Blunt Review 1979
Trade Practices Consultative Committee
Small business and the Trade Practices Act
Note: The Trade Practices Consultative Committee was discontinued on 15 November 1981.
Length: 127 pages (report); 698 pages (submissions)
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The committee was asked to report on the question of Small Business and the Trade Practices Act
1. That there be 'no change of thrust to the Competition provisions, Part IV ... and ... there [should] be no change to Sections 45, 45B, 45D, 47, 48 or 50.
2. 'The Committee recommends that the ambit of Section 46 (Monopolization) be extended. Presently it applies only to those firms that substantially control markets. Its ambit should be extended so that it applies to all firms that have a substantial degree of market power.' [emphasis added]
3. 'The Committee recommends the repeal of Section 49 (Price discrimination)' [emphasis added]
4. The Committee 'recommends the introduction of a franchisee protection law ...' [emphasis added]
5. The Committee recommends government agencies cooperate with small business to increase awareness of the TPA, that those providing information to the TPC receive protection from intimidation, that lower courts have jurisdiction and that legal aid be more freely available.
Set out in letter from the Hon Wal. Fife MP, Minister for Business and Consumer Affairs, 19 December 1978 (reproduced on p 7 of the Report)
The Government has been giving close attention to the continuing and developing role of small business in Australia. It is the firm policy of the Government to encourage such business so far as practicable by government policies and ensure that they are a viable force for competition in Australia.
Having regard to the high priority given by the Government to this policy, I should be glad if your Committee would give consideration to the relationship between the restrictive trade practices provisions of the Trade Practices Act and small business.
Specifically, I ask your Committee to make an examination along the following lines
Consistent with the general objective of the development and maintenance of free and fair competition in the Australian economy, is there any action in relation to the Trade Practices Act 1974 which your Committee considers should be taken, with the objective of the improvement of the market position of small business in Australia. Particular attention should be had to the provisions of the Act dealing with monopolization (section 46), exclusive dealing section 47, price discrimination (section 49) and relevant ancillary provisions.
The review was subsequently expanded to include consideration of whether the Committee should recommend the introduction of a franchising law.
Chapter 1 - Can "Small Business" Be Defined
The Committee concluded that 'it was not possible to arrive at a universally applicable definition of small business' [page 10] and instead continued on the basis that the term "small business" referred to a business which
- 'employs less than about 50 persons;
- is owned and controlled by a few working proprietors (say, less than 5);
- is not associated with a public company and
- has a value added of less than approximately $500,000 per annum.' [page 10]
On this basis, the Committee noted that, roughly, 'small business constitutes approximately 90% of Australian enterprises and accounts for approximately 40% of employment in the private sector and somewhere between 20% and 25% of gross non-farm domestic product' [page 10]. Accordingly, the observed that small business was 'very important to the Australian Economy' [page 10]
Chapter 2 - Small Business Problems
The Committee observed that small business had a variety of problems 'which are not associated with market power or competition'. [page 10] They relate to 'management, capital and funding, taxation and technology' and cannot be addressed through the TPA's competition rules [page 10]
There are, however, some problems relating to lack of market power, including, for example, denial of access to markets or suppliers by more powerful firms, and these problems may be dealt with by the TPA.
The Committee did not examine the 'impact of government activities', briefly that 'difficulties do flow from monopolies created by, or restrictive practices encouraged by, government' but that these issues fall outside the TOR. [page 11]
Chapter 3 - Where does small business predominate and what small business has competition problems
The areas in which small business predominate depend upon criteria used. Where ranking is based on contribution to total small business employment, the most important sectors of economy for small business are 'manufacturing, then retailing, followed by selected services, motor trades, and wholesaling'. Where ranking is based on the 'contribution small business makes to total employment in a particular sector' small business 'predominates most in the motor trades, then retailing, followed by selected services, manufacturing and wholesaling' [page 11].
There were to dominant complaints. First, 'corner stores' complained of difficulties competing with larger discount or chain stores and franchisees complained of difficulties because of the 'economic power of their suppliers' [page 11]. Some others complained of competition with other small business, inability to obtain 'satisfactory terms from those with whom they deal' and 'predatory acts' of others.
Chapter 4 - Policy aims of Part IV, the Competition rules of the Trade Practices Act
The Committee noted:
'There are a variety of social and political aims that competition laws may be designed to achieve: Preventing the concentration of economic power, promoting fair dealing, protecting small business, and promoting the welfare of consumers, are some of these possible aims. However, the economic goal of efficiency of firms and ultimately efficiency of the economy as a whole, promoted by the effective working of the market mechanism, which is maintained by the competition rules of the Trade Practices Act, is seen by us as the most important objective. We endorse the competition provisions being directed to this aim and recommend against any change of thrust.' [pages 11-12; emphasis added]
Chapter 5 - Overseas Experience
The Committee noted that competition laws in other countries treat small business in substantially the same manner as the TPA. The Committee noted that, if anything, 'Australia has more precise law designed to improve the market position of small business'. [page 12]
Chapter 6 - Agreements Affecting Competition
No change recommended
Chapter 7- Exclusive Dealing
No change recommended
Chapter 8 - Resale price maintenance
No change recommended
Chapter 9- Abuse of market power
The Committee concluded there should be 'stronger law regulating the abuse of market power to ensure that the predatory conduct of all firms with a substantial degree of market power ... is prohibited when that power is being used against a firm with less power in the relevant market' [page 12].
Accordingly, the Committee recommended that the class of firms to which s 46 applies, which at the time included only firms that were in a position substantially to control a market, should be extended 'to include all those that have a substantial degree of market power'. It should not, however, be extended 'so as to put at risk legitimate aggressive market behaviour' - to ensure this, the Committee recommended 'insertion of a new provision in section 46' that would have removed from the ambit of s 46 'conduct of firms directed at firms with comparable market power' [page 13].
Chapter 10 - Price discrimination
The Committee concluded, as did the Swanson Committee in 1976, that section 48, dealing with price discrimination, 'causes detrimental price inflexibility, and uncertainty and causes distortions in the market place which disadvantage consumers, big business and small business' [page 13]. In particular, they concluded that 'section 49 is only of dubious assistance to small business but at the cost of causing such distortions as to disadvantage the community as a whole.' They noted that predatory price discrimination could be captured by s 46 (as modified). They therefore recommended that section 49 be repealed.
Chapter 11 - Franchising
The Committee recommended a new law to give franchisees a number of rights [as these were not related directly to the competition law provisions they will not be considered further]
Chapter 12 - Procedures and remedies
The Committee recommended that 'Government agencies like the Department of Business and Consumer Affairs, the Department of Industry and Commerce, and the Trade Practices Commission co-operate with small business agencies and trade associations to provide small business with information and advice on the operation of the Act.' [page 15]
The Committee also recommended that 'protection to witnesses in Courts from intimidation afforded by section 36A of th Crimes Act 1914 (Cth) be given to witnesses in the Commission's adjudication and enforcement procedures' [page 15]
The Committee also recommended consideration be given to 'conferring jurisdiction over trade practice matters to the lesser (state) courts' and that 'more funds should be made available by way of legal aid for private litigation under th Act'. [page 15]
R.G. Blunt (Chairman)
JG Wilson CBE (Deputy Chairman)
Sir Samuel Burston (Member)
Mr A G Hartnell (Member)
T Martire (Member)
MJ Lawless (Secretary)
The submissions were published as volume 2 of the report; it runs to 698 pages