Draft bill clarifies law around cartels

Commerce Minister Simon Power today released a draft bill which aims to clarify the law around hard-core cartel behaviour and introduce criminal penalties.

Mr Power said the Commerce (Cartels and Other Matters) Bill is being consulted on before it is introduced to Parliament to ensure it adequately supports pro-competitive business arrangements.

“The Government is consulting now to ensure the bill adequately supports pro-competitive business arrangements by providing greater certainty that they would not be prohibited and subject to criminal sanctions.

“The draft bill is designed to give businesses certainty about the boundaries of the proposed law. If this can be achieved then there may be benefit in following international enforcement trends and criminalising cartel behaviour.

“We all recognise the problem – that cartel activities such as price fixing and bid rigging are harmful forms of anti-competitive behaviour, and result in businesses and consumers paying inflated prices.

"What is less clear is the most effective solution.

“Introducing criminal penalties, including imprisonment, could be a strong deterrent to individuals contemplating cartel behaviour.”

The criminalisation of cartels would bring New Zealand into line with many of its trading partners, including the United States, United Kingdom, Canada, and Australia.

The draft bill and information on how to make a submission is available at www.med.govt.nz/cartels. Submissions close on 22 July.

Key features of the draft bill include:

• The penalty regime

The bill introduces criminal sanctions for individuals and companies. For an individual, the maximum sanction would be 7 years’ imprisonment. For a body corporate, the sanctions are the same as the current level of sanctions. Current sanctions are a fine set at the greater of either:

o $10,000,000.
o Three times the value of the commercial gain, if it can be ascertained.
o If the gain cannot be ascertained, 10 per cent of annual turnover.

• The prohibition

Compared to the current prohibition, the bill takes a different approach to defining hard-core cartel conduct. The prohibition defines the forms of conduct which is illegal (i.e. fixing prices, restricting output, allocating markets, and rigging bids), not the outcome (i.e. the effect on price). This approach should give greater certainty as to the type of conduct that is prohibited.

• The exemption

Compared to the current exemption for joint ventures, the new exemption is much broader in scope. The exemption has also been renamed the collaborative activity exemption to emphasise that it is intended to apply to all pro-competitive arrangements, not just joint ventures. The breadth of the exemption should create greater certainty for businesses that are proposing to enter into collaborative, efficiency-enhancing arrangements.

• The clearance regime

The bill introduces a clearance regime to help businesses manage any residual risk that their proposed collaborative activity might be in breach. Currently the Commerce Act provides a clearance regime for mergers. This regime allows parties proposing to acquire assets or shares to test with the Commerce Commission whether the acquisition would raise competition concerns. There is no equivalent regime for collaborative arrangements. The new clearance regime should provide greater certainty for businesses that the collaborative arrangements they are proposing do not raise competition concerns.