Background
9. Part 2 of the Commerce Act prohibits restrictive trade practices (e.g. substantially lessening competition, price fixing, taking advantage of market power). For example, s. 27 prohibits any person from entering into "contracts, arrangements or understandings" that "have the purpose or are likely to have the effect of substantially lessening competition in a market".
10. S.33 provides that joint buying and promotion arrangements are not contrary to the Commerce Act.
11. S. 5(1) provides that the Commerce Act "shall bind the Crown in so far as the Crown engages in trade". S. 6(1) provides that the Act "applies to every body corporate that is an instrument of the Crown in respect of the Government of New Zealand". (SOEs and CRIs are bodies corporate.)
12. S. 44(1A) provides that interconnected bodies corporate may lawfully enter into arrangements which would not otherwise be permitted under Part 2 of the Commerce Act (except where this relates to taking advantage of market power). Interconnected bodies corporate are defined in s. 2(7) and the definition includes a body corporate and its subsidiaries. This provision is a pragmatic response to the recognition that interconnected bodies corporate will find it easy to structure around any competition policy constraints which would otherwise apply (for example by merger or by way of instructions to directors).
13. S.2(7A) of the Commerce Act states that no body corporate shall be regarded as a subsidiary of the Crown. In effect this means that SOEs, CRIs, Crown owned companies and other Crown entities must be treated under the Commerce Act as if they did not have a common owner. Corporate restructuring to avoid competition policy objectives is less likely to be an issue in the case of Crown owned entities. It can only occur if the Government wills it. As a result, and in recognition of the general benefits of competition policy as well as the fact that SOEs are often dominant or the sole operator in a market, section 2(7A) was added to the Commerce Act in 1994. The Minister of Finance stated at the time that the section "will ensure that Crown-owned companies compete with each other and do not achieve an unfair competitive advantage in their respective markets".
14. S.61(6) provides that the Commerce Commission can authorise arrangements that would be unlawful under the Act if the benefits to the public outweigh the detriments from the reduction in competition.
Implications
15. The implications of this are that SOEs, CRIs and other Crown entities are subject to the provisions of the Commerce Act and are not able to cooperate to the extent that private sector bodies with a common owner can, if that co-operation would be a restrictive trade practice (e.g. it would substantially lessen competition in a market) and the public benefit does not exceed the detriment from the reduction in competition.
16. A further implication is that ministers cannot restrict SOEs or CRIs from competing with each other, if that would have the effect of substantially lessening competition in a market, unless they, or the companies, apply to the Commerce Commission for authorisation. The Commission would authorise the restriction if the public benefit exceeded the detriment from the reduction in competition.
17. These implications have not been tested in Court or by the Commerce Commission and therefore are not without doubt. For example, it is not certain that ministers directing an SOE not to enter a particular market would be treated as the Crown "engaging in trade". However we think it probably would be.
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