Commerce Amendment Bill

Members, we now come to the consideration in committee of the Commerce Amendment Bill, Part 1. This is the debate on clauses 4 to 34, amendments to the principal Act. The question is that Part 1 stand part.

I’m very pleased to open proceedings on the Commerce Amendment Bill. The legislation presents us with an opportunity to improve the design and operation of the Commerce Act in a number of ways. I want to make some introductory comments, which I think are likely to be germane to the debate that we will have. I’m very much looking forward to the Hon Todd McClay’s contributions on this bill. I’m sure there’ll be a chocolate fish in the offing somewhere along the line, and a good yarn.

I would like to talk about the two main changes in the bill as we start, because they have attracted a lot of interest from other members and there have been submissions to the select committee, which have been well considered. I do want to thank the Economic Development, Science and Innovation Committee and representatives here from that committee for the work that they’ve done, and I also want to thank submitters from the outset for their written and oral submissions to that committee.

I want to speak about section 36. Clause 14 strengthens the prohibition against anti-competitive unilateral conduct. Section 36 of the Commerce Act is supposed to prevent firms with substantial market power from harming competition, but it has been clear for a very long time that it just simply fails to live up to that expectation. The solution proposed in the bill is not novel. It uses a test already operating in the Act to deal with anti-competitive agreements and anti-competitive mergers or acquisitions. The test requires proof a dominant firm acted unilaterally with the purpose, effect, or likely effect of being anti-competitive.

Now, some members have suggested there is conduct fitting this description which should be allowed, and I want to explain from the outset why I disagree with that proposition. First, if members want to argue that the proposed test is too broad, it is in effect to say that the very purpose of the Commerce Act is too broad. Section 1A of the Act notes its purpose “is to promote competition in markets for the long-term benefit of consumers within New Zealand.” It is not about what a firm’s intentions may be; it is about the actual state of competition in market. That is the purpose of the Act. So whether it’s intentional or not, requiring well-resourced large businesses to manage their own actions in terms of whether they are causing harm in the market and harm to competition is entirely appropriate. So I want to put that on the record from the outset.

Second, if you look at concerns raised in select committee, they reveal the tendency to overestimate the reach of the reformed prohibition. So what does it actually mean for conduct to substantially lessen competition? We’ve got existing case law on this, and the answer is perhaps a little more nuanced than some critics might suggest. The Commerce Commission or a private litigant would need to establish a number of arguably quite onerous elements to take a successful case.

So there’s five that I’d like to run through. Detriment to the competitive process has to be more than short term. There needs to be some causal connection between detriment and the firm’s conduct. The net effect needs to create a material impact on competition, and that involves comparing the state of competition to the relevant market with and without the conduct being examined, and the deterrent would have to occur in a market in which the firm is active or likely to be active. And that’s because the relevant harm to competition increases or maintains the dominant firm’s market power.

So the bill does not penalise dominant firms for out-competing their rivals in the market place. If they offer better offerings or they’re more efficient, the test does not capture them. Substantially lessening competition is also not the same as substantially lessening the effectiveness of a particular competitor. So officials who advised the select committee ran a variety of scenarios through the test and they used the ones that submitters had put in in their submissions to the committee, and none of them appeared to produce a questionable result. So I would encourage members to look at the analysis in the departmental report that was presented. It shows that the test is well targeted.

So I want to argue that the potential to penalise through this change in the test—to penalise benign or desirable conduct—is modest and far outweighed by the benefits of the reforms. If unilateral conduct is in the public interest despite being anti-competitive, the bill then further enables the Commerce Commission to authorise such behaviour. In exceptional cases, the commission will be able to authorise conduct on an interim basis. So there are, again, further protections there in the law, and the Commerce Commission will be developing guidelines in respect of section 36. I expect those guidelines will help to moderate concerns that have been expressed to date about the breadth of the prohibition.

The second main change in the bill that I want to speak to relates to the “safe harbour” provisions for some intellectual property arrangements. Now, the bill would remove three provisions that prevent scrutiny of certain conduct when it involves intellectual property. The provisions are out of date. They reflect a legacy of discredited thinking. If you want to put it in the vernacular, they cause confusion, and ultimately they prevent scrutiny of conduct, which raises genuine competition concerns. So I want to make it totally clear: I recognise the importance of providing businesses with the confidence to invest in the development of intellectual property and to actively make it available to markets. Robust intellectual property rights incentivise innovation, making them complementary, I would argue, to competition law. Therefore, it is redundant to have carve-outs for intellectual property. Most intellectual property arrangements are helpful to the competitive process, but it does not mean that they should be immune to scrutiny under competition law. The safe harbours make a universal assumption that certain practices will never be anti-competitive just because they relate to intellectual property.

So that’s where the law currently stands. It’s a very bold assumption and one that undermines the integrity of our competition law. Again, other members believe without safe harbours, the Act will over-penalise and over-deter certain conduct. We can see from the departmental report that officials have made a careful study and that challenges any such view. I would argue intellectual property arrangements should be subject to the same scrutiny as any other type of property arrangements. At the very least, I suggest we can be confident this policy will produce far fewer errors than the universal assumption that some conduct is never anti-competitive simply because it involves intellectual property.

So, again, I want to stress the importance of the guidelines that the Commerce Commission will update to support intellectual property owners to realistically assess their obligations. I expect these guidelines to be detailed and provide assurance and clarity for the business community, as indeed similar guidelines in Australia have done for the community there. I do want to thank submitters—those who’ve written to me for pointing out the benefit of those guidelines in Australia, because they have come down and taken the concern away for those who initially had it.

I’m tabling a necessary Supplementary Order Paper to address an error noticed after the bill was reported back from the select committee. The bill inserts new sections 99AA in 99AB into the Act, which would provide a legislative basis for the Commerce Commission to exchange information with other regulators and Government agencies, when necessary, for the performance of statutory functions. When these provisions were being drafted, officials overlooked the bespoke legal status of the New Zealand Police. Police are neither a Public Service agency nor a statutory entity but instead an instrument of the Crown. That means that, as currently drafted, the information-sharing provisions miss them out completely. Officials assure me this wasn’t intended; in fact, the Commerce Commission and the Police need to be able to operate and work together cooperatively. They need to work closely when they are tackling white collar crime. My Supplementary Order Paper addresses this by making explicit references to the New Zealand Police, and at the same time, the Parliamentary Counsel Office has added some minor drafting and amendments—improvements to the bill.

So, in closing, the bill contributes in some important ways to the Act’s purpose of promoting competition in markets. I do not share the concerns held by the members with how it achieves this, but, of course, I do look forward to constructive debate.

Well, we all look forward to constructive debate. That’s why the Parliament was created. It’s less easy to do so when, Minister, your officials have got it so wrong in some areas.

National supports good competition law. In fact, if I think back to the nine years we were in Government, there were times where there were very sensible changes we wanted to bring forward, but the then Labour Opposition didn’t support them. I don’t know whether that was because ideologically they were opposed or they were just in Opposition mode. But in this instance, the Supplementary Order Papers (SOPs) that I’ve brought forward are not because we oppose everything the Government is doing. In fact, there is some good in this legislation. It will help those who are in a less strong position against dominant players in a market. But, Minister, they are minor tweaks that we are seeking through our SOPs, which would bring this as close to perfect, the legislation, as is probably possible when it comes to competition law.

I would say, however, I am very pleased that the Minister is able to be here for this so we can have—actually, it will be a constructive conversation on this. The more we talk about these things, the greater the understanding amongst the businesses, the lawyers, and others who deal with competition issues on a daily basis, and the greater the likelihood they get it right if they follow what Parliament’s intent is. But if I cast my mind back to last week, it might have been, when we were in the House and we were considering the Incorporated Societies Bill, and unfortunately Minister Little was here, and that was anything but constructive—and occasionally less than the intelligence that this place deserves. So I’m pleased the Minister is able to be here because it has been a good process so far on this legislation.

When it comes to a dominant position in the way a company acts, that is important. They shouldn’t be able to use their position to further the economic gains, or to strengthen their position even further, and harm those who are wanting to compete against them. There were some who submitted—I asked the committee this, and in fact, I think when the Minister came before us, I asked him separately about his view of Air New Zealand and whether they use a dominant position because they are dominant. They are virtually the only airline here that is servicing all of the airports bar a few that New Zealand aeroplanes can fly to.

Where there is competition, prices somehow seem to be less, as you fly around provincial or regional New Zealand. Where there isn’t competition, some have argued that as soon as the competition disappears, the pricing structure changes. The point of this is not to beat up on Air New Zealand; they provide a very important service. It’s to make the point that if the Minister won’t actually say, “Yes, we think there’s a problem with Air New Zealand.”, he is accepting the position that National has taken that New Zealand is a smaller market than Australia and smaller than most other countries, and so a perfect competition framework may not work in the best interests of the consumer.

And so the Minister desiring to make sure that, actually, a dominant player doesn’t harm a market, if we take that too far, actually, it will alter the behaviour of that business, which could also harm the consumer with or without competition.

In effect, the first SOP—I have three in Part 1; I will take time to address each of them—is around the consequences of action where there is strong market power. The Minister has changed it to say where a company has the intent, the effect, or likely effect to be anti-competitive, then actually they’re not allowed to do that. He has said that the Commerce Commission will look at this very, very carefully and create guidelines.

But, actually, for a business, when it’s taking a position and it’s a dominant player, if its intent is to act anti-competitive, that should be against the law; currently, it is. If the likely effect of their decision—the likely effect of their decision—the foreseeable consequence of their decision, is that it’s anti-competitive, that too should be against the law.

But if the effect is anti-competitive and it couldn’t be foreseen, why are we penalising them? Because although the Commerce Commission say, “Well you just have to change this.”, in New Zealand there is always a consequence, which is “Well, it’s not really your fault. I suppose you didn’t understand”—Air New Zealand or any other large player—“and just nobody has noticed.” Those who feel that they are badly treated will want compensation or they will want some sort of punitive restriction or a fine. So, therefore, if you cannot foresee an effect, a likely effect, then actually how is it we’re holding them to account? So I’m not arguing that if an effect is that something is not competitive it shouldn’t be considered, but actually the legislation holds them to a higher standard than I think is reasonable.

So my SOP says that, actually, where there is likely effect or intent, yes, it should fit within the scope of this legislation, but when there is an actual effect but it couldn’t be foreseen, and there wasn’t the consideration, wasn’t a likely effect, it shouldn’t be within the scope of the legislation. This isn’t to create a carve-out, because the Commerce Commission will take their responsibilities purposefully and seriously, and I would hope they would be reasonable in this. But pressure is always there to bear, particularly on larger companies.

I have other interventions on this; I won’t just use up the full four minutes remaining of my second intervention on this, because I’d like to hear from the Minister, but I’d like to explore why he believes, where a business cannot foresee that their actions will have an impact upon competition, that they should be held to account and they should be penalised, because they are likely to be, firstly. Secondly, he has an opportunity to share a view of Air New Zealand, because they are a dominant player, and there are situations where complaints are made. And, actually, if there is competition and Air New Zealand decide to put on extra flights by pulling them from somewhere else into a market to compete fairly, that could be seen as anti-competitive. But in the case that they can’t foresee that—sorry—and therefore it is just the effect, will Air New Zealand be held to account? Because, actually, we’re all for better service in New Zealand, and much, much cheaper airfares to regional New Zealand, but actually we also want aeroplanes flying in there, and so I’m sure Air New Zealand is as interested in the answer to the Minister’s questions on this as the committee is.

Thank you, Madam Chair. It is a pleasure to speak on the Commerce Amendment Bill.

I actually do support my honourable colleague’s Supplementary Order Paper (SOP) 92. I think he made an excellent point there. I think, speaking to clause 14, which amends new section 36, you know, we’re going from the take advantage test—we’re going from an intentions test to an effects test. But when we think about effects in the market, anti-competitive effects in the market, the biggest effect in the last two years in the market, for anti-competitive behaviour, has been the Government. The Government has forced everyone out of the fruit and vegetable and butcher shops into the supermarkets. That’s the most anti-competitive thing that’s happened in New Zealand, not based on any way that could be justified on health grounds—no justification whatsoever.

Then they wring their hands and say, “Oh, we better get the Commerce Commission in to have a look: are they actually any anti-competitive?” This is a Commerce Amendment Bill; it’s about competition. I’m talking about competition or the lack thereof. So the Government forces everyone into supermarkets—probably on health grounds a more dangerous option than having the other options of going into your local greengrocer or your local butcher shop, where you’d be lucky if there’s 10 people in the shop—hundreds in the supermarkets. They’ve never, ever tried to justify this on health grounds, because there is no justification. So why isn’t this also accounting for Government action? This bill should cover that. The Government should not act in an anti-competitive manner, but it has. It’s not just done it once; it’s done it twice.

It’s had a massive impact on those businesses. They’ve had to throw out stock that they had purchased. At least in 2020, there was a bit of a lead-in time; there wasn’t in 2021. Those businesses have been sent to the wall by the Government, and then the Government has the gall to call in the Commerce Commission to look at the supermarkets because they’re worried about competition in that area. It’s just laughable.

I think, look, the Minister may well be well-intentioned in this, but he hasn’t thought it through. If he really followed the logic, he would have asked his officials “What is the most anti-competitive thing that has happened in the last two years?” And that’s another question for the Minister: did the Minister actually ask officials about that? Did he think about what were the most anti-competitive actions that had happened in this market? Because I have spoken to people in tears who are going to lose their business as a result of that. I just can’t understand how those members on the other side didn’t do that. Perhaps they don’t get around their businesses. They only talk to people that are their friends, I don’t know. But I can tell you how upsetting it is for people who have lost their businesses as a result of anti-competitive behaviour coming from the Government.

Now, I think the provisions generally are pretty good, and I understand the SOP that the Hon Todd McClay has put up. He’s got several, but that first one he just spoke to earlier, that will go a long way to actually panel beating this into shape. However, it doesn’t cover all anti-competitive behaviour; that the Crown would indulge in such activity, I think, is a huge disappointment. It’s a disappointment for the businesses that that have lost money over this. Disappointment for people who’ve lost their businesses over this. But what the most disappointing thing is: what is the thought process that goes on within the Cabinet over there? Why aren’t they people that are thinking about the consequences of their actions to real people who’ve invested their livelihoods, in some cases mortgaged their homes? They’re not just losing a business, some of them; they’re losing their homes as a result of thoughtless—

💬 Barbara Kuriger: And their health.

—and heartless acts, and their health. A very good point. I think that we’ll find the consequences of these actions will echo through the decades, actually, and I think there’s been quite a bit of work done by the Productivity Commission on this.

So I’m really concerned about this, Minister. I know you haven’t thought about it. I know you haven’t actually asked those questions—and shame on you for not thinking of it. But look, I’m helping you out now. You’ve got an opportunity to do that.

Order! The member’s time is up.

In respect of the speech that’s just been, obviously the member didn’t address anything in the bill, so I really don’t have any response other than he mentioned a Supplementary Order Paper (SOP), but I’m not sure he’d read—

💬 Stuart Smith: Point of order. Madam Chair. The member is quite wrong, and I think that he should withdraw and apologise. I addressed clause 14, new section 36, which amends that, right at the beginning. I understand that the Minister was so busy worrying about how he’s going to dig himself out of this hole, but I think he should withdraw and apologise.

CHAIRPERSON (Hon Jenny Salesa): I go to the Minister the Hon David Clark. I don’t think it’s an issue for withdrawing and apologising for, Stuart Smith.

He did mention the prior member’s SOP but not the content of it.

I do want to come to the points, though, that the Hon Todd McClay raised, because they, I think, are germane to this debate. They were issues that I covered off in my initial contribution, but, none the less, I think they require further engagement, so I’m happy to speak to those. Really, the Hon Todd McClay—two things: first, he raised the issue of Air New Zealand; are they in a dominant market position, and arguably they are. The question, really is whether any test would show that they’d acted unilaterally with the purpose, effect, or likely effect, of being anti-competitive. So there is a test in place which could be put against any conduct if people suspected they were acting in a way that was unilaterally being anti-competitive—there is a test in place for that. It is appropriate, where there are dominant players in a market, that there is a test of their conduct. Now, the Hon Todd McClay suggests that we should weaken the test to say, “Well, what if they didn’t know they were being anti-competitive? What if that wasn’t their intention and it was a bit of an accident?”

💬 Hon Todd McClay: No, they didn’t know they were going to.

They didn’t know they were going to be anti-competitive. Well, what I would argue is whether it’s intentional or not, if it is anti-competitive it is anti-competitive. That is the purpose of the Act. It is stated right at the outset of the Act. Section 1A of the Act notes its purpose “is to promote competition in markets for the long-term benefit of consumers within New Zealand.” It is not about what the firm’s intentions might be. The road to hell is paved with good intentions. It’s about the actual state of competition in markets. That’s what the whole Act is about.

So, from my perspective, it’s the actual conduct which matters, and the effect on the market and the subsequent effect on consumers. So I’m here as the Minister of Commerce and Consumer Affairs, with a strong eye on the impact on consumers. When the test is fair, when the Commerce Commission has laid out the guidelines so that market participants understand their responsibilities, it’s appropriate that we use the test that is already, indeed, in the Act, elsewhere used, because it’s one that can be well understood and raises the bar somewhat. The point—

CHAIRPERSON (Hon Jenny Salesa): Order! I’m sorry to interrupt the member, but the time has come for me to report progress on this bill.

House resumed.