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Government introduces block exemption to Cartels Bill for specified international liner shipping activities

July 10, 2017

Contacts

Partners Anne Callinan, James Craig

Competition law (inc Cartels Bill)

Could the Cartels Bill finally be enacted soon?

The Government is amending the Commerce (Cartels and Other Matters) Amendment Bill (Cartels Bill) to introduce an exception for certain international liner shipping activities.

Currently, the restrictive trade practices provisions of the Commerce Act do not apply to international shipping. The Cartels Bill proposed to repeal this, meaning that international shipping would be subject to the Commerce Act.

That changed on Thursday, 6 July 2017, when Commerce and Consumer Affairs Minister Jacqui Dean tabled a supplementary order paper (SOP) that amends the Cartels Bill by introducing a targeted block exemption for specified international liner shipping activities.

The specified activities are:

  1. the co-ordination of schedules and the determination of port calls;
  2. the exchange, sale, hire, or lease (including the sublease) of space on a ship;
  3. the pooling of ships to operate a network;
  4. the sharing or exchanging of equipment such as containers; and
  5. capacity adjustments in response to fluctuations in supply and demand for international liner shipping services.

The Ministry of Business, Innovation and Employment (MBIE) issued a Regulatory Impact Statement on regulation of competition in international shipping in November 2016 (which has just been made public), so the international shipping exemption has clearly been on the Government's mind for some time. That Regulatory Impact Statement considered five options for competition regulation in the international shipping industry. Interestingly, the targeted block exemption put forward in the SOP was the Ministry's second choice. MBIE preferred the approach originally taken by the Cartels Bill - that is, removing the international shipping exemption. MBIE's view was that the collaborative activities exception introduced by the Bill would be sufficiently flexible to allow the shipping industry to collaborate efficiently. This view was supported by Treasury and the Commerce Commission. The Ministry of Foreign Affairs and Trade, on the other hand, preferred the targeted block exemption option.  

The Minister for Commerce and Consumer Affairs opted for the targeted block exemption option, balancing the compliance costs of imposing the full Commerce Act regime on international shipping companies with the detriments of potential anticompetitive activity in the international shipping industry. This followed concerns raised by New Zealand importers and exporters that increased competition oversight of international shipping would have a detrimental impact on the international shipping options available to them.

What about the rest of the Cartels Bill?

Readers of our previous FYIs will be aware that there has been considerable delay to the passage of the Cartels Bill. Apart from shipping, that Bill also proposes to widen the automatic breaches of the Commerce Act in s30 to include market allocation and output restriction to the existing price fixing prohibition, and also to introduce a collaborative activities exception to replace the existing joint venture exception to price fixing.

The release of this new SOP indicates that we may finally see some movement shortly on the enactment of the Cartels Bill. The Bill is currently awaiting hearing before the Committee of the Whole House, where this SOP will be voted on by Members of Parliament. Following this, the Bill will progress to its third and final reading. MBIE has indicated that it expects to see the Bill become law in 2017.

The tabling of the SOP follows the recent announcement on 27 June 2017 that the Government is proposing further reform of the Commerce Act to grant the Commerce Commission the power to undertake market studies, and to improve the efficacy of mechanisms for enforcing the Commerce Act. Our summary of those proposals can be found here. Those reforms are separate to this SOP and the Cartels Bill.

Further information, including the text of the Cabinet paper and Regulatory Impact Statement, can be found here.

Contributors johanna.mcdavitt@simpsongrierson.com