Commerce (Cartels and Other Matters) Amendment Bill

I move, That the Commerce (Cartels and Other Matters) Amendment Bill be now read a first time. I nominate the Commerce Committee to consider the bill. The bill amends the Commerce Act 1986 to deter hard-core cartel conduct by clarifying the scope of the prohibition against hard-core cartels and introducing criminal sanctions for serious offending. Although it might not be reflected in the title, the other important aspect of this bill is that it encourages pro-competitive collaboration by encouraging an exemption for collaborative activity and a clearance regime. This bill also makes a number of other amendments to the Act, including to the provisions that govern jurisdiction and penalties.

The Government believes that a competitive, innovative economy trading successfully with the world is the best way to build sustainable economic growth that creates jobs and grows incomes. Effective competition underpins the productivity of individual firms and the public sector, and as a result plays an important role in the overall economy. The bill provides a vehicle to build a stronger, more competitive economy by encouraging pro-competitive collaboration and innovation, and deterring hard-core cartel conduct.

Hard-core cartels are formed when rival firms agree not to compete with each other, by fixing prices, restricting outputs, allocating markets, or rigging bids. They cause harm to consumers and have a negative effect on economic efficiency. In 2010 Cabinet agreed to release a discussion document exploring the introduction of criminal sanctions for hard-core cartel conduct. Submissions identified problems with the current regime. In particular, there was uncertainty over the scope of prohibition and whether it prohibited legitimate pro-competitive conduct. Submitters suggested that if the scope of the prohibited conduct was ill-defined, then introducing criminal sanctions could exacerbate existing problems by having a chilling effect on commercial behaviour and increasing compliance costs. In response to this, the policy process has focused on clarifying the law around hard-core cartel behaviour and ensuring that any changes support pro-competitive business arrangements. To facilitate this, Cabinet agreed to develop and consult on an exposure draft bill.

Turning to some of the amendments to the civil regime, the bill amends the current prohibition on hard-core cartels, which has been criticised as being unclear in scope. The amendments specifically prohibit price fixing, restricting output, allocating markets, and bid rigging. During the policy process there was discussion about whether the prohibition would focus on the purpose or the economic effect of the cartel arrangements. Given the negative effects of hard-core cartels, this Government considers it is important that the prohibition extend to both. It is not enough to say: “But my purpose wasn’t to fix prices.” when it was reasonably foreseeable that the conduct would have the effect of fixing prices, allocating markets, restricting output, or rigging bids.

To ensure that the bill encourages collaboration, it has a number of key features. These include two new exemptions: the collaborative activity exemption and the exemption for vertical supply arrangements. It also introduces a clearance regime for collaborative activities. The collaborative activity exemption replaces the current joint venture exemption. It should make it clear to businesses that pro-competitive and efficiency-enhancing activities are encouraged under the Commerce Act, not prohibited. The collaborative activity exemption has been designed so that businesses can assess for themselves whether their proposed collaboration falls within the exemption. It asks whether the collaborative activity has a legitimate collaborative purpose—in other words, that the activity does not have a dominant purpose that is anti-competitive—and whether the cartel provision is reasonably necessary to achieve that purpose. The exemption for vertical supply arrangements ensures that vertical supply arrangements within a vertically integrated company, which are commonplace and generally considered to enhance consumer welfare, are exempt, except where they have an anti-competitive purpose.

The bill introduces a clearance regime that allows businesses to approach the Commerce Commission prior to entering into an arrangement. Clearance provisions provide confirmation for a business that the proposed collaborative activity would not breach the Act. These features act as safeguards to ensure that the bill appropriately targets anti-competitive conduct, which harms New Zealand’s productivity and competitiveness.

The introduction of criminal sanctions remains an area of contention. I believe that with the introduction of criminal sanctions, New Zealand stands to benefit in three ways. First is the increased deterrence of hard-core cartels due to the severe sanctions, associated stigma, and possible restriction of an individual’s freedom. Second is the increased detection of hard-core cartels from improving the effectiveness of the leniency regime by increasing the value to the individual applying for leniency. The leniency regime is administered by the Commerce Commission, and encourages cartelists to come forward in return for leniency. Third is an improved ability to cooperate and detect cartel conduct. This is particularly important for global cartels, where information is more likely to be shared with countries that have criminal regimes. People who intentionally participate in hard-core cartels deserve to be sanctioned in the same way that those who participate in tax evasion, fraud, or other white-collar crimes are. For this reason the bill proposes that individuals be subject to a maximum criminal penalty of 7 years’ imprisonment.

There is a real opportunity for the select committee process to add value by carefully considering the relationship between the civil regime and the criminal regime. We have the opportunity to enhance the workability of the regime where potential issues are identified in advance. I would encourage both competition law and criminal law specialists to consider the relationship between the two regimes, and I will be particularly interested in the submissions that the select committee receives.

The bill makes a number of other amendments aimed at resolving specific issues that have arisen since 2001, when the last major amendment was made to the competition provisions in the Commerce Act. I would particularly welcome the select committee’s views on the new regime, which encourages parties to mergers that take place wholly offshore but affect a market in New Zealand to apply to the commission for clearance. The regime sets out a process that would enable the commission to apply to the High Court for a declaratory judgment that an offshore merger substantially lessens competition in a market in New Zealand. The High Court would then have the power to make an order against the New Zealand - based company to remedy the competition concern.

The regime raises a number of issues that are more complex than meets the eye. As currently drafted the bill allows the Commerce Commission to apply for a declaration where an overseas person acquires a controlling interest in a New Zealand company. The controlling interest test in the bill creates a brightline test for overseas companies. However, it sets a higher threshold for intervention than the test that would be applied if the merger was between two domestic entities. During the policy process some submissions suggested that it may be appropriate to have two different tests. This is a discrete but important issue, and I will particularly welcome the select committee’s views.

I would like to thank those who have contributed to the policy process for this bill so far. Your submissions have helped shape the bill that is currently before us. I hope that all stakeholders continue to engage with the select committee proceedings in a similar manner. New Zealand has a world-class competition regime. The competition provisions of the Commerce Act have not been subject to any substantial amendment since 2001. Consequently, this is a significant piece of law reform that will ensure New Zealand is well placed in relation to its major trading partners. I commend the bill to the House.

Similar to the last piece of legislation, the Companies and Limited Partnerships Amendment Bill, the Labour Party will support the Commerce (Cartels and Other Matters) Amendment Bill at the very least being referred to the Commerce Committee. We reserve the right—as I said with the last piece of legislation—to examine the detail of the bill.

I must say from the outset that this legislation is unlike the last piece of legislation we dealt with, which had sort of languished around the Order Paper—well, it had not even got on the Order Paper, I think, since the respected Minister of Commerce the former Minister Simon Power had kicked it off. This Minister of Commerce had let it languish, to the detriment of our international reputation, including, as I said in the debate on the last piece of legislation, New Zealand being struck off the European Union white list. This legislation has, I think, at least to a high degree, been put together in a far more positive and constructive way in terms of consultation with the industry and with the sector.

Cartels make markets, as we know, less competitive and they lower output or increase prices to consumers. They are insidious. There has been activity in respect of cartels within the New Zealand context. There have been cases. For instance, in the wood chemicals case in New Zealand the cartel was estimated to have caused an overcharge of $9.7 million over 5 years, but at that time—and currently, of course—the penalties were wholly inadequate in that the total penalties came to $5.4 million. So it is timely—again, for the reasons I outlined in the last piece of legislation—that we are brought into line and that our reputation as a country and as commercial entrepreneurs is managed and carefully protected, but, more important, we are brought into line with other major trading partners such as the US, Australia, the UK, and Canada, which have criminal sanction regimes already in place. I think it would be fair to say that the time for this legislation has certainly come. The time for us to get very serious about the detection, the process of dealing with it, and the penalties associated with that process—getting serious about those—has come, indeed.

Cartels, of course, can be difficult to detect, and to ensure that they are adequately discouraged, our view is that substantial criminal sanctions are required. I do note, as the Minister did, that within the bill the criminal penalties are up to 7 years’ imprisonment, three times the commercial gain or 10 percent of the turnover, and, I believe, up to $10 million. These are substantial criminal sanctions for hard-core cartel activity. The bill also helps, obviously, to promote the deterrence of hard-core cartels while not deterring efficiency or deterring efficient, collaborative activity. So it takes nothing away from entities that want to collaborate appropriately.

Cartels, of course, as I have said, are an illegitimate transfer of wealth from consumers to businesses. This bill will bring us into line, as I have said, with other countries, but especially with Australia, which introduced these sanctions as far back as 2009. I suppose, without rehearsing arguments, again it does beg the question in respect of priorities. I take nothing away from the Government’s process of consulting and having exposure drafts with the industry, but I wonder, when Australia dealt with this issue in 2009, why we have sort of been dragging the chain on this issue. It is now halfway through 2012 and this bill appears before the House. So I suppose my message to the Minister and the Government would be that the Government sets its own priorities, the Government sets it own agenda, and we have heard that there is a 120-point plan—or plans; there are so many plans that this Government is running out of paper and ink—but there is a difference between having a plan on a piece of paper and actually implementing it, executing that implementation, and making it happen. When our biggest trading partner, Australia, has had legislation in place since 2009 with tough sanctions for hard-core cartel activity, I do not think it is incumbent on us to be the junior partner and poor relation and sort of languish for 2 or 3 years until somebody turns their mind to actually introducing a piece of legislation.

I say to the Minister that, obviously, there is some bipartisan support for this bill, because it is in all our interests, in respect of our country, to ensure that our commercial and country reputation is protected and enhanced, but, again, I will be asking the Minister—and I am sure the select committee will want to know again—what exactly the priorities are for this Government. This legislation may not turn the lights on for many in the media and it may not be some sort of ruggedly populist activity or populist policy that is going to light up hundreds of thousands, or millions, of the populace, but it is a damned important piece of legislation. I believe, and the Labour Party believes, that it should have had greater priority than, for instance, other pieces of legislation we have dealt with, like the John Banks regulatory reform bill, which was awe-inspiring in its stupidity of repealing 31 Acts that are spent or do not exist. The Government thought that was a greater priority, until John Banks came a gutzer, of course. I mean, he has disappeared without trace, like the Invisible Man. But it thought a bill that repealed 31 Acts that basically had no effect on anybody was a greater priority than this piece of legislation and the previous piece of legislation we have dealt with just a few moments ago in this House.

So you have got to ask of this Minister of Commerce where his priorities and those of his Government lie: 31 Acts that do not exist, or this. This is important, and if you have been in business—and I know that many members of the House, including me, have been in business—you know the importance of appropriate competition law and of appropriate regulation that unleash a sort of esprit de corps and spirit of entrepreneurship in this country, and also allow our commercial entities to act appropriately and make deals in other jurisdictions, knowing there are international safeguards. So if we do not line up, if Australia has these institutional requirements and we do not, then which is the more attractive market to do business in if you are looking as an international company, New Zealand or Australia? I just ask the Minister again where the priorities are, where the work programme is, and why we have waited so long.

We know, of course, that at least 6,000 companies from 57 countries have been alleged or proven members of international cartels, and that comes from the American Antitrust Institute working paper, which has been around for some time. That is international research. So 6,000 companies in 57 countries have been alleged or proven members of international cartels. The total known effect of sales by international cartels is some US$16 trillion—US$16 trillion. That is a substantial amount of money, and it gives us motivation to get this bill in an appropriate shape to ensure that it is examined in detail and progresses through this Parliament in a timely way.

The bill, as we are aware, will apply to some conduct outside New Zealand in order to capture all New Zealand cartels. It will make forming a cartel subject to pecuniary or criminal penalties, and make any contracts formed involving cartels invalid. The banned cartel conducts, as the Minister has pointed to are price fixing—that is, companies agreeing on a set price or discount—restricting output, where companies agree to reduce the supply of goods or services; market allocating, which is agreeing to pursue different customers so as not to compete; and bid rigging, which is agreeing on prices to submit for tenders. These provisions only apply, of course, between companies that compete with each other, not between supply and distributor, or other vertical arrangements. Joint ventures between companies would also not be caught by this legislation.

I think, in essence, it is one of those moments where we can agree that the substance and the detail of this legislation are important. Those of us who have been in business know that. It is important. It will be supported. I would perceive that, unless there is a catastrophe, the Labour Party will support it right through—and by catastrophe I mean the Government mismanages this issue in the same way that it has mismanaged things like asset sales and other important issues before this Parliament—because we believe, like all parties, that we have to ensure that the regime that business operates in, both domestically and internationally, allows our entrepreneurs to grow their businesses, to make the money to put bread on the table, and to employ people, because that is what a business does. Some decry business. Without business, we would not have economic growth. Some people decry economic growth, I think, in this Parliament—one or two interesting folk from the Flat Earth Society—but economic growth is important, as are exports.

But I just say to the Minister please get your priorities right. Please ensure that we do not have silliness like dealing with the repeal of Acts that do not exist while legislation like this lies upon the Table and languishes. It is important for New Zealand.

I am very pleased to stand in support of the Commerce (Cartels and Other Matters) Amendment Bill. This amendment bill will help achieve one of the objectives of the single economic market, which is that firms operating in both Australia and New Zealand jurisdictions are faced with the same consequences for the same anti-competitive conduct.

Only a robust economy that ensures businesses have a level playing field will see the investment, effort, and entrepreneurship required to build economic growth. If businesses collude to rig bids, control prices, restrict outputs, or choke supply to lift prices, then what we see is those companies trying to dishonestly protect their margin or increase their margin at the expense of the consumer and also at the expense of other businesses seeking to enter that market. This puts a tourniquet on the economy, which will restrict the lifeblood of investment we so desperately need.

More than anything else, this country needs the sense that the aspiration and hard work to commercialise new ideas can be rewarded. One of the fundamental values of the National Party is reward for effort. We cannot and must not allow cartel behaviour to choke off and stifle the engine room for economic growth. Cartel and anti-competitive behaviour attacks innovation and entrepreneurship by slewing disadvantage to one while creating an advantage to another. We look forward to this bill coming to the Commerce Committee, where we can progress it so that we can continue to build a great foundation for business success in this country. Thank you.

Ever since we had the United States some years ago embarking upon Operation Enduring Freedom or the coalition of the willing, I have been suspicious of loaded names when they come before Parliament. So I have been somewhat intrigued to hear all of the speeches so far in this debate that talked about “hard-core cartel behaviour”. Immediately I had something springing to mind that was in the publishing industry that was not really at the Mills and Boon end of romance. But then I looked further at this Commerce (Cartels and Other Matters) Amendment Bill and I saw that other than in the explanatory statement, where there is this loaded reference to “hard-core cartel behaviour”—

💬 Dr Russel Norman: Domicility, are you talking about?

Domicility? No, I am not talking about domicility or other hard-core cartel behaviour in the vernacular! I was surprised when I read the bill, having picked up the copy that was on the Table in the House in front of me, to see that other than in the general policy statement, there is no reference to “hard-core cartel behaviour” because it actually is not a term of art, or a term of science, or, indeed, a reference to hard-core publications. I think it is intended to be a reference to bad or serious cartel behaviour, rather than some sort of cartel behaviour that might not be quite so serious.

After that little diversion, I think it is appropriate to record that there are repeated incidents around the world, including in New Zealand, of inappropriate cartel behaviour by certain large industries that have dominance. There are a small number of players who can influence price inappropriately to their commercial advantage and to the disadvantage of consumers, who have to pay more for their products or cannot get them when they should be able to. We have seen instances of that, some of which have been referred to by the Minister already and by my colleague the Hon Clayton Cosgrove, who made reference to some of the wood chemical price fixing that was going on, which cost New Zealand industry a considerable amount.

Perhaps the largest of these events to have happened in New Zealand recently, which is referred to in the regulatory impact statement that is on the Table of the House, dealt with air freight, which was at a cost of some $200 million over a period of 7 years. It shows that the additional money that can effectively be stripped out of the New Zealand economy and out of the pockets of consumers to the benefit of corporates that embark upon illegal, anti-competitive practices can be quite significant. This legislation attempts to control that.

If we want another example of where the ethics in business are sometimes less than they ought to be, of recent note has been the controversy in respect of the bank liability rates in the United Kingdom and the United States, where there was effectively cartel-like behaviour over there that led to interest rates being set to the benefit of banks to the tune of probably billions of dollars over the period, and that would effectively have been at the cost of other participants in the economy.

Cartel behaviour can exhibit itself in a number of ways. You can have an agreement to charge prices that are less than competitive. You can have agreements to carve up market share in a way that results in less competition, which results in higher prices. You can have agreements to limit the supply of a good or service in an artificial way where, because there is an inadequate supply of that good or service, the price is driven up because there are more people who want to acquire that good or service than there is available to be purchased because of this constraint on supply that is artificially orchestrated by those within the cartel. So all of these things have to be covered.

As prior speakers have said, you also have to be careful that you are not stopping things that are not inappropriate—inappropriate levels of collaboration, or, in some cases, vertical integration of some aspects of industry can be in the interests of consumers and can be an outcome of competitive behaviour, which is to the advantage of society, because prices are not higher than they need to be. And we all know that if prices are higher in one area, then something else suffers in another. For example, if someone has to pay too much for their electricity, then they might not be able to buy some clothes that they need for their kids, etc.

So although this bill is good in so far as it goes, it is interesting to me that the Government is lauding the fact that it is introducing competition in this area, where in another area of the economy it is probably causing a cost to the average residential consumer of about $200 per annum as a consequence of what will be the effect of the State-owned enterprise sale. We know that the average amount that is currently charged by a State-owned enterprise to a residential consumer is about $200 per annum less than the private sector competitors. We know that the electricity market is limited in its competition. That is why it has got so many rules. Rules for the conduct of the electricity market are thicker than the Bible, in an effort to make that market more competitive than it would otherwise be. It is still not a perfectly competitive market. We know that from the analysis that has been done by Molly Melhuish and others, and it remains uncontroverted despite the fact of some of the National Party—I have heard Tony Ryall taking issue with a very small part of her analysis—trying to discredit the whole thing. We know that in reality the absence of true competition in that market, followed by strengthening this private sector effort to try to maximise profits through increasing prices in the electricity sector, will have far more effect on consumers than this Commerce (Cartels and Other Matters) Amendment Bill, which, although a worthy thing for consideration by this Parliament, will not be as influential on the interests of New Zealanders as will the effect of the sale of interests in those State-owned enterprise companies, where the prices will move towards the private sector competitors following privatisation of those public company shares. So although the Labour Party supports this bill, I note that the bill will not have as much effect as that other measure that I have talked about, which goes in the other direction.

One of the reasons why it is necessary to update this is that we know that the pernicious effects of cartel behaviour can be wide-reaching and we know that currently the penalties are inadequate. If you are a cartel and you get away with it for a period of years, the civil penalties are at the moment so low that you could be quids ahead despite the fact that you eventually get caught and are brought to justice through the New Zealand courts. The civil penalties will be less than the amount that the cartel has taken out of the New Zealand economy. So for that reason it is necessary to change the penalty provisions to make it clear that the payment that can be sought from the cartel more accurately reflects the loss that has been caused.

The regulatory impact statement makes the point that even after this legislation is passed, not all cartel behaviour will be caught. It is very hard to pinpoint this cartel behaviour on occasions where some of the conduct is commenced outside the shores of New Zealand and these arrangements are very opaque. The regulatory impact statement, if I read it correctly, estimates that even after this bill has passed, only about one-third of the cartel behaviours, on best estimates, is likely to be uncovered, which means that two-thirds of the cartel behaviour will go undiscovered and unpunished. So this will not be a universal panacea to the problem, but it is an appropriate step. It will align us more closely with the steps that have been taken in other Western jurisdictions that have identified that this problem does need to be addressed and have introduced penalties similar to those being proposed here. The closest comparison is probably in Australia. They have had this for a couple of years, which does point to the fact that this amendment in New Zealand is probably overdue, rather than ahead of its time.

I rise to speak on the Commerce (Cartels and other Matters) Amendment Bill on behalf of the Green Party. The Green Party will be supporting this bill.

This bill essentially has a number of elements, but the most prominent element, of course, is that it is introducing criminal sanctions for cartel behaviour. Essentially, the rationale for that is one of deterrence. Currently, those caught engaging in cartel behaviour, which is basically anti-competitive behaviour to restrict competition and hence drive up prices for consumers and other businesses, face financial penalties. They can be at an individual level or at a corporate level. At an individual level there can be significant penalties, but there is no guarantee that the companies that are employing those individuals will not, effectively, indemnify them. Although it is illegal to indemnify them, companies can, effectively, do it. So if a managing director is convicted under the current law and faces a fine, then the company could give them a bonus the following year, or so forth, in a way to, effectively, mitigate the risk to any particular individual who might be caught engaging in cartel behaviour. Part of the rationale for this bill is to try to address that problem. To introduce real deterrence against cartel behaviour, this bill will be introducing criminal sanctions. For that reason, we think it is essential that we match our regulatory framework to that of Australia, and introducing criminal sanctions is part of that.

The reason why competition policy is very, very relevant to New Zealand is the nature of our market. The OECD economic survey 2011 pointed particularly to the nature of New Zealand’s market being very small. In a number of sectors there are a small number of firms that dominate those sectors, and this means that anti-competitive behaviour is more likely in New Zealand than perhaps in some larger economies where you would find many players who are competing with each other. When you look at some of our sectors you find that there are very few players. Whether it be banking, whether it be shipping, telecommunications, or electricity, there are a small number of players that dominate the sector.

It is interesting when you look at shipping, because currently shipping is exempt, effectively, from the anti-competitive provisions of New Zealand law. For those of you who remember the Ports of Auckland dispute, one of the remarkable things that I did not realise until the Ports of Auckland dispute is that the shipping companies can lawfully engage in cartel behaviour, and presumably do. I was looking to see whether this amendment bill would try to take on the shipping companies that are engaging in anti-competitive behaviour, but it became clear as I read the bill that the Government does not have the courage to do that yet, even though the Productivity Commission, in its most recent report in, I think, April this year, recommended that the Government head in that direction, as the EU has recently done, and remove the exemption for shipping industries from anti-competitive laws. The problem we have in New Zealand, which a lot of other countries have but, particularly, a small country has, is that the shipping companies engage in cartel behaviour to drive up the price of shipping from New Zealand to the rest of the world. So it seems to me that there is a strong argument for making sure that the shipping companies, as well as other companies, are covered by anti-competitive legislation, particularly that around cartels. So we are disappointed that that is not in there. But none the less the bill is progress.

I think when we are looking at why this bill is important, an example of why we need some kind of criminal sanction is that of the Australian banks in the tax avoidance case. The tax avoidance case was the biggest theft from the New Zealand taxpayer that has ever been caught, I guess. The Australian banks were found to have stolen around $2 billion from New Zealand taxpayers, and eventually were forced to pay it back by the courts in New Zealand, after the Inland Revenue Department went after them. Westpac and all the rest were caught stealing from the New Zealand taxpayer. Not a single person from any of those organisations went to jail—not one. No manager, no managing director, no director from the boards—none of them—went to jail. So from their point of view tax avoidance was simply a business proposition, and when you look at it from that point of view it is just tax avoidance. You know, the companies try to minimise the amount of tax they pay, so they take advantage of everything that tax creates in our society—the basic institutional frameworks that are only possible because of tax. Civilisation is possible only because of the taxation system. But the Australian banks then stole from New Zealand taxpayers about $2 billion, probably more, and were finally caught. But they did that knowing that it was a purely commercial proposition, because none of them was going to end up in jail—where they should have gone, obviously. Anyone who steals that amount of money from the New Zealand Government should go to jail. That is why criminal sanctions are important—so that those who are engaged in this kind of activity, whether it be anti-competitive activity or stealing from the taxpayer, know that further down the track it will not just be a commercial proposition but they themselves could end up in jail. That is why this part of the cartel law is important to change—so that it is not just a commercial proposition, and those who are engaging in this behaviour understand what will happen to them.

The other issue, I think, that we have really struggled to get our heads round in relation to competition law in New Zealand is the application of competition law to large multinationals that are operating here versus New Zealand companies that are based in New Zealand and trying to export to the rest of the world. I would argue that we need an uneven playing field in respect of those two different kinds of companies. And the reason is this. If you have a number of multinationals operating in New Zealand, often in an oligopolistic market—so a small number of players, which, of course, is the nature of the banking sector, for example—there is a temptation for those players to not operate in a competitive way, and we have certainly seen that in the banking sector. When Labour, the Greens, and the Progressive Party had our banking inquiry in the last parliamentary term, it was very clear from the evidence we got that it was only the entry of Kiwibank that substantially increased competition in the banking sector, and that the big four Australian banks were operating in an anti-competitive behaviour in order to maximise profit and reduce competition for market share—because trying to compete for market share is expensive. So in terms of the way that we regulate those kinds of sectors we need very, very strong regulation to maximise competition, and we may also need, as was the case in the banking sector, the intervention of the State to put a real competitor in the field that could compete with the big Australian banks. That is what Kiwibank did, and Kiwibank, of course, has driven down the cost of credit in New Zealand quite substantially, and has saved the entire New Zealand economy many hundreds of millions, if not billions, of dollars by increasing competition in the banking sector.

But when we look at the export sector, when we look at New Zealand owned and based companies trying to export to the rest of the world, it does not necessarily suit us to have exactly the same approach to competition. Fonterra, of course, is the obvious example. Parliament effectively created a monopoly in Fonterra. Although it is essential that we regulate Fonterra’s activities in the New Zealand domestic market so that we do not have higher prices of milk, it is also important that Fonterra and companies like Fonterra have the critical mass they need to project into the rest of the world, and sometimes that critical mass means being large players in the domestic market from whence they come. Applying exactly the same rules to New Zealand firms that are trying to project into a globalised world in an open market that we apply to multinational corporations that are operating in oligopolistic sectors within New Zealand does not make sense. So a level playing field is not always the most sensible way for a small, open economy to regulate competition. We need to regulate competition in a way that maximises the advantages to New Zealand. So we reduce the cost to the consumer where you have large, overseas-owned businesses operating in New Zealand, but also allow New Zealand businesses projecting into the rest of the world to get the critical mass they need in order to effectively do that.

I think that our thinking around competition policy is insufficiently sophisticated and needs to be more sophisticated. Rather than our taking a universalist view, a kind of new-right economic ideology of what competition policy should look like, we should adopt competition policy that makes sense for a small, open economy a long way from its markets, and that kind of competition policy needs to be rather more subtle and sophisticated than the kinds of policies we have seen out of this Government so far, if we are to have the kind of economic development we need.

Thank you for the opportunity to speak in support of the first reading of the Commerce (Cartels and Other Matters) Amendment Bill. I think this bill is critical to New Zealand’s economy. This bill seeks to amend the Commerce Act to introduce criminal sanctions for individuals and companies who get involved in such cartels. I commend this bill to the House.

I rise on behalf of New Zealand First to speak on the Commerce (Cartels and Other Matters) Amendment Bill. New Zealand First will be supporting this bill through the House. However, we still do have some concerns, like the previous bill that was discussed tonight, about some aspects of it.

I personally can recall over the last few decades how New Zealand has been subjected to influences of what could have been termed cartels. From my experience in the shipping and meat industry over many, many years, we certainly were subject to price fixing by international shipping lines serving this country. Being an island State and dependent on our exports of meat and foodstuffs, it was certainly disappointing to see that occurring over many, many years. The cost of shipping containers 20 years ago was absolutely horrendous. For a period of time I worked for an independent shipping line, ABC Container Lines, which challenged the cartel and brought independent cheaper freight rates, particularly for wool, to New Zealand. As a result the returns to New Zealand wool growers, returns to the Wool Board, and returns to sheep farmers in New Zealand increased considerably, because the cost of freight to Europe and other markets was lessened. Likewise, during my time in the air cargo business I was certainly witness to the fact that there was a great deal of price fixing on the part of airlines, and, in fact, it was very difficult to get New Zealand cargo into many markets without having to take a fixed price on the freight rate, because there simply was not much choice over many, many years.

We are asked often in this country, to this very day, whether we still have cartels in this country, and whether there is price fixing. One has to ask the question, really, when we continue to see the price of petrol being adjusted by the major four companies, basically following each other within minutes or hours of another moving their prices. You do wonder how much independence there is in the price of petrol in this country, when you drive down a road and you see the same prices at every consecutive petrol station. Likewise, when you go into the supermarkets and see the bottles of milk there, from one major chain to the next major chain, and they are an identical price, you do start to wonder how much independence there is there and whether there is true competition in our milk pricing. Similarly, New Zealand is one of the most expensive countries in the world for telecommunications. Our mobile phones are extremely expensive. Again, you do wonder how much competition is out there. Is it genuine competition, or is it just working the system to ensure that the consumers of New Zealand pay as much as they can take out of them? Likewise, as was mentioned by the Green Party tonight, you do wonder similarly about the banking system where again many of our bank rates and many of our bank charges are so similar, particularly coming out of the Australian banks, how much is “wink wink, nudge nudge”, and let us just get on with it. So there is a lot there on the table, and certainly I hope, and New Zealand First hopes, that the Commerce (Cartels and Other Matters) Amendment Bill will address some of these issues.

At the same time, we would hope that this bill addresses situations where there could be what is called the rigging of bids or the fixing of bids. One does have to ask whether this sort of situation is occurring in New Zealand as well. We are not saying it is, and we are not pointing any fingers, but with this Government dismissing three or four bids for the International Convention Centre, in favour of only one bidder, one does start to wonder whether there is price fixing in this country or there is “wink wink, nudge nudge” from the Government—the same Government that chose to have its conference last weekend at that same Skycity convention centre, had its victory party for the election at that same convention centre, had its campaign launch last year at that same convention centre, and gave that convention centre another 500 pokie machines—or is going to. Within this situation, and where this bill refers to price fixing or rigging of bids and being pro-competitive, you do hope that the same rules will apply to the Government as well. We also see in Christchurch, again where there is a huge amount of work being done, questions being asked as to whether the one preferred contractor of the Earthquake Commission and the Government is in fact providing a competitive situation. This week they have reduced the rates of pay by $6 per hour and the labourers and workers have simply had to take that pay cut or leave it—lump it or leave it. They are the only Government-appointed contractor, and you do again wonder whether within this country there is price fixing and arrangements going on that are not necessarily competitive, but which are actually anti-competitive.

In closing, I would note at the front of this bill the following paragraph. I would like to read this out because I think it is very, very pertinent and the people out there perhaps listening to Parliament should be aware of it. It says on the front of this bill: “As noted by the OECD in 2003, the pernicious effects of cartels on economic efficiency are wide-reaching. By raising prices above the competitive level and decreasing output, cartels have the effect of making consumers either pay a higher price for the product, or forgo the product entirely. The consumer is therefore an unknowing participant in the illegitimate transfer of wealth to the cartelists.” That is very damning in terms of how this could occur in this country, how it has occurred in the past, how we would want to stamp this out, and how we do not want to see “wink wink, nudge nudge” deals done by the private sector or the Government sector, or indeed by the Government itself, or indeed by Cabinet in this country to provide a situation where the “wink wink, nudge nudge” deals get done, while others are left out in the cold and in an anti-competitive situation. New Zealand First will support this bill.

I am pleased to speak on the Commerce (Cartels and Other Matters) Amendment Bill. I want to make a brief call just to acknowledge that one of the objectives is to ensure that firms operating in both New Zealand and Australian markets are faced with the same consequences for the same anti-competitive conduct. We know that anti-competitive behaviour and cartels are bad because they lead to increased costs. Where do those costs often end up? They end up with the consumer.

The purpose of this bill is to ensure that we amend the Commerce Act to introduce criminal sanctions for hard-core cartel conduct. There is a 7-year imprisonment penalty for it.

I want to make a couple of other points in terms of how big this issue is. One of the things I was really surprised about, from reading the regulatory impact statement, was some of the figures. My understanding is that in Australasia at least 6,000 companies from 57 countries have been alleged or have been proven to be members of international cartels. The known affected sales by international cartels is $16 trillion. That is a huge amount of money.

I commend this bill, because it brings this law into line with our major trading partners, the UK, Australia, and Canada. Thank you.

I would like to take a call on this bill, the Commerce (Cartels and Other Matters) Amendment Bill. It is actually one of the most important pieces of legislation that has come before this House in recent years. I do have to put on record, because I sit on the Commerce Committee, that I am pretty disappointed with the lack of enthusiasm or with the significance that is being given to this issue by the other side of the House, which seems to think that a couple of minutes spent discussing it is important. I would like to remind that side of the House about the whole point of the Commerce Commission and the values that lie behind the role of the Minister of Commerce, and that is, actually, to ensure that there is competition in this country that is for the long-term benefit of consumers—the long-term benefit of consumers. Cartel behaviour is one of the most significant issues—collusion and activities about price fixing that go on between companies—and all kinds of other activities that essentially impact on consumers, on affordability of products, and on the ability of businesses to actually operate effectively when up against the power that cartels can hold.

I would like to say again—this is the second time in the House tonight—that I have actually given a great big tick to the previous Minister of Commerce, Simon Power, for the work that he did on this issue. I would like to draw the House’s attention back to—

💬 Kris Faafoi: He’s watching.

—I think it was 2009—and I do hope he’s watching tonight, because this is a significant moment for him, to actually bring this piece of legislation to the House. The bill followed on from the work that was done by the previous Labour Government. It does not seem to be being taken all that seriously on that side of the House, and I am a little bit fearful about what might happen to it when it gets to the select committee.

I would like to remind the House that in 2009 the previous Minister of Commerce came before the Commerce Committee. He was asked point-blank whether he would consider criminal sanctions for cartel behaviour, and he said yes. It took a couple of years to get that legislation together, but he said that, yes, he would consider the possibility of jail sentences for those operating price-fixing cartels. Just so that everybody knows when that was, it was 18 June 2009—more than 2 years ago. That was a significant moment, and it followed on from the work that had been done in the commerce portfolio, principally by my colleague the Hon Lianne Dalziel, around bringing these issues to the fore and making sure that they were on the agenda.

I want to make a couple of comments. One is around some of the messages that were being delivered on competition law through the legal profession at that time, in 2008—which was before this Government took over—around the absolute importance of this issue in our region, across the world, and particularly with our trading partners. They were taking this issue more and more seriously. New Zealand has lagged. Unfortunately, New Zealand has lagged behind in this area, and you have got to ask yourself why, because catching people who are engaging in cartel behaviour is actually a really significant issue. Not only is it a significant issue but also putting sanctions in place that are actually going to act as a deterrent is the most important thing. That is what this piece of legislation does, and what we should be saying to each other tonight—there is pretty wide support across the House around this—is that this is a critical issue.

I note that my colleague from New Zealand First, Andrew Williams, raised a few issues around different industries. I would just like to say that New Zealand is a country of duopolies. It is a country that has two major telecommunications companies, two major supermarkets, and two major petrol chains. It is a country where our competitive environment is constrained by our size, but as a result it is an environment where we need scrutiny. We need the sanctions in place to ensure that behaviours do not occur where consumers are affected. Particularly in an environment where industries and an infrastructure are being developed that are supposed to underpin the growth in our economy in the future, then we have to be extra vigilant—extra vigilant around ensuring that there is not exploitation and practices going on that are ripping people off.

I refer particularly to our ultra-fast broadband environment, because that is the pipes that go into your home with the fibre, but alongside that goes the content that is going to come through and into our homes. We have to ensure that we have a competitive environment. If we are going to be a country that is going to use technology as a transformational tool, then we have to truly use it as a transformational tool and make sure that there is not rorting behaviour, that there is not monopolistic behaviour, and that there is not behaviour that is about ensuring that one company gets preference above another when it comes to tendering or behaviour in the market place. This is why we need an active Commerce Commission that is out there examining these issues, has the jurisdiction to do it—and I would be interested to know what the Minister’s view is on this—and then has the ability to impose penalties when there is behaviour that is unacceptable.

💬 Cartels: the arrangement between two or more businesses to regulate output—that is what this bill is about. But there is a wider issue around the behaviour of companies in general in this country. If we are going to be a country that is using technological advances and using infrastructure to drive our economic future, then we have to ensure that we have the regulatory underpinning to make sure that we are taking the best advantage of that, for the whole of New Zealand, not just for a few companies. Therefore, we need to ensure that the effect of collusion, the effect of the behaviour that cartels can have on economic efficiency—this Government likes to talk about economic efficiency. Well, it needs to put its money where its mouth is. That is why this legislation is so important. It is just part of the regulatory environment that we need to ensure we have in this country, which will ensure that there is adequate competition so that we have companies and businesses that are able to thrive in this country, make profits, produce exports, and develop an economy that is going to thrive. Thank you.

The introduction of criminal sanctions against cartels via the Commerce (Cartels and Other Matters) Amendment Bill will bring New Zealand into line with many of its trading partners, including the United States, the United Kingdom, Canada, and Australia. This will allow New Zealand to play a more active role in the global fight against hard-core cartels.

I commend the Minister for bringing this bill to the House, and I know that the Commerce Committee will give it due consideration. Thank you.

Mr Speaker—

💬 Mr DEPUTY SPEAKER: Is this a split call?

That is my understanding.

💬 Mr DEPUTY SPEAKER: Are the Greens happy?

💬 Hon Member: No, it’s not. It’s a 10-minute call.

💬 Mr DEPUTY SPEAKER: Right, a 10-minute call, Raymond Huo.

I meant to say that given the time constraint I would like to take a short call, but I have got a thumbs up from the Minister of Commerce, the Minister responsible for this Commerce (Cartels and Other Matters) Amendment Bill. I feel flattered and honoured.

I would like to echo what my Labour colleagues said earlier. The reasons are obvious. Firstly, from the regulatory impact statement, at least 6,000 companies from 57 countries have been alleged or proven members of international cartels, and, secondly, almost all of our major trading partners, such as the USA, the UK, Australia, and Canada, have criminal sanction regimes already in place. Thirdly, cartels are designed to control prices and limit competition. They are an illegitimate transfer of wealth from consumers to businesses.

This bill will effectively bring New Zealand into line with Australia, which introduced sanctions in 2009. The bill amends the Commerce Act 1986 to introduce criminal sanctions for serious cartel behaviour, and makes a number of other amendments, including to the provisions that govern jurisdiction and other penalties. If enacted, the bill will fundamentally alter the scope and enforcement of New Zealand’s competition law, and will be the most substantive reform of the Commerce Act since it was passed in 1986.

There has been no survey of public attitudes towards cartel criminalisation in New Zealand, but it is interesting to note that the results of a 2008 survey of public attitudes in the United Kingdom precisely mirrored the results of a similar survey recently conducted in Australia—that is, there is substantial majority support for the view that cartel conduct is unacceptable, but a minority of that think that cartel conduct should be a criminal offence, and less than a quarter think that individuals should be jailed for it. It is difficult to see why public attitudes would differ greatly in New Zealand.

Now, what is a cartel? A cartel is a group of similar, independent companies that join together to control prices and limit competition. The banned cartel conduct includes price fixing, restricting output, market allocating, and bid rigging—namely, companies agreeing on prices to submit for tenders. During the initial consultation process Russell McVeagh raised a concern that the new regime will chill competitive contact due to the uncertainty of its application. The Ministry of Commerce has responded by allocating a budget and asking the Commerce Commission to, among other things, develop prosecution guidelines that outline when it would take a criminal prosecution, and undertake advocacy and education initiatives to promote better understanding of the prohibitions in the Commerce Act, particularly the cartel prohibition. I look forward to the development of this bill. Thank you very much.

Bill read a first time.

Bill referred to the Commerce Committee.