Targeted review of the Commerce Act 1986

The Ministry of Business, Innovation and Employment has completed a targeted review of the Commerce Act 1986.

Background

The Commerce Act came into force on 1 May 1986. Its objective is to promote competition in markets in New Zealand for the long-term benefit of consumers. The Act seeks to prevent business arrangements which substantially lessen competition, prevent firms possessing substantial market power from abusing that power and provide for scrutiny of the competitive effects of mergers or takeovers to prevent the undesirable accumulation of market power. The Act also allows price controls where there is not enough competition to protect the interests of consumers.

The passage of the Commerce Act during 1985 was controversial. At the time, concerns were expressed by various business interests that the Act would limit legitimate business activities. Today, some have concerns that the Commerce Act does not go far enough.

In May 2014, the Productivity Commission set out a number of recommendations in a report entitled Boosting Productivity in the Services Sector. In response, the 2015 Business Growth Agenda progress report announced that the Government would “review the misuse of market power prohibition and related matters”. Those related matters include the cease and desist regime, and the issue of market studies.

Issues Paper

The first stage of the review comprised the publication of an Issues Paper on 17 November 2015.

The Issues Paper addressed three main matters:

  • The possibility of a market studies power.
  • The alternative enforcement mechanisms available under the Commerce Act (such as the cease-and-desist regime).
  • Section 36 of the Commerce Act i.e. the prohibition on misuse of market power.

 

Submissions closed on 9 February 2016 and a total of 39 were received. In addition, the Commerce Commission sent a supplementary letter to the Minister of Commerce and Consumer Affairs.

 

Cross submissions

Cross-submissions closed on 21 July 2016 and a total of 25 were received.

 

Decisions

Cabinet made decisions on the targeted review of the Commerce Act in May and June 2017. In summary, Cabinet decided:

  1. to repeal the cease-and-desist regime;
  2. to establish an enforceable undertakings regime;
  3. to allow the Minister of Commerce and Consumer Affairs to direct the Commerce Commission to undertake market studies; and
  4. to invite the Minister of Commerce and Consumer Affairs to report back by 30 June 2018 before making final decisions on whether to proceed to a section 36 options paper.

 

Cabinet papers and regulatory impact statements can be downloaded below.

 

Further detail on the market studies power

The Commerce Commission’s market studies power will only be exercisable at the direction of the Minister of Commerce and Consumer Affairs. The Commerce Act changes will include a high-level principle that the Minister must have reason to believe has been met before initiating a market study (for instance, that the study is likely to be in the public interest or in the long-term interests of consumers).

The Commerce Commission will be able to make use of information gathering powers. The terms of reference for each study will establish the scope and timeframe for completion.

Parliament will need to legislate for change to the Commerce Act for the market studies power to be introduced. There will be opportunity for public consultation via an exposure draft and through the usual select committee process.

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