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Second Reading Of The Commerce Amendment Bill

Hon Paul Swain Speech Notes

Transcript Of Second Reading Speech Of The Commerce Amendment Bill (No 2) - 8 May 2001

I move that the Commerce Amendment Bill 1999 be now read a second time.

I note that we have a slightly unusual situation in that the Select Committee to which this Bill was referred has been unable to report to the House. This Bill was discharged from the Committee.

I am surprised that the opposition members of the Committee were unable to support the adoption of a report to the House. The Committee had already considered the provisions in this Bill at least once before. Most of the provisions were introduced to Parliament over a year ago. Some of them were considered by the previous Government when it was under the previous Minister's portfolio responsibility.

But having said all that, the measures in this Bill have been subject to a great deal of consultation and input from interested parties and experts. The Select Committee has previously considered all the provisions that are sourced from the Commerce Amendment Bill, SOP NO. 37 and the Commerce (Controlled Goods or Services) Amendment Bill that is under control of my colleague the Hon. Pete Hodgson.

In addition, the public has had the opportunity to be consulted through the release of two public discussion documents and numerous public seminars and workshops organised by the private sector.

This Government is committed to having an effective Commerce Act capable of promoting competition in New Zealand’s markets to the benefit of all New Zealanders. This Bill will achieve this goal.

I have spoken in this House before about the Government’s competition initiatives that are included in this Bill. Therefore I will only briefly run through them all.

We are inserting a new purpose statement in the Commerce Act to clarify that the Courts and the Commerce Commission should focus on promoting competition in markets for the long-term benefit of consumers within New Zealand.

Competition, where appropriate, can encourage greater productivity, innovation and lower prices in domestic markets. Consumers can benefit directly. New Zealanders’ ability to compete internationally and therefore to export successfully is enhanced. Firms should not be able to act anti-competitively and the effects on consumers of the actions of firms must be given weight in law.

Currently section 36 prohibits the use of a “dominant position in a market” to restrict entry or prevent competition. The Government considers that firms which have a substantial degree of market power should not be able to misuse that power. Only when the misuse of power has been addressed can the potential advantage of competition be realised. Therefore this Bill amends section 36, which is the critical section within the Act, to adopt the equivalent Australian provisions.

Similarly the prohibition against anti-competitive mergers in section 47 is amended to adopt the equivalent Australian provisions. Mergers and business acquisitions that substantially lessen competition will be prohibited. However, the Commerce Commission will retain the ability to authorise mergers if the public benefit outweighs any anti-competitive detriment.

The adoption of the Australian model has a number of advantages:

- It results in domestic competition policy being more closely aligned with international best practice and the approach taken by almost all OECD countries.

- It will reduce transaction costs to business by spreading the cost of testing the limits of competition policy across market participants in New Zealand and Australia; and

- In addition, it will increase the level of certainty as to the interpretation of the legislation. The Commerce Commission will be able to adopt tested analytical frameworks and apply them to the New Zealand situation.

The Bill also strengthens the enforcement regime under the Commerce Act. Currently the penalties and remedies of the Act are likely to be merely a cost of doing business for the largest firms in this country and in instances of large scale offending.

This Bill introduces a comprehensive package of measures to increase deterrence and ensure compliance. It addresses the level and range of penalties available and aims to increase the likelihood of detecting offending. It also increases the incentives for people to take private actions to supplement the actions taken by the Commerce Commission.

Can I add to that that the current penalties available to the courts are in the case of the most extreme, $5 million. We have decided to lift that to $10 million dollars as a basic rule of thumb. Many of the courts have basically divided that $5 million figure by ten, and that is what has been provided. So we thought we would up it to ten. When they divide by ten that may act as more of a deterrent than is currently available.

One of the things that we have found when the courts have been considering this is that many firms have been able to act anti-competitively factor in a very low penalty and thereby suffer very little cost even though they are denying competition within a market against another competitor and against the wishes often of the consumer who ultimately misses out. So for the firms that the current maximum penalty for anti-competitive behaviour is five million dollars, as I say, in practice penalties imposed on offenders are invariably a fraction of this. So to deter them the current maximum will be increased to $10 million with an alternative maximum of up to three times the value of the illegal gain, or 10% of a firm's annual turnover. There will also be a greater focus on penalising individuals within the firm who are responsible for making competition decisions. Now that is quite a significant issue. There was quite a lot of debate about that within the select competition. My view, and the Government's view, is that we have to give a very strong message that anti- competitive behaviour in New Zealand should not be tolerated. The generic piece of legislation called the Commerce Act has to be able to deal with that, and people have to get a very strong message that if they act within the law and act competitively then there is nothing to worry about. If they breach the law deliberately then they will face hopefully a higher level of penalty, and this should act as a deterrent for that behaviour.

The Commerce Commission is to be given more teeth to enforce the law. The Bill will include a new cease and desist order provision so that the Commission can intervene and stop anti-competitive conduct in a timely manner. In addition, if the Commission applies to the Court for an injunction it shall not be required to give an undertaking as to damages.

Finally, the Bill modernises the generic price control provisions in the Commerce Act. New Zealand is well known for its "light-handed" approach to economic regulation, but if this is to be effective, it requires a credible threat of greater intervention in the event of abuses.

The amendments to these price control provisions simply give the Commerce Commission more tools in the toolbox. They will have the option of imposing a wider range of incentive-based controls on a controlled firm, including for example CPI - X or sliding scale price and dividend controls if, and only if, such measures are warranted.

In totality this Bill greatly strengthens the operation of the Act. It confirms this Government’s commitment to having a dynamic, growing domestic economy that brings out the best in New Zealand producers and protects the interests of consumers.

In summary the Commerce Act has been around now since 1986. It was introduced by the fourth Labour Government. A fabulous piece of legislation. Labour always gets to do the hard bits. National tinkers around with them and if in the end decide that is too hard, do nothing. It is a kind of 'do nothing National Party' strategy. It had a little nibble at it prior to the last election because there was concern that after ten or so years the thresholds were creeping up and becoming ineffective.

So Max Bradford, the previous Minister decided that he would have a little lick at it three months before the election funnily enough. His suggestion was that he would change the wording to talk about high-market power. Well, no one knew what that was. In fact we all thought that because it was so close to the election it was an appeal to the Almighty. It had no actual wording associated in the legislation, and it would have caused great confusion. So the sensible Labour Opposition said that when it was in Government it would be shifting the legislation to take into account the Australian model, and thereby aligning ourselves more with Australia in order to be able to reduce the cost of business doing business across the Tasman. By and large that has been welcomed. We have made some significant improvements in terms of a number of particular issues particularly in relation to the new purpose statement that talks about consumers.

The original Act talks about competition and markets. We are saying that that is good; of course competition in markets is the goal, but there has to be an end point gain here and that is for the long-term benefit of consumers. So I think this is a good piece of legislation. The House has had plenty of time to look at it, and I urge the further passage of this Bill.


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