Commerce (Cartels and Other Matters) Amendment Bill

This piece of legislation is an interesting piece of legislation. Could I signal from the outset that Labour will be supporting the vast majority of the legislation. We have put up two amendments, which I will talk about in due course. This may well go down in the Commonwealth Parliament as one of the longest gestation periods for a piece of legislation. I think 4 and a bit years and four Ministers of Commerce later we are at the Committee stage with 2 and a bit weeks to go in the Parliament, and one would hope that we can get this through and pass it for the good of industry.

I want to say from the outset that I am pleased that the Government has accepted our offer to vote on this tonight so that we will have a vote before 10 o’clock to get through the Committee stage, because I share with the new Minister the Hon Jacqui Dean, who I think has been—I do not often say this about National Ministers but I have to say, being the fourth Minister of Commerce in as many years, she has taken this piece of legislation and, I have to give her credit, she has actually driven it through.

This is a very important piece of legislation. I have to say I do not understand why the Government—and I do not mean this in a facetious or any other way—renders so little priority to commerce legislation. It is key legislation for industry. There are clauses contained within this that the Minister has, quite rightly in my view, amended and consulted with industry around shipping and other arrangements that we will get to, which, had the work not been done on that, would have had, in my view and having spoken to a number of industry folk, quite a catastrophic effect on the nature of container traffic and the nature of shipping and an impact on our ports within New Zealand. But I am pleased to say that the Government has consulted industry. I think industry has spent a lot of time, I am advised, in providing good counsel and good remedy, and those issues have been resolved, and I say from the outset that we support them. They are incredibly important for industry.

But if we look at the gestation period for this bill, we go right back to the amendment—when it was introduced on 13 October 2011 and then it was referred to the select committee on 24 July 2012—

💬 Hon David Parker: These people were still at school.

Well, there may be one or two people who were not born, who knows? But the committee did its job very well and produced an interim report on 28 September 2012 and a final report on 13 May 2013. It received a second reading on 24 June 2014 and 26 November 2014, and then, for some reason, they pulled up stumps. We had, I think, several Ministers—Minister Goldsmith and I think it was Minister Foss; I have lost a few in between.

But, again, I have got to say, to be fair, that this Minister has realised the importance of this legislation, and we are going to punch it through. I do hope, and I would be grateful—I know the Minister is not the Leader of the House, but I would be grateful if she might want to give an indication—oh, the Leader of the House has just arrived so he may indeed want to take a call and give an indication as to whether we can, assuming we complete the Committee stage tonight, do the third reading before the general election. I hope we can, and as we have been doing, in terms of cooperation, I offer my party’s support.

There are a number of critical issues in respect of this that we have some concerns about, and as we go through this debate we will tease them out. It was Minister Goldsmith who, in respect of Supplementary Order Paper (SOP) 343, clauses 17 and 18, made a case that cartel behaviour should not be criminalised. In effect, unlike the fact that—I am told—it is criminalised in Australia, the US, Canada, the UK, and the other, sort of, developed countries that New Zealand interacts with from time to time, the notion that was put forward by the then Minister Goldsmith was that, somehow, if we did not criminalise this behaviour, that that would, holus-bolus, cauterise commercial innovation as we know it in New Zealand.

If that is the case, then presumably you could make the same leap of faith—and I am not a lawyer; I am sure Mr Parker, who is a learned counsel, will take up the cudgels on this as we go through—and you could then make the same case as to why you should not criminalise a whole series of particular offences. And I would argue that company directors and business people, by and large—99.9 percent of them—do not sit down and say “How do we build a cartel? How do we get around this law? How do we play fast and loose?”, because (1) it is their reputation, and (2) it is their business and their shareholders’ entity on the line. I would argue that if we fell in line with our other developed-world jurisdictions—that innovation in Australia, I would argue, has not ended as we know it. Innovation in the US, last time I checked, even barring President Trump’s odd interventions from time to time, has not disappeared. Entrepreneurship has gone neither from the UK nor Canada.

But it is there, and the tenet of our criminal system is that we have deterrents. And, by the way, if you are thinking of playing fast and loose—not you yourself, Mr Chair—if my amendment is adopted, then you will do porridge. There will be imprisonable offences, and I would think that is a good deterrent. If it is good enough for Australia, if it is good enough for the UK, if it is good enough for Canada, the US, and others, then I cannot understand the rationale as to why we would not do it here.

The other amendment that is proposed by me is SOP 408, which is an amendment to section 36 in respect of the Commerce Act; again, widespread support for the concept. The concept is that we strengthen our commerce arrangements so that not only do we look at the effects of an action but we look at the impact. You know, I am driving down the street and I hit somebody in a car. I did not intend to do that but, actually, what is the effect—because the person is now disabled, their life is destroyed, etc.? What this does, in commercial terms, is it strengthens the arm of the Commerce Commission to look at the actual impact. I am advised that a number of eminent bodies have called for this, and, again, it brings us into line with international best practice. And why would you not want to, when you are examining commercial arrangements, monopolies, cartels, etc., look at not just the intent but also what the actual impact was, and deal with that?

I think these amendments are not put forward in a political way. Section 36 and the debate around it—in fact, I think the Commerce Commission itself supports it, if I am correct; it wants those wider powers to look at impact, not just intent.

The other point I will make in the first call is that we support SOP 343 in respect of the arrangements around vessel-sharing agreements and the block exemption in respect of shipping. Had the original amendments gone forward, then the industry and New Zealand would have been exposed—importers and exporters—to grossly inflated additional costs, increases in inefficiency in respect of the fishing industry, a reduction in the number of shipping lines coming to our shores, and an increase in the cost of goods to many in our community, such as food and other goods coming in to New Zealand. The industry highlighted this. I have to say the Government took some time to address it but it has addressed it. I am advised that the Minister’s amendments are well supported by industry, and the counterfactual would have been a major impact, as I have said, on shipping and our port facilities.

I would be grateful if the Minister, in the spirit of bipartisanship, could address those three issues, particularly the criminalisation issue, which we on this side of the House are particularly exercised about, and particularly section 36. I think, by and large, this is a very important and good piece of legislation. I think there has been good liaison with industry and we have some very good outcomes, as I have said, particularly in respect of SOP 343. I think there is general support for this; in fact, I think there is quite a groundswell of support for this legislation, and I am pleased—and I do hope and pray that, barring disaster, we will get it through the Committee stage tonight, and I would make a plea to the Leader of the House that we find a couple of hours to actually deal with the bill in its entirety prior to the lifting of the House.

I would appreciate some comment from the Minister or a rationale as to why, maybe, she will support SOP 408. Maybe she will support it and take a different view from Minister Goldsmith in respect of the criminalisation in respect of the legislation.

It is a pleasure to take a call on behalf of New Zealand First on this Commerce (Cartels and Other Matters) Amendment Bill. I would like to just remind the Committee of our history with this legislation. We very much supported this process to the Commerce Committee, and I acknowledge the words of the previous speaker, the Hon Clayton Cosgrove, around the comprehensive engagement and lots of discussion with industry, and I agree that that has been what has happened. Where we differ—and it is unfortunate to see Labour’s position on this—is that there has been a substantive change to this legislation with the removal of the criminalisation of individuals when they undertake cartel activities, as defined by this legislation.

We went in completely agreeing that we needed a refresh. Industry wanted us to move down this pathway. It seems to me, to be quite honest, that the reason it has taken us 4 years and four Ministers to get to this point is that none of them was willing to take on what has become a terrible piece of legislation. Cartels, and the undertaking of good business in an economy, are a balancing act. What we had here was a conversation about the fact that good businesses were being prohibited from cooperating. It is fair to say that businesses should be able to cooperate with one another, in an endeavour to provide a service or goods to the end consumer in such a way that those businesses profit and that, actually, the consumer is better off for that coming together of business. So that conversation was important, and New Zealand First supports that. If the end consumer is better off, then more power to them.

But then we get to the point of the intent of the legislation, and so the conversation becomes asking where cooperation ends and collusion or cartel activities begin.

💬 Hon Simon Bridges: This is a very jurisprudential sort of address.

Oh, thank you, Mr Minister—yeah, yeah, yeah. That is the conversation that needs to be had.

Up until the point that the Minister removed the criminal nature of sanctions, or actions, that were available to the Government, New Zealand First supported it. What the original conversation was was alignment with the practice in Australia. That also made a lot of sense. But Australia maintained the criminal sanctions—the ability to hold individuals to account. What we are doing here is allowing companies to go down a pathway where it is permissive—it has become permissive. And in doing that you need to make sure that the options available to you for those who are not acting in good faith and in fact are engaging in cartel behaviour very much allow them to be held to account. Whilst institutions or businesses can be sanctioned in this legislation, we say that the bill has been compromised completely with the removal of the criminal sanctions, and we cannot support this going forward.

My understanding is that Mr Cosgrove has put a remedial Supplementary Order Paper of that nature to the Committee, which I will speak to momentarily. If that is the case, and if we can get agreement on that, then New Zealand First would support the bill as a whole, because there are some good things here. There are technical alignments. There are efficiencies to be gained. As has been said, the industries have made good submissions and have had good conversations with the Government. There is a lot of good here but we cannot now go down that path of a permissive framework and then not have the legislation to back it up if things go awry. Thank you.

Tēnā koe, Mr Chair. I rise to speak about the Commerce (Cartels and Other Matters) Amendment Bill. We are also deeply concerned about the long delay in getting this legislation presented before this House. Initiated in 2001—it is a very long period of time.

We regard the context for this bill as being the need to ensure proper competition between firms in a small society. We have to remember that New Zealand is a society where competition rules are particularly important, given our small scale. I think that the public is rightly concerned about a lack of competition and, as the Productivity Commission has repeatedly shown, New Zealand is paying high prices for goods, compared with other countries. We have seen a long list of scandals over rip-off prices, including in building materials and in construction, real estate, telecommunications, electricity, petrol, supermarkets, and the banking sector. The context here is that vigorous competition is absolutely vital for a fair deal for most New Zealanders. Instead, what we see is a situation where regulation is falling behind international best practice.

The Green Party supported this bill to the Commerce Committee. Subsequently we were—let us say—surprised when in late 2015 the then commerce Minister, Paul Goldsmith, suddenly did a rapid about-turn and overruled his department’s advice and MPs’ advice by removing criminal liability provisions from this legislation. We believe that this U-turn significantly weakens the legislation and lets collusion between big business off the hook. Fines, however big, are no substitute for potential criminal sanctions.

We note that our main trading partners—Australia, USA, Canada, UK, Japan, Ireland, and Korea—have criminalisation provisions, and we think that through removing these from this legislation the Government is missing an opportunity to align our regulations with those internationally. This, we believe, is an absolutely crucial aspect to this bill, and therefore the Green Party will no longer support this bill. We will oppose this bill without criminalisation sanctions.

We also would like to raise questions in the discussion around the exclusion from provisions of international liner shipping services. We have not seen an adequate justification for that. We are concerned about the breadth of some of the allowance of collaborative activity as being too permissive and allowing cooperative activity, or collaborative activity, where, really, a collusive element may be present. We see clearances as being too broad, and we would like to come back to that in the discussion of this bill. Finally, we see transitional arrangements potentially presenting a huge loophole for cartel activity to be again disguised as cooperative activity.

Overall, we are disappointed with the omission, in particular, of the criminalisation aspects of this bill. We would like the Government to reconsider that and we would certainly like to hear a sound justification for why this course of action is being proposed. Thank you.

I am very, very interested in taking a call on this bill and grateful that I was finally considered to make a contribution.

💬 Hon Clayton Cosgrove: It’s a short list.

Ha, ha! I know there was a lot of choice available, and I am grateful that I have the opportunity. I do feel very strongly about this particular issue that we are debating in the Parliament. I want to speak about Supplementary Order Paper 408 put forward by the Hon Clayton Cosgrove, because it proposes to strengthen the bill in a way that I think is absolutely necessary in New Zealand.

When we compare ourselves with what happens in Australia, we come up short. We have a situation in New Zealand where new companies struggle because there is a burden of proof on them in the courts that is too great to challenge those who would exercise market power. The tests that are in place are focused around purpose—and, of course, those who have good representation can defend themselves; those who are monopolies or large providers can defend themselves in that kind of environment more easily—rather than concentrating on the effect, ultimately, of what is put into place.

I am particularly fond of the detailed directives put in place by Mr Cosgrove into the legislation, which spell out exactly what the court may have regard to. Of course, the word “may” is there because we do not want to be too directive of the courts, but then it is spelt out in detail. It says “(a) whether the conduct was materially facilitated by the person’s substantial degree of power in the market: (b) whether the person engaged in the conduct in reliance on its substantial degree of power in the market:”, and so on. This is proposed new section 36(4)(a), (b), (c), (d), and (e) on page 2, for those with the Supplementary Order Paper in their hand.

What this does is it requires the court to get advice, effectively. If it starts to look at these things, it will have to call in specialist advice. I think it is fair to say that many people who discuss these matters who are subject experts say that the courts often do not have the expertise they need to make decisions in this area. By spelling out exactly what matters must be taken into account—“may” is what the legislation says. If the court then does go down this route, it will require additional expertise, and it is spelt out exactly where it may find that expertise and the nature of it.

I think that that is incredibly important, because we want a robust, competitive market in New Zealand. We know that markets are a great way to deliver goods, services, and so on. They are a very efficient way of delivering those things in the market, but they are efficient ways of doing things only where the market is fair and where new players can come in and introduce innovation that gives them an advantage over their competitors, and we resent the current situation where too often market power is used to stifle innovation. No one is better off in that situation. Those who participate in the market are not better off, because the quality of goods and services is not improved, and the people who would want to innovate—who may then look for export opportunities after establishing themselves with a toehold in the New Zealand market—are stamped out and, ultimately, those who exercise the market power put more money into non-productive aspects of their business such as fighting court cases because it is about cute bits of the law rather than actually about the effect on the market of the anti-competitive behaviour.

So I really just wanted to add my voice to that of the Hon Clayton Cosgrove. I recognise that his voice is loud, clear, and articulate, but I think he is really on to something here. This is something that we need to change, because otherwise those Australians across the Tasman whom we compare ourselves with really do have an unfair advantage for their innovators, because their innovators can get into the market, they can test their products, and they will not be stomped out in the way that we have in New Zealand.

On top of that, I want to say that at the moment we have been passing a lot of bills through the House that look at other aspects of trade policy. We have passed dumping legislation through the House. Overall, we have got a situation where there is a dramatic weakening of opportunities for innovators, and that cannot be good for New Zealand. I think we need policies that support innovation and support productive investment. Therefore, I want to add my voice to those in this Parliament—and I am sure there will be more—who want to speak in favour of Supplementary Order Paper 408 in the name of Clayton Cosgrove. I will stop there now. Thank you.

I rise to take a call on two points. The first is that I want to explain some of the reasons that lie behind the amendment proposed by the Hon Clayton Cosgrove on Supplementary Order Paper 408, which is to add a new definition of anti-competitive conduct in section 36 of the Commerce Act. The explanatory note attached to this proposed amendment describes the two significant gaps that currently lie in the section 36 test. At present, to succeed in alleging anti-competitive conduct—or the use of market power interfering with competition—the person who is making the claim has to prove that the firm with the market power took advantage of that market power for one of the three prescribed anti-competitive processes that are listed in the Act.

There are two significant gaps in this, in practice. The first is the exclusive focus on purpose rather than effect, and the Hon Clayton Cosgrove has already addressed how this compares adversely with the tests in some competition statutes overseas, where effect, in some situations, can also be considered rather than having to rely upon purpose. One of the reasons why purpose alone makes it hard to police anti-competitive conduct is that sometimes the legitimate business rationales can obscure an anti-competitive purpose, making it very difficult to prove the anti-competitive purpose even when it is so patently having the effect of using market power in a way that interferes with workable, effective competition. Because of this, a manifestly uncompetitive impact can remain unaddressed because the purpose element is not satisfied.

I do not have the time to go through all of the detail of this, but one of the reasons why section 36 has failed to achieve the intended purpose of this Parliament is that its effect was read down by the court. The court has further limited the ambit of the market power test under section 36 by applying what is called the counterfactual test. What this does is offer a degree of certainty to a monopolist, and there has been a need to link the anti-competitive purpose or effect to the conduct of the monopolist. Because of this counterfactual test being applied in a conservative manner by the courts, the already quite narrow ambit of section 36 has, in practice, been further narrowed by that test applied by the New Zealand courts. This is to be contrasted with the approach taken in Australia, where, rather than taking advantage of market power, the legal test over there is a lower test, where the conduct must have materially facilitated the anti-competitive conduct.

So, for those reasons, the Labour Party believes that the interests of consumers in New Zealand, and other competitive businesses, can be undermined by anti-competitive conduct by dominant participants in a way that is not fair. It undermines fair competition, and that is to the detriment of less dominant participants in those market arrangements.

There has been, I think, a very pure approach taken to competition by the New Zealand Treasury, since the 1980s, really. You see it going back to what used to be allowed in respect of Telecom, and it is still allowed by our pretty lax form of anti-competitive conduct regulated by section 36. It has been allowed because there has been a view within Treasury in New Zealand that there are price benefits, often, to New Zealanders where very, very efficient monopolists taking advantage of the natural advantage that accrues from their monopoly advantage is more efficient than having competition in a smaller market.

I have never bought that argument. I do not agree with that argument, and I think that if we want to have an economy that allows smaller participants to rise up and compete against bigger companies and bigger entities, many of which in New Zealand—disproportionately, compared with other economies—are multinationals from overseas jurisdictions, with it being a proven fact that the level of penetration of multinationals into the New Zealand economy, particularly in respect of some of the larger service industries, is higher than is normal for Western economies, that makes it all the more important that we enable these smaller competitors, or we certainly do not frustrate the efforts of those smaller competitors, to nip at the heels of the big monopolists by having a decent section 36 of the Commerce Act.

That is the reason that Clayton Cosgrove has brought forward this amendment to clause 36. It is so that more regard can be given to the effect of conduct rather than just the purpose.

The other point that I would raise is the one as to whether we should have a criminal penalty. Can I say that I agree that if you are not going to have a criminal penalty, then you should restore exemplary damages, and if you do have a criminal penalty, you ought not to have exemplary damages, because they are both in the nature of a penalty. Having both exemplary damages and a criminal penalty is almost a bit like double jeopardy, so I agree that you should not have both.

So we are left with the argument as to whether you should have either exemplary damages—which are not compensatory. They are to make an example of the person who has erred, or the company that has erred, so they are more than compensatory. They are in the nature of a penalty. You ought not to have a criminal penalty in addition to exemplary damages. The question is: which is best?

That is what the Hon Clayton Cosgrove has been saying—that the international best practice, in his view, is that we should have criminal penalties, rather than just exemplary damages. That is the reason why the Hon Clayton Cosgrove has brought forward his Supplementary Order Paper 408 to that effect.

In respect of those two issues, which is the most important? Actually, I think section 36 of the Commerce Act is the more important of those two issues, and, accordingly, I would await with interest the Minister’s response on that issue.

I will just make a couple of brief comments around the Hon Clayton Cosgrove’s Supplementary Order Paper (SOP) 408, regarding section 36 of the Commerce Act. While we will not be supporting that SOP, I do thank the member for his thoughtful contribution in this debate, and other members as well.

The amendments that the Hon Clayton Cosgrove proposed will not be covered by the bill. It is not to say that the issues around section 36 have not been considered very closely. In fact, the issue around the provisions of section 36 formed a part of the target review of the Commerce Act. The counterfactual test, which is whether or not the person or the company that has market dominance would have undertaken that anti-competitive behaviour if they were not dominant, is a particularly hard point to prove.

I do note, and it has been mentioned, that the Australian Parliament is currently putting through legislation moving to an effects regime, which is essentially what Clayton Cosgrove is proposing in his SOP. I am not convinced that moving to an effects test or moving away from the counterfactual test is actually going to achieve much in terms of greater competition for New Zealand business. So I have instructed officials to keep looking, and if a case can be put up for making a change, then I think we should consider that. But at the moment I do not see, and officials cannot provide, sufficient evidence that making a change in section 36 will actually increase competition in the Commerce Act.

With regard to the Australian Parliament, let us just see how its changes to its commerce Act bed in, and that is something that I believe we could have a look at in the future.

Thanks for the opportunity to take what I hope to be just a short call, for the benefit of the members in the Committee. I do want to make specific mention of the amendments submitted in the name of the Hon Clayton Cosgrove, in the first part. Deleting the amendments to clauses 17 and 18—as in, bringing back the criminal liability and the criminal sanctions—is absolutely the point of the first contribution I made in the Committee earlier. So if the Government could bring itself to realise that in having this permissive regime, what we now need to do is make sure that those who would take advantage of that will be held accountable to the full extent of the law—and so should be held accountable—then we are in a position to say to the Government: “You have done some good work in this bill.”

There is actually a lot to be commended in it, and I have already said what that is in terms of alignment with international practice and making our operations more easily aligned with the Australian market. These are good things, and we could support those. But we absolutely cannot support the bill, because we have gone down this road and we need to bring clauses 17 and 18 back into the legislation.

Can I just add that in relation to Supplementary Order Paper (SOP) 408, there has been—and the Minister in the chair, Jacqui Dean, alluded to it—a lot of work and a lot of conversation around whether we establish the purpose of involving a legitimate business rationale. Do we ask the question on the purpose or the effect—the actual impact—of the intent? Rather than look at just the intent and the purpose of the individual or the company, what is the actual impact on the market?

I concede that the Minister is absolutely right that this is a contentious issue, and the conversations do go both ways, but the reality is that this is a strong and powerful way to send a message. In the past, you have been able to hide illegitimate activities and couple them up with what could easily be defined as legitimate activities with other players in the market, and it has been incredibly hard to establish any kind of guilt in that kind of regime.

I think that Mr Cosgrove’s SOP has hit the nail on the head. It has actually gone further than we would have gone ourselves, but I completely agree with it. I put it to the Minister that these two amendments being added to a bill that I am sure she would argue will do wonderful things for our economy would not only make it workable and have those positive outcomes but, when we needed it, we would be able to hold individuals to account. We absolutely need to send that message, and we need that in our legislation.

Unless these amendments are passed, as I have said, New Zealand First cannot support the bill itself. But we look forward to the Minister’s agreeing to what are good additions—or deletions of deletions, as the case may be—in this legislation. Thank you.

I have a couple of questions about this and a couple of concerns, and I will raise those. First and foremost, clause 8, inserting new section 30, “Cartel provisions”, actually says that no person may enter in unless exempt. I know a company is a legal person, etc., but there are other legal entities that actually are not defined in law as a person—for example, a partnership is not a person. Why not just say “person or other legal entity”? That may be a way to get around that if someone seeks to; I am not too sure.

I think it is important just for what I am going to frame—the question that I am going to ask is what a cartel provision is, as defined by the law. So a cartel provision—it talks about price fixing, restricting output, and market allocation. It used to talk about bid rigging, but that has been taken out. I am not too sure why that has been taken out; no doubt there is a good reason. So price fixing, restricting output, and market allocation—let us keep that in mind, OK? I mainly want to talk about price fixing. I think we all know what price fixing is, or we have a general idea—a sort of an “ordinary usage” idea of what price fixing is. What it means is parties to a contract or arrangement or understanding look to fix, control, or maintain the price of goods where any two or more parties to a contract or a supply are in competition with each other, but are fixing prices—pretty obvious.

The reason I say that is that I want to talk about the exemptions for collaborative activity. So we have talked about what a cartel is—it is a nasty thing and we do not want it. However, there are exemptions. I am not too sure why there are exemptions, because what they talk about here—and this is in new section 31(1)(b)—is that “the cartel provision is reasonably necessary for the purpose of the collaborative activity.” What is the definition of “reasonably necessary for the purpose of the collaborative activity.”? Why do we have to have a carve-out there for cartel provisions? Cartels are not good things. We have established that; it is why this legislation is here, and yet what we are saying is that they could be reasonably necessary.

There is another thing, also, in section 31(2)—that collaborative activity means an enterprise or venture that is not carried on for the dominant purpose of lessening competition between two or more players. So, according to the legislation here, if the dominant purpose is not to price fix, then that is OK, as long as it is done in a collaborative way. Maybe I am not reading this legislation correctly, but I would have thought that a couple of players—and I will give an example soon—would say: “It is not our dominant purpose to fix prices. We had a dominant purpose to act in a collaborative way. The fact that prices were fixed in the market place was not our intention. However, that just happened and we’re sorry about that, but it’s not what we intended.”

Also, there is an exemption for vertical supply contracts. For example—this is new section 32(1)(a)—“the contract is entered into between a supplier or likely supplier of goods or services and a customer or likely customer of that supplier;”. This is an exemption. It does not have the dominant purpose of lessening competition. So the price is fixed, but it was not a dominant purpose. That was just an unintended outcome, or an unfortunate outcome. I would argue that it will be interesting to see whether this is tested in court. In a way, it has been tested, but not in court.

Where it was tested recently was when the Minister of Energy and Resources—in an interesting collaboration with me—tested this by asking the Ministry of Business, Innovation and Employment (MBIE) whether, in fact, there was any anti-competitive behaviour in petrol pricing in this country. The reason we asked this is that what tended to happen is about 3 years ago, for about 10 years, the margin that petrol guys were making at the pump and at the supply end was about 10c a litre. Then what happened was it jumped up, at one point, to around 40c a litre. It tended to happen over the holiday period or when people were using vehicles, etc., etc., but it was a trend.

At the moment what we have got is one supplier in this market that has over 50 percent market share in the retail sector. I know the Commerce Commission did have a good close look at this when this came in to play, because one big player bought another big player and it gave them over 50 percent. [Bell rung] Mr Chair?

The CHAIRPERSON (Hon Trevor Mallard): Aw, Stuart Nash.

Goodness me. I am sorry—I hope I am not keeping you up.

The CHAIRPERSON (Hon Trevor Mallard): I will be enthusiastic if the member can be.

Well, I am trying to. What I am doing here, Mr Chair, is saying that what has happened is that according to an MBIE report commissioned by the Minister of Energy and Resources, with support from the Labour Party, it could not dismiss the fact that there was anti-competitive behaviour going on. But, of course, a report is not strong enough to actually take legal action on. In fact, what we were asking the Minister to do was refer this to the Commerce Commission, because what happened is this report, put together by a whole lot of knowledgable consultants, said, first of all, that some of the players in this dominant market would not even give us any information.

This is after the Minister herself had said: “I want to know what’s going on in this market.” What a couple of the players said was: “Well, I’m sorry Minister. We don’t really care what you want. We’re not going to give you the information.” So a full report could not be written, but what the report did say is: “Well, we have a suspicion here. We think that there might be uncompetitive behaviour going on. I am wondering whether in fact what they would do is say “Well, look, I know that one supplier is supplying to different places in the market”, and these retailers and the supplier, who is controlled by one of the major retailers, in competition with another retailer—they know the price because they disclose the price at the wholesale point. What they might say is “Well it’s not our dominant purpose to fix prices.” or “It’s not our dominant purpose to lessen competition.” We pay more than any other country in the OECD for petrol before taxes—more than anyone else. That in itself should ring alarm bells, but “it is not the dominant purpose to fix prices; it is just what happens and we are really sorry about that, and we are really sorry, New Zealanders, that this happens”.

The other thing in here that I would be interested in knowing a little bit more about is that, in new section 30C(3), it says that, despite this, in the first 9 months after the date on which this comes into being, there are to be no proceedings under the section that controls cartel behaviour. However, during those 9 months you are allowed to prosecute under the old legislation. I am wondering why that is. I am wondering whether it is because in fact there is cartel behaviour going on under the definition of the new legislation in our petrol sector. What this legislation is doing is saying to these guys: “You’ve got 9 months to sort it out and we’re not going to prosecute you. We probably can’t get you under the old legislation, but we might be able to get you under the new legislation. You’ve got 9 months to sort it out.”

I do not know whether that is true or not, but when I read this, I go: why would you give them a 9-month grace period? Why would you do that? I mean, this legislation, as the Hon Clayton Cosgrove has talked about, has been around for a long time.

💬 Hon Clayton Cosgrove: Four years.

Four years.

💬 Hon Clayton Cosgrove: Plus.

Plus—4 years plus. And so there is plenty of time for companies to understand what is going on. I must admit when I now know what is going on in the petrol sector, after reading the report commissioned by the Minister about what is going on in the petrol sector, and when I now read that consultants had concerns about the anti-competitive nature, and I know that this legislation has taken 4 years to come through—you sort of join the dots.

Maybe the picture I am creating by joining the dots is completely false. But you cannot help but wonder, can you? You cannot help but wonder whether, in fact, you have known about this for 4 years but we are not going to prosecute you under the new legislation for at least 9 months after this comes into force. Why? Why is that the case? Why not say to people: “As soon as this comes into force, we are going to prosecute you if we find cartel behaviour going on, straight away.”? Why give that 9 months’ grace if the old legislation is bad and we actually need new legislation, which obviously we do, because this is why we are here and speaking on this bill?

I just have concerns that, first of all, cartel behaviour is bad but we have given exemptions if it is reasonably necessary for collaborative behaviour. For me, that just does not pass the sniff test, and I think it does not pass the sniff test either if a supplier is supplying a customer, but the dominant purpose is, in fact, price fixing.

It may be helpful to refer to the Commerce Commission’s “Competitor Collaboration Guidelines” just to provide the member with an example—

💬 Hon Simon Bridges: Great read.

Well, it is a great read. It is very helpful. The member has raised concerns about the provision in the bill for collaborative activities. I would point out to the member that that collaboration must be through something like a joint venture, and that collaborative activity focuses on the substance of an arrangement. I will just give you an example—thank you to the Commerce Commission. For example, two computer manufacturers have different design and technology expertise. It happens all the time. They decide that by combining different capabilities or resources they will be able to offer more affordable computer hardware and software. That is the spirit of the collaborative activities exemption in this bill. So I do hope the member listened. I am very happy to table this document so that the member can have a look at it.

The member also mentioned the fuel market study undertaken by the Hon Judith Collins and the frustrations therein, whereby the study was not able to require information from market participants, and therefore could not come to a conclusive decision about whether the market was operating efficiently and well for the benefit of consumers.

Of course, good news for that member: I announced a couple of weeks ago that we will be proceeding with a market studies power for the Commerce Commission. I do hope that the member and his party will be supportive of that amendment to the Commerce Act, based on his comments this evening.

I want to refer to Minister Dean—because I appreciate she has made some interesting comments about a series of issues, except I do not think she has dealt with the criminalisation issue, unless I have missed something.

I would like to refer her to the regulatory impact statement (RIS), at page 23. It makes an interesting point in terms of the arguments in favour of criminalising this activity, bearing in mind, of course, that the only argument the Government has put up against this—I keep reading in some of the documentation Minister Goldsmith and others talking about the chilling effect. They used the words “the chilling effect”—to stifle innovation and entrepreneurial conduct. But it makes an interesting point in the RIS when it says that “Another view is that cartel conduct is similar to other white collar crimes and the penalties and sanctions for it should be brought into line with other offences such as fraud and insider trading.”

I know that the Leader of the House is present and he is a former Crown prosecutor, I am told. I assume he has prosecuted many a fraud and white-collar crime in his day. I am not sure whether—

💬 Hon Simon Bridges: Not as many successfully, but I’ve prosecuted a few.

I was just going to say—I am not sure how many times he prevailed, but he gave it his best shot anyway. But it is a relevant point. Fraud and insider trading are indeed white-collar crimes. I would be grateful if the Minister could tell me what the difference is, and why there should be a difference, between the criminalisation of those two offences and the non-criminalisation in respect of cartel behaviour.

The Chair will know that I am a simple country boy, and I just come back to a simple fact, and he is nodding, in effect, that if it is good enough for Australia, Canada, the US, and the UK, which have similar jurisprudence, Westminster Parliaments, similar laws, and legal principles as ourselves, especially in relation to Australia, where we are coming together, closer and closer, in respect of our commercial and legal arrangements—why is it that those jurisdictions have managed to criminalise this behaviour, with no loss as far as I am aware, no “chilling effect”, to use the former Minister’s words, in respect of innovation and entrepreneurship?

If that is the only case the Government can make, then it is totally negated by the evidence coming out of the jurisdictions that have criminalised this behaviour. The argument would be, as we hear in the Chamber from time to time, to look across the Ditch, look across at our other kindred jurisdictions, look at the impact of what they have done or not done.

I say to the Minister that there is an argument. I know that the ACT member—I have read the media releases. The ACT member has waxed eloquent. I do not quite know—I am trying to search for the words—what great studies or influences have infected his cranium so that he signs up to—

💬 Hon Simon Bridges: I have.

You have?

💬 Hon Simon Bridges: No, no. The Road to Serfdom—he’s memorised that, and Rand.

—OK—in terms of his notion that innovation and entrepreneurship will be stifled if we criminalise.

I could make a number of disparaging comments—that is unlike me, I know—about motivation and other things, but I will not. But one has to question how, in logic, you could negate the principle of criminalising this sort of activity when other countries with greater jurisprudence than ours, and I would say, in many respects, especially the UK, tighter commercial law than us have done it.

💬 Hon Simon Bridges: Yeah, well, you guys did away with the Privy Council.

No, no. I think—

💬 Hon Simon Bridges: I always thought that was wrong.

OK, well—

The CHAIRPERSON (Hon Trevor Mallard): I will just make sure that we get that properly on the record. Thank you.

We would like to thank the Leader of the House’s great friends Jim Beam and Johnnie Walker.

This is a serious point. Many of us in this House, on both sides, know many company directors and many eminent business people who are honest, who do not engage in this, who are very careful around this, and who are not afraid of a criminalisation provision. They are not afraid of it. In fact, I know many entrepreneurs who would welcome this provision because it would provide a serious deterrent to those companies and those directors, few though they may be, who do engage in this sort of anti-competitive behaviour.

So I simply ask the Minister this: would she give us an explanation? Would the officials be able to elucidate as to what the rationale is, because I do not believe that the “chilling effect” argument washes, and it has not washed in other jurisdictions?

I just want to move on briefly to talk about the other amendment in my name, set out on Supplementary Order Paper 408, in respect of new section 36, inserted by new clause 7A. If I am correct in my memory—because it has been 4 years, and I do not know about other colleagues but my memory sort of waxes and wanes after year 1 or 2, since the Government proposed this legislation—the Commerce Commission supports the widening of these powers. The Minister says she is not convinced. I respect that view, but I go back again to a simple analogy, not a commercial one.

You drive a car; you crash into somebody, right? There is no intent to maim somebody, but then you have to look at the impact of the consequence and the cost and the detriment to that individual. You put that in commercial terms, because if you do not, it limits to a great extent what the Commerce Commission can do. So a company engages in activity that is repugnant, it did not really intend to—OK—but it did actually have a consequential effect on other parties, consumers, other companies, competitors, but we do not take account of that. Again, I just struggle with the logic—why you would not advance the argument from simple intent to impact. A material impact is rendered when an organisation, a company, engages in this sort of activity. There is an impact, and why would you not widen the Commerce Commission’s powers to take account of that? If there is another argument—the Minister says she is not convinced—well, OK, I would like a bit more detail around that.

The argument was put forward that officials are not convinced. Well, with respect, a number of us have been Ministers in this place, and a number of us from time to time have said to our officials that they are wrong. Again, other jurisdictions, like for the criminal offence issue—kindred and developed jurisdictions, UK and others—I am advised, have these sorts of provisions. If it is good enough for them—and you would argue, actually, that in the UK and US and Canada and Australia there is far greater competition in a whole series of industries, take groceries and supermarkets, than there is in New Zealand, yet those jurisdictions have these sorts of provisions. We are a small country. We are a small market. We have far fewer commercial entities, if you, again, look at supermarkets—one or two, two or three—yet we do not propose and we do not promote these sorts of initiatives and provisions, and I just do not get it.

I know there are commercial people far more learned than me who, again, would welcome these sorts of provisions because they provide a level playing field, they provide transparency, people get a fair go, there is recompense, and the Commerce Commission can intervene. But the Government seems to—and if the Commerce Commission is wrong, I would like to know why, because it is pretty pre-eminent. It is affiliated with the Australian Competition and Consumer Commission in Australia. If it is wrong and it has been calling for this for some time—if officials are right and the Commerce Commission is wrong, I would really like to tease out or have the Minister tease out the rationale in that regard.

These are not political provisions. These are not put up to score political points. These are genuinely held beliefs by other political parties. We are supporting the legislation overall because we think it is important and very good. Other political parties, based on the lack of input or the position that the Government will not change its mind on these issues, have decided to oppose it. I do not generally buy into that. I think generally this legislation has to go forward. But I think the Committee is owed a duty of care by the Minister via her officials to give us seriously, in a non-political way, a rationale as to why these provisions are so wrong that the Government will not look at it.

I just simply say in summation, again, that if it good enough for larger, more competitive countries and market economies to have these provisions on criminality—section 36 type - provisions—why on earth would a New Zealand Government turn those provisions down when we have far less competition, far fewer players, higher barriers to entry into certain markets, and greater opportunity to engage in this sort of nefarious behaviour? Again, as I say, we are supporting the legislation, but I think these are really important non-political issues that the Minister is duty bound to address—not just to say “We’re not supporting it. We don’t agree with it.” but to tell us in detail why.

One of the benefits of having a bit of time to consider the provisions of the bill as introduced was that it gave us an opportunity to reconsider whether or not criminal sanctions were going to add anything or add enough to the pro-competitive, anti - non-competitive nature of the amendments we were making to be worthwhile retaining in the bill. On balance, the advice was inconclusive. Treasury was not in favour of criminalisation and concluded that the civil cartel regime appeared to be working well. The member did cite the Commerce Commission’s powers and so I would say that the Commerce Commission still continues to receive a high volume of leniency applications. That suggests to me that businesses do not want to be prosecuted under the current civil provisions and so therefore the civil regime is working.

I will give a brief example at the lighter end of cartel behaviour. If the Committee looks at the case of two online sellers of motor vehicle parts, of car parts—one phones the other and suggests that perhaps if they sold a certain part for the same price then they would both benefit. The other person agrees to this, does it for a while, then reconsiders and thinks “Hang on a minute. This doesn’t feel good.” The person rings the Commerce Commission and then applies for leniency provisions and is, in fact, prosecuted under those provisions, and pays a penalty. But one has to question whether or not that cartel behaviour, which was dealt with under the leniency provision, was criminal in nature. I would be very hesitant to criminalise an activity that may not have been criminal in nature.

I would also note individuals and bodies corporate are also subject to a range of sanctions under the civil prohibition. These can amount to tens of millions of dollars for bodies corporate. In fact, there was an award of $7.5 million against a body corporate and against an individual of $100,000 with a 5-year prohibition against management. So I argue—and the bill reflects the position—that the civil sanctions are a very strong deterrent.

The question was put that the following amendments in the name of the Hon Clayton Cosgrove to the proposed amendments set out in Supplementary Order Paper 343 in the name of the Hon Jacqui Dean be agreed to:

Delete the amendments to clauses 17 and 18.