Trans-Pacific Partnership: significant from a competition perspective or “next generation” political spin? — Part 2 Prudence Smith , Nick Taylor and Aurore Vande-Kerchove JONES DAY The Trans-Pacific Partnership (TPP) Leaders’ State- Monopoly export legislation ment 1 of 9 September 2012 heralded the TPP as a “next A number of countries have a history of putting in generation” regional agreement on trade and investment place legislation that designates a board or company to implying that it goes significantly further than previous be the monopoly exporter — particularly where by free trade agreements. doing so, a country’s producers can obtain significant This article presented in three sections evaluates that market power in export markets. The predominant claim with respect to the effects of the TPP from an antitrust or competition law perspective. purpose of this legislation is to earn monopoly rents for The first section of the paper (in last month’s part 2 the country’s growers. 3 and in this part ) identifies seven significant limitations Second, there are no provisions in the TPP that on the scope and depth of the TPP’s competition chapter requires countries to abolish agricultural single desks or that will undermine its relevance. to provide that other parties can bypass the single desk On the other hand, the second section (in the final when exporting to TPP countries. For example, under part) of the paper discusses three sets of competition- NSW state legislation, 4 Ricegrowers Ltd (SunRice) like provisions that are contained within the TPP that holds an exclusive appointment for all export sales of may well have a significant impact. rice from that state. In NZ, 5 only Zespri International The third section (in the final part) of the paper also discusses how the enforcement of existing competition Ltd (and any “collaborative” marketers approved by the laws in relation to commercial conduct arising from the Kiwifruit New Zealand) are permitted to supply kiwifruit implementation of the TPP’s core trade-related provi- for export sale. sions will be instrumental in the partnership achieving its full potential. Case study: Zespri International Ltd Kiwifruits are seasonal with supply occurring in autumn and winter. During the Northern Hemisphere autumn and winter, a multitude of countries supply kiwifruit, but in the Southern Hemisphere’s winter, only two countries account for almost all the kiwifruit sold — Chile and NZ. In Chile, anyone can purchase kiwifruit from growers and export them around the world, but in NZ (with two limited exceptions), only Zespri International Ltd (Zespri) is permitted to export kiwifruit. In 2004, Korea and Chile entered into a free trade agreement that progressively reduced tariffs between them, including the tariff on the importation into Korea of Chilean kiwifruit. The Chilean growers expected to do well in Korea displacing sales from NZ that remained subject to a Korean import tariff. However, as the Korean Fair Trade Commission (KFTC) investigation later revealed, Zespri entered into a range of exclusive supply arrangements for the supply of its kiwifruits to two of Korea’s most important supermarket chains, e-mart and Lotte. This conduct was specifically entered into at that time because the tariff reduction had enabled the Chilean competitors of Zespri to begin to make significant inroads into the Korean market. As a result, despite the tariff reduction, in 2010 the Chilean share of the Korean Southern Hemisphere kiwi market sales fell and the prices paid by Korean consumers rose. 250 competition and consumer law news October 2016
The KFTC concluded that the exclusive dealing arrangements constituted an abuse of dominance by Zespri and the company was ordered to pay a penalty of approximately A$500,000 and report any future exclusive dealing arrangements to the KFTC. As a post-script to this case, a Chile-NZ free trade agreement has since reduced the tariff on NZ kiwifruit exported to Korea. Tariff reductions or other changes in trade deals can result in your country’s exports being displaced by improved access for products from a competing country. This can cause swings in output that are much greater than the year-on-year changes in consumption in a domestic market and can create strong incentives to engage in anticompetitive conduct to maintain revenue. This implies that competition authorities may have a particular role in ensuring that companies with dominant positions do not misuse that dominance to undermine the realisation of the full benefits of a free trade agreement. Weak provisions concerning private rights Again, the TPP could have required jurisdictions to exempt exports destined for other TPP jurisdictions from of action the single desk provisions. 6 While the TPP contains an explicit provision 8 requir- ing that the competition law provide a right of private TPP does not prevent countries legislating action in the courts (or a right to seek compensation via to abrogate the effect of its competition the competition authority), the provision lacks key laws in specific cases aspects of specificity required for it to constitute a full The TPP does not seek to prevent governments measure of damages for all affected persons, and the passing laws to override the application of general necessary ancillary machinery to make that provision competition laws. effective is lacking. New Zealand’s Dairy Industry Restructuring Act 2001 A key weakness of Art 16.3 of the TPP is that it does (DIRA) is an example of such a legislative abrogation. not specify which private parties can obtain redress. The The DIRA enabled the merger of the country’s two US system illustrates how the practical import of this largest dairy cooperatives, the NZ Dairy Group and provision is likely to be very limited, particularly in the context of the TPP. Under federal laws, foreign direct Kiwi Co-operative Dairies Ltd, together with the NZ purchaser plaintiffs can, in principal, recover damages Dairy Board, to form Fonterra. According to the NZ from companies that breach antitrust laws provided they Commerce Commission, Fonterra has a “substantial fit within a class of victims that includes US plaintiffs. degree of market power in a number of key domestic However, particularly in cartel cases, foreign plaintiffs New Zealand dairy markets”. 7 often are indirect purchasers who do not purchase the Additionally, Fonterra is also a very substantial products directly from the cartelists but rather down- player in export markets — although this is not relevant stream from second or third layer distributors. Indirect under domestic NZ law. customers cannot generally take damages actions under To enable the merger to proceed, the government federal laws in the US and instead redress is available on passed the DIRA which overrode the competition law a state-by-state basis through a patchwork of statutes merger prohibition in s 47 of the Commerce Act 1986 and parens patriae actions by the state Attorney-General (NZ). To address domestic competition issues princi- on behalf of residents of the state concerned. The TPP’s pally in relation to the company’s power as a buyer of requirement for parties to adopt a private right of action raw milk from growers, the Commerce Act imposes a does not require the right of action to include foreign range of rights for growers including to enter and exist plaintiffs (generally nor from TPP member countries as a member of the cooperative and limits the volume specifically) and it does not require the right of action to and duration of Fonterra’s contracts with growers so that cover indirect purchasers. minimum volumes of raw milk are available to other More broadly, the EU provides a demonstration of companies. The safeguards do not explicitly address the limitation of a TPP provision that merely provides customer side issues and they may cease to have effect for a right of private action without the necessary in either of NZ’s main islands if Fonterra’s share of raw ancillary machinery provisions. The EU’s core compe- tition law provisions 9 have been held to provide a right milk purchases from growers falls below 20% in any given season. of private action in all member states even without This legislation illustrates how domestic industry explicit legislation concerning private rights. 10 considerations can result in legislation that overrides Five TPP countries are countries with a civil law competition law provisions to the potential detriment of tradition and, although some have passed specific pro- foreign consumers, a circumstance that the TPP does not visions in the competition law to enable private enforce- seek to prevent. ment action, this is not generally necessary because competition and consumer law news October 2016 251
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