A look in the crystal ball for the Commerce Act review

In December, the Government put out a consultation paper on possible changes to New Zealand’s competition laws. Six months, more than 50 submissions, and two ministers later – and still we wait on final decisions from the Government.

Here's a crystal ball look at where the Government may land on the most significant proposals.

Beefing up the mergers regime

Several proposals were floated to give the Commission more tools to combat anticompetitive mergers. These fall into three buckets:

1. expanding the scope of the merger control regime;
2. giving the Commission more tools to tackle anticompetitive mergers; and
3. tackling acquisitions by companies with a substantial degree of market power.

In bucket No 1, there are proposals to address so-called ‘creeping’ or ‘roll-up’ acquisitions, and to clarify what transactions are caught by the regime. The consultation document does not identify specific instances where a creeping acquisitions provision might have been useful, but it does call out vets and funeral homes as industries that have seen roll-up strategies deployed. In terms of business acquisitions, there has long been debate about what “assets of a business” means exactly – does this capture the acquisition of bare land, for example?

In bucket No 2, there are proposals such as expanding the types of remedies the Commission can accept to counter competition concerns. Currently, businesses can only divest assets or shares to address competition concerns, which makes New Zealand a global outlier. Under this proposal, the Commission would be able to accept behavioural remedies such as entering into a supply agreement to ensure rivals can access a key input.

There are also proposals to allow the Commission to force merger parties to apply for clearance, and cease integration if they have already closed their deal. These would be quite draconian powers, although the UK competition regulator, the CMA, has them.

Finally, proposals in bucket No 3 include things such as amending the merger test to make clear that acquisitions can be anticompetitive if they ‘create, strengthen or entrench’ a substantial degree of market power, and specifying certain industries where merger control would be compulsory.

Prediction: Most of the proposals will make the final cut, and the Government will be keen to maintain alignment with Australia’s regime where it can. This means we will see a creeping acquisitions provision, behavioural undertakings, and a clarification of the merger test to deal with mergers to create, strengthen of entrench market power – all of which are a feature, or will be – of the Australian regime. We will also see call-in and hold separate powers to make it easier for the Commission to deal with non-notified mergers. Look out also for industry-specific mandatory merger control – the Aussies are introducing this, with supermarkets the first cab off the rank.

To collaborate or not to collaborate

The second category of proposals concerns how rivals compete, though not all push in the same direction. On the one hand, the Government is considering reforms to make it easier for competitors to collaborate – for example in the sustainability space. These include things such as a notification regime for certain types of activities. The idea is that competitors could notify the Commission of an intended arrangement and the activity would be deemed permissible if the Commission does not object. Australia has this for conduct such as resale price maintenance and joint purchasing, and it is widely understood and works well.

On the other hand, the Government is also considering introducing a prohibition to tackle so-called ‘tacit collusion’ or ‘concerted practices’, which is where businesses coordinate their conduct to harm competition without entering into a ‘contract, arrangement, or understanding’ – the threshold under the current laws on multi-party conduct. Businesses could do this by, for example, sharing competitively sensitive information about their future intentions. Such a prohibition would mark a significant lowering of the bar, and many submissions raised fears of a chilling effect on pro-competitive conduct.

Prediction: the Government will be alive to the apparent conflict between these sets of proposals, and will choose to make it easier for competitors to collaborate in appropriate circumstances. There is an existing – and successful – regime in Australia that can be replicated here. This contrasts with Australia’s concerted practices provision, which has been criticised as vaguely drafted (the legislation does not actually define what a concerted practice is) and has only been successfully prosecuted once.

Codes and rules

The last of the most significant proposals are industry codes and rules. Industry codes typically cover the relationship between industry participants or between participants and their customers. The idea is that they could be used to address issues in industries where the conduct of players falls short of breaching the Commerce Act. For example, a code could address bargaining power imbalances by specifying minimum requirements for supply agreements.

Codes are a feature of Australia’s competition law landscape, and there are currently 11 mandatory codes made under Australia’s competition laws.

Prediction: the Commerce Act will be amended to allow for the making of codes, either by Parliament or a Minister. Many of the submissions (understandably) called for significant engagement before they are introduced, and hopefully we will see this happen either in the legislation or in practise.

Time will tell how right (or wrong) this crystal ball is. 

Michael Tilley is the founder and director of tilley+co, a specialist competition law firm based in Auckland. He was previously chief legal counsel (competition) and head of mergers at the Commerce Commission.

This content was supplied free to NBR and not commissioned.