Issue G: A Possible Collective Bargaining Arrangement Notification Process
Background
100. The restrictive trade practice authorisation process can be expensive, complex and time consuming. The main costs to the applicant are as follows:
- An application fee of $10,000 plus GST;
- The cost of obtaining expert legal and economic advice – This cost is difficult to estimate because there are few applications, but a reasonable estimate would be $250,000;
- The opportunity cost of senior management's time;
- The cost associated with the Commission, competitors and others obtaining some information about the applicants' conduct; and
- In the event that:
- The application is declined, the cost of appealing to the High Court and possibly the Court of Appeal; or
- The application is approved, the cost of joining the Commission to defend a possible appeal by a third party.
101. The scale of costs associated with the above processes is likely to be a significant hurdle for small and medium sized firms (SME).
The issue
102. The main issue in this section is whether the Act impedes SMEs from engaging in conduct that is either not anticompetitive or would result in net public benefits. It would seem unlikely that conduct which is subject to a competition test (i.e. sections 27-29) will be an issue for SMEs.39 A contravention of those sections will not occur if the group of firms do not, together, have sufficient market power to harm the process of competition.
103. However, there may be an issue for SMEs in relation to a collective bargaining scheme where the buyer is a monopsonist. This can be an issue because a monopsonist can lower prices and restrict the volume of the good or service purchased. Although consumers can benefit through lower prices in the short run, in the long run it can lead to an under-supply of the good or service and discourage innovation by sellers. That said, we are not suggesting that there is a general issue in relation to imbalances of bargaining power between weak sellers and strong buyers. In many cases the imbalance will be market forces operating in an appropriate manner.
104. A collective bargaining arrangement may be a way of reversing the adverse impacts of monopsony market power. However, such an arrangement may fall within the definition of price fixing and would, therefore, be prohibited. If there are issues, they would seem to arise mainly in the agriculture and health sectors.
Option
105. It has been suggested that the Act could be improved by adopting a process akin to the collective bargaining notification system for small business that was recently introduced in Australia on 1 January 2007. That system provides immunity from court action in certain circumstances. An agreement can be eligible for the notification system providing that the expected total value of the transactions for each party to the agreement does not exceed $3 million (or such higher amount as set under regulations) over a 12 month period.
106. At present, immunity from legal action in Australia will begin 28 days after a valid notification is lodged as long as the ACCC has not issued a draft objection notice within that time.40 If the ACCC issues a draft objection notice after the 28 day period, the protection from legal action will continue until the revocation is complete. If the ACCC subsequently issues a final objection notice, the immunity from court action will expire 31 days after the date of the objection notice or such later date that the ACCC might specify. Decisions made by the ACCC to revoke immunity can be reviewed by the Australian Competition Tribunal. Any immunity that might have been in place continues until the appeal process concludes. Table Five summarises the features of the Australian notification system. Appendix A includes a diagrammatic description of the process.
Table Five: The Australian collective bargaining notification system41
| Issue |
Comment |
| What does a collective bargaining notification do? |
Business can gain immunity from legal challenge under the Trade Practices Act for collective bargaining agreements including those that have a price and/or collective boycotting elements. Protection is given to the applicant, any third party representing the bargaining group and the target business. |
| How long is immunity for? |
Immunity lasts for three years from the date it was lodged. However, the ACCC is able to remove protection if satisfied that the proposed collective bargaining agreement is not in the public interest. |
| Who can lodge a notification? |
A notification can be lodged by any business in the collective bargaining group or a nominated representative who is not a member of the group (e.g. an industry representative body). |
| What is the criterion? |
Each party must reasonably expect that the value of the transaction it will conduct with the target will not in exceed $3 million over a 12 month period. This threshold can be made higher under statutory regulations. For example, a $15 million threshold has been made for petrol retailing. |
| Process for considering notifications |
There is a formal notification process and the Act requires a public register to be maintained. The ACCC conducts a public assessment process. The ACCC will contact interested parties and invite submissions on the proposed collective bargaining arrangement. |
| Analysis |
The ACCC considers the benefits and detriments of the conduct. |
| Onus of Proof |
To impose a final objection order, the ACCC must be satisfied that the arrangement would or would likely to result in a substantial lessening of competition and that the agreement is not likely to result in a benefit to the public. |
| Revocation |
The Commission could revoke the immunity if it subsequently assessed that the conduct is not of benefit to the public. |
| Appeal rights – applicants |
The applicant would be able to appeal against a decision by the ACCC to issue a final objection notice or revoke an immunity. |
| Appeal rights – third parties |
The Act does not provide for appeals against a decision by the ACCC to not take action against a notification. However, the ACCC can review a notification at any time (e.g. if new information comes to hand, there is a change in market circumstances or there are complaints from third parties). |
| Application fees |
$1,000. |
Analysis
The quality of outcomes
107. The notification system may provide a more effective and practical means of allowing weak sellers to collectively negotiate with monopsonies without the risk of contravening the Act. On the other hand, the Australian notification system is not clearly targeted at this problem. It would seem to have the potential to have much wider application. Therefore, there may be significant risks of unintended consequences. For instance, consumers and suppliers may be harmed by collective bargaining groups across a wide range of industries where monopsonies might not necessarily exist.
Clear and consistent legislation
108. The onus of proof would be on the Commission to demonstrate that the immunity should not be allowed. However, the Commission will never know as much about an agreement as the applicant and it may not be possible for the Commission to make an informed judgment before the immunity is due to start. Therefore, a notification system may be susceptible to immunities incorrectly being allowed to stand.
109. On the other hand, if the combined size of the transactions involved is small, the cost to the economy is likely to be low even if several immunities were allowed when they should not have been, particularly bearing in mind that an immunity could later be revoked by the Commission. That said, clearly the Australian system has not been designed exclusively for SMEs or small amounts of commerce. For example, the total amount of revenue involved in relation to a collective bargaining agreement involving 50 parties could be as high as $150 million a year.
Cost effectiveness
110. A notification process would be lower cost for applicants than an authorisation or a possible clearance system. However, the total cost to the economy may not be any lower. The analysis will absorb a considerable amount of professional staff and contractor time at the Commission if the conduct in question raises complex competition or public benefit issues. Thus, the Commission would bear many of the costs that would normally be borne by the applicants.
111. The main issue in relation to cost effectiveness would appear to be whether a notification system would be put to good use. If not, then there would be little point in adding it to the Act. We would like submitters to provide real examples of issues that have arisen and that could be dealt with under a notification system. We also note that no notifications had been lodged at the time of writing (mid-May) under the Australian system. This may be an indication that a notification system would not be useful in New Zealand.
Accountability and transparency
112. The absence of third party appeal rights would be a departure from the usual approach taken under the Act.
Timeliness
113. A notification process could provide for considerably faster immunity from the Act than authorisation or a possible clearance system. However, depending on the complexity of the issues, it might take the Commission as long to complete the substantive analysis as an authorisation takes.
114. Although the Australian process will provide immunity within 14 days from 2008 onwards, our preliminary view is that 40 working days or such shorter time as the Commission might permit would better fit New Zealand's circumstances for the following reasons:
- It is unlikely that any great harm would be done if parties to a collective bargaining agreement had to wait 40 working days to obtain immunity; and
- The Commission is much smaller than the ACCC and has less flexibility to manage peaks and troughs in workloads. In busy times (e.g. when the Commission is investigating several complex merger proposals at once) the Commission could be faced with the choice of doing nothing more than a cursory analysis of the notified practice within the 14 working days or delaying potentially urgent merger decisions.
Gaming the legal system
115. A Commission power to revoke immunities would mean that the parties will not have as much business certainty as they would like. However, in our view it would be essential for the Commission to be able to revoke an immunity given the information disadvantage and the short period for analysis prior to the immunity becoming valid. The absence of a revocation safety valve would also provide parties with the incentive to not fully cooperate with the Commission. Non-cooperation would increase the likelihood that the applicant could obtain immunity for anticompetitive conduct forever.
Notification in the context of a trade practices clearance system
116. As noted elsewhere, a trade practices clearance system would be less complex, faster and lower cost than the authorisation system. A clearance system could provide greater accessibility for SMEs or industry associations representing SMEs. Our preliminary view is that the case for a notification system would be much weaker if a trade practices clearance system were to be introduced.
Conclusion
117. The notification process would allow for a speedier and less costly process and would, in some cases, encourage efficient business practices. But speed and costs need to be weighed against the risks of unintended consequences, error, reduced participation by interested parties, uncertainty about whether the system would be used to any significant extent, or alternatively, diverting Commission resources from other more urgent investigations from time to time.
118. We have not formed a view on whether a notification system should be implemented at present. We would like to obtain submissions on real examples where issues have arisen. In addition, we will monitor the Australian system with the aim of providing advice to the Government on its effectiveness when we report to ministers later this year.
Questions
Q10. Are SMEs inhibited from engaging in efficient collective bargaining schemes? If so, please provide real examples.
Q11. Should a collective bargaining notification system be introduced? Would your answer be different if a trade practices clearance system were to be introduced?
Q12. Assuming that a collective bargaining notification system were introduced, what comments do you have on the design features discussed in Table Five? In particular, what criterion or criteria should be used to define conduct or firms that will be eligible for the system?
Back to Top