New Zealand: Productivity Commission gets into its competition law work

Last Updated: 19 June 2014

Change to competition law needed

The momentum for change to section 36 of the Commerce Act is building with the Productivity Commission recommending that the government review section 36.

The recommendation comes in the Commission's final report on its inquiry into the services industry. It is driven by concern that section 36, or at least the way it is applied, is not effective in preventing all misuses of market power.

The Commission considers that the counterfactual test, developed by the Courts to implement section 36, still allows dominant firms to act in a way that supresses competition and innovation. The Commission is also concerned that in some instances section 36 has the opposite effect, and prevents conduct that is desirable.

The Productivity Commission's recommendations add to a long debate about the effectiveness of section 36. The Commerce Commission and a range of other organisations and experts consider that section 36 needs to be changed. On the other side, there is a sizable bloc supporting section36 as currently drafted or at least sounding a note of caution over any changes.

Alongside the Commission's recommendation on section 36, the Commission's report finds that the services sector faces less competition than goods-producing industries and primary industries. In particular, the Commission notes that financial and insurance, rental, hiring, real estate, retail, professional, scientific and technical industries have relatively weak intensity of competition. To address this, the Commission endorses measures from an earlier report to break-down Trans-Tasman barriers to trade in services, and the recognition of foreign licences to practise.

Other recommendations in the report include a post-implementation review of the unfair contract terms provision recently introduced into law, recommendations to facilitate bank switching, changes to ICT purchasing by government, and that the government addresses issues with data sovereignly, security and privacy.

There is no obligation on the government to adopt Productivity Commission reports or even to respond to them. The government has, nevertheless, shown a willingness to consider the Commission's report and to implement some recommendations.

Call for Merits Review – Submissions

A strong call for merits review of regulatory is being made in submissions to the Productivity Commission. At least 15 submissions to the Commission's regulatory institutions and practices inquiry support merits review or a similar approach. See here for background on the review.

Many of those submissions seek a body similar to the Australian Administrative Appeals Tribunal. The Tribunal is specially established to review a wide range of decisions made by the Australian Government, departments, agencies and some other tribunals. It can also review some state government and non-government bodies. Areas covered include family assistance and social security, taxation, financial services regulation and immigration.

A feature of the Australian Tribunal is that it considers matters afresh, and on their merits. Judicial review, which is often the only appeal or review option from administrative decisions in New Zealand, is focussed only on the process by which decisions are made. While statutory criteria can bring substantive issues into play in a judicial review, judicial review is more limited than the matters the Australian Tribunal can consider.

Other aspects of the Australian Tribunal that have attracted support in submissions are its specialist expertise in dealing with administrative decisions and in its particular topic areas, and its claimed ability to deal with matters quickly. More generally, merits review is supported on the basis it will provide greater accountability of and discipline regulators, and is essential to avoid regulatory error.

Merits review is, however, opposed by some parties. These objectors point to it as a source of delay, which could be used by the big players in markets to delay decisions that would otherwise improve competition. Concern is also expressed over the risks of inconsistencies and that decisions will be made without regard to the government's policy positions.

Support for merits review has come generally from companies or industry bodies in highly regulated sectors, for example, in electricity, telecommunications and airports. Concern over the effect of merits review has come from some regulators, industry bodies and other bodies generally representative of consumers. In between those two groups, a number of organisations acknowledge the potential benefits of merits review but also point to the need to balance cost. One submission is dismissive of merits review, claiming it does not go far enough, suggesting a regulatory oversight body to monitor all regulators.

The submissions well cover the range of issues involved in introducing merits review. It is easy to see the issue as involving a trade-off between the benefits of merit review, especially in terms of avoiding regulatory errors, against the costs of merits review (e.g. delay, uncertainty in decisions). However, it is suggested that a more fundamental decision lies behind these issues – to what extent does a person or firm have the rights to carry on business unhindered by the state? If this is recognised as a strong right, then there is a good case for allowing merits review, to ensure regulation is imposed only where it is fully justified.

The Commission's final report is due 30 June 2014.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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