The passing of the Commerce Amendment Act in May 2001 marked another step towards the harmonization of Australian and New Zealand business law. Proposed in 1999 by the previous National government and then modified by the present government, it is one of a series of changes in New Zealand competition law, which also includes specific regulatory regimes for parts of the electricity and telecommunications industries.
The Commerce Amendment Act makes a number of changes; perhaps the most significant of which (and the ones which bring the New Zealand Commerce Act 1986 into line with the Australian Trade Practices Act 1974), are the new tests for acquisitions and the prevention of major players in the market from abusing their market power.
The test prohibiting mergers and acquisitions which result in or strengthen a "dominant position" under section 47 has been changed to prevent mergers and acquisitions that "substantially lessen competition". This is a lower threshold and enables the Commerce Commission and the courts to scrutinize a wider range of business acquisitions. A large increase of applications being made to the Commerce Commission under the clearance and authorization procedures is therefore expected.
To reflect the changes to the Commerce Act, the Commerce Commission has recently released revised Business Acquisition Guidelines which set out how it will approach the new test. It also sets out some "safe harbours", being specified levels of post-acquisition market share below which a merged entity is unlikely to raise competition concerns. The safe harbours are set at a combined market share of 40% or less of the relevant market, unless it is a "concentrated market" (where three firms or less total 70% or more of the market), in which the combined market share must not be more than 20% of that market.
The safe harbours are not hard and fast rules as to which transactions will be prohibited, but are guidelines as to when parties to a transaction should apply for a clearance or an authorization. The application of the new test for New Zealand market conditions will become clearer once a number of decisions pass through the Commerce Commission process.
In terms of controlling large firm behaviour, section 36 previously prohibited firms from using a dominant position in the market for anti-competitive purposes. This has now been replaced with a prohibition of taking advantage of a substantial degree of power in a market for anti-competitive purposes. This is the same as applies in Australia. The intent of this amendment, and others related to it, is to increase the number of firms and markets subject to the section, and to make prosecutions easier.
The above amendments to the Commerce Act came into effect and apply from May 26 2001.
James Aitken, Alan Lear, Hamish Dixon