ABA “CHINA – INSIDE AND OUT” BEIJING17 SEPTEMBER 2013

Dr Mark Berry, Chairman, Commerce Commission

CHINA AND NEW ZEALAND: SOME COMPARATIVE REFLECTIONS ON THEIR

ANTITRUST REGIMES

• 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:

o the first western country to conclude a bilateral agreement with China on its accession to the World Trade Organisation (August 1997)

o the first developed economy to recognise China’s status as a market economy (April 2004)

o the first developed country to enter into Free Trade Agreement (FTA) negotiations with China (announced November 2004)

o 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

The China/New Zealand relationship

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• 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

Impact of the Free Trade Agreement

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• 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

Small and large market economy dynamics

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• 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

The New Zealand setting

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• Theory suggests three main economic characteristics apply to small market economies:1. high market-concentration levels – this is present2. high entry barriers (eg access to skilled labour and inputs for

production) – the concern may be overstated3. 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

Small economy characteristics

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• 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

Our antitrust policy design

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• The Commerce Act has three cornerstone provisions:o Prohibition against agreements that substantially lessen

competitiono Prohibition against mergers that substantially lessen competitiono 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

Key antitrust provisions

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• 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

Institutional design

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• 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:1. Anti-competitive agreements between undertakings2. Abuse of a dominant position3. Mergers that may have the effect of eliminating or restricting

competition

• This shares much in common with our Commerce Act

The China setting

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• Nonetheless, there are differences• The AML also prohibits the abuse of administrative powers to restrict

competition• China has 3 separate antitrust agencies:

1. MOFCOM (mergers)2. NDRC (price-related matters)3. 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

Differences in the China/New Zealand settings

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• 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

Emerging trends in China

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• 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

Common issues of agency effectiveness

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• 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

Agency effectiveness

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• We have focussed on “four pillars” as a centre point of measuring our effectiveness:1. setting objectives/goals ex ante2. selection and flexible application of the correct

“tools”3. ex post assessments of performance4. capability and capability enhancement

Four pillars

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• 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:1. markets are more competitive; and2. 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:

1. Improved levels of awareness and understanding of our antitrust laws2. Improved levels of business compliance with antitrust law3. Detection and appropriate action in response to non-compliant conduct

Objectives and goals

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• 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

Selection and flexible application of enforcement tools

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• We measure and report against our goals to:1. Improve levels of awareness and understanding of our antitrust

laws (eg 30% in 2010/11 to 47% in 2011/12); and2. 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

Ex-post assessment of performance

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• 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

Capability and capability enhancement

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• 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

Some final comments

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