Neil Sands
Several major law firms have expressed concern over a planned revamp of competition law, with warnings that the reforms may deter global investors, result in higher prices, and make New Zealand an international laughing stock.
The New Zealand Law Society (NZLS) and Chief Ombudsman John Allen have also called for changes to the Commerce (Promoting Competition and Other Matters) Amendment Bill, which is currently before Parliament.
Unveiling the bill in December, Commerce & Consumer Affairs Minister Scott Simpson described it as the biggest shake-up in competition law for almost 20 years.
“We are fixing processes that over the years have led to a small number of companies dominating some of our most important markets. This undermines competition, giving consumers less choice, keeping prices high and making it tough for smaller businesses to break in,” he said.
Commercial law specialists from Chapman Tripp, Belly Gully, and Webb Henderson gave evidence at Economic Development, Science & Innovation Select Committee hearings held last week to scrutinise the bill.
All of the law firms, and the NZLS, were concerned planned changes to the way authorities will deal with predatory pricing, which occurs when powerful firms set prices below cost to drive out competitors, then raise prices once competition is weakened.
The new bill introduces what officials call “objective tests” to determine predatory pricing, which will automatically include any pricing that is held below cost for three months or more.
While the ultimate aim of the reforms is lower prices for consumers, Michael Tilley from the NZLS Law Reform Committee said the new pricing regime could have the opposite effect.
Tilley, a competition law specialist, said there was no strong evidence that predatory pricing was an issue in New Zealand, also noting the existing guidance around the issue was introduced less than three years ago and needed time to bed in.
“[It] has therefore not been enforced long enough to determine its effectiveness,” he told the select committee. “So overall, the proposed change risks damaging business confidence in decision making on pricing, in a way that large businesses are likely to respond to by pricing things higher to be on the safe side.”
‘International ridicule’
Bell Gully special counsel Penny Pasley also warned about the impact of predatory pricing changes on consumers.
“We have real concerns that making below-cost pricing an automatic breach without any need to show recoupment or anti-competitive purpose would act as a deterrent to genuinely competitive and low pricing, ultimately harming consumers,” she said.
Chapman Tripp partner Simon Peart warned the changes were “a significantly retrograde step”, adding: “It’s simply wrong to assume that below-cost pricing for more than say three months is always predatory, that’s why we have a competition test in the current law.”
The strongest criticism came from Webb Henderson partner Sarah Keene, who said introducing “hard rules” on issues such as predatory pricing ran counter to the international trend for regulators to take a pragmatic approach that facilitates business growth.
Keene compared the changes to Australia’s notorious “Birdsville amendments” from 2007– when populist Australian politician Barnaby Joyce scrawled a series of measures designed to combat predatory pricing on the back of an envelope in an Outback pub.
The amendments were widely criticised but passed into law, although Keene said they were never enforced and ultimately repealed.
“It would be a real pity if New Zealand brought itself into international ridicule by effectively just copying the Birdsville mistake,” she told the select committee.
‘Bespoke, unique, uncomfortable’
Another concern among submitters was a new definition of the substantial lessening of competition (SLC) test, which is designed to ensure a merger will not undermine the competitive market structure of the industry involved.
In Australia, the test applies only to merger control, but NZLS Law Reform Committee member Victoria Fowler said that in the New Zealand bill it was “across the board, including restrictive trade practices”.
Chapman Tripp partner Lucy Cooper that the change was not needed in New Zealand: The issue that it’s trying to resolve, we don’t think actually exists.”
Webb Henderson’s Keene said competition regulation was similar around the world and New Zealand must “think hard about any departure from what are regarded as international anti-trust norms” on issues such as SLC and predatory pricing.
“Large companies, both global and local, vote with their feet. They choose were to dedicate capital and resources, they don’t have to engage with New Zealand… and if we make it hard, they just won’t, and New Zealanders will miss out,” she said.
“I’ve seen examples of that in the past. Where New Zealand’s laws have been bespoke, unique, uncomfortable, and New Zealand’s just too small a jurisdiction for them to then invest.”
‘Culture of secrecy’
The bill allows the Commerce Commission to keep confidential information submitted to it secret for 10 years. Currently, rules prevent release of such information for only 20 days after an investigation has concluded.
Bell Gully partner Glenn Shewan welcomed the move, saying concern about release of confidential information was “a real bugbear” for people dealing with the regulator.
But Chief Ombudsman John Allen opposed introducing a carve-out from the Official Information Act (OIA), saying it was excessive and based on anecdotal evidence that did not stand up to scrutiny.
“If you allow this type of provision in the legislation without an evidential base, you risk corroding public confidence in the principles of the Official Information Act,” he said.
“You’ll open a sort of slippery slope, moving us away from transparency, from the principle of the availability of information, back to a culture of secrecy.”
Shewan said one issue not addressed in the bill was the burden of proof for mergers, which in New Zealand is on the applicant to show there won’t be a substantial lessening of competition.
In Australia, the burden of proof was reversed, with the regulator required to demonstrate there would be a substantial lessening of competition, he said.
While Australia had recently looked at whether to adopt the same approach as New Zealand, it was rejected it because “it would bias outcomes towards prohibition without the regulator having to prove its case and dampen business dynamism and capital flows”.
The bill also fails to mention artificial intelligence or algorithms, even though the government had previously indicated it would deal with so-called “algorithmic collusion”, where price-setting algorithms coordinate with competitors.
The bill is s expected to pass by mid-2026, with the changes all in force by the end of 2026.
This proposed reform and the arguments of its opponents are passing clouds to ordinary people and most of the legal profession. However, the issues are important to the health of the economy; some of the arguments are revealing, for example there is this:
“Large companies, both global and local, vote with their feet. They choose where to dedicate capital and resources, they don’t have to engage with New Zealand… and if we make it hard, they just won’t, and New Zealanders will miss out.”
A number of questions could be asked about this apologia for supposedly freewheeling corporate gypsies who don’t want us to “miss out”.
First, what is the evidence for disengagement if “we make it hard”? Actual data with real world examples, rather than rhetoric (perhaps it was supplied, one hopes so). If the engagement with New Zealand’s market is fragile and the bottom line is marginal, then any number of laws may “make it hard”, including labour laws and environmental regulation. Must “we” defer to corporate demands for fear of disengagement and, presumably, a loss of jobs and supplies, or should we insist on certain bottom lines that are consonant with the public interest? (I watched this type of threat play out in the afterglow of Rogernomics, in the early 1990s, in a city where I practised, when a large corporate sent a large law firm to town to tell the local council to back off certain regulatory requirements, or the plant would be shut, making sure this was publicised, in order to alarm workers and their families; it worked, but the plant shuttered some years later anyway, since the corporate’s protest was never about the workers and their families, or the community).
If a profit can still be made over the long haul in a wealthy country like NZ, which has a stable system of laws and government, that of itself is an significant incentive to stay on and for new entrants. On the other hand, if trading in a market is not profitable unless an entity can misuse its market power, it rather suggests a dysfunctional and failing market.
Secondly, the spectre that “New Zealanders will miss out” assumes, against free market doctrine, that new players will not fill the gap, and that it will be ordinary people missing out, rather than the fleeing vagabond corporate. But no, it is argued, predatory pricing to a point must be redefined and permitted: bear in mind, however, this is not a function of the free market operating without constraint, which is always fantasy land stuff in large markets with few and large players, but rather of capital wealth and market power attempting to choke off new entrants and limit competition, in order to maximise market-share and profits (so much for innovation and all things entrepreneurial leading us into the sunlit uplands of the future – no, we must all keep buying from WhateverMart or its competitor WhereeverMart, who take turns discounting product lines made from the same factories in Slavelandia).
Moreover, are international practices in other jurisdictions a good guide to public policy in NZ? Particularly in places where large corporates have a high degree of control of democratic processes, and therefore policy formulation and lawmaking (eg. in the US, as a result of Citizens United v. Federal Election Commission, 558 U.S. 310 (2010)).
Perhaps it is argued that aligning competition laws with our major trading partners is essential for conducting business and attracting investment from other jurisdictions – but what does this actually require? Shall we harmonise our competition laws with those of the PRC, of Australia, of the US, of India, of the EU? Or should we tailor them to what is best calculated “… to promote competition in markets for the long-term benefit of consumers within New Zealand” (s 1A Commerce Act 1986)?
Comparing carefully crafted legislation to Barnaby Joyce’s pub scrawlings is risible. And heaven forfend that we have a system that “dampen[s] business dynamism and capital flows”, (translation – freedom to seek the place that offers the best options for generating the highest profit, including a corporate-friendly regulatory environment).
Are these submitters really saying that protecting competition is not needed, since the boardroom is all-wise and anxious to ensure that “we” do not “miss out” on their corporate largesse? Who is going to believe my adaptation of the late reviled Rolf Harris’ ad for British paints: “Trust Big Corporates, sure can”?