Foss Craig: Commerce (Cartels and Other Matters) Amendment Bill — Second ReadingText is incorporated into the Bound VolumeFoss Craig: Commerce (Cartels and Other Matters) Amendment Bill — Second Reading[Sitting date: 24 June 2014. Volume:699;Page:18849. 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 second time. The National Government supports New Zealand’s business growth both in domestic and international markets. This bill will improve the competition regime provide greater protection for consumers and encourage innovation—all key elements of our Business Growth Agenda. New Zealand is a small economy dependent upon export markets. Often this means we have to find innovative ways to do things. The Commerce (Cartels and Other Matters) Amendment Bill enables this.Effective competition enables and drives innovation and productivity. In contrast anti-competitive conduct including hard-core cartel conduct lifts prices above competitive levels to the detriment of consumers. One of the bill’s objectives is to deter hard-core cartel conduct by clarifying the scope of prohibited behaviour. More specifically it prohibits price fixing market allocation and output restrictions between competitors. Bid-rigging is also prohibited but this conduct is generally considered to fall within the definition of price fixing.A key feature of the regime is the new collaborative activity exemption which enables businesses to assess for themselves whether a proposed collaboration falls within its scope. The first element of the new exemption asks whether there is a collaborative activity. This is an activity carried out cooperatively for a legitimate collaborative purpose. A collaborative activity could include joint research and development sharing risk in a long-term infrastructure investment or delivering an efficient marketing and distribution system through a franchise agreement.The second element of the exemption asks whether engaging in cartel conduct is reasonably necessary for the purposes of the collaborative activity. This element is important because it allows businesses and the Commerce Commission to test whether the participants could achieve a comparable outcome through practical and significantly less restrictive means. I would be looking to the courts to draw on comparable US and Canadian case law when thinking about how the test should be applied in the New Zealand context.Through their usual practices of analysing the options and objectives of their activities businesses should be able to determine whether they meet the exemption requirements. Where businesses are unsure whether an activity might risk breaching the Act they can apply to the Commerce Commission for clearance. Over time as the commission documents its reasons for decisions these clearance decisions should form a body of precedent.The Commerce Committee suggested a number of useful amendments to the bill. These included clarifying the relevant point in time at which a collaborative activity is assessed. The committee also suggested allowing the Commerce Commission to revoke determinations that give clearance to a proposed collaborative activity where there is a material change of circumstances. This is a helpful amendment because it ensures that consumers are not harmed as a result of material changes in market conditions while at the same time it provides procedural safeguards for businesses to undertake long-term investments. The onus would be on the commission to show that the change was material. In addition the commission would be required to give interested parties the opportunity to make submissions.Another important change to the clearance regime allows the commission to assess the arrangement to determine which provisions might be cartel provisions. Notably the committee endorsed the introduction of criminal sanctions for hard-core cartel conduct. This change aligns New Zealand with Australia and some of its major trading partners. The committee noted the view that criminal sanctions should be reserved for conduct that is truly culpable. I am pleased with where the bill has got to on this issue. To attract criminal sanctions a person should have acted with intent or at the very least with a disregard for the consequences. In terms of process where conduct is sufficiently serious the commission would make a recommendation to an independent panel convened by the Solicitor-General. The panel would then determine whether prosecution was appropriate. The process recognises that only serious or recidivist conduct should be subject to criminal sanctions.I turn now to the Commerce Committee’s recommendation to transition the regulation of competition in international shipping to the Commerce Act. I invited the committee to consider the transport issues alongside the bill. Work on this issue was initiated by the Productivity Commission in its international freight services inquiry. The commission recommended that the exemption for international shipping be removed. The committee called for submissions on whether safeguards built into the Commerce Act and the bill would provide sufficient flexibility for international shipping lines to collaborate. Submissions to the committee informed the Government’s decision to transition international shipping to the Commerce Act regime. The changes will bring the industry into line with general competition law. It also puts international shipping in the same position as coastal shipping. This should ensure effective oversight of an industry that is vital to our exporters. It is pleasing to note that the committee endorsed this decision.With a review of the Civil Aviation Act already in progress the committee recommended that transition to a Commerce Act regime be considered as part of that process. I look forward to the outcome of that review.The National Government champions competition. Exemptions from competition law may be considered on a case by case basis but they should always be justified on public benefit grounds. I would like to thank members of the committee for their work. I am very pleased with the outcome and look forward to further enabling firms to compete innovate and trade successfully. This Government understands that a competitive and innovative economy is the best way to build sustainable economic growth which creates jobs and grows incomes. I commend this bill to the House.