Appendix E New Zealand s regulatory approach to international shipping

Transcription

1 330 International Freight Transport Services Appendix E New Zealand s regulatory approach to international shipping This appendix examines New Zealand s approach to the economic regulation of international shipping and compares it with the approaches of other countries. New Zealand s competition laws have not historically applied to agreements between international shipping operators. Until the enactment of the Commerce Act 1986, the Commerce Act 1975 was not regarded as applying to international shipping and there was no specific regulation of conferences. 1 New Zealand now provides formal exemptions for international shipping in both the Commerce Act and the Shipping Act 1987 (the Shipping Act) from the Commerce Act s competition regime. At the time they were enacted, these exemptions reflected the prevailing international policy view discussed in Chapter 11: that restricting competition between international shipping carriers is very likely to deliver net public benefits to New Zealand, and accordingly will be in the best interests of New Zealand as a whole. The two exemptions are cast differently and have different policy goals. The Commerce Act exemption S.44(2) of the Commerce Act provides that nothing in Part 2 of the Commerce Act will apply to: the entering into of a contract, or arrangement, or arriving at an understanding in so far as it contains a provision exclusively for the carriage of goods by sea from a place in New Zealand to a place outside New Zealand or from a place outside New Zealand to a place in New Zealand; or any act done to give effect to a provision of a contract, arrangement, or understanding referred to above. The exemption is wide in that it applies to carriage of goods by sea both inwards and outwards, and is not limited to specific types of agreements between carriers (eg, it is not limited to liner shipping or liner cargo conferences and could apply to agreements between bulk carriers), or specific types of provisions. One possible interpretation is that the exemption does not apply to s.36 of the Commerce Act, which relates to taking advantage of substantial market power. In particular, the Commerce Act exemption applies only to the entering into, or giving effect to any provision of, a contract, or arrangement, or arriving at an understanding. The contract, arrangement or understanding language is used in s.27 of the Commerce Act but it does not specifically mimic the language in s.36. This indicates that the Commerce Act exemption contemplates some sort of understanding i.e. between two or more firms. Unilateral conduct not related to entering into or giving effect to an agreement may not be exempted. The primary restriction on the exemption is that it only applies in so far as a provision is exclusively for the carriage of goods by sea. S.44(2)(b) provides that a provision is not exclusively for the 1 Until 1979 there was a requirement for New Zealand carriers to obtain approval before increasing prices.

2 331 carriage of goods by sea if the provision relates to the carriage of goods to or from a ship or the loading or unloading of a ship. This restriction, in effect, limits the application of the exemption to conduct that occurs on board a ship. In addition to the s.44(2) exemption, s.44(1)(g) of the Commerce Act provides that nothing in Part 2 of the Act applies to: the entering into of a contract, or arrangement, or arriving at an understanding in so far as it contains a provision that relates exclusively to the export of goods from New Zealand or exclusively to the supply of services wholly outside New Zealand, if full and accurate particulars of the provision... were furnished to the Commission before the expiration of 15 working days after the date on which the contract or arrangement was made or the understanding was arrived at, or 60 working days after the commencement of this Act, whichever is the later. On one view, s.44(1)(g) may provide an avenue to say that internal aspects of an export contract are exempt, provided full particulars are provided to the Commerce Commission. Despite the existence of this provision, it does not appear to be used in practice. that exemption has seldom been used largely because it is unknown... or because firms are reluctant to disclose voluntarily details of their commercial arrangements to enforcement bodies. I have suggested it be tried on a couple of occasions; but clients have always baulked. That is because the Commerce Commission cannot guarantee confidentiality as its refusal of an Official Information Act request would be reviewable by the Ombudsman. There is also no certainty of protection the Commission simply received the contract, without confirming that the exemption applies. Kotahi Logistics LP Ltd, sub. 29, p. 7 S.44(1)(g) is almost identical to s.51(2)(g) of Australia s Competition and Consumer Act The Australian Productivity Commission commented in its 2005 investigation of international shipping that the scope of the exemption is uncertain with respect to the international shipping industry in Australia, as there has been no clear judicial statement on whether the term provision for the export of goods from Australia would or would not apply to agreements for the carriage of goods for export (Australian Productivity Commission, 2005, p.169). During the APC s investigation, the Australian Competition and Consumer Commission (ACCC) advised the APC that it believed the exemption, correctly interpreted, applies only to the actual contract of sale in offshore markets. The ACCC s view was that the contract for carriage is the acquisition of services from an Australian market. In the ACCC s publication Export Agreements and the Competition and Consumer Act, the ACCC states that to obtain an exemption: the provisions of the contract, arrangement or understanding relate exclusively to the export of goods from, or the supply of services outside Australia. A provision in the same agreement between the exporter and overseas buyer, that covers other aspects of export or supply (for example, a clause in the contract providing that the exporter will transport the goods from the point of manufacture to the point of departure in Australia) could be regarded by a court as being part of the export contract. Australian Competition and Consumer Commission, 2010b, p.3 As a result, due to the uncertainties of its application, the export agreement exemption may be of limited use to New Zealand outward shippers. The Shipping Act exemption The Shipping Act exemption was introduced in S.14 provides that nothing in Parts 2 (restrictive trade practices) and 4 (regulated goods and services) of the Commerce Act apply to outwards shipping. Outwards shipping is defined as the carriage of goods wholly or partly by sea from a place in New Zealand to a place outside New Zealand.

3 332 International Freight Transport Services While s.14 provides that the Commerce Act does not apply, the Shipping Act contains its own remedial regime designed to protect New Zealand shippers from unfair practices of carriers. Unfair practices are defined as: abuse of dominant position; failure to give reasonable notice to shippers of changes to terms and conditions; refusal or failure to negotiate with shippers; and collusion in tendering. The Shipping Act contains a complaints mechanism whereby the Minister of Transport can investigate alleged unfair practices by carriers. If, following an investigation, the Minister is satisfied that a carrier has engaged in any unfair practice, the Minister can direct a carrier to supply details of agreements, give reasonable notice to shippers who will be or are likely to be affected by impending changes to the terms or conditions, or enter into consultation and/or negotiations with a shipper. The rationale for this remedial regime is to provide New Zealand exporters with some protection from the potentially deleterious impacts of exempting international shipping from normal competition rules. Despite the existence of this regime the Ministry of Transport has confirmed that there have been no formal investigations under the Shipping Act (Ministry of Transport, sub. 46, p. 5). Submitters gave differing reasons as to why there have been no investigations under the Shipping Act. For example, the International Container Lines Committee stated:...we believe this is due to the satisfaction of the market place with the both level and cost of services provided by the sector, and the clear preference given to individual contracting between parties. Federated Farmers commented that: International Container Lines Committee, sub. 48, p. 34 The absence of actions might mean that there have been no unfair practices (which might mean the Act could be a deterrent) or it might be that the hurdle for unfair practices is too high (in which case the Act might not be a sufficient deterrent). Compatibility of the two exemptions The two exemptions are subtly different in a number of ways. Federated Farmers of New Zealand, sub. 27, p. 8 First, the exemption for outwards shipping contained in the Shipping Act is wider than the exemption in the Commerce Act. Outwards shipping, as defined in the Shipping Act, specifically contemplates conduct or agreements in which only part of the journey is conducted by sea, while the Commerce Act exemption is explicitly limited to the carriage of goods by sea. For example, in an agreement between two competitors which regulates the price for goods to be carried from Taupo to China, via Tauranga: the Commerce Act exemption would imply that only those provisions of the agreement which are exclusively for the carriage of goods by sea from Tauranga to China are exempt;

4 333 the Shipping Act exemption appears to exempt a wider range of provisions, including provisions relating to domestic carriage from Taupo to Tauranga, and potentially any conduct relating to that particular carriage of goods including, for example, port services. In addition, while the Commerce Act exemption applies equally to both outbound and inbound sea freight, the Shipping Act exemption is limited to outbound. The implications of this for inbound freight can be seen if the Taupo to China via Tauranga example above is reversed. In that scenario, the Commerce Act would apply to provisions exclusively relating to the China to Tauranga portion of the journey, but normal competition rules would apply from that point on because the Shipping Act would not apply to the arrangements necessary to transfer the freight on the Tauranga to Taupo leg. 2 The stated reason the Shipping Act exemption applies only to outwards shipping is because the focus of the Shipping Act is to protect New Zealand exporter interests for example, by safeguarding against unfair practices by a carrier/s and discouraging carriers practices that have the effect of reducing competition, and secondly because: [t]he then rationale for excluding outward freight services was that international shipping gave rise to complex conflict of laws issues (ie., is the service governed by the law of state where carriage originates or ends) Kotahi Logistics LP Ltd, sub. 27, p. 7 No submitters provided salient reasons for continuing the differing exemptions (or for why the Shipping Act exemption applied only to New Zealand shippers in their role as exporters but not importers): That kind of differential treatment of exports is simplistic and no longer valid in a world where markets are increasingly global and the anti-trust or competition regimes of many countries are claiming jurisdiction well outside their national boundaries. Kotahi Logistics LP Ltd, sub. 27, p. 7 Accordingly, there seems little reason why two different exemptions are required, although whether or not the regulatory role of the Ministry of Transport in enforcing unfair practices should be retained is a separate issue. New Zealand s regime in the context of global regulatory trends Table E.1 below summarises the analysis above, highlighting the differing approaches taken to regulation in New Zealand and around the world. Table E.1 also includes the recommendations made by the OECD, APEC and the Australian Productivity Commission. Table E.1 Jurisdiction New Zealand Comparison of New Zealand s shipping regulation with other approaches Regime Formal exemption for all liner shipping agreements from certain provisions in the general competition regime. Exemption in Commerce Act from Part 2 (restrictive trade practices) of the Commerce Act for inwards and outwards shipping. Exemption in Shipping Act from Parts 2 (restrictive trade practices) and 4 (regulated 2 The Productivity Commission notes that it does not necessarily agree with the International Container Lines Committee s submission that the through transport of exports including the land transport move under an international contract of carriage is exempt under both the Commerce Acts and the Shipping Act.

5 334 International Freight Transport Services Jurisdiction Regime goods and services) of the Commerce Act for outwards shipping. Complaints mechanism whereby Minister of Transport can investigate unfair practices and issue certain directions to carriers. Australia Formal exemption for all liner shipping agreements from general competition regime. Part X of the CCA exempts parties to a conference agreement from the prohibitions on collusive conduct (excluding third line forcing, misuse of market power, mergers and acquisitions). Parties must register their agreements with the Registrar of Liner Shipping. European Union Formal exemption for consortia agreements only from general competition regime. Council Regulation 906/2009 exempts consortia from the prohibitions set out in Article 101(1) of the Treaty. Consortia agreements include the joint operation of liner shipping transport services (including sailings, vessel sharing, co-operative working and equipment interchange), capacity adjustments in response to supply and demand, and joint operation of port terminals and related services. Conference agreements subject to general competition regime. Consortia exemption does not apply to fixing of prices of liner shipping services to third parties, limitation of capacity or sales, or allocation of markets or customers. Market share test of 30% (consortia with a share up to 50% may apply for a specific exemption). Conditions include giving members the right to withdraw without penalty (subject to notice and withdrawal periods). United States Formal exemption for all liner shipping agreements from certain provisions in the general competition regime. Shipping Act 1984 exempts parties to a liner shipping agreement from the prohibitions on collusive conduct (including price fixing, capacity regulation, revenue pooling, scheduling). Parties are required to file liner shipping agreements with the Federal Maritime Commission. Where the agreement is oral, a complete memorandum specifying the substance of the agreement must be filed. Parties are able to enter into confidential individual agreements, which must be confidentially filed with the FMC, and a statement containing the essential terms of the contract (not including price) will be published and made available to the public. Agreements subject to certain requirements, including allowing members to withdraw without penalty, and allowing members to enter into individual services contracts. Singapore Block exemption for parties to a liner shipping services agreement from the prohibition of restrictive trade practices in the Competition Act 2004 (excluding abuse of power). Agreements must allow the parties to the agreement to offer, on an individual confidential contracting basis, their own service arrangements, and must allow parties to withdraw without penalty, and must not require liner operators to mandatorily adhere to a tariff and disclose confidential service arrangements. Limited market share test of 50%. Japan The block exemption under the Maritime Transportation Law exempts shipping conferences from the Antimonopoly Law.

6 335 Jurisdiction Regime Reports and reviews Parties must file their agreements with the Ministry of Transport. OECD report Principles include: freedom to protect contracts shippers and ocean carriers should always be able to protect contractually key terms of negotiated service contracts, including information regarding rates, and confidentiality should have maximum protection; freedom to negotiate shippers and ocean carriers should always have the option of freely negotiating rates, surcharges and other terms of carriage on an individual and confidential basis. APEC Guidelines Exemption for consortia agreements where general competition regime prohibits efficiency-enhancing behaviours typical of consortia agreements, or where general competition regime gives rise to uncertainty as to whether those behaviours are legal. Clear separation of conference and consortia agreements. Collect information for exempted agreements as is appropriate for the effective oversight of the agreements. No market share test as a condition for formal exemption. Proposed Australian model APC Report (2005) All liner shipping agreements subject to general competition regime. Where an agreement would be likely to breach Part IV (restrictive trade practices) of the CCA, members can apply for an authorisation, providing immunity from the provisions in Part IV (except misuse of market power). Applicants must demonstrate that the public benefits arising from the conduct outweigh the detriments constituted by any lessening of competition in the relevant market. Provisions most likely to breach Part IV include price fixing, capacity management and agreements with high market share. Alternatively, if Part X was retained, the APC recommended that agreements that contain provisions relating to the fixing or discussion of freight rates or the limitation of capacity should not be eligible for registration under Part X, or in the alternative, discussion agreements should be excluded (together with measures to protect confidential individual service contracts). As can be seen from Table E.1, New Zealand s regulatory approach is somewhat of an outlier in that it does not contain many features adopted (variously) in overseas countries, namely: providing a blanket statutory exemption that does not distinguish between liner shipping and bulk shipping; not distinguishing between conference and consortia agreements; not containing a registration regime; not containing provisions for periodic review. It is unsurprising that New Zealand s regime is closest to Australia s, albeit without the registration regime which exists there. The fundamental question at the heart of all of these regimes is whether and to what extent agreements between liner carriers should be exempt from competition law. Where a decision is made that an exemption should be applied, the subsequent question is on what conditions it should

7 336 International Freight Transport Services be granted. The existence of market share thresholds (Singapore, EU), requirements for registration (Australia, US, Japan), the application of the automatic exemption for consortia but not conferences (EU), and the requirement for individual confidential contracts to be allowed (US) all implicitly reflect policy choices designed to mitigate the adverse impacts of the exemption. In New Zealand that role is currently filled by the Shipping Act remedial regime. Where an exemption is not present (eg, EU in relation to ratemaking agreements), no such remedial requirements are necessary.