Dalziel heralds competition law shake-up

Lianne Dalziel

Fears that the Commerce Act could be hampering the country's international competitiveness has led to a Government review of its merger and acquisition provisions.

Announcing the review yesterday, Commerce Minister Lianne Dalziel said the act's price-control provisions would also be examined.

On mergers and acquisitions, Dalziel said the scope of the review had yet to be decided but it would include "consideration of the appropriateness of the existing thresholds".

Asked if that meant looking again at the "substantial lessening of competition" test introduced in 2001 to align New Zealand with Australian law, she said the test might not be examined.

The Commerce Act generally prohibits mergers and acquisitions that lead to a substantial lessening of competition in a particular market.

"A number of people have been raising concerns that they can't get economies of scale because they can't merge their businesses or operate in a particular way," Dalziel said.

The issue needed to be debated because as a small trading nation "at the bottom of the world" it was difficult to achieve the economies of scale and scope to be globally competitive.

Dalziel cited the need for special legislation to get around the Commerce Act barriers to the merger that formed Fonterra.

But she made it clear she was not talking about relaxing competition laws just because bigger was better.

"Competition produces discipline. If we haven't got as much competition due to our size, what discipline can be put in place in order to ensure that the consumer does not pay a tariff, essentially, for poor decisions and bad performance?" she said.

"What I am asking is: Are disciplines able to be applied that produce the same result [as competition] when there are insufficient economies of scale in a country the size of New Zealand to have competition?"

Competition lawyers and economists welcomed the review.

"It makes sense to look afresh at these issues," said Iain Thain of Phillips Fox.

"Our model comes from the United States via Australia, but they are much bigger economies."

The threshold between maximising competition and maximising economic efficiency would inevitably be lower in a small economy. "It's all about where you strike a balance."

But Thain doubted the review would result in any radical change, especially because it was desirable to harmonise business law with Australia.

The executive director of Victoria University's Institute for the Study of Competition and Regulation, Glenn Boyle, said: "It's good in principle but any change in the rules will create a whole new set of incentives which businesses will respond to and which may or may not be positive on balance."

James Mellsop, of Charles River Associates, said the way the commission interpreted the benefit test in price control issues was controversial, as it put more weight on benefits to consumers than to the suppliers of the goods or services. A review of such issues was desirable.

But Dalziel said that the review would not cover Part IV (a) of the act, which was specific to the electricity industry.

The review would look at whether the Commerce Commission's decisions to impose controls on goods and services could be appealed on their merits, rather than just on matters of law and process as at present.

"There are strong arguments on both sides of the merits review debate, but a particularly strong one is the enormous cost and delay associated with the addition of merits review to the enforcement process," Dalziel said. There would have to be evidence of significant benefit to outweigh that.

Under review

* The Ministry of Economic Development is to review central provisions of the competition laws.

* The Government is responding to concerns they unduly hamper the creation of globally competitive firms.

* The right to appeal Commerce Commission price decisions control on merit and not just process is also on the table.