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Commission's sharpened teeth to bite business

By Rob Hosking

Friday 7th April 2000

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Far more companies will be caught up in competition laws following the government's proposals to change the Commerce Act.

The proposals give more power to the Commerce Commission while shielding it from the consequences of taking rash actions that might disrupt business.

Amendments to the Commerce Act announced this week are aimed at making this country's competition laws more in line with Australia's, as the government believes the Aussie rules are fairer for smaller players.

Key changes include:

  • replacing the term "dominance" with "substantial degree of power in a market;"

  • doubling the maximum penalty for anti-competitive behaviour to $10 million;

  • removing the requirement for the Commerce Commission to give undertakings about damages when seeking injunctions, decreasing the risk to the commission;

  • the commission being able to issue "cease and desist" orders as well as the present ability to take interim injunctions; and

  • restrictions on mergers that have the effect of "substantially lessening competition."

Last year's proposed TransAlta-Contact merger would not be able to go ahead under the new rules, Acting Commerce Minister Trevor Mallard said. Although the new entity would be nowhere near the existing definition of dominance, work by officials indicated the result would be "a substantial rise in power prices of up to 5% per annum for five years."

The overall aim was to put a stop to anti-competitive behaviour in the early stages, rather than after a long drawn out court process, he said.

The changes, which will go to a select committee over the next few months, are unlikely to become law before the end of the year.

Russell McVeagh lawyer Mary Peters said the changes would bring a far greater number of New Zealand firms before the commission and she queried the wisdom of adopting Australian competition law.

"New Zealand is a smaller and quite different economy, and businesses here need to get efficiencies and economies of scale if they are to compete internationally. It may not be all that realistic to restrict their size."

She said the burden was more likely to be the compliance costs and the delays in gaining Commerce Commission approval. The government expected most mergers would still go ahead if the they were shown to generate efficiencies.

"But the downside to that is the transaction cost, the expense and the uncertainty." Some lawyers put the costs of such a process at $50,000 and up.

Mr Mallard said the reforms marked the start of a review of commerce law.

"These changes are part of a very big package, and this is not the end of the package by any means."

In particular, he said, the outcomes of the electricity and telecommunications inquiries were likely to see new amendments to the Commerce Act put to Parliament before the end of the year.

He said the new rules would also send a signal to the commission and the courts that the government wanted them to go after possible anti-competitive behaviour with increased zeal.

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