CHINA AND NEW ZEALAND: SOME COMPARATIVE REFLECTIONS ON THEIR ANTITRUST REGIMES

1. CHINA AND NEW ZEALAND: SOME COMPARATIVE REFLECTIONS ON THEIR ANTITRUST REGIMES ABA “CHINA – INSIDE AND OUT” BEIJING 17 SEPTEMBER 2013 Dr Mark Berry, Chairman, Commerce Commission

2. The China/New Zealand relationship China and New Zealand are Asia-Pacific neighbours and enjoy a significant trade relationship New Zealand has a special relationship with China under the “four firsts” New Zealand is: • the first western country to conclude a bilateral agreement with China on its accession to the World Trade Organisation (August 1997) • the first developed economy to recognise China’s status as a market economy (April 2004) • the first developed country to enter into Free Trade Agreement (FTA) negotiations with China (announced November 2004) • the first OECD country to sign a high quality, comprehensive and balanced FTA with China (April 2008) – this came into force on 1 October 2008

3. Impact of the Free Trade Agreement Total two-way merchandise trade has grown more than 50% since the FTA commenced China is now New Zealand’s second largest export market (12%) and second largest import market (16%) In the year to October 2011, New Zealand’s exports to China grew 34% (from $4.3 b to $5.8 b) and imports from China grew 15% (from $6.1 b to $6.9 b) Now supported by direct air links, China is projected to become New Zealand’s second largest source of tourists by 2014

4. Small and large market economy dynamics Notwithstanding the emergence of the growing trade relationship between China and New Zealand, there are some fundamental differences between the two economies New Zealand is a small, remote economy China is a world economic power Does this suggest that the two nations should have different domestic antitrust regimes? A high level review reflects perhaps more in common (in terms of structural rules) than might be expected

5. The New Zealand setting New Zealand has a population of just a little over 4 million Its geographic remoteness creates natural barriers to trade by increasing transportation costs Import competition, nonetheless, has a major role to play Many markets are highly concentrated; and often prices in commodity markets are constrained by actual or potential import competition

6. Small economy characteristics Theory suggests three main economic characteristics apply to small market economies: • high market-concentration levels – this is present • high entry barriers (eg access to skilled labour and inputs for production) – the concern may be overstated • inefficient levels of production – this can deter new entry. Recent studies reflect New Zealand has low revenue to capital employed ratios, by international standards. Accordingly, growth in export markets is important for domestic production

7. Our antitrust policy design Our Commerce Act was enacted in 1986 Efficiency has been the prevailing goal of our antitrust laws The policy choice in New Zealand has been to develop an economy characterised by productively-efficient firms, to enhance our international competitiveness Granting efficiency primary over other goals is aimed at ensuring goods/services most preferred by consumers are produced at minimum cost But the pursuit of this goal introduces the prospect of few large firms (by New Zealand standards) and concentrated markets

8. Key antitrust provisions The Commerce Act has three cornerstone provisions: • Prohibition against agreements that substantially lessen competition • Prohibition against mergers that substantially lessen competition • Prohibition against dominant firms taking advantage of market power for anti-competitive purposes (being arguably a prohibition of greater significance in a small market economy) • Authorisations are available in the case of conduct or mergers which breach these rules, where benefits to the public outweigh the competitive detriments

9. Institutional design One agency – the New Zealand Commerce Commission Now 27 years old We aim to provide transparency in our adjudication and enforcement actions Formal written reasons for our decisions are provided We publish guidelines Other documentation we produce is largely available under our Official Information Act

10. The China setting Notwithstanding China’s vastly different economic setting, the cornerstone provisions of the antitrust laws of China are quite similar The Anti-Monopoly Law (AML) of 2008 prohibits “monopolistic conduct” which can be divided into three broad headings: • Anti-competitive agreements between undertakings • Abuse of a dominant position • Mergers that may have the effect of eliminating or restricting competition • This shares much in common with our Commerce Act

11. Differences in the China/New Zealand settings Nonetheless, there are differences The AML also prohibits the abuse of administrative powers to restrict competition China has 3 separate antitrust agencies: • MOFCOM (mergers) • NDRC (price-related matters) • SAIC (non-price related matters) • NDRC and SAIC also retain enforcement responsibilities under the Price Law and Anti-Unfair Competition Law • Reliance can be placed on both these statutes in addition to the AML • None of these differences, however, preclude a meaningful dialogue about comparative international trends in antitrust law and its enforcement

12. Emerging trends in China The AML regime is only 5 years old We have followed developments with interest, and note increased levels of achievement by the 3 Chinese agencies MOUs with overseas competition enforcement agencies NDRC has, this year, fined 6 liquid crystal display manufacturers a total of US$56.8 m for their participation in an international price-fixing cartel The NDRC has also published its first penalty (US$78.1 m) for RPM against two state-owned, high-end liquor enterprises for setting minimum resale prices for distributors’ sales of white spirit products The NDRC has also imposed fines of US$11.0 m against 6 infant milk powder companies for anti-competitive behaviour and price fixing The utility of leniency provision rules has, I understand, opened up this passage of recent enforcement

13. Common issues of agency effectiveness Antitrust is, by now, an international language Differences in domestic rules are not all that great – which is remarkable given the disparity of economic and other circumstances that attach to many of these jurisdictions Beyond the legislative rules, one common matter that lies at the heart of antitrust law regimes is the role of agencies, and their effectivenss We have reflected on this greatly in New Zealand. How we perform will have a direct impact on the successful application of our antitrust laws

14. Agency effectiveness Feedback from our stakeholders reflects that success depends in some measure on independence, transparency and capability – this is one dimension of agency effectiveness The temptation to measure success against activity counts can create the wrong incentives – such measures matter, but only a little (eg they may reveal an agency “asleep at the wheel”) The prescription of other measures of agency effectiveness (other than number counts of prosecutions and penalties) is, however, no easy task

15. Four pillars We have focussed on “four pillars” as a centre point of measuring our effectiveness: • setting objectives/goals ex ante • selection and flexible application of the correct “tools” • ex post assessments of performance • capability and capability enhancement

16. Objectives and goals The goal of the New Zealand Commerce Commission (consistent with our legislation and government policy to build a more competitive and productive economy) is to: “achieve the best possible outcomes in competitive and regulated markets for the long-term benefit of New Zealanders” The outcomes we seek to achieve this goal are that: • markets are more competitive; and • consumers’ interests are protected, so that they make better informed decisions leading to more competitive markets • We use 3 main measurable impacts to achieve this goal: • Improved levels of awareness and understanding of our antitrust laws • Improved levels of business compliance with antitrust law • Detection and appropriate action in response to non-compliant conduct

17. Selection and flexible application of enforcement tools We have issued Enforcement Guidelines We have a range of tools from low level actions (such as warning letters) through to high level actions (issuing court proceedings) Settlement options can be preferred to achieve compensation for harmed consumers It is important to exercise this enforcement discretion wisely to make best use of our resources, and to have an appropriate impact on the market place

18. Ex-post assessment of performance We measure and report against our goals to: • Improve levels of awareness and understanding of our antitrust laws (eg 30% in 2010/11 to 47% in 2011/12); and • Improve levels of business compliance (through the presence of active compliance programmes) (eg 24% in 2010/11 to 44% in 2012/13) We also, under ex-post reviews of mergers and market conduct cases, test the quality of our analysis We also observe the level of penalties, compensation and refunds (notwithstanding that we don’t measure these against targets) - record levels have been achieved in recent times in any event

19. Capability and capability enhancement Our capability has grown over 27 years Recent organisational restructures have been part of this process The challenges for the “new” China regime are presumably significant All agencies continue to go through “growth pains” The search for capability enhancement should never end – and that is an observation that applies to all agencies

20. Some final comments It has been an honour to have been invited to give this address today Notwithstanding the differences which exist between China and New Zealand, the cornerstone provisions of our antitrust laws are remarkably similar This reflects that antitrust is becoming increasingly a common international language – and long may this continue