INTERIM REPORT ON COMMERCE (CARTELS AND OTHER MATTERS) AMENDMENT BILL

Transcription

1 INTERIM REPORT ON COMMERCE (CARTELS AND OTHER MATTERS) AMENDMENT BILL 18/10/2012

2 2 COMMERCE COMMITTEE INTERIM REPORT ON THE COMMERCE (CARTELS AND OTHER MATTERS) AMENDMENT BILL Introduction 1 The New Zealand Law Society (Law Society) welcomes the opportunity to make a submission on the proposal outlined in the Commerce Committee s Interim Report, 1 to transition both of the industryspecific international shipping and civil aviation competition regimes to a Commerce-Act-only regime (the Proposal). 2 The Law Society supports the Proposal. This submission begins by explaining the basis for the Law Society s support, and then addresses the questions that the Minister of Commerce has asked the Commerce Committee (the Committee) to consider in relation to transitioning the international shipping and civil aviation regimes. Why the Law Society supports the Proposal 3 The Law Society supports the Proposal because it ensures: 3.1 consistency in the application of the law by subjecting participants in the international shipping and civil aviation industries to the same, robust competition analysis that applies to participants in other industries; 3.2 proper leveraging of institutional competence by using the expertise of the Commerce Commission (the Commission) to assess the competition implications of collaboration agreements between participants in the international shipping and civil aviation industries; and 3.3 increasing harmonisation with trends in international competition law regimes. 4 As observed by the Productivity Commission in its Final Report on New Zealand s International Freight Transport Services (Final Report), 2 the industry-specific regimes have operated largely as anomalies for many years. 5 The Commerce (Cartels and Other Matters) Amendment Bill (Bill) provides a worthwhile opportunity to update and consolidate New Zealand s competition law regime by implementing the Proposal. The introduction of criminal sanctions for cartel behaviour also provides a strong policy justification 1 2 Interim Report on the Commerce (Cartels and Other Matters) Amendment Bill, 28 September 2012 (341-1). New Zealand Productivity Commission International freight transport services inquiry Final Report (April 2012).

3 3 for bringing the international shipping and civil aviation regimes within the scope of the Commerce Act 1986 the obvious rationale being that the criminal law should be applied even-handedly across industries. 6 Finally, the Bill introduces a regime that will be sufficiently flexible to permit a necessary degree of collaboration between international shipping lines, and civil aviation airlines and associations. This is achieved through: 6.1 the proposed exemptions in the Bill, in particular the collaborative activity exemption; 6.2 the clearance regimes for collaborative activities and arrangements that risk lessening competition; and 6.3 the authorisation process for arrangements that need to be justified on public benefit grounds. International Shipping 7 The Law Society supports the Interim Report s proposals to repeal: 7.1 section 44(2) of the Commerce Act 1986; and 7.2 Part 1 of the Shipping Act Will the safeguards in the Commerce Act and the Bill be flexible enough for international shipping lines to collaborate so as to provide maximum capacity and frequency of services? 8 Yes. The Bill s proposed collaborative activity exemption and the clearance regime for collaborative activities will provide the necessary flexibility for shipping lines to enter into bona fide collaborations regarding the capacity and frequency of services. Collaborative Activity exemption 9 The proposed collaborative activity exemption is broadly drafted and is intended to permit a wide range of bona fide arrangements to be established. 10 Under the collaborative activity exemption, shipping lines would need to establish that: 10.1 the parties to the agreement are involved in a collaborative activity (defined as an activity in trade between 2 or more persons that is not carried on for the dominant purpose of lessening competition between the parties); and 10.2 the cartel provision is reasonably necessary for the purpose of the collaborative activity.

4 4 11 This is intentionally broad, to permit a range of collaborative activities in all industries. The Law Society is not aware of any reason why the shipping industry requires more latitude than other industries. Collaborative Activity clearance regime 12 A clearance granted under the proposed collaborative activity clearance regime will give parties assurance that their arrangement does not contravene the Commerce Act, and will be a faster and cheaper process than getting an authorisation. 13 The Commission may grant a clearance if it is satisfied that: 13.1 the parties are involved in a collaborative activity; 13.2 the cartel provision is reasonably necessary for the purpose of the collaborative activity; and 13.3 the collaborative activity will not have, or would not be likely to have, the effect of substantially lessening competition in a market. Non-ratemaking agreements 14 The Law Society notes that the Productivity Commission, in its Final Report, recommended that an exemption for non-ratemaking agreements should be retained in the Shipping Act. The primary reason given for this recommendation was that this is more in keeping with the approach taken by other countries, including Australia and the European Union. 15 The Proposal goes further, and would remove this exemption from the Shipping Act. 16 In principle, the Proposal seems correct. Non-ratemaking agreements can still have a competition or cartel effect and should be scrutinised under the Commerce Act. If they are bona fide collaborative activity arrangements then they could take advantage of the exemption and clearance regimes. 17 However it is noteworthy that this exemption has been retained in Australia and that the Productivity Commission was satisfied with its retention. Before implementing the Proposal in its current form, the Committee should be satisfied that any risk associated with not providing an exemption for non-ratemaking agreements is justified and will not discourage shipping lines from servicing New Zealand.

5 5 Are there risks in transitioning to a Commerce-Act-only regime for international shipping? 18 The Law Society can see the sense in allowing for the grandfathering of existing arrangements for an appropriate period of time. The Law Society believes that participants in the international shipping industry will have more informed views on the detail of any transitional matters. Will transitional arrangements be needed to move to a Commerce-Act-only regime? 19 As stated, the Law Society believes that participants in the international shipping industry will have more informed views on transitional matters. 20 However, the Law Society notes that the European Union provided for a two-year transitional period when their exemption for ratemaking agreements was repealed in International Civil Aviation 21 The Law Society supports the Interim Report s proposals to: 21.1 repeal Part 9 of the Civil Aviation Act 1990; and 21.2 provide transitional arrangements for arrangements that have already been authorised under section 88 of the Civil Aviation Act. Under a Commerce-Act-only regime, will specific mechanisms be needed to ensure New Zealand s international obligations are accounted for? 22 However this issue is framed, the essence is whether the Act allows for, or should allow for, any scenario where the decision on an application is based on preferring other considerations over the competition analysis. Civil Aviation Act mechanisms 23 One way to answer this question is to start with the mechanisms in section 88 of the Civil Aviation Act. These are: Section 88(3) In considering whether to grant authorisation under subsection (2), the Minister shall ensure that the granting of such authorisation will not prejudice compliance with any relevant international convention, agreement, or arrangement to which the Government of New Zealand is a party....

6 6 Section 88(5) Notwithstanding the provisions of subsection (4), the Minister may authorise any provision of any contract, arrangement, or understanding under this section if the Minister believes that to decline authorisation would have an undesirable effect on international comity between New Zealand and any other State. 24 These Civil Aviation Act mechanisms allow for two possibilities: 24.1 an authorisation will be withheld even if the arrangement does not harm competition in a market, if that arrangement would prejudice New Zealand s compliance with international obligations; and 24.2 an authorisation may be granted even if the arrangement harms competition in a market, if declining the authorisation will have an undesirable effect on New Zealand s international comity with another State. Commerce Act mechanisms 25 Under the Commerce Act, the only mechanisms allowing for other considerations over the competition analysis are: 25.1 the requirement in section 26 for the Commission to have regard to economic policies of the Government; and 25.2 the requirement in section 61 for the Commission to be satisfied, when granting an authorisation, that the public benefits of the arrangement outweigh any lessening in competition. 26 These Commerce Act mechanisms do not deliver the outcomes currently contemplated by the Civil Aviation Act, outlined in paragraph [24] above. 27 Section 26 only requires the Commission to have regard to economic policy statements, meaning that any such statement will not determine the Commission s decision on a particular matter. 3 And the section 61 requirement that the Commission be satisfied that sufficient public benefits exist before granting an authorisation would not necessarily elevate international considerations over the competition analysis. 3 NZ Co-op Dairy Co Ltd v Commerce Commission [1992] 1 NZLR 601.

7 7 The Law Society s view 28 The Law Society is of the view that no specific veto mechanisms are required to ensure New Zealand s international obligations are accounted for, because: 28.1 in an increasingly liberalised air services market (especially following the Ministry of Transport s new International Air Transport Policy Statement), New Zealand s obligations on international routes are of less concern (this point was echoed in the Final Report); and 28.2 on international routes that remain highly regulated, the policy decision by the respective Governments to commit to certain obligations to each other should not, in principle, impact on the commercial operations of the aviation industry operating on those routes. 29 The Law Society is supported in this view by the following observations of the Productivity Commission in its Final Report: 4... civil aviation policy considerations do not appear to be essential to the current competition regime for air services for several reasons: The Civil Aviation Act authorisation regime is optional. Businesses seeking an exemption from Commerce Act prohibitions can bypass the Civil Aviation Act and seek a Commerce Act authorisation directly from the Commerce Commission. The Australian competition regime operates without specific legislative requirements for considering civil aviation policy objectives. Other highly regulated markets in New Zealand are still subject to the Commerce Act s prohibitions. 30 It would be interesting for the Committee to get information on how often the Civil Aviation Act mechanisms are relied upon, particularly in recent years. 31 If, despite the view above that these veto mechanisms are no longer needed, the Committee decides to retain the residual Civil Aviation Act mechanisms, then: 31.1 these mechanisms should be specified in the Commerce Act; and 31.2 the Minister of Transport should be responsible for determining the effect of New Zealand s international obligations on the authorisation, after receiving the competition determination from the Commerce Commission. 4 Note 2 above, at

8 8 Will authorisation processes be flexible enough for aviation industry collaborative arrangements? 32 Yes. Airline alliances, International Air Transport Association activities and joint tariff setting are all arrangements that are accommodated by the Commerce Act. As mentioned, the necessary flexibility in the Commerce Act comes from the following mechanisms: 32.1 the proposed exemptions in the Bill, in particular the collaborative activity exemption; 32.2 the clearance regimes for collaborative activities and arrangements that risk lessening competition; and 32.3 the authorisation process for arrangements that need to be justified on public benefit grounds. Are there risks in transitioning to a Commerce-Act-only regime? 33 The Law Society believes that participants in the civil aviation industry will have more informed views on the detail of any additional transitional matters. Should transitional or grandfathering provisions apply for existing arrangements? 34 The Law Society can see the sense in allowing for the grandfathering of existing arrangements for an appropriate period of time. The Law Society believes that participants in the civil aviation industry will have more informed views on the detail of any transitional or grandfathering provisions. In the absence of commission regimes, will industry-specific regulation be necessary to deal with the relationship between airlines, travel agents, and their clients? 35 The Law Society sees no reason why the international civil aviation industry should be given unique treatment. Arrangements between airlines, travel agents and their clients should be subject to an application under the Commerce Act, as is the case for participants in other industries. Jonathan Temm President 18 October 2012