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Competition and Consumer Amendment (Misuse of Market Power) Bill 2016

 

Introduction of the bill

The Government has introduced the Competition and Consumer Amendment (Misuse of Market Power) Bill 2016 into the House of Representatives. The Bill, if passed, would implement the Harper recommendations on section 46, including the introduction of an effects test.

Referred to the Economics Legislation Committee (referred 1 December 2016; reported: 16 February 2017).

Debate resumed in the House of Representatives on 23 March 2017 with a proposed amendment (GZ201). See proposed provision with amendment

The proposed amendment to the bill also provides that the MMP Bill will commence 'At the same time as Schedule 1 to the Competition and Consumer Amendment (Competition Policy Review) Act 2017 commences. Consequently although introduced and debated separately it appears the MMP changes will not come into operation unless and until the 2017 Bill is passed (it has not yet been introduced). This would overcome the problem of the proposed authorisation provisions for misuse of market power not being included in this separate bill.

 

Referred to Committee

The bill was referred to the Economics Legislation Committee on 1 December 2016.

The Committee reported on 16 February with the majority recommending passage of the bill subject to some modification. The three recommendations made were:

  • Recommendation 1: The committee recommends that the proposed mandatory factors, asdrafted in subsection 46(2) of the bill, be removed.
  • Recommendation 2: The committee recommends that the government undertake a post-implementation review of the reforms to section 46 at least five years after commencement.
  • Recommendation 3: The committee recommends that the bill be passed.

See separate report page.

 

Current provision

(1) A corporation that has a substantial degree of power in a market shall not take advantage of that power in that or any other market for the purpose of:

(a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;

(b) preventing the entry of a person into that or any other market; or

(c) deterring or preventing a person from engaging in competitive conduct in that or any other market.

(1AAA) If a corporation supplies goods or services for a sustained period at a price that is less than the relevant cost to the corporation of supplying the goods or services, the corporation may contravene subsection (1) even if the corporation cannot, and might not ever be able to, recoup losses incurred by supplying the goods or services.

(1AA) A corporation that has a substantial share of a market must not supply, or offer to supply, goods or services for a sustained period at a price that is less than the relevant cost to the corporation of supplying such goods or services, for the purpose of:

(a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market; or

(b) preventing the entry of a person into that or any other market; or

(c) deterring or preventing a person from engaging in competitive conduct in that or any other market.

(1AB) For the purposes of subsection (1AA), without limiting the matters to which the Court may have regard for the purpose of determining whether a corporation has a substantial share of a market, the Court may have regard to the number and size of the competitors of the corporation in the market.

(1A) For the purposes of subsections (1) and (1AA):

(a) the reference in paragraphs (1)(a) and (1AA)(a) to a competitor includes a reference to competitors generally, or to a particular class or classes of competitors; and

(b) the reference in paragraphs (1)(b) and (c) and (1AA)(b) and (c) to a person includes a reference to persons generally, or to a particular class or classes of persons.

(2) If:

(a) a body corporate that is related to a corporation has, or 2 or more bodies corporate each of which is related to the one corporation together have, a substantial degree of power in a market; or

(b) a corporation and a body corporate that is, or a corporation and 2 or more bodies corporate each of which is, related to that corporation, together have a substantial degree of power in a market;

the corporation shall be taken for the purposes of this section to have a substantial degree of power in that market.

(3) In determining for the purposes of this section the degree of power that a body corporate or bodies corporate has or have in a market, the court shall have regard to the extent to which the conduct of the body corporate or of any of those bodies corporate in that market is constrained by the conduct of:

(a) competitors, or potential competitors, of the body corporate or of any of those bodies corporate in that market; or

(b) persons to whom or from whom the body corporate or any of those bodies corporate supplies or acquires goods or services in that market.

(3A) In determining for the purposes of this section the degree of power that a body corporate or bodies corporate has or have in a market, the court may have regard to the power the body corporate or bodies corporate has or have in that market that results from:

(a) any contracts, arrangements or understandings, or proposed contracts, arrangements or understandings, that the body corporate or bodies corporate has or have, or may have, with another party or other parties; and

(b) any covenants, or proposed covenants, that the body corporate or bodies corporate is or are, or would be, bound by or entitled to the benefit of.

(3B) Subsections (3) and (3A) do not, by implication, limit the matters to which regard may be had in determining, for the purposes of this section, the degree of power that a body corporate or bodies corporate has or have in a market.

(3C) For the purposes of this section, without limiting the matters to which the court may have regard for the purpose of determining whether a body corporate has a substantial degree of power in a market, a body corporate may have a substantial degree of power in a market even though:

(a) the body corporate does not substantially control the market; or

(b) the body corporate does not have absolute freedom from constraint by the conduct of:

(i) competitors, or potential competitors, of the body corporate in that market; or

(ii) persons to whom or from whom the body corporate supplies or acquires goods or services in that market.

(3D) To avoid doubt, for the purposes of this section, more than 1 corporation may have a substantial degree of power in a market.

(4) In this section:

(a) a reference to power is a reference to market power;

(b) a reference to a market is a reference to a market for goods or services; and

(c) a reference to power in relation to, or to conduct in, a market is a reference to power, or to conduct, in that market either as a supplier or as an acquirer of goods or services in that market.

(4A) Without limiting the matters to which the court may have regard for the purpose of determining whether a corporation has contravened subsection (1), the court may have regard to:

(a) any conduct of the corporation that consisted of supplying goods or services for a sustained period at a price that was less than the relevant cost to the corporation of supplying such goods or services; and

(b) the reasons for that conduct.

(5) Without extending by implication the meaning of subsection (1), a corporation shall not be taken to contravene that subsection by reason only that it acquires plant or equipment.

(6) This section does not prevent a corporation from engaging in conduct that does not constitute a contravention of any of the following sections, namely, sections 45, 45B, 47, 49 and 50, by reason that an authorization or clearance is in force or by reason of the operation of subsection 45(8A) or section 93.

(6A) In determining for the purposes of this section whether, by engaging in conduct, a corporation has taken advantage of its substantial degree of power in a market, the court may have regard to any or all of the following:

(a) whether the conduct was materially facilitated by the corporation’s substantial degree of power in the market;

(b) whether the corporation engaged in the conduct in reliance on its substantial degree of power in the market;

(c) whether it is likely that the corporation would have engaged in the conduct if it did not have a substantial degree of power in the market;

(d) whether the conduct is otherwise related to the corporation’s substantial degree of power in the market.

This subsection does not limit the matters to which the court may have regard.

(7) Without in any way limiting the manner in which the purpose of a person may be established for the purposes of any other provision of this Act, a corporation may be taken to have taken advantage of its power for a purpose referred to in subsection (1) notwithstanding that, after all the evidence has been considered, the existence of that purpose is ascertainable only by inference from the conduct of the corporation or of any other person or from other relevant circumstances.

 

Provision proposed by bill (original)

(1) A corporation that has a substantial degree of power in a market must not engage in conduct that has the purpose, or has or is likely to have the effect, of substantially lessening competition in:

(a) that market; or

(b) any other market in which that corporation, or a body corporate that is related to that corporation:

(i) supplies goods or services, or is likely to supply goods or services; or

(ii) supplies goods or services, or is likely to supply goods or services, indirectly through one or more other persons; or

(c) any other market in which that corporation, or a body corporate that is related to that corporation:

(i) acquires goods or services, or is likely to acquire goods or services; or

(ii) acquires goods or services, or is likely to acquire goods or services, indirectly through one or more other persons.

(2) Without limiting the matters to which regard may be had in determining for the purposes of subsection (1) whether conduct has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market, regard must be had to the extent to which:

(a) the conduct has the purpose of, or has or would be likely to have the effect of, increasing competition in that market, including by enhancing efficiency, innovation, product quality or price competiveness in that market; and

(b) the conduct has the purpose of, or has or would be likely to have the effect of, lessening competition in that market, including by preventing, restricting, or deterring the potential for competitive conduct or new entry into that market.

(3)  A corporation is taken for the purposes of this section to have a substantial degree of power in a market if:

(a)  a body corporate that is related to that corporation has, or 2 or more bodies corporate each of which is related to that corporation together have, a substantial degree of power in that market; or

(b)  that corporation and a body corporate that is, or that corporation and 2 or more bodies corporate each of which is, related to that corporation, together have a substantial degree of power in that market.

(4)  In determining for the purposes of this section the degree of power that a body corporate or bodies corporate have in a market:

(a)  regard must be had to the extent to which the conduct of the body corporate or of any of those bodies corporate in that market is constrained by the conduct of:

(i)  competitors, or potential competitors, of the body corporate or of any of those bodies corporate in that market; or

(ii)  persons to whom or from whom the body corporate or any of those bodies corporate supplies or acquires goods or services in that market; and

(b)  regard may be had to the power the body corporate or bodies corporate have in that market that results from:

(i)  any contracts, arrangements or understandings that the body corporate or bodies corporate have with another party or other parties; or

(ii)  any proposed contracts, arrangements or understandings that the body corporate or bodies corporate may have with another party or other parties.

(5)  For the purposes of this section, a body corporate may have a substantial degree of power in a market even though:

(a)  the body corporate does not substantially control that market; or

(b) the body corporate does not have absolute freedom from constraint by the conduct of:

(i)  competitors, or potential competitors, of the body corporate in that market; or

(ii)  persons to whom or from whom the body corporate supplies or acquires goods or services in that market.

(6)  Subsections (4) and (5) do not limit the matters to which regard may be had in determining, for the purposes of this section, the degree of power that a body corporate or bodies corporate has or have in a market.

(7)  To avoid doubt, for the purposes of this section, more than one corporation may have a substantial degree of power in a market.

(8)  In this section:

(a)  a reference to power is a reference to market power; and

(b)  a reference to a market is a reference to a market for goods or services; and

(c)  a reference to power in relation to, or to conduct in, a market is a reference to power, or to conduct, inthat market either as a supplier or as an acquirer of goods or services in that market.

 

Provision proposed by bill (with amendments 23 March 2017)

(1) A corporation that has a substantial degree of power in a market must not engage in conduct that has the purpose, or has or is likely to have the effect, of substantially lessening competition in:

(a) that market; or

(b) any other market in which that corporation, or a body corporate that is related to that corporation:

(i) supplies goods or services, or is likely to supply goods or services; or

(ii) supplies goods or services, or is likely to supply goods or services, indirectly through one or more other persons; or

(c) any other market in which that corporation, or a body corporate that is related to that corporation:

(i) acquires goods or services, or is likely to acquire goods or services; or

(ii) acquires goods or services, or is likely to acquire goods or services, indirectly through one or more other persons.

(3)  A corporation is taken for the purposes of this section to have a substantial degree of power in a market if:

(a)  a body corporate that is related to that corporation has, or 2 or more bodies corporate each of which is related to that corporation together have, a substantial degree of power in that market; or

(b)  that corporation and a body corporate that is, or that corporation and 2 or more bodies corporate each of which is, related to that corporation, together have a substantial degree of power in that market.

(4)  In determining for the purposes of this section the degree of power that a body corporate or bodies corporate have in a market:

(a)  regard must be had to the extent to which the conduct of the body corporate or of any of those bodies corporate in that market is constrained by the conduct of:

(i)  competitors, or potential competitors, of the body corporate or of any of those bodies corporate in that market; or

(ii)  persons to whom or from whom the body corporate or any of those bodies corporate supplies or acquires goods or services in that market; and

(b)  regard may be had to the power the body corporate or bodies corporate have in that market that results from:

(i)  any contracts, arrangements or understandings that the body corporate or bodies corporate have with another party or other parties; or

(ii)  any proposed contracts, arrangements or understandings that the body corporate or bodies corporate may have with another party or other parties.

(5)  For the purposes of this section, a body corporate may have a substantial degree of power in a market even though:

(a)  the body corporate does not substantially control that market; or

(b) the body corporate does not have absolute freedom from constraint by the conduct of:

(i)  competitors, or potential competitors, of the body corporate in that market; or

(ii)  persons to whom or from whom the body corporate supplies or acquires goods or services in that market.

(6)  Subsections (4) and (5) do not limit the matters to which regard may be had in determining, for the purposes of this section, the degree of power that a body corporate or bodies corporate has or have in a market.

(7)  To avoid doubt, for the purposes of this section, more than one corporation may have a substantial degree of power in a market.

(8)  In this section:

(a)  a reference to power is a reference to market power; and

(b)  a reference to a market is a reference to a market for goods or services; and

(c)  a reference to power in relation to, or to conduct in, a market is a reference to power, or to conduct, inthat market either as a supplier or as an acquirer of goods or services in that market.

Changes from Exposure Draft Legislation

Although the substance of the bill is largely consistent with Harper and the Exposure Draft legislation, sub-section (1) is now more convoluted and more restricted in its application.  

Exposure draft version of sub-section (1):

(1) A corporation that has a substantial degree of power in a market must not engage in conduct that has the purpose, or has or is likely to have the effect, of substantially lessening competition in that or any other market.

Original Bill version of sub-section (1):

(1) A corporation that has a substantial degree of power in a market must not engage in conduct that has the purpose, or has or is likely to have the effect, of substantially lessening competition in:

(a) that market; or

(b) any other market in which that corporation, or a body corporate that is related to that corporation:

(i) supplies goods or services, or is likely to supply goods or services; or

(ii) supplies goods or services, or is likely to supply goods or services, indirectly through one or more other persons; or

(c) any other market in which that corporation, or a body corporate that is related to that corporation:

(i) acquires goods or services, or is likely to acquire goods or services; or

(ii) acquires goods or services, or is likely to acquire goods or services, indirectly through one or more other persons.

The explanation for this in the EM is set out from para 1.40:

The Harper Review recommended reframing section 46 to prohibit a firm with a substantial degree of power in a market from engaging in conduct with the purpose, effect or likely effect of substantially lessening competition in any market. However, extensive consultation with stakeholders revealed a concern that the reference to ‘any market’ made section 46 excessively broad in scope.

To address this issue, the scope of section 46 is limited to those markets in which the corporation’s conduct is most likely to have a purpose, effect or likely effect of competition concern. In practice, it is unlikely that a corporation’s conduct will have a purpose, effect or likely effect of substantially lessening competition in an unrelated market without also having that purpose, effect or likely effect in one of the markets described in subsection 46(1). The provisions within subsection 46(1) limit the scope of section 46 to situations where there is an actual or likely supply or acquisition of goods or services, by the corporation or another prescribed entity.

...

Bill with amendment proposed on 23 March 27 would also remove mandatory factors to be considered when assessing SLC.

 

Explanatory memorandum

An explanatory memorandum acommpanied the bill and can be found Competition and Consumer Amendment (Misuse of Market Power) Bill 2016 page.

 

Second reading speeches

Kelly O'Dwyer MP (Higgins - Minister for Revenue and Financial Services) (1 Dec 2016)

Kelly O'Dwyer introduced the bill on 1 December - her second reading speech is reproduced below: view source.

That this bill be now read a second time.

In 2014, the government fulfilled our election commitment and commissioned an independent review into Australia's competition framework: the Harper review. The Harper review was the first 'root and branch' review of Australia's competition laws for 20 years. Professor Ian Harper and the review panel consulted extensively with businesses, consumers, regulators and legal experts and found that the operation of section 46 was a concern for many.

I would like to take this opportunity to thank Professor Harper and his team for their efforts and due diligence in producing the Harper review.

Schedule 1 to this bill amends section 46 of the Competition and Consumer Act 2010, the misuse of market power provision, to better target anticompetitive conduct, better support procompetitive conduct, and simplify the provision.

The current section 46 prohibits corporations with substantial market power from taking advantage of its power for one of three specific purposes related to damaging an actual or potential competitor or preventing them from competing.

In its final report, the Harper review concluded that the current section 46 fails to adequately prevent the misuse of market power and is not reliably enforceable, for two key reasons.

Firstly, the current section 46 requires that a corporation 'take advantage' of its substantial market power. This is a poor test for distinguishing competitive from anticompetitive conduct. It permits a corporation with substantial market power to engage in highly anticompetitive conduct, merely because a corporation without substantial market power could commercially engage in the same conduct. The test does not recognise that conduct that is not anticompetitive when undertaken by a corporation that does not have market power can be anticompetitive when undertaken by a firm that does. This leaves a significant loophole in section 46.

Secondly, the current section 46 only prohibits conduct if the corporation acted with the purpose of damaging an actual or potential competitor. The Harper review found this focus to be inconsistent with the overriding policy objective of the act, which is to protect competition and not individual competitors. The reforms in this bill recognise that it is the competitive process that drives corporations to supply better goods and services and offer lower prices to consumers, and it is the competitive process that our competition laws need to protect.

The failure of section 46 to adequately prevent the misuse of market power allows anticompetitive conduct to slow the entry and expansion of new and innovative firms, delays the entry of new technologies into Australia and impedes economic growth in the long term.

The Harper review recommended amending section 46 to address these problems and strengthen the misuse of market power provision, by refocusing on conduct with the purpose, effect or likely effect of substantially lessening competition. The government acknowledged the importance of this issue for businesses and consumers, and conducted a lengthy consultation process on a range of alternatives before concluding that the recommendation of the Harper review represented the best option to reform the law.

As amended, section 46 will prohibit corporations with substantial market power from engaging in conduct that has the purpose, effect or likely effect of substantially lessening competition in markets in which they directly or indirectly participate.

The amendment is specifically designed to minimise any uncertainty involved with changing the law, by using existing competition law concepts such as 'substantially lessening competition' and by providing anticompetitive and procompetitive factors to guide consideration of the purpose, effect or likely effect of conduct.

As a result of this reform, section 46 will better target anticompetitive conduct and better support procompetitive conduct. Section 46 will be more reliably enforceable and promote strong competition in Australian markets, benefiting both consumers and the economy.

This reform is an important step to ensure Australia has the best possible competition framework to support innovation, enhance competition and boost economic growth and jobs. It is a key part of the government's response to the Harper review, which is all about increasing choice and delivering better services for consumers.

An effective misuse of market power provision is an important and necessary part of competition law, particularly for Australia's more than two million small businesses which make up more than 97 per cent of all businesses.

While there are some in this chamber who would prefer to keep the current drafting of section 46 and not see Australian businesses able to compete on a level playing field, this government recognises that reforming competition law is one of the best options we have to lift long-term productivity growth and generate economic benefits that can be shared by everyone.

The reforms in this bill will more effectively focus section 46 on the long-term interests of consumers, improving the law's clarity, effectiveness and force. They will provide another tool for regulators to ensure Australian businesses can flourish; new and innovative firms can enter new markets and expand; new technologies can be introduced into Australia; and consumers can receive the best quality products at the lowest price.

Most importantly, this reform will ensure the focus of the law is on protecting the competitive process to the benefit of consumers; it is not about protecting individual competitors or a particular group of businesses.

These amendments will make markets work better for the benefit of all Australians and help to lift our long-term productivity growth. They will ensure that all business can compete on a level playing field, rewarding innovative and dynamic businesses that provide the best services at the lowest cost. This will benefit households by giving them more choice and better value products and services.

Schedule 2 to this bill makes consequential amendments to repeal the telecommunications-specific anti-competitive conduct laws in divisions 2 and 3 of the act. With the amendment of section 46 and the development of competition in telecommunications in the past 20 years, these rules under part XIB are no longer necessary or appropriate.

Following the proposed amendments, any misuse of market power in the telecommunications sector will be managed by the same general competition laws applying to other sectors of the economy, and which will be strengthened by the enhancements being made to section 46.

The Australian Competition and Consumer Commission supports these amendments and retains other extensive powers to deal with other competition concerns in telecommunications.

Full details of the measure are contained in the explanatory memorandum.

I commend the bill to the House.

Debate adjourned.

Andrew Leigh MP (Fenner) (ALP) (23 March 2017)

Dr LEIGH (Fenner) (13:07): There are species of animals known as tardigrades—or water bears or moss piglets—which are considered to be some of the most resilient species in the universe. They can go without food or water for 30 years. They can survive at temperatures of 150 degrees Celsius and minus 200 degrees Celsius. They can withstand pressure of 6,000 atmospheres, six times the pressure at the bottom of the Mariana Trench. They can be dehydrated for 10 years, withstand 1,000 times more radiation than other animals, cope with environmental toxins and survive in outer space. They are indestructible—and so too are bad National Party economic ideas. They just do not die.

That is what we are debating today. We are debating the tardigrade of economic policy: the effects test—a policy which has been recognised by serious economists and by formerly serious economic thinkers on the other side of the House to be a bad economic idea but which, like the tardigrade, has survived the pressure, the temperature and the attacks upon it to come before us today in this bad bill, the Competition and Consumer Amendment (Misuse of Market Power) Bill 2016. Let's be clear: an effects test has been to a coalition cabinet before and been rolled. In the Financial Review, Phillip Coorey wrote, on 2 September 2015:

For reasons the government has not explained, the debate was shelved indefinitely. Had it gone ahead, Mr Billson risked being rolled with the cabinet heavy hitters, many of them lawyers, opposed to his proposals.

These included Attorney-General George Brandis, who has extensive legal experience in the area—

These are Mr Coorey's words, not mine—

Julie Bishop, Joe Hockey, Malcolm Turnbull, Mathias Cormann and Andrew Robb.

It was made clear in other reportage, by Lenore Taylor, that the member for Higgins and the member for Wentworth were not comfortable with an effects test. It is very clear that, when making a decision on the merits of the policy, the member for Wentworth, Malcolm Turnbull, opposed an effects test. Bob Baxt said that it was his understanding, as he put it:

There is a clear body within the cabinet including Kelly O'Dwyer and Malcom Turnbull that will not be comfortable with this proposed change.

In opposing an effects test, they would be in good company, because many who have looked carefully at this have taken the view that an effects test is a bad idea. Richard Goyder of Wesfarmers said:

Every year we look at … 20 new Bunnings warehouses, 30 new Coles stores, 20 new Kmart stores … does that mean now every time we have a capital expenditure proposal come to us that we've got to look at the likely effect on competition?

Former ACCC chair Graeme Samuel said:

Under the Harper amendment, businesses would curb their competitive behaviour because of the legal risk. This would have drowned the commercial activity of big business in a sea of uncertainty. Lawyers and economists would need to sit at the right hand of business CEOs to guide them on the legality of every significant transaction.

One only has to go through the series of competition reviews conducted since 1976 to see recommendations against an effects test. The 1976 Swanson committee recommended against an effects test on the basis that 'the section should only prohibit abuses by a monopolist that involve a proscribed purpose'. The Blunt review in 1979 recommended against on the basis that it would 'give the section too wide an application, bringing within its ambit much legitimate business conduct'. The 1984 green paper did recommend an effects test, one of only two of the last 12 competition reviews to do so. The 1989 Griffiths committee said that there was 'insufficient evidence to justify the introduction of an effects test'. The 1991 Cooney committee said that an effects test 'might unduly broaden the scope of conduct captured by section 46 and challenge the competitive process itself'. In 1993, the Hilmer committee recommended against an effects test, saying it 'would not adequately distinguish between socially detrimental and socially beneficial conduct'. The 1999 Baird committee said 'such a far-reaching change to the law may create much uncertainty in issues dealing with misuse of market power'. The 2001 Hawker committee recommended against an effects test and said it would 'await the outcome of further cases on section 46 before considering any change to the law'. The 2003 Dawson review said 'the addition of an effects test would increase the risk of regulatory error and render purpose ineffective as a means of distinguishing between procompetitive and anti-competitive' conduct. The 2004 competition inquiry by the Senate Economics References Committee said that, while the committee was sympathetic to some of the arguments, the difficulties with introducing it meant that the committee did not recommend the inclusion of an effects test. So, of 12 competition reviews, 10 recommended against an effects test.

Writing in the Financial Review on 9 September 2015, Graeme Samuel and Stephen King wrote:

The proposed amendment was a fundamental contradiction to the economic philosophy underpinning our competition laws.

They went on to say:

Let us hope that this unfortunate blight on an otherwise excellent Harper report is dead, buried and cremated.

And dead, buried and cremated it would have been had it not been for the change in prime ministership. Under former Prime Minister Abbott, an effects test had been sent to the dustbin of history, where it belonged. But, because of a dodgy deal between the National Party and the member for Wentworth in order to gain the prime ministership, an effects test came roaring back. The member for Wentworth, Malcolm Turnbull, knows it is bad economics and argued as much when the question came to cabinet. Yet, for the sake of getting some National Party votes, the effects test, this tardigrade of economic policy, has found its way back.

As the shadow Treasurer has noted, one only needs to consider the real-world impact of an effects test for business. He gave the example of a business considering a discounting campaign. If a business notices its sales are down and wants to win back some customers by engaging in vigorous discounting, right now that kind competition is safe, because the law looks to the purpose of the discounting. Under the proposed effects test, the business decision makers would have to consider the effect their discounting would have on competition, considering the different geographic and product markets, and the impact of that might well be to chill competition. Major retailers often put in place uniform pricing on dry goods across their stores. That means if you are buying toothpaste it costs the same at a Woolworths store whether it is in Toorak or Toowoomba, but if you put in place an effects test then the effect of that might well be to hamper competition. Those retailers have warned that an effects test could do away with uniform pricing, which would mean that the price of an effects test would be paid by customers in regional Australia, who currently benefit from uniform pricing.

The possibility an effects test might drive up prices, though, does not seem to trouble the Deputy Prime Minister. The Deputy Prime Minister was asked in an interview last year, 'What about $1 milk?' and replied:

I obviously believe that the proper price of milk is above a dollar.

He went on to say that we sell milk to China for up to $11, so the Deputy Prime Minister clearly believes the proper price for milk is not $1 a litre; it could be as much as $11 a litre. $11-a-litre milk would certainly be a drag on the cost of living for many Australians and a burden on many Australian households, yet we have a Deputy Prime Minister championing an effects test, untroubled by the notion that an effects test might lead to the price of milk going to $11.

This is a government which is adrift from good economic policy. As former Treasurer Costello has said:

If you take the view that competition is there for the consumer, which is what I believe is the fact, everything else will fit into place. That's why I'm against the so-called effects test. The so-called effects test is designed to protect competitors, particularly less efficient ones, from a competitive challenge.

Indeed, the member for Hughes, Craig Kelly, has, in this place, described an effects test as 'a Trojan Horse'. I am delighted to see him on the speaking list for this debate and I look forward to seeing whether he still regards this as being a Trojan Horse and as being bad policy, which is what he told this House when he last spoke about it. We also had the announcement in the papers today that the government is going to make further tweaks to section 46. These are hasty, last-minute amendments being thrust upon this House. Just as we have seen this week on the diverted profits tax, with further amendments being foreshadowed, we have further amendments being foreshadowed on section 46.

We are, today, 723 days on from when the Harper review was ordered to be released by then Prime Minister Abbott. It has been 372 days since the Turnbull government responded to the misuse of market power recommendations and yet today, with the bill in the House, the government is foreshadowing amendments to its own bill. It is a further demonstration, if any were needed, that the tardigrades are in control; that the bad economics of the National Party just will not die; and that the government has given up careful, considered reform and the consultation that involves in favour of simply doing whatever they feel like doing when they wake up and have their breakfast.

On the Labor side of the House we have been absolutely clear and consistent in our commitment to good competition policy. At the last election, we proposed increasing civil penalties under the Australian Consumer Law from $1.1 million to $10 million, bringing penalties in line with the competition provisions of the Competition and Consumer Act 2010 and ensuring that, when you have consumer rip-offs like the Nurofen and Dulux examples, the penalties are sufficient to meet the effects. We proposed adopting the European Union's penalty system for anticompetitive conduct, based on 30 per cent of the annual sales of the relevant product or service multiplied by the number of years the infringement took place, limited to the greater of 10 per cent of annual turnover or $10 million. We proposed using some of the revenues from increased penalties to increase the Australian Competition and Consumer Commission's litigation budget, giving it greater teeth by increasing its budget from $24.5 million to a maximum of twice that level—$49 million.

At the last election, we proposed amending the Competition and Consumer Act to give a market studies function to the ACCC so that it could look systematically at industries, with a power to compel witnesses and really go to the bottom of what is going on with anticompetitive conduct. Every now and then, the ACCC is able to look into an industry—as it is has recently done with the beef auction industry—but it does not have those compulsory powers that its British counterpart does and that Labor's proposal, the market studies power, would give it. We proposed amending section 76 of the Competition and Consumer Act to allow the court to apply higher penalties for conduct that targets or disproportionally impacts disadvantaged Australians. We proposed to introduce a requirement in the Competition and Consumer Act that the ACCC prioritise the investigation of conduct that targets or disproportionally impacts disadvantaged Australians and, at last election, we proposed tasking government to investigate the impact of increased market concentration on income inequality.

We also took to the Australian people a proposal for access to justice for small business. This would see small businesses have an opportunity to bring on cases that are in the public interest without the fear of adverse cost orders. We proposed that the Small Business and Family Enterprise Ombudsman be given the power to advise small businesses who want to bring cases with a general application and not have costs awarded against them. Labor is serious about competition, but the government is not. The government has caved to the tardigrades in the National Party and to this bad economic idea of an effects test.

Fragment source: http://parlinfo.aph.gov.au/parlInfo/genpdf/chamber/hansardr/68cddca6-f6c7-4826-b97b-a5e0e7c845e0/0037/hansard_frag.pdf;fileType=application%2Fpdf (from page 34 Hansard)

Ted O'Brien MP (Fairfax) (Liberal National Party) (23 March 2017)

Mr TED O'BRIEN (Fairfax) (13:22): I found it hilarious that the member for Fenner compared the idea of an effects test to a species that simply will not go away, a species that will outlast any condition and live in any habitat. Well, all I can say in response is that a good idea never dies. But I am not surprised that the member for Fenner and the Labor Party are so adamantly opposed to this legislation, because, at the end of the day, this bill seeks to contain, to curb, misuse of market power. Put in a different way, it seeks to contain any misuse of monopolistic power. Since the union movement effectively controls the Labor Party—the union movement made up of a series of monopolies—it is understandable that, out of principle, the Labor Party will oppose anything that looks, smells and sounds like a restriction of monopolistic misuse of power. But the Competition and Consumer Amendment (Misuse of Market Power) Bill 2016 is a good bill, which is why I rise in support of it today.

The bill seeks to deal with one of the fundamental challenges in free market economies everywhere, which is to ensure that competition flourishes. Competition inherently creates winners and losers, and, at a Darwinian level, that is what the free market is all about. Dare I say, it is what makes the problem of dealing with monopoly situations so difficult. As the High Court has said in a passage that is often quoted in this context, because it is just so compelling and clear:

Competition by its very nature is deliberate and ruthless. Competitors jockey for sales, the more effective competitors injuring the less effective by taking sales away.

Their Honours said:

Competitors almost always try to 'injure' each other in this way …

and such injuries are inevitable consequences of the competitive environment our laws seek to foster.

Herein lies the challenge that this bill seeks to address. The competitiveness of the marketplace—the opportunity to fight, to win, to lose—must be protected. This requires acknowledgement of the fact that, if one misuses the power they accrue as a result of winning in the marketplace, then in doing so they compromise the process of competition itself, thus weakening the competitiveness of the very market in which they operate. This concept of balancing the right of companies to compete with them having a commensurate responsibility not to misuse the power they accrue in the process, to my mind, is an attempt to address what Lord Acton pointed out nearly 130 years ago—that power tends to corrupt, and absolute power corrupts absolutely. Monopolistic power is the antithesis of competition, for it tempts the misuse of power—and that, I hope all members would agree, is something our laws must militate against.

We are of course not the first Australian parliament to grapple with this question. Our first effort to deal with it was in 1915, but it was not until the Menzies era, post World War II, as the pace of the global economy picked up, that major efforts began to reduce the adverse consequences of excessive market concentration. In 1960 the Governor-General, William Morrison, said:

The development of tendencies to monopoly and restrictive practices in commerce and industry has engaged the attention of the Government which will give consideration to legislation to protect and strengthen free enterprise against such a development.

What flowed from that commitment of the Menzies government was a historic piece of legislation, the Trade Practices Act 1965, which sought to establish principles of fairness in business across a very broad canvas, but especially in relation to this issue of appropriate use of market power and constraints on the misuse of market power by the then emerging big operators.

Since 1974 until here and now, section 46 of the act, which has now become the Competition and Consumer Act, has sought to define 'misconduct' in relation to the use of market power through two legal tests. The first involves the question of whether the entity was taking advantage of its market power, and the second involves an entity's intent. That is the question of purpose—whether the purpose of an activity seeks the elimination or the cause of substantial damage to a competitor, or the prevention of another entity entering the market, or the deterrence of a person from engaging in anticompetitive conduct. The legal arguments, and indeed the arguments in this place around the explicit, practical meaning of both the 'take advantage' and the 'purpose' tests of section 46 have been long, complex and, frankly, confusing. But the bottom line in the view of the government, and in the view of a recent root-and-branch review of this issue, is that these tests have ultimately proved to be inadequate. The 'take advantage' test has faltered in the courts, with an effective defence being that a particular form of behaviour that is alleged to be inappropriate for a firm with market power is permissible for a firm without market power. Thus it prompts the reasonable question: how then can it be considered to be taking advantage? If the behaviour is okay and legal for a firm without market power, how can it not be the same for a firm with market power? But it is the 'purpose' test that has really been assessed—

[Debate interrupted - resumed at later hour]

Mr TED O'BRIEN (Fairfax) (16:12): It is the purpose test that has really been assessed as the key failure of the current regime, due to it being too difficult to prove and too specific in its application. How do you prove one's purpose in doing something? How do you prove what one's intent is? It almost reminds me of the song the nuns in the convent sing in the Sound of Music: 'How do you catch a cloud and pin it down?'. It is just all too hard. How do you prove one's real intent? The application of the purpose test has also proven to be too specific, with cases typically seeking to challenge the purpose of an activity undertaken by one firm against other single entities, whereas the idea behind the act was to protect the process of competition itself.

Essentially, this bill seeks to address these flaws in the existing act by swapping the test of 'intent' or 'purpose' with a test of 'effect'. What is more, it is to relate not so much to an activity by one powerful firm towards another single entity, but rather to the question of whether such activity adversely impacts the competitive process. In other words, what counts is whether the little guy actually gets done over by the big guy, regardless of whether the big guy says he meant it or not. If, when this happens, competition is lessened, or is likely to be lessened, then that is enough for it to be against the law.

Clearly, this bill is to be contested. There is no point in denying that. A number of large corporates and their representative bodies are opposed to what it proposes. Small and medium sized entities, which are the bedrock of our economy, and who are most vulnerable to any misuse of market power, are very much in favour of the bill. Some opposition from the bigger end of town is no doubt based on the fact that the current regime has been in place for a long time; they are familiar with it and they would prefer the certainty it offers, along with simple continuity. I get that. Some have said that it could have a material impact on the speed and nature of business decision making and cause delays or changes in investment decisions. Obviously we want our big corporates to continue to invest, but we want those investments to be in line with community expectations that they will be fair and reasonable, not unfair—especially in regard to small and medium businesses.

The Harper review of competition policy, which in 2014 recommended the changes to section 46 that this bill engages, recognised the arguments that were being put by both sides and concluded that, on balance, these changes should be made. The government undertook its own augmentative investigation and discussion around the proposed changes and agreed, early last year, that the Harper review was right and that the changes should be made. The Senate Economics Legislation Committee came to the same conclusion.

As we know, the Labor Party opposes the bill, but its position is, as ever, full of contradiction and of opposition for the mere sake of being in opposition. The opposition Treasury spokesman, who is almost as big a critic of big business as his leader and deputy leader, is suddenly animatedly pro the big end of town when it comes to section 46. The shadow Treasurer does not see any need for change, arguing that the amendments will 'dull' investment, while at the same time, almost with the same breath, he argues against corporate tax cuts, which would positively impact investment and, subsequently and just as importantly, jobs. In other words, on this issue Labor is simply playing a tactical game of opposition politics—it supports the big end of town and then it attacks the big end of town, never with consistency in debate but simply with a view to acting as an opposition. But Australians are better than that. I am sure the vast majority of Australians want those that possess substantial market power to be held to account.

Some people who oppose this bill argue that it represents a breach of faith with the free market economy in that it meddles with Adam Smith's infamous invisible hand and thus undermines the notion of free trade. With all due respect to some otherwise learned warriors who run that line of argument, they have misread their economic theory and, what is more, they have certainly misunderstood the working of the real market economy. I say this as an unashamed, unabashed disciple of the free market and of free trade. Trade that is not fair is trade that is not free.

Small businesses know this best. In my home state of Queensland, there are 414,000 small businesses—that is 97 per cent of all businesses—each employing less than 20 employees. It is even higher in regional Queensland, including in my neck of the woods, on the Sunshine Coast, where around 32,000 small businesses constitute 98 per cent of the total. Should these companies be ring fenced and protected from competition? No, absolutely not—and nor do they want to be, because people who back themselves in private enterprise are not typically shrinking violets who are scared of competition. They are people who are prepared to invest their own bucks in an opportunity and to fight in the marketplace. They are every bit as talented and every bit as competitive as those who operate in large enterprise, but they have a right to compete on a level playing field, and that is what this bill seeks to support. A level playing field is absolutely consistent with the principles of free trade, because free trade is fair trade. It is on that basis that I support the bill and commend it to the House.

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(from p 67 Hansard)

Tim Watts MP (ALP) (23 March 2017)

Mr WATTS (Gellibrand) (16:19): I am pleased to be able to speak on the Competition and Consumer Amendment (Misuse of Market Power) Bill 2016 before the House today—despite being disappointed at its contents because, in a previous life, I once practiced as a competition lawyer. They are a funny mob, competition lawyers. They are least legalistic of lawyers, because they are more interested in markets than in statutory interpretation, because the rules of the competitive process are sacrosanct to competition lawyers. It is as much about economics and the operation of a market as the statute books. I was proud to be a competition lawyer, because competition is a Labor value. It stands on the principle that success in the marketplace should be a function of quality and efficiency, not inherited power, and successful strategy, not school ties.

As Paul Keating once said: 'The only thing that can guarantee our future is competition. Competition leads to higher productivity, lower prices and higher living standards. Competition is a Labor word. It is what guarantees working people a growing living standard and ensures that they are not going to be used and abused by businesses trying to lay off substandard products and services on them. Competition provides the spice to the economy.' National Competition Policy was a great gift of the Keating government, but it has always been a hotly contested space. The use of the law to break down entrenched power always is. Those with power tend to resist it being taken away and, in my experience, it is all too easy to say, 'Competition is good for you but not for me.' We are also confronted by the constant special pleading from businesses who want competition law to be used to protect them from competition. Defending the fundamental economic principles underpinning competition law requires strong leadership.

Unfortunately, the bill before the House today reflects a capitulation of the Turnbull government on one of the most fundamental principles of competition law. It is what happens when you let the Deputy Prime Minister run your economic policy. In its present form, section 46 of the Competition and Consumer Act prohibits businesses with a substantial degree of market power from 'taking advantage' of that market power with anticompetitive purpose. The government's proposed changes would amend how to determine whether an organisation is acting anticompetitively. Specifically, the amendment proposes the replacement of the 'take advantage' test with an effects test. The introduction of an effects test into Australian competition law has been something of a Lasseter's Reef for the National Party for the past decade or so. It has been a white whale for snake oil salesmen selling platitudes to small businesses in regional Australia.

I hear those opposite claiming that the Harper review has changed everything and that it is because it has recommended that this change is required that the government is proceeding. What you do not hear about from those opposite are the 10 previous reviews we have had over the past 40 years that have recommended against the introduction of an effects test in Australia. They have recommended against the introduction of an effects test for remarkably similar reasons. The Swanson committee in 1976, the Blunt review in 1979, the Griffiths committee in 1989, the Cooney committee in 1991, the Hilmer committee in 1993, the Baird committee in 1999, the Hawker committee in 2001, another Senate inquiry in 2002, the Dawson review in 2003 and a Senate Economics References Committee review in 2004—all of these inquiries looked at this issue and said that an effects test is just too hard; it introduces far too much uncertainty into this area of law.

According to the Harper review, current legislation is deficient in two ways. The 'take advantage' test does not competently identify the manifestation of anti-competitive practices by a firm; and the 'purpose' test is concerned with conduct that harms competitors rather than conduct that harms competition. As a result, the government's proposed amendment suggests that firms with substantial market power should be prohibited from engaging in conduct that has the 'purpose, effect or likely effect' of substantially lessening competition in the market.

This proposition fundamentally misunderstands competition policy. The 'purpose' element targets the operation of the Competition and Consumer Act towards behaviour that is designed to sabotage the competitive process. By broadening this provision to include its effects, the provision will necessarily cover effective competitive practices. We want our businesses to be competing aggressively. That is how products get better, that is how products get cheaper and that is how what is offered to consumers gets better. What this legislation does is create legal uncertainty about what that competition can look like.

I put to the House the question of whether this provision would prohibit the invention of the iPhone. Let us look at the provision. The law before the House would prohibit a firm with a substantial degree of market power from engaging in conduct that has the purpose, or has or is likely to have the effect, of substantially lessening competition in that market or in any other market in which the corporation operates. 'Substantially lessening competition' is a vague term in case law. It means not merely discernible, but in a material or real sense—a meaningful lessening of competition.

When Apple introduced the iPhone in Australia in 2008, it certainly had market power in the MP3 player market through the iPod. It leveraged this market—the lock-in of consumers using its MP3 player—in the new smartphone market, a market that it entered with a zero per cent market share. Within five years, Apple's smartphone market share in Australia was almost 50 per cent—an effect that substantially damaged competitors like Nokia and Research in Motion—the manufacturer of the BlackBerry, a device that is now lost to time, and their market share plummeted as a result. That is a good thing—I love my iPhone; it is much better than the BlackBerry that I had back in 2003. But it adds the uncertainty: would Apple have had to call the competition lawyers? I used to be a competition lawyer, and this law will be very good for competition lawyers, because it will mean Australian businesses will not be able to walk two steps without calling their competition lawyer and asking them—at a very hefty price, billed at $6 increments—'Can I do this? Can I invent an iPhone? Can I reduce the price of this product? Can I enter a new market?' If you think that is a good way of running an economy, you could have got a job in the Soviet Union. This is directly involving government in the strategy and decisionmaking of business in an utterly absurd way. The example that I give is a deliberately silly one, and I want to stress that I do not think that argument would get up in the courts, but it is an example of the kinds of arguments that we are opening the door to with the uncertainty inherent in this provision.

I should emphasise to those National Party members across the chamber that it is not just large multinationals corporations that will be caught up by this. A market is defined under the Competition and Consumer Act as having dimensions of a product and a geographic space in which rivalry and competition take place. The reality is that there are many fairly small businesses in Australia who have market power within regional markets. They will be caught by this provision. Decisions to open new stores in regional areas will be caught by this provision. If there are competitors who do not like the effects of that competition and if there are other businesses who do not want to try and seek the business of their customers by providing better products but instead by calling up the ACCC and asking if they will intervene, they will do that. It will impose a significant cost on small business in regional areas.

Indeed, the Treasury has already conceded that the introduction of the effects test would increase uncertainty for Australian businesses. This will be a boon for competition lawyers. This provision will force major Australian businesses to pick up their phone to their competition lawyer before every new product launch and every new pricing strategy. They will need to ask whether the 'effect' of these actions could contravene the law—and all too often, the response from their highly paid legal counsel will be, 'Maybe' or, 'It's impossible to say' or, 'You could try.' It will impose completely unjustifiable costs and uncertainty on Australian business management. The government's proposal to replace the 'take advantage' test with an effects test means that Australian competition law will enter a new period of risk and uncertainty. In fact, it will be the most significant upheaval since the introduction of the Competition and Consumer Act. The fallout from the introduction of an effects test would ultimately be handed down to consumers, which means that hardworking Australian families will be the ones that lose out.

The government's intention to introduce the effects test has the potential to fundamentally stifle innovation and dull competition rather than invigorate it—unless you think getting lawyers involved in everything is likely to produce better products. Stifling innovation and dulling competition is not a plan for jobs and growth. The function of competition law should not be creating jobs for competition lawyers. We do not want to increase risk for businesses when they engage in robust competitive conduct. And we certainly do not want to make businesses less inclined to engage in competitive behaviour. Reluctance from businesses to lower their prices in fear of legal risk will slow economic growth. Submissions to the Harper review described the effects test as a 'legally unworkable' mechanism that will inevitably increase consumer prices. Indeed, the Council of Small Business Owners Australia, COSBOA, has criticised the potential to create a 'lawyers picnic' of litigation for small business owners. This is why Labor will oppose these changes.

Labor's alternative is comprehensive, fully costed and robust, and can serve as the cornerstone for a new phase in Australian competition policy. In order to preserve the integrity of Australia's national competition policy, Labor is proposing an access to justice policy. Derived from the successful European competition policy frameworks, the access to justice policy is designed to facilitate—

[Debate interrupted.]

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(from page 68)

 

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