Australian, New Zealand regulators lay groundwork for post-pandemic markets

27 Mar 2020 12:00 am by Laurel Henning

It’s less than 10 days since Australia’s competition regulator said it was anticipating an increase in applications from companies seeking exemptions from competition laws to ensure they not only deliver essential services to citizens during the outbreak of the Covid-19 virus, but survive the economic uncertainty caused by the global pandemic.

In that time, the Australian Competition & Consumer Commission, or ACCC, has granted four authorizations and updated an existing coordination permit for Qantas Airways and Chinese Eastern Airlines, with some authorizations turned around in less than 24 hours.

It’s certainly a rapid response by the Australian regulator to the fast-paced changes and havoc wrought by the virus and across the Tasman Sea, New Zealand’s competition authority has made similar efforts to assure businesses. The Commerce Commission has said companies won’t face enforcement action when cooperating to ensure the supply of essential goods and services during this period.

The ongoing response of competition regulators over the coming weeks and months will be critical not just in the short term for businesses’ survival and product supplies. Coordination authorizations and merger decisions made during this period will also be the foundations for resetting competitive tensions in the Australian and New Zealand markets when the virus passes.

The challenge for regulators is two-fold: respond to an unprecedented pandemic and do so in such a way that lays the groundwork for the healthy market watchdogs are aiming for post-pandemic.

— Australian authorizations —

In Australia, the country’s banking association was the first to win an urgent interim authorization from the ACCC, within hours of lodging its application on March 19.

The authorization allows the Australian Banking Association’s members — including the country’s four major banks Australia and New Zealand Banking Group, Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corporation — to work together on measures to support small businesses responding to the economic impact of Covid-19.

Medical technology providers, supermarkets and airlines operating regional routes across Australia followed the banks in their requests for exemptions from Australia’s competition laws and permission to coordinate.

The industries in question so far are the key players in ensuring people are fed and small businesses are kept afloat as much as possible.

But Nick McHugh, a partner with law firm Norton Rose Fulbright in Sydney, told MLex in an interview that authorizations are going to continue beyond the “low hanging fruit” applications that have already been made.

McHugh said applications may expand from parts of industries that have already gained authorization. Medical technological companies were authorized this week to coordinate on the supply and potential manufacture in Australia of ventilators, testing kits, personal protective equipment. A further request could follow from pharmaceutical companies, McHugh said.

“We've seen various other sectors being exempted from antitrust law in other countries and maybe we'll see that reflected down here in those industries that are or may become capacity constrained —  freight for example, as we need to move goods around the country,” McHugh added.

Belinda Harvey, a fellow partner at Norton Rose Fulbright told MLex that more authorization applications could be expected from producers of “fast moving consumer goods,” such as specific food products.

If producers are unable to get an ingredient, or one person holds an ingredient for a product that multiple companies require, that may be an example of where competitors need to group together.

But Harvey added that the potential for applications isn’t endless — “like the virus itself it will reach a plateau and all these authorizations have a timeline.”

Still, both lawyers are clear on one thing — authorizations for price coordination are going to be the very last category that the ACCC would want to green light.

Coordination on pricing would eliminate the competition that remains at the point of sale for the goods that companies could be working together to supply, or even produce.

— New Zealand process —

In New Zealand, the process for companies is different. Where “compliance culture” reigns, the country’s competition regulator announced earlier this week that it doesn’t want businesses to “feel constrained by the [country’s competition law] in working together.”

The Commerce Commission said it “has no intention of taking enforcement action” against businesses cooperating to ensure New Zealanders are supplied with essential goods and services.

In a statement to MLex, a spokesperson for the regulator said some businesses and industries have contacted the commission and that the watchdog expects inquiries to continue. All approaches to the commission are being kept confidential.

Glenn Shewan, a partner at New Zealand law firm Bell Gully, told MLex that unlike Australia, no urgent authorizations have been granted so far in New Zealand.

“Generally, to the extent that businesses are coordinating at the moment, they are likely taking the steps to satisfy that they don’t need authorization because they fall within an existing exemption, such as the collaborative activities exemption,” Shewan said.

— Next Steps —

The obvious question arising from allowing companies to act in a coordinated manner usually precluded by competition laws is, when should it stop? And even if it is clear when the authorization should be revoked, will companies let go of it easily?

It’s worth remembering that the ways in which companies are being allowed to operate in response to Covid-19 is just one factor of their businesses, which they want to ensure stay afloat.

These new, interim measures, don’t necessarily upturn a company’s entire business model.

As Harvey told MLex, “companies are mindful of their competition law obligations and maintaining other parts of business operations while trying to fulfill customer needs around Covid-19."

On the other hand, the ACCC will have to review and withdraw the authorizations it has granted on a case-by-case basis. The regulator will have its work cut out.

The ACCC will need to “take the temperature” of relevant markets, McHugh told MLex, considering how demand or supply is doing at the time of review and what the market looked like before the authorization was granted.

Gaming the system seems unlikely, then, and most observers agree that companies and industries alike will be pragmatic about the right time to go their own way again in a post-pandemic environment.

Such periods of upheaval and uncertainty lead to scrutiny of regulatory changes that were perhaps already underway or under consideration.

In Australia, changes to laws governing unfair contracts are expected to go ahead almost unabated and may get a boost from the current environment, particularly if people exploit harsh contract terms during the virus crisis.

But in New Zealand the virus is likely to slow down regulatory changes. Updates to misuse of market power provisions and the introduction of an unconscionable conduct prohibition are expected to get lost in a parliament that could have too much on its plate before the house rises in August ahead of national elections.

Over recent weeks regulators have given emergency authorizations and sought to assure businesses as the Covid-19 pandemic wreaks havoc through national and international markets. The goal is clear, but the outcome less certain. The prolonged impact will only be known when the ACCC and Commerce Commission review the measures they put in place earlier this month and seek to reinstate the competitive tensions that usually reign as top priority.

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