Foss Craig: Commerce (Cartels and Other Matters) Amendment Bill — First Reading 
Text is incorporated into the Bound Volume 
Foss Craig: Commerce (Cartels and Other Matters) Amendment Bill — First Reading 
[Sitting date: 24 July 2012. Volume:682;Page:3868. Text is incorporated into the Bound Volume.] 
Hon CRAIG FOSS (Minister of Commerce) 
: 
 I move  
That the Commerce (Cartels and Other Matters) Amendment Bill be now read a first time. 
 I nominate the Commerce Committee to consider the bill. The bill amends the Commerce Act 1986 to deter hard-core cartel conduct by clarifying the scope of the prohibition against hard-core cartels and introducing criminal sanctions for serious offending. Although it might not be reflected in the title the other important aspect of this bill is that it encourages pro-competitive collaboration by encouraging an exemption for collaborative activity and a clearance regime. This bill also makes a number of other amendments to the Act including to the provisions that govern jurisdiction and penalties. 
The Government believes that a competitive innovative economy trading successfully with the world is the best way to build sustainable economic growth that creates jobs and grows incomes. Effective competition underpins the productivity of individual firms and the public sector and as a result plays an important role in the overall economy. The bill provides a vehicle to build a stronger more competitive economy by encouraging pro-competitive collaboration and innovation and deterring hard-core cartel conduct. 
Hard-core cartels are formed when rival firms agree not to compete with each other by fixing prices restricting outputs allocating markets or rigging bids. They cause harm to consumers and have a negative effect on economic efficiency. In 2010 Cabinet agreed to release a discussion document exploring the introduction of criminal sanctions for hard-core cartel conduct. Submissions identified problems with the current regime. In particular there was uncertainty over the scope of prohibition and whether it prohibited legitimate pro-competitive conduct. Submitters suggested that if the scope of the prohibited conduct was ill-defined then introducing criminal sanctions could exacerbate existing problems by having a chilling effect on commercial behaviour and increasing compliance costs. In response to this the policy process has focused on clarifying the law around hard-core cartel behaviour and ensuring that any changes support pro-competitive business arrangements. To facilitate this Cabinet agreed to develop and consult on an exposure draft bill. 
Turning to some of the amendments to the civil regime the bill amends the current prohibition on hard-core cartels which has been criticised as being unclear in scope. The amendments specifically prohibit price fixing restricting output allocating markets and bid rigging. During the policy process there was discussion about whether the prohibition would focus on the purpose or the economic effect of the cartel arrangements. Given the negative effects of hard-core cartels this Government considers it is important that the prohibition extend to both. It is not enough to say: “But my purpose wasn’t to fix prices.” when it was reasonably foreseeable that the conduct would have the effect of fixing prices allocating markets restricting output or rigging bids. 
To ensure that the bill encourages collaboration it has a number of key features. These include two new exemptions: the collaborative activity exemption and the exemption for vertical supply arrangements. It also introduces a clearance regime for collaborative activities. The collaborative activity exemption replaces the current joint venture exemption. It should make it clear to businesses that pro-competitive and efficiency-enhancing activities are encouraged under the Commerce Act not prohibited. The collaborative activity exemption has been designed so that businesses can assess for themselves whether their proposed collaboration falls within the exemption. It asks whether the collaborative activity has a legitimate collaborative purpose—in other words that the activity does not have a dominant purpose that is anti-competitive—and whether the cartel provision is reasonably necessary to achieve that purpose. The exemption for vertical supply arrangements ensures that vertical supply arrangements within a vertically integrated company which are commonplace and generally considered to enhance consumer welfare are exempt except where they have an anti-competitive purpose. 
The bill introduces a clearance regime that allows businesses to approach the Commerce Commission prior to entering into an arrangement. Clearance provisions provide confirmation for a business that the proposed collaborative activity would not breach the Act. These features act as safeguards to ensure that the bill appropriately targets anti-competitive conduct which harms New Zealand’s productivity and competitiveness. 
The introduction of criminal sanctions remains an area of contention. I believe that with the introduction of criminal sanctions New Zealand stands to benefit in three ways. First is the increased deterrence of hard-core cartels due to the severe sanctions associated stigma and possible restriction of an individual’s freedom. Second is the increased detection of hard-core cartels from improving the effectiveness of the leniency regime by increasing the value to the individual applying for leniency. The leniency regime is administered by the Commerce Commission and encourages cartelists to come forward in return for leniency. Third is an improved ability to cooperate and detect cartel conduct. This is particularly important for global cartels where information is more likely to be shared with countries that have criminal regimes. People who intentionally participate in hard-core cartels deserve to be sanctioned in the same way that those who participate in tax evasion fraud or other white-collar crimes are. For this reason the bill proposes that individuals be subject to a maximum criminal penalty of 7 years’ imprisonment. 
There is a real opportunity for the select committee process to add value by carefully considering the relationship between the civil regime and the criminal regime. We have the opportunity to enhance the workability of the regime where potential issues are identified in advance. I would encourage both competition law and criminal law specialists to consider the relationship between the two regimes and I will be particularly interested in the submissions that the select committee receives. 
The bill makes a number of other amendments aimed at resolving specific issues that have arisen since 2001 when the last major amendment was made to the competition provisions in the Commerce Act. I would particularly welcome the select committee’s views on the new regime which encourages parties to mergers that take place wholly offshore but affect a market in New Zealand to apply to the commission for clearance. The regime sets out a process that would enable the commission to apply to the High Court for a declaratory judgment that an offshore merger substantially lessens competition in a market in New Zealand. The High Court would then have the power to make an order against the New Zealand - based company to remedy the competition concern. 
The regime raises a number of issues that are more complex than meets the eye. As currently drafted the bill allows the Commerce Commission to apply for a declaration where an overseas person acquires a controlling interest in a New Zealand company. The controlling interest test in the bill creates a brightline test for overseas companies. However it sets a higher threshold for intervention than the test that would be applied if the merger was between two domestic entities. During the policy process some submissions suggested that it may be appropriate to have two different tests. This is a discrete but important issue and I will particularly welcome the select committee’s views. 
I would like to thank those who have contributed to the policy process for this bill so far. Your submissions have helped shape the bill that is currently before us. I hope that all stakeholders continue to engage with the select committee proceedings in a similar manner. New Zealand has a world-class competition regime. The competition provisions of the Commerce Act have not been subject to any substantial amendment since 2001. Consequently this is a significant piece of law reform that will ensure New Zealand is well placed in relation to its major trading partners. I commend the bill to the House.