KEY POINTS:
Google the word "cartel" and what often emerges is a truckload of news stories prefixed by "Mexican drugs" or Colombian "drug- trafficking".
Not to put too fine a point upon it but these "cartels" are comprised of nasty criminals who squeeze their customers by obliterating the competition -
usually at gunpoint - then hold their consumers captive while they continue to thumb their noses at the law.
Google the word "cartel" then add "Paula Rebstock" and what is emerging is a raft of news stories linking some of New Zealand's most eminent companies with price-fixing and anti-competitive behaviour.
Commercial behaviour which is arguably just as egregious as that practiced by the Colombian and Mexican drug barons whose customers can effectively (at least at the start of their drug-taking careers) make a free choice whether to indulge or not in their craven addictions. Behaviour which international regulators are now taking a much tougher stance towards as they persuade Governments to introduce legislation to criminalise the more flagrant breaches of anti-collusive laws by cartels who are in effect stiffing their business customers.
Rebstock's own reputation as a "cartel buster" looks likely to be cemented after Monday's announcement that the NZ commission now has 13 airlines in its sights which it alleges have indulged in "extensive and long-term cartel activity" in the air cargo market.
The commission argues that the airlines first entered into an illegal global agreement in 1999/2000 under the auspices of their trade organisation, International Air Transport (IATA), to hike cargo prices through the imposition of a series of fuel surcharges during the 2000-2006 period.
In the gun are Air New Zealand - which has accused the commission of "grandstanding" - along with British Airways, Cargolux International Airlines, Cathay Pacific, Emirates, Garuda, Japan Airlines, Korean Airlines, Qantas, Malaysian Airlines, Thai Airways and United. Seven airline staff have also been named.
The commission argues various guises have been used by the alleged price fixers which are evidenced by their decision to uniformly pass on fuel cost increases to customers by the use of a fuel index linkage. The US Department of Justice ruled this as anti-competitive but airlines persisted with the practice.
The DOJ takes an aggressive stance: "Nothing in our enforcement arsenal has as great an effect as the threat of substantial incarceration in a United States prison - nothing is a greater deterrent and nothing is a greater incentive for a cartelist, once exposed, to cooperate in the investigation of his co-conspirators."
In New Zealand, the grant of immunity from commission-initiated proceedings is only offered to the first person involved who reports the cartel to the commission and offers to co-operate and provide information to it. If they don't fully co-operate immunity can be revoked.
Across the ditch, Qantas - which is reported to be banking its co-operation with the NZ commission will lead to a lighter penalty for its part in the global air freight cartel - has already been slapped with a $20 million penalty in Australia. The Australian airline says it hopes to reach an "appropriate settlement" with Rebstock's commission after assisting the Kiwi regulator for almost three years in its investigation. Other airlines in the alleged price-fixing ring could face fines of up to $10 million if no settlement is reached with the regulator and the courts find against the parties. At issue also is whether the decision to fix "security charges" levies on passenger air tickets and war risk insurance falls within the alleged collusion by airlines.
Rebstock could usefully take a closer look at the warning Reserve Bank Governor Alan Bollard has issued to Kiwi businesses to become more price conscious. It is staggering that the industries Bollard has singled out are not responding to his jaw-boning. Among them the electricity industry (where Genesis Energy has since signalled a 9 per cent price rise in Auckland), local authorities, the construction materials industry, food industry, petrol companies, transport industry and the banking sector - all key areas where prices ought to be trending downwards giving the lessening of market demands.
The Prime Minister has (rather ineffectually) tried to stiffen Bollard's arm.
But Rebstock might be a better candidate for getting to the bottom of just what is stopping the industries from responding: Real issues or collusive behaviour.
New Zealand was pretty late on the commercial cartel case. It took open jawboning by Australia's competition regulator Graeme Samuels before the commission swung into serious action here.
Rebstock has since isolated industry associations as a particular bugbear. The tendency by some of our best and brightest executives to take the easy route by the creative use of private monopolies, duopolies or oligopolies has (at times) tended to be hidden away behind the closed doors of industry associations where well-paid company chiefs ostensibly get together to talk about common challenges facing their sector.
But the commission is concerned that the executives may in some cases use their association to disguise the genesis of collusive price-fixing arrangements which ultimately result in price gouging of their business customers and ultimately reduced consumer choice.
Chasing such cartels to ground has became the "cause du jour" for international competition authorities after the OECD issued warnings about their deleterious effects.
Rebstock has built herself a tough reputation since she was appointed chairman of the Commerce Commission. She held out against proposals to bring Air New Zealand and its rival Qantas closer together on the critical transtasman route. Her commission's controversial decision to decline the sale of The Warehouse to either Foodstuffs or Woolworths was this year vindicated when the Court of Appeal reversed a High Court decision to allow the sale to proceed.
Some of those legal actions - particularly the commission's challenges to the two separate (successful) attempts by Air NZ and Qantas to move closer together - have been extremely costly to wage.
What ought to concern the business sector is Rebstock's 2007 warning that the commission expected to take four to six cases in each of the next two years. "Cases we are currently investigating are affecting the critical energy and transportation infrastructure sectors, and the health sector. They are affecting building costs, and office supplies, packaging, and inputs into basic industrial processes."
Markets with annual turnovers of up to $500 million were affected although some markets were as small as $2 million to $3 million a year.
While some of the cartels are domestic in origin many, are the NZ end of much bigger international cartels involving multinational companies. The problem with the existing environment is that when collusive behaviour is uncovered, board directors - who ought to be challenging uniformity of industry levies where they occur - tend to be let off the hook. For instance the High Court imposed record fines of $7.5 million on companies who were found to be members of a cartel in the wood preservative industry. Just one executive faced a $100,000 fine.
The underlying message from Rebstock's latest case is "don't mess with the commission". Companies need to be very careful they don't share pricing information relating to their customers with competitors.
