by Simon Lord

last updated 18/09/2013

Review could raise franchise regulation spectre again

by Simon Lord

last updated 18/09/2013

29 August 2013 - The Productivity Commission has just announced a review of regulatory regimes in New Zealand which could highlight differences with Australia

Franchise regulation (or the lack of it) could come under review again in an inquiry into the design and operation of government regulatory regimes in New Zealand.

The inquiry is being carried out by the New Zealand Productivity Commission – an independent Crown entity which completes in-depth inquiry reports on topics selected by the Government, carries out productivity-related research, and promotes understanding of productivity issues.

The scope of this latest inquiry includes:

  • Mapping existing regulatory regimes and regulators across central government;
  • Developing a typology of how these might be classified or distinguished;
  • Providing guidance to inform the design and establishment of new regulatory regimes and regulators; and
  • Developing system-wide recommendations on how to improve the operation of regulatory regimes over time.

There is currently no regulatory regime which applies to all of franchising in New Zealand, although the Franchise Association of New Zealand does have a Code of Practice by which its members must abide. Membership of the Association is voluntary; only around a third of all franchises operating in New Zealand are members.

A review of the possible need for franchise regulation was commissioned by the then Labour Government in 2008 from the Ministry of Economic Development (now the Ministry of Business Innovation and Employment). The following National Government announced in June 2009 that existing laws were adequate in dealing with any problems that existed in the franchise sector and that no specific code or rules were needed.

However, the topic has continued to be debated, with academic lawyer Gehan Gunasekara regularly calling New Zealand ‘the wild west of franchising’ in media reports and criticising the conduct of the review.

Standardisation with Australia?

The New Zealand Productivity Commission was established in 2011 under a National-led Government as part of an agreement with Act. Its task is to investigate infrastructure productivity, so recommending new regulation would therefore seem unlikely although it is based upon the Australian Productivity Commission (with which it co-operates closely). Previous reports have referred to standardisation of regulatory regiimes between the two countries.

Comparable surveys conducted in New Zealand (with no franchise-specific legislation) and Australia (with very tough legislation) suggest that there is little difference between the two countries when it comes to levels of disputes between franchisors and franchisees.

Making regulation work better

‘Regulation is pervasive for all New Zealanders, businesses, and communities,’ says Commission Chair Murray Sherwin. ‘Regulation is aimed at shaping behaviours or outcomes – to create a better society than would occur without that regulation. But too often, new regulations do not produce the intended results, or the benefits of regulation are captured by a few at the expense of many. Done well, regulation improves our wellbeing, allowing us to better reach our social, environmental and economic goals. However, done poorly, regulation simply creates a drag on our lives and aspirations.’

‘We can all point to examples where regulation has failed or appears to be failing. The big challenge is to design regulation and regulators for the future that are clear in their purpose, are designed to maximise the chances of achieving what was intended, and are adaptable to risks and changing circumstances. Being clear about what regulation can and can’t do, and designing it from the outset to work well, is a core contribution to a productive, fair and successful society.’

‘Through this inquiry, we want to identify where and how to make improvements in the quality and effectiveness of government regulations. This is not an in-depth review of any specific regulation or regulator. Rather, we are looking across a range of regulatory regimes and across multiple sectors. In doing so, a range of interesting questions can be posed, such as:

  • How do we make sure regulation doesn’t do more harm than good?
  • How do we help to prevent regulations failing?
  • How do we regulate better, without adding unnecessary complexity?
  • How important is it that we regulate in a uniquely New Zealand way? How different are we?

‘We’re keen to tap into the wealth of knowledge that exists across New Zealand – be it from regulators or from the regulated. The public submissions we receive will help to inform our analysis and to identify the people we need to talk to over the coming months.’

The issues paper is available at www.productivity.govt.nz. Submissions are invited by 25 October 2013.

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