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The future of New Zealand competition law

Craig Foss
28 May, 2012

Thank you for the introduction and for inviting me to speak today. Based on the calibre of presenters and the agenda for the next two days, this year's conference will no doubt provide some challenging and stimulating discussion around competition law, policy and regulation in New Zealand.

I would like to start by explaining the government's key policy objectives, because these drive the reforms.

At the broadest level, the government has four key policy objectives for the next three years.

These are:
•responsibly managing the Government's finances;
•building a more competitive and productive economy;
•delivering better public services; and
•supporting the rebuild of Christchurch.

For New Zealand to realise its potential, it's essential that we build a more competitive and productive economy. Effective competition spurs innovation, which in turn underpins the productivity of individual firms and the public sector.

Competition law promotes a competitive culture in New Zealand, it is an important tool because it applies to all sectors, except those specifically exempt.

The Commerce Act is designed to incentivise competitive behaviour through prohibiting anti-competitive practices. Clear and robust legislation is an important part of the regime but it alone cannot achieve the Government's objectives.

I'd like to spend a moment commenting on the other institutions that have an important role to play: the Commerce Commission, the courts, commentators and you - the people that advise business.

The Commerce Commission helps build a more competitive and productive economy through administering and enforcing the law.

Over the past year the Commission has honed its focus on lifting voluntary compliance by placing greater emphasis on helping businesses understand what they need to do to comply with the law.

To do this, the Commission has focused on education initiatives and improving the quality of engagement with stakeholders. The work done to raise awareness in the construction sector is a great example of using softer methods to promote compliance with the Act, and it is my understanding that this has been very successful.

Advisors also play a significant role in ensuring that the competition regime operates as intended.

The Commerce Act does not set out prescriptive rules.

It is principle-based.

This means it is essential that advisors understand the purpose of the Act.

This enables advisors to provide savvy advice, which in turn will facilitate pro-competitive business transactions.

Courts also play an important role. High quality judicial precedent plays an integral part in building a more productive and competitive economy.

To the extent that cases come before the Courts, the Commission and advisors also have a role in influencing how the judiciary understands the purpose and structure of the legislation.

We cannot forget about the commentators. We need them.

Their critiques of decisions contribute to the quality of debate and ultimately improve the quality of decision-making.

Commentators generate discussion. This has to be a good thing. Academics and advisors can also play a role in holding the courts and the Commission to account. This contributes to quality debate on policy and legislative issues.

Similarly forums such as this conference allow a detailed discussion of developments in competition law and policy increase the capability of all institutions.

This makes it a real privilege for me to talk today because as Minister of Commerce I see my role as supporting the network of people and institutions that will help build a more competitive and productive economy.

This brings me to the final feature of our competition regime that is integral to the promotion of a competitive culture in New Zealand: the legislation.

As you will be aware, there are currently two bills before Parliament designed to improve the operation and enforcement of competition law in New Zealand. These are the Commerce Commission (International Co-operation and Fees) Bill, and the Commerce (Cartels and Other Matters) Amendment Bill.

The Cartels Bill in particular is a significant piece of law reform as the competition provisions of the Commerce Act have not been subject to any substantial amendment since 2001.

I know many of you here today have participated in the policy development of these Bills, and I commend those of you who have done so.

I would like to spend a few moments talking about how the Cartels Bill furthers the Government's policy objectives and key issues that were considered as part of the policy process.

The Cartels Bill is about enabling business.

It does a lot more than just criminalise hard-core cartel conduct.

It enbables business to entire into pro-competitive, innovative and efficient collaborative activity.

This Bill will:
• Clarify the scope of the prohibition.
•Introduce a collaborative activity exemption
•Introduce a clearance regime so that businesses can test with the Commission to find out whether their proposed collaborative activity gets the green light.

The initial stages of the policy process focused on whether or not to criminalise hard-core cartel conduct….so it is understandable that when people think about the Bill, they focus on criminal sanctions.

BUT, this Bill does so much more.

It aims to clarify the scope of the prohibition against hard-core cartels, in part by introducing the collaborative activity exemption. The scope of the collaborative activity exemption is broad and focuses on the substance of the activity, not the form of the arrangement. As a result, it should apply to all pro-competitive collaborations.

The collaborative activity exemption has also been designed so that businesses can assess for themselves whether their proposed collaboration falls within the exemption. The exemption sends a clear signal that the Government recognises that pro-competitive, innovative and efficiency enhancing collaborative activities are essential to New Zealand realising its productive potential.

The design of the prohibition is critical.

I don't think we would have achieved our policy objectives had we introduced criminal sanctions while retaining the current prohibition.

In considering whether to criminalise hard-core cartel conduct, my predecessor Simon Power had regard to the Legislative Advisory Committee Guidelines.

He identified three factors of particular relevance and I'd like to spend a moment discussing these.

The Guidelines suggest that regard should be had to the following questions:
•Will the conduct in question, if permitted or allowed to continue unchecked cause substantial harm to individual or public interests?
•Is the conduct that is to be categorised as a criminal offence able to be defined with precision?
•Would public opinion support the use of the criminal law, or is the conduct in question likely to be regarded as trivial by the general public?

These questions are crucial because they focus both on the legislative design but also on the role of the various institutions in making the regime work.

During the policy process some submissions suggested that the scope of the prohibition was unclear and may prohibit pro-competitive conduct. To some extent, some of the discomfort with criminalisation appeared to be a product of uncertainty about the current law.

Given the feedback about the current prohibition, answering the questions posed by the Guidelines becomes problematic. Obviously if the current prohibition seems to capture or hinder pro-competitive behaviour from occurring, allowing this to continue does not cause substantial harm.

A large part of the policy process was about listening to competition law experts and business about how we could get the design of the Bill right.

The Bill specifically aims to clarify the scope of the prohibited conduct and provide safeguards - namely the collaborative activity exemption and clearance regime - to encourage businesses to continue to find ways to collaborate and innovate in a way that builds their productive and competitive capacity.

The government is not shy about the fact that people intentionally participating in hard-core cartels deserve to go to jail.

Any behaviour that distorts prices and undermines the competitiveness of New Zealand markets - is not acceptable.

People that intentionally participate in hard-core cartels deserve to be sanctioned in the same way as those that participate in tax evasion, fraud and other white collar crimes.

We know these are significant changes. To provide greater certainty, the government has invited the Commerce Commission to:
•Develop prosecution guidelines that outline when they would take a criminal prosecution; and
•undertake further advocacy work to promote better understanding of the prohibitions in the Commerce Act.

These reforms will also have a significant impact on the operation of the legislative regime. Cabinet has agreed to sequence the introduction of the new regime so that the majority of the regime will come into force on the day the Act receives royal assent, but to delay the commencement of criminal sanctions. This should leave sufficient time for the regime to bed-in, alleviating some of the uncertainty.

While the amendments arose from the question of whether or not to introduce criminal sanctions for hard-core cartel conduct, the Bill does much more.

The design means that the focus should no longer be on criminal sanctions, but rather on facilitating pro-competitive collaborative activities.

The industry's focus must change.

If everyone continues to focus on criminal sanctions - we will miss a real opportunity to improve the current regime.

I anticipate that the Bill will receive its first reading soon, but the exact timing will depend on Parliamentary priorities.

The Bill will then be referred to the Commerce Select Committee for consideration. Select Committee provides an opportunity for legal practitioners to add value, both by identifying areas where the proposed regime could be improved, and highlighting the features of the regime that are an improvement on the current regime.

Constructive input into the legislative process at this stage is invaluable, and helps ensure that the regime has the robustness to stand the test of time.

Another important part of this suite of reforms is the Information Sharing Bill, which also ties into the amendments of the Cartels Bill. The ability for the Commerce Commission to share compulsorily-acquired information with equivalent overseas regulators is another lever the Government can use to deter anti-competitive behaviour, especially behaviour that takes place overseas but affect New Zealand.

Both the Cartels Bill and the Information-Sharing Bill represent significant reforms for New Zealand competition law, and go directly towards achieving the Government's policy objective of building a more competitive and productive economy.

As I have mentioned, this does not mean that competition law acts within a vacuum. The Commission, the Courts, commentators and advisors have a vital role to play in ensuring the workability of the law. In this context I urge you to consider the Cartels Bill and the policy intent behind it, and encourage you to participate in the Select Committee process by identifying features of the Bill that represent an improvement, and where the Bill could be enhanced.

Again, thank you for providing me with opportunity to address you today, and I wish you all the best for the rest of the conference.