As a New Zealand exporter selling product into markets around the world, your conduct in New Zealand and overseas is subject to the competition or antitrust laws of those countries. And, if you also sell products in New Zealand – whether ultimately used in New Zealand or exported by somebody else – your conduct is subject to New Zealand’s competition (antitrust) law.
As an exporter, you should be aware of the type of conduct that risks breaching a country’s competition laws. Examples include:
- making an arrangement with your competitors to sell a product for the same price
- taking advantage of substantial market power (if you have it) by charging artificially low prices that your competitors cannot match.
The following information will help you understand how competition law can apply to you in New Zealand and overseas. It is particularly important in situations where you are considering cooperating with competitors to achieve a better outcome in an offshore market.
While competition law is about preserving competition, most countries recognise that sometimes cooperation between competitors can better promote competition overall. It can be a better way of delivering increased efficiency, economic growth and employment. However, this does not generally apply to cooperation in relation to prices. In many countries cooperation between competitors in relation to price is illegal, whether or not it impacts competition.
New Zealand’s competition laws
The Commerce Act 1986 contains New Zealand’s competition laws, which are enforced by the Commerce Commission.
What the Commerce Act prohibits
The Commerce Act promotes competition by prohibiting “anti-competitive” conduct, including:
- contracts, arrangements or understandings (“agreements”) that have the purpose, effect or likely effect of “substantially lessening competition” in a New Zealand market
- price fixing agreements – these are agreements between competitors that interfere with the competitive determination of price, discounts, credit, etc of goods and services they supply in a New Zealand market;
- resale price maintenance – which occurs where a supplier encourages (whether by threats or incentives) a reseller to sell goods at or above a certain price
- prohibiting a person with “substantial market power” from taking advantage of that substantial market power for an anti-competitive purpose.
If your business engages in any of these practices, it runs the risk of being prosecuted by the Commerce Commission. This conduct may also be prohibited by overseas competition laws. If you are engaging in this conduct you should seek legal advice.
In New Zealand a breach of the Commerce Act can result in harsh penalties for your business, including fines that can exceed $10 million.
When does the Commerce Act apply to my conduct?
The Commerce Act applies to all practices that affect the buying and selling of products in a market in New Zealand.
A good rule of thumb is that the Commerce Act will apply to you if:
- you supply product and title passes in New Zealand. This is true regardless of whether the end user of is based in New Zealand or overseas. For example, if you sell goods to a distributor in New Zealand and that distributor then sells the goods in the US, a sale has been made in New Zealand.
The Commerce Act will not apply to you when:
- a practice or agreement does not affect in any way the supply of product in New Zealand; or
- an agreement relates exclusively to the export of goods provided you give the Commission full details within 15 working days of the agreement being reached.
Does the Commerce Act apply to spill-over effects in New Zealand markets?
The Commerce Act will also apply to agreements that seek an outcome in an overseas market if it has a “spill-over” or knock-on effect on competition in a New Zealand market.
For example:
- firm 1 and firm 2 each sell two competing products (A and B) in New Zealand and in the US
- they agree that firm 1 will focus on selling product A in the US and firm 2 will focus on selling product B in the US because specialising will improve their sales; and
- the effect of that agreement is that firm 1 stops manufacturing product B and therefore stops supplying product B in New Zealand (eg because New Zealand is too small to justify production).
While the agreement is focused on increasing sales in the US market, the agreement affects competition between firms 1 and 2 in the New Zealand market. It is therefore subject to the Commerce Act (although it will not necessarily breach the Commerce Act).
Consider carefully what flow-on impact any practice or agreement relating to
overseas sales will have (or could be seen to have) on sales within New Zealand, If you are in any doubt, seek legal advice.
Overseas competition laws will apply to agreements in relation to export sales
Your conduct will typically be subject to the competition laws of the countries in which you supply product regardless of whether your agreement originated in New Zealand. If you breach these overseas laws, an overseas regulator or third party may be able to take action against you.
Most countries around the world have competition or antitrust laws to preserve competition for sales made in those countries. At a minimum most overseas countries have similar prohibitions to those contained in the Commerce Act, although many have additional and stricter prohibitions.
Remember that price fixing agreements between competitors are generally illegal regardless of the size of the competitor. Many countries have stricter penalties and other remedies for breaches than is the case in New Zealand, including criminal sanctions for price fixing behaviour.
When considering entering into a new agreement or launching a new initiative, it is important you seek legal advice early if you have any competition law concerns.
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Use of the information contained in this guide is at your own risk and we are not responsible for any adverse consequences arising out of such use. This is a complex area and we recommend that you seek legal advice before taking any related action.
