New Zealand shouldn't consider itself immune to cartel activity and neither should be soft on it, politicians have agreed.
Parliament has moved to introduce criminal sanctions for "hard-core" price fixing, restricting output, allocating markets and bid-rigging.
For this, cartel participants could now face jail for up to seven years and corporates fined as much as three times their commercial gain or 10% of the turnover, with fines going as high as $10m.
Although NZ rates strongly in international surveys for transparent business practices politicians delivered reminders that cartel activity happens here too.
Labour's Clayton Cosgrove cited a wood chemicals case in which a cartel was estimated to have caused an overcharge of $9.7m over five years "but at that time - and currently of course - the penalties were wholly inadequate in that the total penalties came to $5.4m".
It was time, he said, that this part of competition law is brought into line with the US, Australia, the UK and Canada which already have criminal sanctions in place.
But the cartel bill isn't just about cracking down on malpractice.
A business considering a legitimate collaborative arrangement will be able to test it with the Commerce Commission. This will lead to more efficient business and promote more jobs and exports, Commerce Minister Craig Foss told the House at the first reading of the Commerce (Cartels and Other Matters) Amendment Bill.
The Meat Industry Association has contributed to the bill's development over the past 18 months and chief executive Tim Ritchie said the collaborative activity clearance provisions were likely to reduce "risk" for MIA members.
It also appeared to fit the Red Meat Sector Strategy goals of improved collaboration, co-operation and market alignment, even though implementation of that strategy was up to individual companies, "as will be compliance with the new regime".
Alliance Group chief executive Grant Cuff said simply the law change didn't appear to have any impact on its business, and also that the company's commercial drivers were determined by financial factors. It was only from there that it would look at "procedural considerations". A rival and much-touted industry partner Silver Fern Farms said it wasn't familiar enough with the legislation to comment.
It's more certain, though, that the amendment will help industry good organizations like the voluntary MIA.
Ritchie said the Commerce Act assumes, in certain circumstances, all MIA members are aware of or involved in the association's contracts, arrangements and understandings (a situation defined as constructive or presumed knowledge).
These provisions were "unreasonable" and the MIA has suggested that drafters "need to take great care in ensuring that the criminalisation provisions proposed in the bill do not inadvertently pick-up members of associations". Ritchie was heartened by the draft before Parliament in which the criminalisation provisions don't appear to be triggered until the higher threshold of "actual intention"has been met.
In exporting generally, Foss told the House the bill would encourage applications from "parties to mergers that take place wholly offshore but affect a market in NZ".
This could allow the Commerce Commission to apply to the High Court for a declaratory judgment that an offshore merger substantially lessens competition in a market in NZ. From there the court could make an order against the NZ-based company to remedy the competition concern.
In its current form the bill allows the Commerce Commission to apply for a declaration where an overseas person acquires a controlling interest in a NZ company.
Foss said the overseas companies would treat the controlling interest clause as a "brightline test", but the provision also sets a higher threshold for intervention than the test that would be applied if the merger was between two domestic entities.
"During the policy process some submissions suggested it may be appropriate to have two different tests", he said, adding it was a discrete but important issue and he would look to the select committee for guidance.
In parliamentary debate over the bill Green MP Russel Norman highlighted the application of competition law to large multinationals that operate here versus locally-based NZ companies based locally trying to do business overseas.
Citing Kiwibank's struggle against Australian-owned banks he said competition law created an uneven playing field, an "oligopolistic" market, defined as a situation in which a particular market is controlled by a small group of firms.
Competition was clearly good for the consumer as a check against this, Norman said.
"But when we look at the export sector, when we look at NZ-owned and based companies trying to export to the rest of the world, it does not suit us to have exactly the same approach to competition." The near-monopoly that Parliament created in Fonterra was the obvious example, Norman said.
Although it is essential that we regulate Fonterra's activities in the domestic market so that we do not have higher prices of milk, it is also important that Fonterra and companies like Fonterra have the critical mass they need to project into the rest of the world.
"Applying exactly the same rules to multinational corporations that are operating in oligopolistic sectors within NZ does not make sense. So a level playing field is not always the most sensible way for a small, open economy to regulate competition."
Norman preferred regulating competition "in a way that maximizes the advantages to NZ".
"So we reduce the cost to the consumer where you have a large, overseas owned business operating in NZbut also allow NZ businesses projecting into the world to get the critical mass they need."
The country's competition law needs to be "more subtle and sophisticated", he added.
MPs voted unanimously to send the cartel amendment bill to the Commerce select committee.
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