RESTRICTED
WORLD TRADE WT/WGTCP/W/47
25November 1997
ORGANIZATION(97-5180)
Original: English Working Group ontheInteraction
between Trade andCompetition Policy
SUBMISSION FROM NEW ZEALAND
Thefollowing communication, dated 20November 1997, hasbeenreceived fromthePermanent
Mission ofNewZealand withtherequest thatitbecirculated toMembers.
_______________
NewZealand ’sExperience withTrade andCompetition Policy Under the
Australia-New Zealand Closer Economic Relations Trade Agreement
Introduction
1. Theobjective ofthispaper istooutline NewZealand ’sexperience inrelation totrade and
competition policy under theAustralia-New Zealand Closer Economic Relations Trade Agreement
("CER"). First, thehistorical background andobjectives ofCER areoutlined. Secondly, themajor
Review ofCER which occurred in1988 andtheProtocol onAcceleration ofFreeTrade inGoods
arediscussed.Thirdly,therationalefordispensingwithanti-dumpingprovisionsisdiscussed.Fourthly,
adescription ofthechange incompetition lawinAustralia andNewZealand isprovided. Nextthe
significance oftheinstitutional similarities andtheirimplication fortrade andcompetition work by
other countries iscommented on.Finally, some conclusions aredrawn ontheimplementation ofCER.
Historical development ofCER
2. Bilateral tradehaslongbeenanimportant element intheclose relationship between Australia
andNewZealand. Various trans-Tasman1trade agreements havebeenentered into,dating backto
the1920s. Theconcept ofamore broadly based closer economic relationship between Australia and
NewZealand wasintroduced inajointannouncement inMarch 1980 bythethenPrime Ministers of
each country. CER came intoforce on1January 1983 andprovided theframework forthe
accomplishment ofafullfreetrade areabetween thetwocountries.
3. Australia andNewZealand havehadexport sectors thatwerehistorically based onagricultural
production andhaveshifted overrecent decades tobecome increasingly orientated toward manufacturing
andindustrial sectors. During the1980s, trade between Australia andNewZealand accounted for
approximately 17percentofNewZealand 'stotalworld trade butonly5percentofAustralia 'stotal
worldtrade.However,eachcountryhadbecomethemostimportantmarketfortheother'smanufactured
goods.
1TheTasman Sealiesbetween New Zealand andAustralia.WT/WGTCP/W/47
Page2
4. The1983CERAgreement wasbothareflection of,andacontributor to,growing trans-Tasman
economic integration intrade andinvestment. TheCERAgreement specified thegradual elimination
oftariffs onallgoods notspecified inannexes within fiveyears, theprogressive liberalization ofimport
quotas, acommitment towork towards theelimination ofalltrans-Tasman export subsidies anda
commitment toconsult withthepartner country onindustry policy issues thatmight affect trans-Tasman
trade. Allgoods weresubjected tothefreetrade objective from1983. Thedatefortariff elimination
under CER wasaccelerated to1990 withthesignature ofthe1988 Protocol ontheAcceleration of
FreeTrade inGoods. Thisprovided forthespecific exemption ofaverylimited number ofservices
onanegative listwhich hasbeenprogressively reduced. NewZealand 'snegative listofservices
currently includes postal services, andsome aspects ofairways services andcoastal shipping.
5. CER isanoutward-looking agreement which isconsistent withtheWTO. Theelimination
ofbarriers totrans-Tasman trade hasbeenaccompanied byaprogressive reduction intariffs against
thirdcountries byAustralia andNewZealand. Bothcountries sawCER aspartofawider effort to
improve their international competitiveness andfacilitate structural adjustment intheir respective
economies.
Complementary trade
6. Prior totheintroduction offullfreetrade ingoods in1990, some scope fortrans-Tasman
anti-dumping existed because Australia/New Zealand trade wasnotverycomplementary2innature.
Thissituation isreflected tosome degree inthenumber ofanti-dumping investigations which each
country hadconducted inrelation toimports fromtheother. From 1982-1990, NewZealand initiated
11dumping investigations intogoods ofAustralian origin. Duties wereimposed insixofthese cases.
From 1982-1983 to1989-1990, Australia initiated 33investigations intogoods ofNewZealand origin,
ofwhich 15commenced in1982-1983 andnoneatallin1988-1990. Inthefiveyears afterCERcame
intoforce (i.e.1983-1988), Australia hadimposed anti-dumping dutyongoods ofNewZealand origin
inthree cases.
7. Trans-Tasman trade has,toagreater extent thaneither country 'strade withthirdcountries,
beendominated byintra-industry traderather thaninter-industry trade. Since 1983, totaltrans-Tasman
trade hasgrown onaverage byabout 12percentayearto$A7.7billion in1995, while bilateral
investment hasgrown byabout 800percent, toabout $A13billion.
8. Afactor which mayhaveacted tolimitthescope fortrans-Tasman dumping isthehighlevel
oftrans-Tasman intrafirm investment andtrade. Forexample, some NewZealand companies are
subsidiaries ofAustralian companies andsome NewZealand andAustralian companies haveacommon
parent. Inaddition, several ofthelargest companies listed ontheNewZealand Stock Exchange are
alsolisted ontheAustralian Stock Exchange.
Review ofCER in1988
9. In1988, amajor review ofCER wasundertaken. Theagreements reached ontheoutcome
ofthatreview accelerated theimplementation dateforfullfreetrade ingoods (from 1995 to1990);
widened CERtoinclude tradeinservices anddeepened ittoinclude areas suchasbusiness lawwhich
could haveimplications fortrans-Tasman trade.
2i.e.Trade occurred insimilar products from thesame industries.WT/WGTCP/W/47
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10. Aspartofthispackage ofagreements arising from thereview, theProtocol onAcceleration
ofFreeTrade inGoods (the"Goods Protocol"), provided forbothcountries toeliminate tariffs,
quantitative import restrictions andtariffquotas ongoods originating intheterritory oftheothercountry.
ArticleFouroftheProtocolcalledfortheremovalofanti-dumpinglawandtheapplicationofcompetition
lawtorelevant anti-competitive conduct. Thiswasdone witheffect from 1July1990, thedateon
which freetrade ingoods came intoeffect.
11. Toassist intheenforcement oftrans-Tasman competition lawstheheads ofeachenforcement
agency (bothofwhich areindependent fromtheirrespective Governments), theNewZealand Commerce
Commission andtheAustralian Competition andConsumer Commission3(the"ACCC"), signed a
cooperation andcoordination agreement inJuly1994.
Rationale fordispensing withanti-dumping provisions
12. Theanti-dumpinglegislation,whichencompassedtrans-TasmantradepriortoJuly1990,covered
conduct which involved thedumping orsubsidization ofgoods which caused orthreatened material
injury toadomestic industry.
13. Forthepurposes ofthe1988Review, Australian andNewZealand officials prepared apaper
onanti-dumping andcompetition policy thatexplained thereasons forconsidering dispensing with
anti-dumping provisions. Thereasons areoutlined asfollows:
(a) whiletheoperationofanti-dumpingmayhavebeenseenasanecessaryremedytoreduce
distortions inthepattern ofinternational trade, inthecontext ofafreetrade area
established under CER, theretention ofanti-dumping provisions wasanomalous. As
atruetrans-Tasman market ingoods (andservices) developed, trade would become
typical ofdomestic rather thaninternational commerce;
(b) amajor objective ofCER wastoremove tariffs andquantitative import restrictions
(QRs) thatprotect domestic producers fromtrans-Tasman competition. Byimproving
access toeachothers 'market, CER hasenhanced thefreeplayofmarket forces and
promoted competition inboth countries 'markets. Asthecomplete removal of
trans-Tasman tariffs andQRsunder CER became areality attention needed tofocus
onsafeguard measures suchasanti-dumping which featured intheCER Agreement;
(c) ineffect, anti-dumping measures treated New Zealand andAustralian companies
differently. Itwasargued thatsuchtreatment wasincompatible withCERwhich aimed
totreatgoods traded between Australia andNewZealand onthesame basis. Further,
itwasputthatanti-dumping measures willbecome largely obsolete inafreetrade
environment. Thisisbyvirtue ofthefactthatthescope forprice discrimination
between domestic andforeign markets (aprecondition fordumping) wassignificantly
reduced bytheremoval oftrade barriers andanyincentive forprice differentials will
bereduced through theriskofretaliation bycompetitors andthepossibility ofarbitrage
(excepttotheextentthatquarantinerestrictionsortransportcostspreventreimportation).
Inessence, theestablishment ofafreetradeareaunder CERwould substantially reduce
theincentives andability forexporters todump;
(d) withthedevelopment offreetrade between Australia andNew Zealand concern
increased thatthebalance ofeffect from anti-dumping actions would betoprotect
3Formerly theTrade Practices Commission.WT/WGTCP/W/47
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inefficient oruncompetitive producers fromtherigours ofthecompetition opened up
byfreetrans-Tasman trade; and
(e) operational difficulties associated withanti-dumping actions alsorecommended the
efficacy ofdispensing withsuchmeasures trans-Tasman. Forexample, thestrong
deterrent effect fromtheannouncement ofadumping investigation caninitself cause
anexporter toreduce salesandweaken competition. Thedetermination of"normal"
value goods allegedly dumped andrelated calculations canbeextremely difficult.
Competitive exporters mayfindthattheyareunable toreduce highprofit margins to
compete onanexport market, possibly against domestic producers whoareselling
atminimal profit orevenataloss. Movement ininternational exchange ratesmay
also, technically, cause anexporter tobedumping aproduct. Theresolution ofa
dumping action bywayofpriceundertakings wasconsidered toorigidwithaminimum
period being imposed before areview canbeundertaken. Resolution bywayofprivate
arrangement between theexporter anddomestic manufacturers alsogave riseto
competition concerns.
14. Itwasalsoconsidered thatanti-competitive business practices byfirms operating across the
Tasman should besubject totheappropriate competition lawsofeachcountry. Theremoval of
anti-dumping lawsinrelation totrans-Tasman trade potentially exposed business inbothcountries to
anti-competitive actions which maypreviously havebeencaught byanti-dumping action. Itwasnot
intended thatcompetition lawsshould replace anti-dumping lawinthesense thatonewasanalternative
fortheother. Rather, themove toafullfreetradeareameant thatthetrans-Tasman market hadreached
astage where anti-dumping lawwasnolonger appropriate andcompetition lawhadbecome the
appropriate legislation toprovide protection tothecompetitive process.
15. Countervailing remedies, which dealwiththeinjurious effect ofsubsidized imports, continue
toapply totrans-Tasman trade.
Extension ofcompetition laws
16. Article Four oftheProtocol ontheAcceleration ofFree Trade inGoods called forthe
introduction ofcompetition lawstodealwithrelevant anti-competitive conduct affecting trans-Tasman
tradeingoods. Itwasdecided thatsection 46oftheAustralian Trade Practices Act1974andsection 36
oftheNewZealand Commerce Act1986would provide abasisforextending competition lawtocover
trans-Tasman trade. These sections arebothderived from Article 86oftheTreaty ofRome.
17. Section 36oftheCommerce Actprohibits aperson witha"dominant position inamarket"
fromusing thatposition forcertain anti-competitive purposes inthatoranother market inNewZealand.
Section 46oftheTrade Practices Actprohibits acorporation having a"substantial degree ofpower
inamarket", fromtaking advantage ofthatpower forcertain anti-competitive purposes inthatoranother
market inAustralia. Itwasrecognized thatsections 36and46already hadsome trans-Tasman
application. Forexample, section 36oftheCommerce Actapplies toanAustralian firmwithadominant
position inaNewZealand market totheextent thatitsbehaviour affects amarket inNewZealand
andsection 46oftheTrade Practices Actapplies toaNewZealand firmwithasubstantial degree of
market power inAustralia totheextent thatitsbehaviour affects amarket inAustralia. However,
section 36doesnotapply toanAustralian firmwithadominant position inanAustralian market to
theextent thatitsconduct affects amarket inNew Zealand andsection 46doesnotapply toa
NewZealand firmwithasubstantial degree ofpower inaNewZealand market totheextent thatits
conduct affects amarket inAustralia.WT/WGTCP/W/47
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18. ThetwoGovernments agreed toprovide fortheextended application oftheirrespective laws
inorder toprohibit thetypeoftrans-Tasman anti-competitive conduct referred tointheprevious
sentence. Theextended prohibition provisions aresection 36AinNewZealand andsection 46Ain
Australia which areexpressed insimilar terms tosections 36and46respectively (seeAppendix I).
Although sections 36Aand46Aarenotexpressed inidentical terms itwasconsidered thattheeconomic
principles andpolicy goalsunderlying thesections weresimilar andprovided thebasisforthelegislative
changes.
19. Akeypartofthereforms were amendments tothelegislation inbothcountries toallow the
development ofsymmetric jurisdictional, procedural andevidentiary provisions inrelation to
trans-Tasman proceedings under thenewprohibitions. Thenewframework provides that:
- eachcountry 'senforcement agency hasthepower toobtain information ordocuments
intheother country;
- eachcountry 'scourt maysitintheother country;
- evidence maybetaken, orsubmissions maybereceived, byvideo linkortelephone
from aperson intheother country;
- eachcountry 'scounsel maypractice intheother country;
- orders maybeserved intheother country;
- subpoenas maybeissued intheother country under certain conditions;
- onecountry 'scourts mayobtain evidence onbehalf ofthecourt intheother country;
and
- judgments andorders, including injunctions, made byeachcourtarereadily enforceable
byregistration intheother court.
Theeffect ofthepolicy changes?
20. Themisuse oftrans-Tasman market power provisions havebeeninplace forseven years.
Inthattime, neither theCommerce Commission northeACCC havetaken prosecution actions under
section 36Aorsection 46A. TheACCC hasreceived anumber ofcomplaints under section 46A.
None ofthesecomplaints weretaken pasttheinitial investigation stage. Onecomplaint hadthepotential
toinvolve litigation, butthecomplainant withdrew andwould notprovide further information for
commercial reasons. There hasbeen noprivate litigation taken inNew Zealand andonlyone
unsuccessful private action under section 46AinAustralia. Thiscaseconcerned arefusal bya
NewZealand company tocontinue tosupply leather careproducts toanAustralian distributor. The
action wasunsuccessful. Inparticular, insufficient evidence waspresented tothecourt totheeffect
thatthepurpose ofthetermination wasdamage to,orelimination ofacompetitor. TheNewZealand
Commerce Commission hashadtwomatters listed onitscaseregistry under section 36A. Preliminary
investigations found thatneither caseamounted toaprima faciebreach ofsection 36A.WT/WGTCP/W/47
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21. Thatthere havebeennosuccessful cases under sections 36Aand46Aisnotsurprising for
thefollowing reasons:
- competition lawimposes amuch higher evidential burden thananti-dumping lawin
bothcountries. Inparticular, there isarequirement toshow anti-competitive intent;
and
- thecourt-oriented procedures ofthecompetition regimes canbemore expensive than
theadministrative procedures under anti-dumping law.
Italsoconfirms thatcompetition lawsdonotdirectly replace anti-dumping laws.
22. Theother major effect isthatwhereas anti-dumping lawapplies onlytoallegations ofprice
discrimination, sections 36Aand46Aalsoapply tonon-price anti-competitive conduct. Bothcountries '
experience under sections 36and46isthatnon-price predation ismore common.
CER'sunique features andthetransferability oftheCER experience
23. Thepolicy decision toremove anti-dumping lawsandtoextend competition lawtotrans-Tasman
tradewasfacilitated bytheinstitutional similarities which existed between NewZealand andAustralia.
Inparticular, similar competition lawspromoted thedevelopment ofamutually acceptable treatment
oftrans-Tasman misuse ofdiscretionary market power. Thismade theextension ofthese provisions
tocover misuse oftrans-Tasman market power alessdifficult proposition. Greater differences between
NewZealand andAustralian competition legislation could haveresulted inanunbalanced regime in
which firms inonejurisdiction were given anadvantage overfirms intheother.
24. Inaddition, ashared legal heritage andsimilar judicial systems were veryimportant inthe
development ofsymmetric jurisdictional, procedural andevidentiary provisions. Bothcompetition
lawsarebased oncivilrather thancriminal remedies andprovide forprivate aswellaspublic
enforcement action. Accordingly, therewasnoneedforatrans-Tasman dispute settlement mechanism
asanti-competitive cases aredealtwithwithin theexisting jurisdictional structures according towhich
market isaffected. Thishasallowed bothcountries toretain anelement ofindependence onpolicy
matters andavoided theneedtosetupformal trans-Tasman supranational institutions.
25. Other factors thatcontributed tothefacilitation ofchanges tothecompetition lawshavebeen
thesimilar cultural backgrounds, theclose geographic proximity between thecountries, thesimilar
stages ofeconomic development, aconcurrent move toderegulate markets andmicroeconomic reform
designed todeliver competitive regulatory frameworks andthelongtradition ofbothformal andinformal
intergovernment dialogue.
26. Thedegree towhich othercountries cansuccessfully emulate theanti-dumping andcompetition
policy aspects ofCERwilldepend onthespecific circumstances existing between thecountries involved
andthedegree towhich similar facilitating factors exist. Thetrade andcompetition aspects ofCER
maynotbethebestmodel toadopt forcountries thathavesignificant differences between theirpolitical,
legalandeconomic systems, whilst othercountries maydecide thattheyhaveenough factors incommon
tomake suchanagreement aviable option.
Conclusion
27. Theremoval ofanti-dumping lawsandtheextension ofcompetition policy totrans-Tasman
trade wasaccomplished relatively smoothly bytheNewZealand andAustralian Governments. The
lowlevelofcomplaints received since 1July1990 wasnotunexpected.WT/WGTCP/W/47
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28. Thekeyfactors which made thetaskofsuccessfully accomplishing thetransition lessdifficult
areasfollows:
- while there wasconsiderable scope fordumping litigation given theleveloftrade in
substitutes, afactor which could haveinhibited dumping wasthedegree towhich there
wastrans-Tasman trade andintrafirm investment;
- theinstitutionalsimilaritieswhichexistbetweenNewZealandandAustralia,inparticular
closely aligned competition laws, reduced thedifficulties associated withimplementing
thenewchanges; and
- theelements which allowed thetransition fromanti-dumping lawtocompetition law
inthecontext offreetrade ingoods between Australia andNewZealand maynot
necessarily existbetween other countries whomayseektoadopt theCER provisions
asamodel.WT/WGTCP/W/47
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APPENDIX I
NewZealand Commerce Act
36A(1)[Prohibited purposes] Noperson whohas:
(a) adominant position inamarket; or
(b) adominant position inamarket inAustralia; or
(c) adominant position inamarket inNewZealand and
Australia -shallusethatperson 'sdominant position forthepurpose of-
(d) restricting theentry ofanyperson intoanymarket, notbeing amarket exclusively
forservices; or
(e) preventing ordeterring anyperson fromengaging incompetitive conduct inanymarket,
notbeing amarket exclusively forservices; or
(f) eliminating anyperson fromanymarket, notbeing amarket exclusively forservices.
Australian Trade Practices Act
[46A] MISUSE OFMARKET POWER -CORPORATION WITH SUBSTANTIAL DEGREE OF
POWER INTRANS-TASMAN MARKET
46A(1) Inthissection:
"conduct", inrelation toamarket, means conduct inthemarket either asasupplier oracquirer
ofgoods orservices inthemarket;
"impact market", means amarket inAustralia thatisnotamarket exclusively forservices;
"market power", inrelation toamarket, means market power inthemarket either asasupplier
oracquirer ofgoods orservices inthemarket;
"trans-Tasmanmarket"meansamarketinAustralia,NewZealandorAustraliaandNewZealand
forgoods orservices.
(2) Acorporation thathasasubstantial degree ofmarket power inatrans-Tasman market must
nottakeadvantage ofthatpower forthepurpose of:
(a) eliminating orsubstantially damaging acompetitor ofthecorporation, orofabody
corporate thatisrelated tothecorporation, inanimpact market; or
(b) preventing theentry ofaperson intoanimpact market; or
(c) deterring orpreventing aperson from engaging incompetitive conduct inanimpact
market ....