Product stewardship schemes can have significant benefits for New Zealand. However, if you are involved in a product stewardship scheme, or considering joining one, you need to be aware of how the Commerce Act may apply to the scheme, particularly when a scheme involves agreements between competitors. If you are considering setting up or joining a product stewardship scheme we recommend you seek legal advice on the Commerce Act as early as possible in the process.
What is a product stewardship scheme?
Product stewardship is when all sectors involved with a product's life cycle share responsibility for the environmental effects that products can cause. Product stewardship is meant to encourage everyone involved in the manufacture, use and disposal of a product – producers, brand owners, importers, retailers, consumers and local and central government – to take greater responsibility for the environmental effects of their products throughout the product life cycle.
A scheme could be targeted at reducing the number of old desktop computers being disposed of in landfill. The scheme might be run by a number of parties, such as local government, recyclers and retailers, to provide a nationwide network of subsidised options to recycle old computers. Usually, it would be the end consumer that would have to pay to recycle or dispose of an old computer. However, with the scheme in place, the appropriate parties from all stages of the product’s life cycle contribute to the costs, and harm to the environment is reduced.
Product stewardship schemes in New Zealand
The Waste Minimisation Act 2008 (WMA) gives the Government the ability to recognise both voluntary and mandatory product stewardship schemes through accreditation. The Minister for the Environment can accredit schemes under the WMA if the Minister is satisfied that they meet the required level of desired reductions in environmental harm.
A range of schemes are currently accredited under the WMA. For a list of schemes accredited by the Minister visit: www.mfe.govt.nz/issues/waste/product-stewardship/accredited-schemes-in-nz.html
Even if a product stewardship scheme is accredited by the Minister, that scheme is still subject to the Commerce Act.
What agreements are illegal under the Commerce Act?
Agreements that harm competition are illegal under the Commerce Act. Specifically, the following are illegal under the Commerce Act:
- price fixing agreements – agreements between competitors to fix, control or maintain prices (section 30)
- agreements that substantially lessen competition – agreements between any two or more parties (eg, competitors, suppliers and customers) that have the purpose, effect or likely effect of substantially lessening competition in a market (section 27)
- agreements that exclude rivals (section 29).
When we use the term ‘agreement’ in the list above and in this fact sheet we use it to encompass a ‘contract, arrangement or understanding’, which are the words used in the Commerce Act. Agreements can include both formal contracts and informal arrangements or understandings. Even a ‘nod and a wink’ between parties can be evidence of reaching an understanding.
These agreements may be part of a product stewardship scheme itself, or outside the scheme. So, while cooperation between scheme participants is allowed, if one of the agreements listed above is made, it may breach the Commerce Act.
Price fixing agreements
Any agreement between competitors that sets the price of a good or service or interferes with how that price is reached is illegal under the Commerce Act. This is known as price fixing. Price fixing agreements are also commonly referred to as cartels.
Price fixing includes agreements between competitors to charge customers a specific price for a product or service. But it can also include agreements that ultimately affect the price a customer pays for a product or service. Agreements that relate to any part of the price, including discounts, allowances, rebates, or credit in relation to goods or services are all covered.
When scheme providers and participants are establishing and operating product stewardship schemes, competitors must ensure they do not come to any agreement on prices for goods or services on which they compete. An agreement between competitors about how much they will adjust the price at which they sell their products (to take account of the cost of disposal or recycling at a later stage in the product’s life cycle) under a product stewardship scheme is likely to be illegal. Any adjustment that scheme participants wish to make on the price of the product should be reached independently. All parties should be free to set the price of their products as they wish.
Businesses should consider whether each individual product stewardship proposal complies with the Commerce Act. We recommend that you take legal advice as early as possible.
You can read more in our fact sheet Price fixing and cartels.
Product stewardship scheme that is likely to breach the price fixing rules
A scheme is set up by a number of retailers who each sell chemicals. Under the scheme, chemical containers are collected and disposed of in order to reduce the environmental harm caused by the disposal of these products into landfill and by illegal dumping.
If the scheme were to be funded by a 5c per kilogram levy on participating manufacturers and suppliers of the containers, this is not likely to breach the Commerce Act on its own. However, if the parties involved reach agreement on the margin they will add on to the price of the chemical containers in order to cover the cost of the levy, this is likely to be illegal. The parties should be free to cover the costs individually and there should be no interference with how the price of the chemicals is reached.
Parties may wish to consider applying for authorisation. The Commission can only grant an authorisation if it is satisfied that the benefits to the public outweigh the harm to competition.
Another example of an agreement that interferes with how the price is reached is bid rigging or collusive tendering. This occurs when there is an agreement among some or all of the bidders as to which of them should win a bid. If there is a bidding process involved in selecting a collection services provider or recycler, you should ensure that the bidding process is competitive.
You can read more in our fact sheet, How to Recognise Bid Rigging.
Agreements that substantially lessen competition
Participants in product stewardship schemes should also not enter agreements that have the purpose, effect or likely effect of substantially lessening competition in a market. This could occur in any market, not just in the market for the product in question.
For example, an agreement reached as part of a product stewardship scheme could lead to a substantial lessening of competition in a market for:
- collection services
- an end-of-life product (such as an old desktop computer that is being replaced)
- a by-product of another product (such as sawdust, which is a by-product of timber).
To establish whether competition has been substantially lessened, we look at the impact of an agreement on competition. This would include assessing whether other market participants can compete effectively and whether potential competitors could enter the market. As part of the assessment, we also consider what competition would have looked like without the agreement being in place. Parties should consider whether or not their agreement has the potential to lessen competition in a market. If uncertain, we recommend seeking legal advice as soon as possible.
You can read more in our fact sheet Agreements that Substantially Lessen Competition.
Agreements that exclude competitors
Agreements between competitors to exclude rivals are illegal under the Commerce Act. Exclusionary arrangements prevent, restrict or limit competitors from acquiring or supplying goods or services.
Product stewardship schemes should not have any formal or informal agreements that the participating members will not deal with a particular third party if these agreements would substantially lessen competition. Exclusionary agreements do not have to be explicit. They can arise, for example, if membership criteria are restrictive beyond what is necessary to establish a scheme. This includes agreements between parties at different levels of the supply chain.
What agreements are exempt from the Commerce Act?
Certain agreements are exempt from the price fixing rules in the Commerce Act, including joint buying, joint ventures and certain recommended prices. Whether any of these exemptions apply to any particular arrangement depends on the specific circumstances. In addition, even if an exemption does apply, we may still challenge an agreement if we believe it may substantially lessen competition (section 27). Third parties may also challenge such agreements or behaviour.
Individuals or businesses who seek to rely on these exemptions should seek their own legal advice as to whether or not the arrangement they are involved in might substantially lessening competition, or whether the agreement might fall within the scope of an exemption.
Joint buying exemption
The joint buying exemption only applies to the price fixing rules. Joint buying occurs when a group of individuals or businesses come to an arrangement to purchase goods or services together.
This exemption means that if parties to a product stewardship scheme collectively acquire goods or services, such as product disposal services, they are free to jointly set the purchase price for the good or service that they are jointly purchasing. This does not extend to other goods or services that are not being collectively acquired, where prices must still be set independently.
There is also an exemption for joint venture pricing available under the Act. You can read more about this and the other exemptions in our fact sheet, Exemptions under the Commerce Act.
Are you part of a trade or industry association?
If so, there are additional Commerce Act considerations you should be aware of. Please read more in our fact sheet, Trade Associations.
What to be aware of when deciding how to fund your scheme
Product stewardship schemes may incur costs on a number of parties at different levels of the supply chain. The way in which those costs are managed must be carefully considered in light of the Commerce Act.
Generally, a membership fee on its own is unlikely to breach the Commerce Act.
However, parties should consider the likely impact of a membership fee on the relevant market/s to ensure that they are not in breach of the Act.
The way in which a membership fee is covered has the potential to be price fixing. If there is a common cost such as a membership fee that has been incurred by all parties (which may include competitors), the decision on how to cover those costs should be made independently of other scheme participants. For example, parties may agree to increase the price at which scheme members sell an end product by the amount of the membership fee. As a result, if the end price of the product is no longer set independently, this is likely to be price fixing.
A membership fee has the potential to exclude competitors from a relevant market, which can lead to a substantial lessening of competition. A membership fee (or any express or implied condition that is associated with becoming a member) should not include any standard or requirement that will have the likely effect of excluding competitors from a relevant market. For example, if parties agree to include a condition as part of the membership fee that only parties with a certain amount of turnover can join the scheme, and this leads to the exclusion of a rival, this may amount to a substantial lessening of competition.
Levies are often charged at different points of a product’s life cycle, such as the point of import, disposal or sale. They may also relate to a range of activities such as collection, storage and disposal costs.
Levies present an increased potential for breach of the Commerce Act. The way in which a levy is recovered has the potential to be a price fixing agreement. If a levy leads to an interference with how the price of a good or service is reached, this may be price fixing. The decision on how to cover the cost of the levy should be made independently of competitors.
A levy has the potential to exclude competitors from a relevant market, which can lead to a substantial lessening of competition.
When setting a levy, scheme participants may share information that they do not usually share with other parties. If the information is considered confidential or commercially sensitive, appropriate confidentiality protections should be included. These protections should ensure that confidential information is not accessible (or able to be derived) by other scheme members. For example, confidential information could include information on the quantity of product imported over a period of time or predicted sales of a product. Schemes should be set up in a way that ensures that only information that is necessary for the purpose of establishing the amount of any levy payable is collected.
What if it is necessary to agree on price (or otherwise breach the Commerce Act) to make a scheme work?
If participants consider it necessary to cooperate in a manner that could breach the Commerce Act, they should consider applying to the Commission for an authorisation.
Under the Commerce Act, the Commission can authorise an anti-competitive agreement where it is satisfied that the benefits to the public outweigh the harm to competition.
The Commission has a streamlined authorisation process that may be available for certain conduct that has obvious public benefits and a relatively limited impact on competition. Under a streamlined authorisation, the Commission aims to make a decision within 40 working days. Applications that do not qualify for the streamlined authorisation process will be considered under the Commission’s standard authorisation process. We recommend anyone considering applying for an authorisation should seek legal advice. You can read more about applying for an authorisation on our Authorisations page.
If you are involved in an existing product stewardship scheme and you are concerned that it may breach the Commerce Act we recommend ceasing your involvement with that scheme and seeking legal advice.
Practical tips to avoid breaching the Commerce Act
- Make sure you are familiar with the requirements of the Commerce Act.
- Review documentation, policies and procedures to ensure Commerce Act compliance.
- Avoid exchanging pricing information with your competitor businesses and ensure you set your prices independently of your competitors, even if discussing a product stewardship scheme.
- Do not discuss tenders or bids for contracts (bid rigging).
- Do not engage in any activity that has the purpose of excluding a rival.
- Consider applying for authorisation of any schemes where the benefit to the public outweighs the harm caused by the loss of competition.
- Contact the Commerce Commission if you become aware of anti-competitive conduct.
- Seek independent legal advice.