Thursday, 19 November 2015

Good outcome - but now what?

Earlier this week MBIE came out with its 'Targeted Commerce Act review', which contained its long-awaited revisit of s36 of the Commerce Act - the bit that deals with anti-competitive use of a position of market power. It also included a review of non-litigation remedies available to the Commerce Commission (such as settlements, and cease and desist orders), which I hadn't known it was looking at, and the case for market studies, which I did. I'll come back to the remedies and market studies in another post.

The big news - and it's good news - is that MBIE has got to the same place that many others have got to with s36: it's broken and effectively unworkable. That's essentially what the Commerce Commission has been saying, in more diplomatic language, in (for example) its latest Statement of Intent (p16):
There is still uncertainty about the application of section 36 of the Commerce Act, which deals with monopolistic conduct. The way New Zealand’s courts have interpreted section 36 has created difficulties in applying the law. Given the complexity and cost of these types of cases, we choose very carefully which potential monopolisation cases to investigate. We would like to see a review undertaken of section 36 and will contribute to any potential reform in this important area
MBIE has got there as well, for two main reasons. One is that it felt that the current law, and its interpretation by the courts, risked letting companies get away with anti-competitive behaviour because it is too easy to claim that it's what any company, with market power or not, would have done. It gave this example (p28):
Exclusive dealing, for instance, frequently occurs in competitive markets as businesses seek to control the distribution of their products. However, the same conduct when carried out by a business with substantial market power can result in significant competition detriments, at worst eliminating all competitors from the market.
MBIE also cited (p28) a statement by the chair of the Aussie ACCC stating that it had been unable to ping a range of anti-competitive behaviour under the equivalent provision of the Aussies' legislation.

The other main leg of the argument is that the legal hoops a plaintiff has to jump through to make out a s36 case fail the criterion of having simple, comprehensible competition legislation. This is the key bit (p29), and I couldn't agree more:
The evidential burden for the plaintiff of proving a hypothetical counterfactual is simply too heavy in many cases. In particular, a mandatory requirement to construct a hypothetical competitive market of at least two participants requires difficult assumptions to be made. These difficulties are compounded by the courts’ observation that the analysis need not depend on realistic or practical assumptions, so that unrealistic scenarios are permitted. Such an evidential burden for the plaintiff has increased the complexity of the section 36 process. The prohibition has ultimately become defendant-friendly.
MBIE also looked at s36 and the courts' interpretation of how to apply it against the criterion of consistency - internal consistency with other parts of the Commerce Act, and consistency with what other countries do - and found that our current approach fluffs it on both counts. For example, "section 36 is significantly different from equivalent provisions in the US, the European Union and Canada" (p30).

MBIE couldn't decide how another criterion might be applied - whether some allowance ought to be made for our being a small, remote economy. Should we ease up on policing behaviour, on some kind of 'national champion' grounds, or be especially vigilant when we've got more than our fair share of large fish in small ponds? Can't say I've got the same difficulty deciding - 'No national champions, please'.

The review was a problem-definition issues paper, so it didn't march smartly on to proposed policy solutions, but it indicated a whole range of possibilities, including, I'm pleased to say, the route the 'Harper review' of Australian competition policy took.

But getting anywhere with them  is going to be tortuous. For me, the next steps look glacially slow. People have till next February to get their views in to MBIE on this review, at which point there may or may not be an Options Paper, which in the grand fullness of time will have its own submissions and countersubmissions, and may or may not lead to proposed legislation (possibly with another round of submissions), and which will finally struggle to get a slot on the already overcrowded Parliamentary calendar (have you seen what it looks like? It's horrendous). And all this on a topic that (as some media comment has already said) may not be popular with Big Business.

It's too late now: the lumbering siege machine has started to trundle into the far distance, and it can't be called back. And it's good that it's probably going to arrive at a better place. And yes, there's a case for thorough policy preparation and legislative design.

But if we'd had more sense, and urgency, we could have moved straight to the Harper review endpoint. Free ride on the Aussies' expertise? Check. Good outcome? Check. Faster result? Check. Consistency with our trans-Tasman mates? Check. As I've argued before, 'Australia's got the competition gospel. Have we?'


  1. 50 government bills outstanding in that list, some of which are already passed and just waiting Royal Assent. Doesn't seem too horrendous does it?

  2. Maybe horrendousness is partly in the eye of the beholder. Yes, some have been dealt with. But 14 pages of bills for a three year session (and more may yet arrive) looks a fairly chunky workload. Also, the progress of the last competition-related bill - the Commerce (Cartels and Other Matters) Amendment Bill - gives me little confidence about the progress of any future ones. Introduced Oct '11, 1st reading July '12, still there, despite having some important items to progress (notably criminalisation of cartels)


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