresses damaging corporate
behavior such as price fixing, bid rigging and
monopoly-building (other than a statute limited to the
telecommunications and broadcasting sectors). FTC
Commissioner J. Thomas Rosch also visited Hong Kong in
September 2009 to discuss the HKG's proposed new law
(reftel).

Draft Competition Law Coming by June 2010
--------------


4. (C) CEDB Undersecretary Greg So told Kovacic on December 8
that the HKG will deliver the draft Competition Law bill to
the LegCo by June 2010. He said the bill will establish a
judicial rather than administrative model to enforce
provisions governing anti-competitive corporate behavior.
The new Competition Law will set up a Competition Commission
to investigate and prosecute cases, while a Competition
Tribunal will be established as a specialized court within
the Judiciary to hear and adjudicate all cases related to the
Competition Law. Prosecutions under the new law will result
in civil rather than criminal penalties. So said the HKG is
inexperienced in prosecuting cases involving anti-competitive
behavior, and the government wishes to minimize prosecutions
of Competition Law offenders. He said CEDB has therefore
included an "Infringement Notice Scheme" in the draft bill,
under which the HKG will notify a party deemed to violate the
new law and offer an out-of-court settlement fine.


5. (C) So solicited Kovacic's advice regarding several
sections of the bill, including the best means to staff and
run the new Competition Tribunal. Kovacic supported the
Competition Tribunal concept and the HKG's intention to
develop specialized anti-trust skills among the judges
selected to sit on the Tribunal. Kovacic recommended that

HONG KONG 00000043 002 OF 002


Competition Tribunal judges also be given tasks and cases
outside the realm of the Competition Law, as a means to
attract the best candidates and boost their job satisfaction.
Given the relatively small size of Hong Kong's economy,
Kovacic recommended that the HKG establish good working
relationships with key foreign anti-trust regulators in the
much larger jurisdictions of Hong Kong's primary trading and
investment partners. This would enable Hong Kong to benefit
from those jurisdictions' "heavy lifting" on large cases that
affect entities operating in Hong Kong.

Government-Affiliated Entities To Be Exempted
--------------


6. (C) While the broadcasting and telecommunications sectors
will be covered under the new law, So acknowledged that
"several of Hong Kong's statutory bodies" would be exempted
from its enforcement. LegCo member Ronny Tong, a
longstanding proponent of the Competition Law, told Kovacic
on December 8 that the proposed exemption of
government-affiliated institutions "will be a major issue
when the bill is debated." He said, "Many engage in
commercial activities and are market participants. It would
be unfair if they were exempted." Kovacic noted that
regulatory bodies around the world were trending toward
bringing commercially active government entities under the
enforcement purview of competition laws.

PRC Officials Discuss China's AML
--------------


7. (U) After Kovacic gave the keynote address on December 7
at a regional competition law conference sponsored by the
Asian Competition Forum, senior PRC officials from the
Ministry of Commerce (MOFCOM) and the National Development
and Reform Commission (NDRC) updated forum participants about
China's efforts to enforce its "Anti-Monopoly Law" (AML) that
took effect in August 2008. Director of the Economic
Analysis Division in the Anti-Monopoly Bureau at MOFCOM Wang
Xuejia said MOFCOM concluded examinations of 60 proposed
mergers from August 2008 - October 2009. The majority of
reviewed cases were proposed mergers between foreign-owned
companies operating in China, with the next largest category
involving the proposed purchase of a Chinese company by a
foreign entity. MOFCOM's most well-known merger review
resulted in the PRC's March 2009 rejection of Coca-Cola's
proposed USD 2.4 billion purchase of China Huiyuan Juice
Group. Wang said MOFCOM "could have been more transparent"
and "probably should have provided more details about the
underlying analytical basis" for its decision in the
Coca-Cola case. She said her bureau was "staffing up" and
visiting foreign jurisdictions to "get best practices ideas."


8. (U) Deputy Director of the Anti-Monopoly Division of the
NDRC Xu Xinyu said his commission shares AML enforcement
duties with MOFCOM and the State Administration for Industry
and Commerce (SAIC). "Price fixing by cartels is our primary
area of focus, and over 30,000 enforcement officers are
looking into price fixing in China," he said. He said the
NDRC has 50 open investigations into price fixing and is
"working on price-fixing rules and regulations to be
published soon."

China's AML "Organizational Challenges"
--------------


9. (SBU) At the December 7 competition forum, Commissioner
Kovacic told participants he thought the PRC was working in
good faith and trying to make reasonable decisions while
enforcing its AML. He questioned the efficiency and efficacy
of China's current AML oversight and enforcement framework,
citing the "substantial organizational challenges" inherent
in joint AML efforts by three government entities - MOFCOM,
SAIC and the NDRC. Kovacic suggested that China should
consider joining the International Competition Network (ICN)
that fosters communication and cooperation among corporate
competition regulators from various nations. But he
acknowledged that Taiwan's membership in the ICN could
generate reluctance in Beijing.


10. (U) This cable has been cleared by FTC Commissioner
Kovacic.
MARUT