Falloon Andrew; Rurawhe AdrianANDREW FALLOON (National—Rangitata): Thank you Mr Assistant Speaker for the opportunity to speak this afternoon on the Commerce (Criminalisation of Cartels) Amendment Bill. I have the privilege of sitting on the Economic Development Science and Innovation Committee. As I've said on numerous occasions it's a very hard-working and collegial committee chaired by a very able chairman in Jonathan Young. But despite that collegiality of the committee unfortunately we have reported back the bill as a bar 1 so it's a very slim little report. We couldn't come to agreement on whether or not it should be passed. We did though benefit from the expertise of the former Minister of Commerce and Consumer Affairs Paul Goldsmith and I think he gave a very good speech earlier in the debate on setting out the reasons why National is voting against this bill despite what has been said this afternoon in support of it or I guess in opposition to cartel-like behaviour. We will be opposing the bill and I will run through a few of the reasons why. The first one is really because we're not satisfied that a criminal offence is required. There's a very substantial regime already in place around civil proceedings that are available to members of the public or indeed agencies should they feel that there is some sort of cartel-like behaviour occurring in industries or between companies. The threshold for a criminal offence is very very high. We need to be very very careful when we do create a new criminal offence that it is not creating a chilling effect which has been talked about a little bit in the debate this afternoon. There are two important tests in my view that need to be reached before you can create a new criminal offence. The first one of those is you need to prove that it is required and I've already talked about the fact that there is a civil regime in place that provides for very substantial penalties if cartel-like behaviour is proven. The second one is that it needs to outweigh the costs and there has been some discussion already about the effect that this bill could have on very well-meaning and very well-intentioned individuals and companies out there in the economy and how they behave. On the first test I need to turn to the excellent submission by the New Zealand Initiative. In their submission they start by saying that they accept that cartels may harm consumers and reduce welfare by enabling firms to raise prices above competitive levels. We also accept that cartels are difficult to detect." But they go on to say that "It is not clear that New Zealand has levels of cartel behaviour that warrant criminalisation. As at 2011 only 16 alleged price fixing cartels had been the subject of civil decisions by the New Zealand courts during the preceding 25 years and the maximum civil penalties have never been imposed. … Given the civil penalties already available criminalisation is unlikely to significantly increase … the deterrence or detection of cartel behaviour." So it's very questionable whether or not this bill is actually required. As the Initiative point out there's a substantial civil regime already in place. The most severe penalties have never been applied under the current regime so there's a question about why the Government wants to go further and include a criminal offence. They also provide some useful data on criminalisation which I think has been unfortunately lacking probably throughout the select committee process and in terms of what Government has presented to us or what officials presented to us about why this is required. They haven't proven the case as to why a criminal offence is needed. I then turn to my second point which is whether or not applying a criminal offence outweighs the cost of doing so. In their submission they identify that "The costs faced by businesses exposed to risk of criminal prosecution. Despite the clearance regime for collaborative arrangements there is a risk criminalisation will have a chilling effect on pro-competitive behaviour." I want to expand on that point because it is an important point which Treasury themselves identified a few years ago—in fact in 2011. They said "On balance it is difficult to see how the likely benefits of cartel criminalisation in terms of international cooperation would exceed the likely costs imposed on businesses the Commerce Commission and the Courts. The benefits from clarifying the laws around cartel behaviour can be achieved without the introduction of criminal penalties." I'll just repeat that last point because it is an important one: the laws around cartel behaviour can be achieved without the introduction of criminal penalties. The select committee considered these matters very very carefully and over quite a few weeks and one of the important points that we considered at length was around innovation because numerous submitters did raise in their contributions that they had a concern about chilling behaviour not just on the wider economy but also on innovation within the economy. One of the examples that was raised—which was also mentioned earlier by my colleague Melissa Lee—was around doctors and other medical professionals perhaps getting together in a community and I'll use Timaru as an example for argument's sake. It might be doctors getting together in Timaru and deciding that they are going to establish a maximum price for treating young people and I think we'd all accept in this House that that would be a good thing if that was to happen particularly if they come from low-income backgrounds. The problem with that of course is that to do that those doctors would essentially be agreeing to subsidise that operation by charging other patients higher fees and so that would trigger this bill or it would suggest there's cartel behaviour going on. Now I should point out that our officials did say that there is a regime in place for different companies or organisations to go off and get approval if they can prove there is no market benefit for them or no financial incentive for them to do so but I wasn't satisfied with that because the problem with doing that is there's a huge cost in doing so. It's tens of thousands of dollars to go off and get one of these approvals by the Commerce Commission to say that you're able to behave in this way. A huge cost is involved and so I just can't see why we would support that. The second issue that the committee grappled with was around franchises. Again there were some valid questions around whether or not franchises compete with one another or whether they essentially have a market to themselves. I think we'd all accept that perhaps McDonald's in Ashburton—there is only one McDonald's in Ashburton—would not be competing with other McDonald's franchises but that rule doesn't strictly apply perhaps to Starbucks in Wellington where they seem to be on pretty much every second corner. So if you've got a McDonald's franchise in Ashburton they would justifiably say that they are not engaging in cartel behaviour by fixing prices but that rule doesn't apply for other franchises. So that's one of the many reasons I think why the Franchise Association of New Zealand did oppose the bill. There were 20 submissions on the bill as has been heard earlier. The majority of those submissions were against the bill. The Franchise Association of New Zealand was just one of those but there was also a large number of some of our largest law firms in the country. I do want to turn first to Russell McVeagh's submission. In it they say "We remain of the view that the administration and the enforcement costs of the criminalisation of cartel conduct are likely to be disproportionate to any benefit and that the claimed deterrent effect does not outweigh or compensate for the potentially chilling effect it will have on pro-competitive collaboration between competitors." They go on to say that "The investigation enforcement and prosecution of offences facing significant criminal sanctions will be a significant departure from the Commission's existing expertise and experience in enforcing breaches through civil proceedings." and they go on to name five or six different Acts that will be included as part of that. One of the concerns I have is that given that there's this new power being applied to the Commerce Commission it just frankly comes down to resourcing because as we've seen in recent days there's been other legislation going through in the name of the same Minister Kris Faafoi which would provide for market studies and in fact it would give the Commerce Commission the ability to determine whether or not they have their own market studies. So that will put more work on to the Commerce Commission and this piece of legislation will put additional work on to the Commerce Commission. So that will be one of the many questions I will be asking the Minister during the committee stage. I did have a number of other points I did wish to make but I see my time is rapidly diminishing so I will leave those until the committee of the whole House. I'm sure members opposite will be very pleased to listen to them. I just want to wrap up by saying that we do support the overall intent of the legislation which is of course to reduce cartel behaviour but what we don't support is the criminalisation including creating another offence when it's not required. ASSISTANT SPEAKER (Adrian Rurawhe): This is a split call—five minutes."