Introduction

In the first day of the Workshop, we have discussed the concept of competition policy and considered, amongst others, deregulation as a tool for competition policy and the role of corporatisation and privatization in achieving the objectives of competition policy. There is no doubt that all these are important issues. However, I would suggests that "open market" is the fundamental basis for successful implementation of any competition policy. In this presentation, I will outline the basic principles enshrined in an open market approach and discuss the role of government in an open market with particular regard to the services sector and occupational regulation. I will also share with you Hong Kong's experience in this respect.

Objectives of Competition Policy

First of all, we may consider briefly the objectives of competition policy. I think all will agree that the primary objective of competition policy is to promote competition, which is the process of active rivalry in the market among producers as they strive for the patronage of buyers for their products and services. But obviously competition is not an end in itself. What we try to achieve through competition is the efficient allocation of resources for benefits of producers, consumers and the economy as a whole.

Producers benefit from a competitive market, where they are free to compete with one another on the economic merits of their products and services. In order to stay ahead of competitors, they would try their best to engage in innovations and product and service improvements. Those who are able to be most responsive to consumer demands and deliver goods and services of the best quality, in the greatest variety and at the lowest price, will be duly rewarded by gains in sale, market share and profits. Consumers benefit as a result since they will have access to a wide variety of goods and services at low prices.

The economy as a whole benefits because resources are put to their optimum use. In addition, through the process of intense competition, both domestically and internationally, competitiveness of the local producers in a globalising world economy are greatly enhanced. They become most adept at responding quickly and effectively to the changing circumstances in the international market. It is more than coincidence that an economy with a competitive domestic market always comes out to be a formidable competitor in the world market.

Principles enshrined in an Open Market Approach

Competition, and the benefits it brings to an economy, however, are not something which can be taken for granted. In the absence of the appropriate conditions, competition will not take place automatically. A competition policy is therefore needed to create and maintain an environment which are conducive to competition and encourages competitive behaviors. Here is where an open market, which in my view is the fundamental basis for successful implementation of any competition policy, comes into play to foster competition.

I suggest in the following some basic principles which should be enshrined in an open market approach to competition policy ��

• First, the fundamental principles of the GATT, that is, the principles of the most favoured nation and national treatment. The essence is no discrimination. By eliminating discriminatory treatment, all producers, irrespective of their origin, can compete on a level playing field in the market. These principles provide the best framework for the working out of comparative advantage internationally. As explained, it is through this process of rivalry among producers that economic efficiency, international competitiveness and consumer welfare can be enhanced.

• Second, removal of market barriers, both entry and exit. This ensures that traders and producers are exposed to acute competition not only domestically but also internationally.

• Third, comprehensive coverage. The open market approach needs to be applied to both the goods and services markets in the economy.

• Fourth, any departure or exemption from the above principles on the part of the government should be an exception rather than a norm and strong justification is required.

Role of Government in an Open Market Approach

What should be the role of government in an open market economy? We do see a unique role for government. A role that will squarely meet the four basic principles of open market I just mentioned. Based on Hong Kong's experience over the past forty years, I would suggest the following three points -

• to provide the legal and regulatory infrastructure which underpins free and fair markets;

• to encourage enterprise through small government and low, stable and predictable taxation; and

• to manage public finances to meet the community's priorities for a modern infrastructure, better homes and health care, better schools and social welfare.

The first point regarding the provision of legal and regulatory infrastructure which underpins free and fair markets is particularly relevant. The role of government is neither to dictate nor to direct. Markets do take care of themselves by continuous self-adjustment through the competition process. What the government must do in practice is to constantly resist the temptation or pressure to intervene; and where possible, to de-regulate and liberalize existing markets which are less than free and open to competition. We should always remember that business decisions should best be left to businessmen and never to bureaucrats.

Having said that, however, where necessary, government shod take appropriate and pragmatic measures to rectify any unfair and deceptive business practices which impede market forces, distort competition and jeopardize consumer interests.

Apart from the above measures, we recognize that there are circumstances where free competition may not be practicable, for example circumstances ��

• where a very high level of investment is required;

• where there is a need for prudential supervision; or

• where there is a need to protect the long-term interest of consumers.

In such circumstances, there may be a role for government to establish some regulatory mechanisms with a view to achieving a reasonable balance between a justified monopolistic or oligopolistic situation on the one hand, and the benefits of quality services and fair prices on the other.

When we talk about open market, we refer not only to goods but also services; not only to some specific sectors but all sectors. Coverage of the open market approach should be as comprehensive as possible. It will only be counter-productive for government to open certain aspects of the market but at the same time, impose special treatment and anti-competitive measures on the market players. Such inconsistency undermines the effectiveness of the competition policy and the overall efficiency of the economy. The abusive use of anti-dumping measures in trade policy is a case in point.

Anti-dumping measures may have a noble origin aiming to curb cross-border anti-competitive predatory pricing practices, but a great many of their present applications are now reduced to no more than a protectionist tool in disguise, protecting merely those inefficient domestic producers at the expense of consumers at large as well as of overseas suppliers. The protectionist abuse of the administering authorities is of course to blame, but of no less importance is the fundamental question of why pricing practices of foreign suppliers should still be subject to a separate set of competition criteria in this globalising world economy. Moreover, one is justified to ask why in the face of the basic GATT principle of national treatment, discriminatory treatment in competition and anti-dumping investigations for the same pricing behaviors of domestic and foreign firms should still be tolerated. I will invite our distinguished delegates to critically look at the questions in pursuit of open market and the enshrined principles of competition.

Service Sector

Now I will mention briefly trade in services and occupational regulation in the context of an open market approach.

Trade in services has grown in importance in recent years. In 1995, the world exports of commercial services reached US$1,230 billion, a 14% increase from 1994. Efficient provision of services such as telecommunications, financial services, and professional services is of critical importance to the overall development of all economies.

Generally speaking, trade in services at present is not as open to competition as trade in goods. However, there is no reason to believe that it should not and why it could not be subject to the same competition rule in the future. The basic principles enshrined in an open market approach, namely, the most favoured nation clause, national treatment and removal of market barriers etc., are as relevant in the services sector as in the goods sector. The General Agreement on Trade in Services under the Agreement establishing the World Trade Organization, which establishes a framework for negotiating market access on a most favored nation basis, has provided an excellent starting point. It is important that all should keep up the momentum for further liberalization on the basis of the Agreement.

Specifically, we should regularly revisit current restrictions in our service industries to see -

• whether these measures/restrictions are absolutely necessary;

• whether the benefits brought by these measures/restrictions outweigh possible hindrance to the competitiveness and eventual development of the service sector concerned; and

• whether we can strike a balance so that the restrictions can be relaxed or systematically phased out and our service industries can be progressively opened up for full competition.

Occupational Regulation

As I mentioned before, there may be circumstances where deviation from the general open market approach on the part of the government may be justified and, indeed, necessary. Occupational regulation is a case in point. Two of the most prominent justifications are to reduce information cost and to ensure public safety. To illustrate, a patient cannot always afford the time and efforts, and possess the necessary expertise, to shop around and look for a suitable doctor for treatment. In the circumstances, it will be cost effective and in line with public interest for a government to put in place a mechanism to restrict provision of medical services to those who have obtained a specified professional qualification. This equally applies to other professional services, such as accountancy, architecture and surveying. Often, control in these sectors is achieved by some form of government authorized schemes of self-regulation.

The application of government regulation should, however, be subject to regular and critical review. Departures from the general principles should be kept to a minimum; and where possible, selective areas of a regulatory regime should be opened up so as to make room for market discipline to work. Moreover, any tendency to abuse the de-facto monopolistic position and to erect unjustifiable market entry barriers by the self-regulating professions should be curbed as early as possible. The challenge we face in the liberalization of trade in professional services is how to maintain the right balance on the need to guarantee professional standards on the one hand, and to guard against unintentional hindrance to foreign entry and external competition created by regulations on the other.

Hong Kong Experience

Let me conclude this presentation by drawing our experience from home. The Hong Kong Government is fully committed to the promotion of free trade and competition which is the best guarantee of economic efficiency, low prices and consumer protection. We also fully subscribe to the economic philosophy of minimum government intervention in market forces, which we firmly believe is the best formula for enhancing competition and efficiency on the one hand, and keeping costs and prices down on the other. Last year, the Heritage Foundation's Index of Economic Freedom ranked Hong Kong as the freest economy in the world.

To put the philosophy into practice, externally, we maintain practically no tariff, no quantitative restrictions on foreign goods, and no capital flow restrictions on foreign investment. Internally we adopt a minimum intervention approach in the running of the economy, as we firmly believe that business decisions should best be left to businessmen. Barriers to market entry is virtually non-existent. This is partly illustrated by the dominance of small and medium enterprises in Hong Kong. They account for more than 98% of all Hong Kong's enterprises and over 60% of the total employment and sales in the economy.

We do recognize that there is scope for liberalization in the services sector and we are undertaking liberalization initiatives in this respect. Some examples of these initiatives include ��

• on telecommunications, local fixed telecommunication network services have already been opened to competition. A total of four companies are now licensed to provide all forms of fixed network services in competition with each other. Comprehensive safeguards have been included in the license conditions to protect consumer interests, promote fair competition and prevent anti-competitive practices;

• on broadcasting, as a matter of policy, the government has incorporated free competition clauses in all broadcasting licenses renewed since 1994. All licenses now include such clauses which should help to ensure that broadcasters do not engage in unfair or anti-competitive trade practices;

• on medical services, legislation was amended last August to provide for the introduction of a universal licensing examination for the registration of medical practitioners in Hong Kong. This provides a level playing field to those seeking to enter the profession in Hong Kong; and

• on legal services, the government is preparing legislation to abolish mandatory fee scales for conveyancing and probate work in order to promote competition and enhance consumer interests.

Hong Kong is a totally open economy which exposes its traders and producers to acute international competition. The Hong Kong Government's policy of promoting free trade and competition has not only met the needs of traders and producers but also served Hong Kong well. We are one of the fastest growing economy in the world; and our international competitiveness is well recognized. The World Economic Forum and the International Institute for Management Development in Switzerland have ranked Hong Kong second and third respectively in their 1996 leagues of the world's most competitive economies.

We believe that the best way forward in the development of an effective competition policy is to keep the market open. At the same time, we continuously ascertain what anti-competitive practices exist in those major business sectors affecting the daily life of the general public. To this end, we have commissioned the Consumer Council, a statutory body established to protect consumer interest, to conduct a series of policy studies on the state of competition in six business sectors and to provide an overall assessment of the competition environment in Hong Kong. In the light of the findings of the Consumer Council and the views of the community, we will consider whether any additional administrative or legislative measures are required to promote competition in Hong Kong.

With these remarks, I conclude my presentation. Thank you for your attention.

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