New teeth in sweeping changes to commerce law

By BRIAN FALLOW economics editor

Parliament has passed into law the most sweeping changes to New Zealand's competition law since the passage of the Commerce Act 15 years ago.

Commerce Minister Paul Swain said the Commerce Amendment Bill (No 2), passed on Wednesday night, gave the Commerce Commission more teeth and brought New Zealand into line with its key trading partner.

The new legislation has lowered the threshold at which a merger or acquisition needs approval by the Commerce Commission.

The present test is whether it would create or strengthen dominance in a market.

That has been replaced by the Australian test: Would it substantially lessen competition?

The other main change relates to section 36, the central provision against abuse of market power.

Previously it applied only to "dominant" firms. Its scope has now been widened to cover firms with "substantial market power, " again in line with the Australian Trade Practices Act.

Penalties for breaches of the competition laws have also been toughened, putting greater emphasis on penalising individual offenders and not just companies.

But companies which breach the act will face a maximum penalty of the greater of $10 million or three times the actual or expected commercial gain from the anti-competitive activity. Or, if that is incalculable, 10 per cent of the company's turnover.

The former section 36 applied only to dominant companies and prohibited the use of their dominant positions for the purpose of restricting, preventing, deterring or eliminating competition. Its critics say:

* The way the courts have interpreted the dominance threshold has narrowed the range of firms the section applies to far more than Parliament originally intended.

* The Privy Council, in a landmark ruling in Telecom v Clear, adopted too restrictive an interpretation of "use."

* The existing section 36 does not provide guidance on the extent to which courts can infer a company's purpose from its actions and surrounding circumstances.

In February the commerce select committee said: "Government members are reassured by evidence from the Commerce Commission that the special characteristics of the New Zealand market would be considered in applying the Australian test."

The previous Government had proposed replacing dominance with "high market power," but the Coalition believes that would create too much uncertainty as the words would be unique to New Zealand.

It hopes to get around the Privy Council's restrictive interpretation of "use" by replacing it with "take advantage of."

The change should direct the New Zealand courts to adopt the more flexible approach used by the High Court of Australia.



On proof of purpose, the select committee was unanimous that the legislation should spell out that a firm's purpose might be inferred from relevant conduct and circumstances.

But Opposition members opposed lowering the threshold to substantial market power. They also opposed a similar change to the section on mergers and acquisitions, which would allow the Commerce Commission to block them if they would "substantially lessen" competition.

National and Act argue that such a threshold is too restrictive for a country as small as New Zealand.

They say it would stunt the growth of companies and prevent them attaining the size necessary to compete in global or even transtasman markets.

The committee's report gave some credence to that view: "We recognise that small economies may have to tolerate more concentrated markets in order to obtain economies of scale.

"This may become more important as New Zealand companies seek to compete in a globalised marketplace. On the other hand, in small economies there are greater risks that market power will endure for longer periods of time."