New Zealand: NZ Competition And Market Regulation Update - Commerce Act Reviews And Recommendations

The New Zealand Ministry of Economic Development has recently released cabinet papers detailing recommendations in relation to the reviews of:

• The clearance and authorisation provisions under the Commerce Act.
• Parts 4, 4A and Sections 70 - 73 of the Commerce Act.

In this update we take a brief look at these recommendations.

A separate cabinet paper makes recommendations on strengthening the economic regulation of Auckland, Wellington and Christchurch International Airports in response to submissions made on the review of Parts 4 and 4A.

The discussion paper initially released by the Ministry dealt with a range of matters including:

• Increasing the statutory timeframe for merger clearance determinations.
• The publication of written clearance decisions.
• The enforcement and variation of undertakings to divest shares or assets.
• The acceptability of behavioural undertakings in merger clearance and authorisation applications.
• Informal pre-merger processes.
• A possible clearance regime for trade practices.
• A possible collective bargaining arrangement notification process.

November 2007 was targeted for delivery of final policy proposals to Cabinet. However, in its latest recommendations, the Ministry concludes that 'while there are some administrative and low level policy issues that can be progressed quickly, there are several issues that are more contentious than originally envisaged and require additional time to develop robust policy proposals'.

Particular matters requiring further 'research, consultation and analysis' are collective bargaining by small businesses and whether a clearance system for trade practices is needed.

A number of minor amendments to the Commerce Act are identified for inclusion in the Regulatory Improvement Omnibus Bill. These are:

• Providing for the effective enforcement of undertakings that have been approved as part of a merger clearance or authorisation decision.
• Allowing the Commission to approve variations to undertakings.
• Removing the 20 day statutory timeframe for holding conferences for restrictive trade practices authorisation proceedings.

Final policy proposals on the remaining outstanding issues are to be delivered by 30 June 2008.

Consideration of complex and important issues should not be rushed merely to meet legislative timeframes. Accordingly, it makes sense for consideration of these matters to be deferred.

We would have favoured including a statutory requirement for the Commerce Commission to give written reasons for clearance decisions in the Regulatory Improvement Omnibus Bill.

The amendments proposed are, on balance, sensible and should not materially impact on current Commission practices.

The proposed changes in this area are of much greater substance.

Part 4 of the Commerce Act has generic provisions enabling price control to be imposed in any market where competition is limited and control would be in the interests of acquirers of goods or services in that market. Part 4A empowers the Commerce Commission to impose control on electricity lines businesses where they breach thresholds set by the Commission. Sections 70 - 73 of Part 5 set out process requirements.

The key amendments proposed to Part 4 include:

• Consolidating Parts 4 and 4A.
• Specifying a purpose statement for Part 4 (currently there is a purpose statement for Subpart 1 of Part 4A, but not for Part 4 as a whole).
• Provision for alternative forms of regulation in addition to conventional price control (for example, requiring a negotiate/arbitrate regime be put in place between buyers and sellers). Also proposed are changes to the regulation of electricity lines businesses with a view to increasing certainty. Critically, subject to several exceptions, trust-owned electricity lines businesses (17 out of the 28 electricity lines businesses) will not be subject to this regulation (but will remain subject to the information disclosure obligations).
• A more conventional qualitative test (with quantification where possible) for when regulation of an industry may be imposed. Decision making powers on whether to regulate would remain with the Minister of Commerce, in consultation with sector Ministers.
• A requirement that 'input methodologies', for example, methodology for cost of capital or value of assets, be determined by the Commerce Commission as soon as possible. A key point is that it is proposed that decisions on input methodologies would be subject to merits appeal to the High Court sitting with up to two lay members (ie the 'correctness' of decisions could be challenged, as opposed to merely the process that had been followed). A proposal for a broader introduction of merits review (for decisions other than on input methodologies) was supported by the Ministry bu rejected by the Ministers.

Our view

The recommendations generally appear to represent a sensible balance between combating uncertainties inherent in the current regulatory environment and the risk of over regulation. Greater clarity around the regulation of lines companies together with a more tailored approach which takes account of thecircumstances facing individual lines companies will likely be considered favourably by the industry.

Part IIIA of the Australian Trade Practices Act establishes an umbrella framework for the regulation of access to essential facilities in Australia. One aspect of this umbrella framework is a national regime for access to essential facilities that is based on a 'negotiate/arbitrate model'. DLA Phillips Fox acts for the Australian National Competition Council, which is charged with making recommendations to the relevant Minister on whether or not particular infrastructure services should be subject to the national access regime. It remains to be seen whether the changes to Part 4 will, in effect, create a regime that has analogous scope and operation.

A requirement that 'input methodologies', for example, methodology for cost of capital or value of assets, be determined by the Commerce Commission as soon as possible. A key point is that it is proposed that decisions on input methodologies would be subject to merits appeal to the High Court sitting with up to two lay members (ie the 'correctness' of decisions could be challenged, as opposed to merely the process that had been followed). A proposal for a broader introduction of merits review (for decisions other than on input methodologies) was supported by the Ministry bu rejected by the Ministers.

The debate over merits review of Commission decisions will continue. On one view the Ministers' approach is a sensible one. If the limited merits review process for 'input methodologies' is successfully adopted, then a more general approach could then be rolled out.

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