Review of the Commerce Act - What has been decided?

Competition and Market Regulation Update

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Cabinet has announced a number of decisions following the targeted review of the Commerce Act undertaken by the Ministry of Business, Innovation and Employment. In this update we look at the announcement, which included a decision to seek further advice around the vexed question of section 36.        

The Decisions

Following a discussion paper, submissions and cross-submission, Cabinet has decided:

  • to repeal the cease-and-desist regime;
  • to establish an enforceable undertakings regime;
  • to allow the Minister of Commerce and Consumer Affairs to direct the Commerce Commission to undertake market studies; and
  • to invite the Minister of Commerce and Consumer Affairs to report back by 30 June 2018 before making final decisions on whether to proceed to a section 36 options paper.

We look briefly at each decision in turn.   

Cease-and-Desist Regime

What is it?

The cease-and-desist regime was introduced to the Commerce Act in 2001. Cease-and-desist orders are an alternative to the Commerce Commission seeking interim injunctions from the High Court. They enable the Commission to ask dedicated ‘cease-and-desist’ commissioners to order firms to halt conduct suspected of breaching the Commerce Act.

The cease-and-desist regime is considered cumbersome and has only been used once since it was introduced in 2001.

Our view

Given how rarely it is used, the cease-and-desist regime is unlikely to be missed by the Commerce Commission or the business community. From our perspective, it was a good idea that perhaps was the victim of the changing face of New Zealand competition law (including the industry specific regulation of players in the telecommunication sector, a fruitful source of competition action).   

Enforceable Undertaking Regime

What is it?

This would allow settlements to be registered as enforceable undertakings so any breaches can be quickly penalised by the courts.

These changes are aimed at strengthening the ability of the Commission to enforce settlements without the expense and uncertainty of litigation.

Our view

This is a move that is consistent with regulatory trends in other areas (such as fair trading) both here and in other jurisdictions.

It is also consistent with the undertaking regime in part III of the Commerce Act, which deals with undertakings to divest assets or shares as part of the merger clearance process.       

Market Studies

What is it?

A market study is detailed research by an institution into a particular market, or markets, where there are concerns that the market could be functioning sub-optimally. Market studies can be performed by the vast majority of competition authorities overseas.

The intent is that the Government will be able to direct the Commission to examine markets where there are potential issues rather than just waiting for breaches of competition law to occur, adopting a more proactive rather than reactive approach.

The Commerce Commission’s market studies power will only be exercisable at the direction of the Minister of Commerce and Consumer Affairs. The Commerce Act changes will include a high-level threshold that the Minister must have reason to believe has been met before initiating a market study (for instance, that the study is likely to be in the public interest or in the long-term interests of consumers).

The Commerce Commission will be able to make use of information gathering powers. The terms of reference for each study will establish the scope and timeframe for completion.

Our view

This decision is controversial given the potential costs to the private sector each time a market study is undertaken. In our submission made as part of the review, we opposed the concept for this reason and also because the existing regulatory regimes appeared to allow effective market analysis (for example, the enquiries into  milk prices and various studies by the Productivity Commission, which, among other things, considered competition law issues).  

We would expect the proposal to be carefully considered and debated as it goes through the legislative process. Ultimately the goal will be to have a cohesive and consistent policy approach to competition in markets across the various regulatory bodies and industries. Careful judgment will be needed as to when a market study will be appropriate (having regard to the relevant costs and benefits).                

Market Power Review

What is it?

The Government has also been considering changes to section 36 of the Commerce Act, around misuse of market power. The misuse of market power provision has been criticised as not being fit for purpose.

The Government's view is that the consultation process has demonstrated that section 36 does not work perfectly for some types of conduct; however it is not yet clear whether an alternative test would benefit competition or consumers. Officials will continue to look into this and will report back in mid-2018 before decisions are made regarding section 36 (including whether to proceed to a section 36 options paper).

Our view

This may be viewed as a 'kick for touch' given the weight of submissions against changing the current section 36. The decision to postpone making a substantive decision also allows New Zealand to see how the new Australian 'effects' regime is received (the regime is not enacted as yet and is before the Australian Parliament).                

Next steps and what about cartel reform?

We understand that Cabinet papers and regulatory impact statements will be published shortly.  Legislation will be introduced then to give effect to the relevant decisions. There will be an opportunity for public consultation via an exposure draft and through the usual select committee process.    

In the meantime, the 'cartel reforms' to the Commerce Act, introduced to the House with much fanfare in 2011, remain stalled before Parliament. Criminalising hard core cartel conduct is no longer on the agenda but we sense that the Government appears reluctant to push the final 'go switch' (which, among things, would bring international shipping within the Commerce Act regime).         

If you have any questions arising from this update or would like to discuss any competition related issues, contact one of our experts. 

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