Exemption of Liner Shipping from Competition Law

• Author: Ho Tin Nixon Fong
• Position: LLB (hons)/BCom. Case Manager, Weathertight Homes Tribunal. This paper was originally written in 2009 for an honours seminar on Maritime Law. I would like to thank Associate Professor Paul Myburgh for his helpful comments on the paper
• Pages: 180-194

(2011) 26 A&NZ Mar LJ

EXEMPTION OF LINER SHIPPING FROM COMPETITION LAW

Ho Tin Nixo n Fo ng *

1 Intro duction

We are all schooled by the thinking of Adam Smith: as consumers, we treasure the freedom to choose. 1 The

more choices we have the better. More choices mean more sellers are competing for our attention. Our attention

can be captured in many ways, but usually in three particular ways: low prices, quality services and innovative

products. In the market jungle, sellers must ruthlessly compete against each other in order to survive. They must

compete for our attention. This process of competition, unwittingly but importantly, procures the things that

consumers want and need. Without competition, the foundations of market economy will collapse and

consumers will find themselves beneath that pile of rubble. It is therefore no exaggeration to say that

competition is the ‘Magna Carta’ of the free market.2

Competition law is the guardian of that Magna Carta. It seeks to prevent practices that would limit choices and

undermine the competi tion process. Intuitively, competitive law should apply to all industries in the economy. It

is therefore very odd that s 44(2) of the Commerce Act 1986 (NZ) (‘Commerce Act’) exempts the liner shipping

industry from competition law. 3 The oddity is compounded given the industry is responsible for a significant

value of New Zealand’s international trade.4 Competition in liner shipping has been subject to much debate

since the beginning of the twentieth century. The exemption has traditionally been accepted as indispensable to

the functioning of the industry. Recent studies have, however, displaced that presumption.5

In particular, the

recent radical move by the European Union (‘EU’) to remove the exemption raises serious doubts as to that

claimed indispensability. This paper thus questions the utility of the exemption in New Zealand.

In this paper, I will first consider the validity of the assumptions underlying the exemption. I will then discuss

the possible effects of exposing the industry to competition law, and in particular, the Commerce Act. Following

that I will examine whether a removal of the exemption would be the optimal solution for d eterring

anticompetitive behaviour. And finally, I will suggest some reform options that will deal, in a more nuanced

way, with the vexing co mpetition problem in the shipping indust ry.

2 The Rationale for Exemption

The debate surrounding the validity of the exemption focuses on economic ar guments. As such it is necessary to

examine the competing economic theories favouring and opposing the exemption. Historically, economists have

sided with the liner carriers as the economic findings tended to favour the exemption. As a result, the exemption

has been enjoyed by carriers for many decades. There are four recurring arguments in support of the exemption:

stability, indispensability to trade, potential consumer welfare, and efficiency. I will examine each of the

arguments below.

*LLB (hons)/BCom. Cas e Manager, Weathertight Homes Tribu nal. This paper was originally written in 2009 for an honours seminar on

Maritime Law. I would like to thank Associate Professor Paul Myburgh for his helpful comments on the paper.

1 The benefits of compet ition and free-choice can be found in many introductory texts on economics. For an interesting and lu cid exposition,

I suggest Milton Friedman, and Rose Friedman, Free to choose: a personal statement (1st Ed, 1980). For an enlightening classical text, I

recommend Adam Smith, An inquiry into the nature and causes of t he wealth of nations (5th Ed, 1904).

2 United States v Topco Associates, Inc (1972) 405 US 596, 610.

3 Commerce Act 1986 (NZ), s44(2) provides:

(2) Nothing in this Part of this Act applies—

(a)To the entering into of a contract, or arran gement, or arriving at an understanding in so far as it contains a provision exclus ively 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

(b) To any act done to give effect to a provision of a contract, arran gement, or understanding referred to in paragraph (a) of this

subsection.

4 Ministry of Transport, Report of the Shipping Industry Review ‘A Future for New Zealand Shipping’ (2001) 19. Approximately 85% of

New Zealand’s exports and 75% of its imports by value are carried by sea.

5 See generally: OECD Direc torate for Science, Technology and Industry, Division of Transport, Competition Policy in Liner Shipping -

Final Report DSTI/DOT (2002) 2; Australian Productivity Commission Review of Part X of the Trade Practices Act 1974: International

Liner Cargo Shipping, No.32 (2005) and European Commission, White Paper on the Review of Regulation 4 056/86 - Applying the EC

Competition Rules to Maritime Transport 2003/COMP/18 (COM (2004) 675 final).

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