Chapman Tripp - Resource Library - Doing Business in New Zealand


Contents

	Introduction
	About Chapman Tripp
	Why do business in New Zealand?
	Overview
		Geography Climate People Government Legal system Currency Infrastructure Business conditions Holidays Living in New Zealand Cost of living
	Economy
		Major industries Markets Trade agreements Economic position Economic policies
	Starting up business
		Type of business Corporate structure options Branch or subsidiary? Government consents
	Immigration
		Entry requirements Temporary employment for foreign nationals New Zealand residence Immigration policy Returning residents' visa
	Buying and developing land and property
		Title Contracts for sale and purchase of land Resource Management Act and district plans The Building Act 1991 Barriers to buying land Maori land claims
	Taxation
		Overview Income tax Goods and Services Tax Import duties Rates Other taxes
	Finance
		Reserve Bank Financial institutions Financial markets Raising finance Repatriation of funds
	Regulations affecting business
		The Commerce Act The Fair Trading Act
	Intellectual property
	Labour and employment
		Employment Relations Act Working conditions

PDF Version

Regulations affecting business

The Commerce Act

The Commerce Act 1986 deals with three aspects affecting business and competition in New Zealand:

	regulation of business acquisitions
	prohibition of restrictive trade practices
	price control.

The Commerce Act was amended in May 2001 to bring New Zealand’s key competition law tests for business acquisitions and restrictive trade practices into alignment with those of Australia under the Australian Trade Practices Act 1974.

Business acquisitions
Part III of the Commerce Act prohibits the acquisition of any shares or assets of a business which would have, or would be likely to have, the effect of substantially lessening competition in a market.

The term “market” is defined to mean “a market in New Zealand for goods or services as well as other goods or services that, as a matter of fact and commercial common sense, are substitutable for them.” Competition will be substantially lessened in a market if, as a result of the acquisition, there is an increase in the scope for the exercise of unilateral or co-ordinated market power. There will be an increase in the scope for co-ordinated market power if the business acquisition leads to a change in market circumstances such that co-ordination between the remaining firms is made more likely.

An increase in unilateral or co-ordinated market power will be assessed by reference to an increase in the scope to raise price, and/or reduce product quality or service, relative to what would have occurred in the absence of the acquisition. Relevant to this is the market share of the merged entity, the market shares of other participants, the likelihood of new entry, the merged entity’s relationship with suppliers and purchasers, and whether there are features of the market which are suggestive of the potential for collusion and discipline.

While there is no longer a statutory exception to acquisitions which involve the “bare transfer” of market power from one party to another, the Commerce Commission, the New Zealand competition law regulatory body, has in the past concluded that such acquisitions are unlikely to raise competition concerns.

The Commerce Act provides a mechanism for seeking clearance from the Commerce Commission, prior to implementation, that a business acquisition will not result in a substantial lessening of competition. If a clearance is granted, and the acquisition occurs within 12 months, the acquisition cannot be challenged under the Commerce Act. Alternatively, if a substantial lessening of competition is likely to result, the Commission can grant an “authorisation” on the grounds that the acquisition is likely to result in such a benefit to the public that it should be permitted. Authorisation is a formal and public process.

The onus is on the parties seeking the clearance or authorisation. Breach of the prohibition may result in a penalty of up to:

	NZ$500,000 for individuals; and
	NZ$5 million for companies, as well as an order that the acquisition be “unwound”.

Restrictive trade practices
Part II of the Commerce Act is designed to regulate restrictive trade practices arising either collusively (between two or more parties) or unilaterally on the part of a firm which holds a substantial degree of market power.

The following practices are prohibited:

	any contracts, arrangements, or understandings which are likely to have the effect of substantially reducing competition in a market
	price-fixing and market-sharing arrangements
	collective boycotts between competitors which prevent or restrict trade, resulting in a substantial lessening of competition
	resale price maintenance arrangements by which suppliers of goods set and enforce sale prices to be charged by re-sellers
	taking advantage of a substantial degree of market power in a market (which can include trans-Tasman markets) for the purpose of restricting entry into a market, deterring competitive conduct, or eliminating a competitor from a market.

Engaging in a prohibited practice may result in a penalty of:

	up to $500,000 for individuals; and
	the greater of: $10 million; or if it can be readily ascertained, three times the value of any commercial gain resulting from the contravention; or if the commercial gain cannot be readily ascertained, 10% of the turnover of the body corporate and all its bodies corporate.

It is possible, however, for most of the above practices to be authorised by the Commerce Commission if it can be shown that it is in the public interest for the practice to continue.

Price controls
Part IV of the Commerce Act contains a mechanism for imposing price control on particular goods and services. There are no restrictions on the industries to which Part IV may apply.

Part IVA of the Commerce Act requires the Commerce Commission to establish performance thresholds for electricity line businesses and to impose price control on businesses that breach those thresholds.

Other industries subject to specific market regulation include:

	telecommunications (under the Telecommunications Act); and
	dairy (under the Dairy Industry Restructuring Act).

The Fair Trading Act

The Fair Trading Act operates in conjunction with the Commerce Act to maintain and promote standards of competition and to prevent restrictive trading practices arising in the wake of deregulation. In particular, section 9 provides that no person in trade shall engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

Other kinds of prohibited conduct are:

	the false application of trade marks intended to deceive
	the offering of prizes or gifts with no intention to deliver
	bait advertising
	demanding or accepting payment without intending to supply as ordered
	referral selling
	misrepresentation
	harassment and coercion
	pyramid selling schemes.

The Fair Trading Act also encompasses product safety standards, consumer information standards and safety of services. It is enforced by the Commerce Commission but certain remedies can also be enforced by private action.

Regulations affecting business section last updated April 2007