Norman Russel: Commerce (Cartels and Other Matters) Amendment Bill — First Reading 
Text is incorporated into the Bound Volume 
Norman Russel: Commerce (Cartels and Other Matters) Amendment Bill — First Reading 
[Sitting date: 24 July 2012. Volume:682;Page:3875. Text is incorporated into the Bound Volume.] 
Dr RUSSEL NORMAN (Co-Leader—Green) 
: 
 I rise to speak on the Commerce (Cartels and other Matters) Amendment Bill on behalf of the Green Party. The Green Party will be supporting this bill. 
This bill essentially has a number of elements but the most prominent element of course is that it is introducing criminal sanctions for cartel behaviour. Essentially the rationale for that is one of deterrence. Currently those caught engaging in cartel behaviour which is basically anti-competitive behaviour to restrict competition and hence drive up prices for consumers and other businesses face financial penalties. They can be at an individual level or at a corporate level. At an individual level there can be significant penalties but there is no guarantee that the companies that are employing those individuals will not effectively indemnify them. Although it is illegal to indemnify them companies can effectively do it. So if a managing director is convicted under the current law and faces a fine then the company could give them a bonus the following year or so forth in a way to effectively mitigate the risk to any particular individual who might be caught engaging in cartel behaviour. Part of the rationale for this bill is to try to address that problem. To introduce real deterrence against cartel behaviour this bill will be introducing criminal sanctions. For that reason we think it is essential that we match our regulatory framework to that of Australia and introducing criminal sanctions is part of that. 
The reason why competition policy is very very relevant to New Zealand is the nature of our market. The OECD economic survey 2011 pointed particularly to the nature of New Zealand’s market being very small. In a number of sectors there are a small number of firms that dominate those sectors and this means that anti-competitive behaviour is more likely in New Zealand than perhaps in some larger economies where you would find many players who are competing with each other. When you look at some of our sectors you find that there are very few players. Whether it be banking whether it be shipping telecommunications or electricity there are a small number of players that dominate the sector. 
It is interesting when you look at shipping because currently shipping is exempt effectively from the anti-competitive provisions of New Zealand law. For those of you who remember the Ports of Auckland dispute one of the remarkable things that I did not realise until the Ports of Auckland dispute is that the shipping companies can lawfully engage in cartel behaviour and presumably do. I was looking to see whether this amendment bill would try to take on the shipping companies that are engaging in anti-competitive behaviour but it became clear as I read the bill that the Government does not have the courage to do that yet even though the Productivity Commission in its most recent report in I think April this year recommended that the Government head in that direction as the EU has recently done and remove the exemption for shipping industries from anti-competitive laws. The problem we have in New Zealand which a lot of other countries have but particularly a small country has is that the shipping companies engage in cartel behaviour to drive up the price of shipping from New Zealand to the rest of the world. So it seems to me that there is a strong argument for making sure that the shipping companies as well as other companies are covered by anti-competitive legislation particularly that around cartels. So we are disappointed that that is not in there. But none the less the bill is progress. 
I think when we are looking at why this bill is important an example of why we need some kind of criminal sanction is that of the Australian banks in the tax avoidance case. The tax avoidance case was the biggest theft from the New Zealand taxpayer that has ever been caught I guess. The Australian banks were found to have stolen around $2 billion from New Zealand taxpayers and eventually were forced to pay it back by the courts in New Zealand after the Inland Revenue Department went after them. Westpac and all the rest were caught stealing from the New Zealand taxpayer. Not a single person from any of those organisations went to jail—not one. No manager no managing director no director from the boards—none of them—went to jail. So from their point of view tax avoidance was simply a business proposition and when you look at it from that point of view it is just tax avoidance. You know the companies try to minimise the amount of tax they pay so they take advantage of everything that tax creates in our society—the basic institutional frameworks that are only possible because of tax. Civilisation is possible only because of the taxation system. But the Australian banks then stole from New Zealand taxpayers about $2 billion probably more and were finally caught. But they did that knowing that it was a purely commercial proposition because none of them was going to end up in jail—where they should have gone obviously. Anyone who steals that amount of money from the New Zealand Government should go to jail. That is why criminal sanctions are important—so that those who are engaged in this kind of activity whether it be anti-competitive activity or stealing from the taxpayer know that further down the track it will not just be a commercial proposition but they themselves could end up in jail. That is why this part of the cartel law is important to change—so that it is not just a commercial proposition and those who are engaging in this behaviour understand what will happen to them. 
The other issue I think that we have really struggled to get our heads round in relation to competition law in New Zealand is the application of competition law to large multinationals that are operating here versus New Zealand companies that are based in New Zealand and trying to export to the rest of the world. I would argue that we need an uneven playing field in respect of those two different kinds of companies. And the reason is this. If you have a number of multinationals operating in New Zealand often in an oligopolistic market—so a small number of players which of course is the nature of the banking sector for example—there is a temptation for those players to not operate in a competitive way and we have certainly seen that in the banking sector. When Labour the Greens and the Progressive Party had our banking inquiry in the last parliamentary term it was very clear from the evidence we got that it was only the entry of Kiwibank that substantially increased competition in the banking sector and that the big four Australian banks were operating in an anti-competitive behaviour in order to maximise profit and reduce competition for market share—because trying to compete for market share is expensive. So in terms of the way that we regulate those kinds of sectors we need very very strong regulation to maximise competition and we may also need as was the case in the banking sector the intervention of the State to put a real competitor in the field that could compete with the big Australian banks. That is what Kiwibank did and Kiwibank of course has driven down the cost of credit in New Zealand quite substantially and has saved the entire New Zealand economy many hundreds of millions if not billions of dollars by increasing competition in the banking sector. 
But when we look at the export sector when we look at New Zealand owned and based companies trying to export to the rest of the world it does not necessarily suit us to have exactly the same approach to competition. Fonterra of course is the obvious example. Parliament effectively created a monopoly in Fonterra. Although it is essential that we regulate Fonterra’s activities in the New Zealand domestic market so that we do not have higher prices of milk it is also important that Fonterra and companies like Fonterra have the critical mass they need to project into the rest of the world and sometimes that critical mass means being large players in the domestic market from whence they come. Applying exactly the same rules to New Zealand firms that are trying to project into a globalised world in an open market that we apply to multinational corporations that are operating in oligopolistic sectors within New Zealand does not make sense. So a level playing field is not always the most sensible way for a small open economy to regulate competition. We need to regulate competition in a way that maximises the advantages to New Zealand. So we reduce the cost to the consumer where you have large overseas-owned businesses operating in New Zealand but also allow New Zealand businesses projecting into the rest of the world to get the critical mass they need in order to effectively do that. 
I think that our thinking around competition policy is insufficiently sophisticated and needs to be more sophisticated. Rather than our taking a universalist view a kind of new-right economic ideology of what competition policy should look like we should adopt competition policy that makes sense for a small open economy a long way from its markets and that kind of competition policy needs to be rather more subtle and sophisticated than the kinds of policies we have seen out of this Government so far if we are to have the kind of economic development we need.