Issue A: The Statutory Timeframe for Clearance Determinations
Background
17. Section 66(3) states that the Commission shall either clear or not clear the proposed merger or acquisition within 10 working days13 or such longer period as the Commission and the applicant agree. Section 66(4) states that the proposal is deemed to be declined if the time period expires without the Commission giving a clearance.
The issue
18. The problem with section 66(3) is that 10 working days is unrealistically short and extensions are agreed as a matter of course. Only one of the last 52 clearance decisions made by the Commission has been decided within 10 days (See Table One). The problem dates back more than 15 years when New Zealand had a mandatory pre-merger notification system for mergers that were above specified size thresholds. Under that system, the great bulk of merger proposals had no impact on competition and 10 days was ample time for the Commission to rubber-stamp them. By contrast, the type of clearance applications the Commission now receives always raise some competition issues and therefore involve detailed analysis.
Options
19. The options are to retain the status quo or to increase the number of days.
Analysis
Clear and consistent legislation
20. In our view it is undesirable to have legislation that works very differently to the way that one would expect based on a plain reading of the provision. The current 10 working day rule fails that test because it creates an expectation that a significant proportion of applications will be determined within that time.14
Table One: Commerce Commission merger clearance times (July to June years, other than for 2006/7 which covers the nine months to 31 March)
Time Taken
(working days) |
2004/2005 |
2005/2006 |
2006/2007* |
Total |
Cumulative Total |
| 1 to 10 days |
0 |
0 |
1 |
1 |
1 |
| 11 to 20 days |
2 |
3 |
1 |
6 |
7 |
| 21 to 30 days |
7 |
7 |
4 |
18 |
25 |
| 31 to 40 days |
3 |
3 |
6 |
12 |
37 |
| 41 to 50 days |
1 |
1 |
1 |
3 |
40 |
| 51 days or more |
5 |
6 |
1 |
12 |
52 |
| Total |
18 |
20 |
14 |
52 |
|
| Average number of days |
37 |
37 |
32 |
35 |
|
| Percentage decided within 30 days |
50% |
50% |
43% |
|
48% |
| Percentage decided within 40 days |
67% |
65% |
86% |
|
71% |
21. It is evident from Table One that increasing the number of working days from 10 to 20 working days would not overcome the problem. 50 working days would not seem to be a good option because only three of the 15 applications that took more than 40 working days were decided by day 50. The choice would seem to be between 30 and 40 working days. The judgment to be made is whether the legislation would be clearer if extensions were to be needed about a half (30 working days) or a third (40 working days) of the time.
22. In addition, if the Act were to be changed to allow the Commission to accept behavioural undertakings (see Issue D) then the Commission may well need additional time to consider such applications.
Cost effectiveness
23. The routine process of agreeing an extension adds an unnecessary step to the process. However, the associated cost is low.
Timeliness
24. It can be argued that a challenging but realistic timeframe is better than one that the Commission could meet most of the time. It can also be argued that the longer the time period the greater the risk that the Commission will take more time over relatively simple applications. A counterargument is that the Commission has incentives to not be tardy over easier applications because its performance is monitored against the performance measures that are included in its annual Output Agreement with the Minister of Commerce.
25. Other than Australia, we do not think it is particularly useful to compare the timeframes with other countries due to the different imperatives under voluntary and mandatory pre-merger notification systems. Australia's system is very like New Zealand's. The time limit there is 40 business days with the ability to extend the timeframe with the agreement of the applicant or for a further 20 business days without agreement. Arguably, a shorter timeframe in New Zealand should not matter, given the Commission's ability to extend the timeframe.
26. Overall, from a timeliness perspective it is clear that 30 days is not going to be any worse than 40 days and it could be better. 30 days would appear to be the better option under this criterion.
Conclusion
27. We conclude that 10 working days should be increased to a more realistic number. On balance, we prefer 30 working days along with retention of the powers to extend the deadline.
Question
Q1. What should the default number of working days for Commission consideration of merger clearance applications be?
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