Paula Rebstock, Commission Chair, 4 September 2006
Thank you for inviting me to speak to you today.
I will speak today about the trans-Tasman economic relationship from a regulator's perspective. As you know, the Commerce Commission has recently signed a trans-Tasman merger protocol with our Australian counterparts the ACCC. In many ways the relationship between the two regulators has never been stronger.
As a general comment I would like to say that the Commission looks forward to working increasingly closely with our Australian counterparts in particular and with other overseas competition agencies in general. These close international ties are increasingly important as the markets of different countries continue to become more closely linked. As business becomes more trans-national in its nature, as regulators we must ensure we have the global reach to cope with the new challenges that presents.
High level of integration
It is not surprising that international companies often look on New Zealand and Australia as a single market. The Australian and New Zealand economies are highly integrated through considerable cross border trade of goods and services and movement of labour and capital. This integration has arisen through a shared legal and political heritage, close geographical proximity and similar commercial environments.
The substantive competition and consumer protection laws in Australia and New Zealand are very similar. The Commerce Act and Fair Trading Act were both initially modelled on the Australian Trade Practices Act. Consequently, New Zealand courts have been willing to refer with approval to Australian court precedents when interpreting these laws.
The 1983 Closer Economic Relations Agreement and related agreements have facilitated ongoing cooperation in the development of these laws. The 1988 Memorandum of Understanding on Harmonisation of Business Law led to amendments to our respective laws to replace anti-dumping actions with generic competition law remedies. The resulting provisions in section 36A of the Commerce Act and section 46A of the Trade Practices Act are quite unique world-wide. These sections effectively extend extraterritorial jurisdiction of the respective laws in relation to unilateral abuses of market power in markets not exclusively for services.
In addition to the similarity of laws, there is also considerable similarity in the institutions responsible for administering and enforcing those laws (particularly when comparing New Zealand to the Australian Commonwealth institutions). Both the ACCC and Commerce Commission have statutory functions under a similar range of competition, consumer protection and industry-specific regulation statutes. The governance of the agencies is also similar, with both being independent of government in the exercise of their functions. Given these similarities, we have developed a close and cooperative relationship with the ACCC over the years.
As you are aware, our respective governments have sought to revitalise the close trans-Tasman relationship through setting a goal for a single economic market. Consistent with this goal, the Productivity Commission was asked to report on the potential for greater cooperation, coordination and integration of the general competition and consumer protection regimes in Australia and New Zealand. The resulting report released in December 2004 concluded that there was already significant convergence of the respective regimes, such that it was unlikely to significantly impede businesses operating in Australasian markets. This view was also confirmed in the Productivity Commission's report on the Review of the Australian Consumer Product Safety System released in January this year.
Consequently the Productivity Commission concluded that joint laws were not required at this stage, but did identify a number of transitional measures.
A general goal is to increase cooperation between the Commerce Commission and ACCC on enforcement and information gathering, including the ability to investigate on each other's behalf. A specific measure recommended by the Productivity Commission is providing scope for businesses to have certain approvals considered on a single track, but with separate decisions.
These recommendations were generally supported by both Governments and the ACCC and Commerce Commission were invited to take a lead in implementing elements of this transitional package.
The Commission and the ACCC already have a very cooperative relationship, but we are always exploring ways to build on this relationship given the clear benefits of further cooperation. These benefits essentially take three forms: reducing compliance costs for businesses, reducing transaction costs for the agencies, and increasing the effectiveness of laws in both countries.
As a means to facilitate this cooperation, the Commission and ACCC have agreed to meet on an annual basis to discuss the strategic relationship and issues of mutual interest in the competition, consumer protection and regulatory areas. Our first formal meeting was held in July this year and it was very productive.
The Commission is also actively engaged with trans-Tasman businesses through the Australian New Zealand Leadership Forum. I chair a Forum working group of Australian and New Zealand business leaders: this group provides a business perspective on trans-Tasman coordination of the competition and consumer law regimes. The group's work on the Productivity Commission's single track model for trans-Tasman merger review has been particularly useful and contributed significantly to development of the merger review protocol agreed by the two Commissions at the July meeting. I will discuss the merger review protocol in more detail shortly.
I will briefly talk about the opportunities for coordination in relation to particular functions of the Commission, primarily focusing on the Commerce Act.
Trans-Tasman merger review
Surveys have shown that Australia is the first offshore market for many New Zealand businesses, and likewise, New Zealand provides a straightforward first market for many Australian companies. We have seen the effects of this through increased merger and acquisition activity by Australian owned companies in recent years.
The desirability of cooperation between the ACCC and Commerce Commission was highlighted with the Qantas / Air New Zealand authorisation application to both agencies. However, more frequently, both agencies are considering applications for clearance under our respective formal and informal regimes.
The Productivity Commission estimated that, on average, approximately 12 percent of the clearance applications to the Commission in the period 1997 to 2004 related to transactions that were also reviewed by the ACCC. Slightly less than 20 percent of these dual applications related to global mergers originating outside Australia and New Zealand. Recent examples of this were the Pernod Ricard / Allied Domecq merger and the Reckitt Benckiser / Boots Group merger. However, the majority of dual applications related to solely trans-Tasman activity.
In recognition of this level of dual consideration, Graeme Samuel and I have recently released a joint protocol on cooperation in merger review. The protocol is a statement of best endeavours for a single track merger procedure which may be initiated by the agencies or the applicants on a voluntary basis. The proposed single track procedure is flexible enough to be adapted to fit the level of cooperation that is desirable in each case. The protocol is available on the Commission's website
I will outline for you some of the key features of the protocol.
Timing is an important feature because cooperation is most effective when the timetables for review by the agencies run more or less in parallel. Before initiating a review, it is proposed that the agencies may discuss timing and other process issues with the merging parties to facilitate coordinating key stages of the review.
The merging parties would also be encouraged to grant broad confidentiality waivers to enable the agencies to exchange information during the course of the review. Consent by the applicants will be completely voluntary, but we expect that would also be in the applicants' interests to facilitate a timely consideration of their application. If any waiver includes conditions on the use of information to be exchanged, the Commission would require the ACCC to consent to meeting those conditions before the information is exchanged. The agencies may also discuss what information is to be made available on or withheld from the public register in relation to the review.
It is proposed that the agencies should consider cooperating in collecting evidence to be obtained other than through the use of their powers. The agencies should discuss coordinating requests for additional information, documents and meetings or conferences. For example, the merging parties, and any third parties as relevant, would be encouraged to allow joint ACCC and Commission meetings with parties and their experts.
The agencies should seek to cooperate with one another throughout the course of their reviews. This might include sharing publicly available information and, consistent with any confidentiality obligations, discussing tentative market definitions, assessments of competitive effects, efficiencies, theories of competitive harm, economic theories, and the empirical evidence needed to test those theories.
A cooperative undertaking of this kind will naturally require ongoing communication between the agencies. The protocol states that the Commissions should contact each other at key stages during the course of reviewing a merger transaction, such as when considering potential remedies or prior to initiating an enforcement action or releasing a final decision.
Finally, the protocol recognises that remedies accepted in one jurisdiction can affect competition in the other jurisdiction and/or impose unnecessary compliance costs on the merging parties. To the extent consistent with the respective legal responsibilities, the agencies should talk to each other to facilitate the compatibility of any remedies accepted.
This protocol outlines some very practical steps that can be achieved within current legislation to streamline the process of merger review. However, the ACCC and the Commission retain full discretion to reach their own decisions based on the impact of the transaction in the relevant markets in their own jurisdiction. A 'yes' and 'no' outcome is still possible. This does not mean, however, that the Commission does not have regard to issues associated with CER when we carry out a merger review, particularly in the authorisation context when we focus on public benefits.
Public benefits that we might consider in terms of CER will generally focus on the theme of efficient rationalisation of resources and an extended export base to third countries. Benefits that the Commission has considered in the past include:
- Rationalisation of production between or within Australia and New Zealand industries creating efficiencies of resource use.
- Cost cutting moves in response to the lowering of frontier barriers, for example, would enhance international competitiveness and use of local resources.
- Improved off-shore links would enhance opportunities for the export of New Zealand made goods.
I consider that this framework is consistent with allowing New Zealand based companies to achieve economies of scale to compete offshore. However, such expansions must not be at the expense of domestic consumers.
Enforcement of restrictive trade practices
The Commission's enforcement of the restrictive trade practices provisions of the Commerce Act also has a strong Australian dimension. This arises both from a large number of Australian companies carrying on business in New Zealand, and vice versa, but also from multinational companies often treating New Zealand as simply being part of the wider Australasian markets in which they operate.
I will briefly discuss a few issues that may be of interest.
Jurisdiction of powers
Recently the Commission tested the jurisdiction of its statutory powers under the Commerce Act as part of an investigation of a cartel in the wood chemicals market.
The companies in this investigation have parent and interconnected companies based in Australia. The Commission wished to interview a director of a New Zealand company who lived in Australia, although he came to New Zealand regularly.
The Commission staff tried hard to locate him during his visits to New Zealand and to serve him with a notice compelling him to attend an interview before the Commission, but they were unsuccessful. Initially the Commission attempted to serve him personally.
Eventually, after two hearings of the court on technical challenges relating to the jurisdiction of the Commission's powers, it was confirmed that the Commission could deem the New Zealand company to be his legal representative, such that serving notice on the company was deemed to be serving him notice. Given that service was lawfully completed, the Australian based director was then compelled to attend the interview before the Commission. Failure to appear would have resulted in him being in breach of New Zealand law and the next time that he came to New Zealand he could have faced criminal proceedings. Given this prospect, the Australian based director duly complied with the notice and attended the Commission's interview.
This process has confirmed that Australian companies carrying on business in New Zealand are subject to the full effect of competition laws in so far as it affects New Zealand markets.
Leniency issues
The Commission is finding that a large proportion of the cartel investigations currently before the Commission have an Australian dimension. A key part of the Commission's enforcement strategy in relation to cartel investigations is its leniency and cooperation policies.
Under the leniency policy, the Commission will grant immunity from Commission-initiated proceedings to the first person involved in a cartel to come forward with information and cooperate fully.
Under the cooperation policy, the Commission can agree to a lower level of enforcement action should participants be willing to cooperate. This, in exceptional circumstances, can go as far as agreeing not to prosecute the cooperating party. Recently, as a consequence of cooperation with the Commission and following a full admission of guilt, a company received a 50 percent reduction on the penalties that were imposed. This demonstrates what can be achieved under this policy.
Currently we have offered leniency to 7 companies of which 5 are still active files including 1 which relates to activity solely within New Zealand. However, the majority of leniency applications are by multinational companies applying simultaneously for leniency with competition authorities around the world. Failure to do so would put them at risk in the country in which they did not apply.
Consequently, there is some value in ensuring the leniency policies applied by the ACCC and the Commission do not conflict when both agencies are dealing with applications by the one company. Some consistency in approach would facilitate the ACCC and the Commission cooperating in the investigation, subject to the agreement of the leniency applicant.
In 2005 the ACCC reviewed its leniency policy. It has been two years since the introduction of our leniency policy and it is timely that we review it also. Some of the things that the ACCC looked at that we might also consider include paperless applications, providing for full immunity until the point that the Commission has obtained legal advice on the evidence, and introducing a marker system allowing people to reserve a place in the leniency queue.
We will continue to explore these issues.
Future changes
There are also a number of legislative changes on the horizon that would facilitate the Commission's enforcement activities in relation to cross-border business activity.
The New Zealand and Australian governments have signalled their intention to amend their respective legislation to enable the Commission and the ACCC to carry out joint investigations and share information obtained through the use of statutory powers. These amendments will relate to the Commission's activities under both the Commerce Act and Fair Trading Act. The Minister of Commerce has signalled that a Bill may be introduced to Parliament this year.
In addition, an Australian and New Zealand officials working group is currently carrying out a review of trans-Tasman co-operation in court proceedings and regulatory enforcement. The proposals under consideration would facilitate enforcement of court judgments relating to civil penalties and certain criminal fines for regulatory offences across the Tasman. This would apply to both the Commerce Act and Fair Trading Act. We look forward to seeing the outcomes of this review.
However, even within existing legislation the Commission and ACCC have been able to cooperate in investigations. The Commission and the ACCC will be looking to formalise arrangements for cooperation in enforcement of both consumer law and competition in a further protocol, which will be made publicly available. I anticipate that work on this protocol will begin shortly.
Global view
I have talked about cooperation with a trans-Tasman focus, but a further benefit of cooperation with the ACCC is that we are able to cooperate in our respective international work on a multilateral basis.
The Commission and ACCC are currently parties to three trilateral cooperation agreements with other competition and consumer protection agencies. These agreements are with the Taiwan Fair Trade Commission, the Canadian Competition Bureau and the United Kingdom Office of Fair Trading and Her Majesty's Secretary of State for Trade and Industry.
The Commission and ACCC are also members of the International Competition Network, the International Consumer Protection Network and relevant OECD Committees. These forums provide for sharing information on best practice and coordinating on education programmes. Current working groups that we are participating in through the ICN include those dealing with single firm conduct, merger review and cartel investigations.
Conclusion
In conclusion, I note that a small economy like New Zealand's has much to gain from being closely linked to a market such as Australia's. It is one way, for example, that New Zealand can see increased competition in markets that might otherwise be too small to support a truly competitive environment.
So while closer relations with our trans-Tasman neighbours, and with other countries, does present challenges for regulators and businesses alike, I'm sure we all agree that the opportunities far outweigh those challenges. The Commerce Commission certainly considers that the time and energy we invest in forging links with our trans-Tasman counterparts will result in more competitive, vibrant and successful businesses on both sides of the Tasman.
