Inquiry into the Competition and Consumer (Price Signalling) Amendment Bill 2010 and Competition and Consumer Amendment Bill (No 1) 2011
House of Representatives Standing Committee on Economics
Inquiry home page
Original submissions (on 2010 bill) due by 28 January 2011
Inquiry expanded on 12 May 2011 to include Government's bill
Submissions on government bill due 20 May (three days after calls for submissions)
Committee to report by 30 May 2011
Final report released 22 June 2011
On 23 November 2010 the Competition and Consumer (Price Signalling) Amendment Bill 2010 (private member's bill) was referred to the House of Representatives Economics Committee, 23 November 2010.
This Inquiry was later extended to include the Government's Competition and Consumer Amendment Bill (No.1) 2011.
The Report due on 30 May 2011 and was released on 22 June 2011.
The report recommended passage of the Government's Competition and Consumer Amendment Bill (No.1) 2011.
No terms of reference other than to examine the bill.
It was recommended that "The House of Representatives pass the Competition and Consumer Amendment Bill (No.1) 2011 and reject the Competition and Consumer (Price Signalling) Amendment Bill 2010."
[Note the Committee was split down the middle on the bill, but the Chairman had a casting vote]
View report. [Note, my commentary added in italics]
Note: The Report refers to the bills inconsistently throughout. The opposition's bill is referred to either as the 'first bill' or the 'Billson' bill. The Government's bill is normally referred to as the 'government Bill' but also by its full title as the 'Competition and Consumer Amendment Bill (No 1).
The Chair's forward to the report notes key differences between the bill and claims that it is 'immediately apparent that the Treasurer's Bill would have a stronger effect and that "this is the reason why the committee is supporting it over Mr Billson's Bill" - it claims this is consistent with evidence provided by the ACCC. [note: in the sector's in which it operates (currently proposed to be limited to banking only) I don't think anyone denied it would have a stronger effect - this, however, was one of the key complaints - the assumption here seems to be that stronger = better - this was a point highlighted Mr Billson, who, in his second reading speech on 23 June, referred to this as the "mine is bigger than yours' approach"]
The next section sets out the purpose and overview of each of the bills. This is followed by a brief description of Treasury consultations (in which they claim submissions to Treasury on the exposure draft 'led to significant improvements to the government Bill' in the form of various new exclusions. They highlight select passages from two submissions noting that these changes were an improvement.
The ACCC's current powers are then discussed, noting that their powers do not currently extend to price signalling because of the requirement for commitment. They discuss the Apco case and claim it revealed 'inadequacies with the ACCC's legislation' (the ACCC's legislation?!). They refer to the ACCC which claims that in light of Apco 'there has been a significant raising of the bar in relation to what is required to establish a contract arrangement or an understanding' (at para 1.15).
At para 1.16 they refer to the Treasury discussion paper on the adequacy of the interpretation of the term 'understanding' in s 45 (this paper was released in January 2009 and no response to submissions was ever provided). They claim (relying on evidence given to the House by Treasury in this inquiry) that that process 'identified that anti-competitive price signalling and information disclosures were not captured by the CCA and rather than amend the meaning of understanding, could be directly targeted by new prohibitions under the CC Act.' (there were several submissions to this inquiry - no single identified 'solution' was found, so it's not clear how this position was arrived at based on the 2009 inquiry)
The report then asks whether laws are needed to address price signalling. Again, the majority rely (almost exclusively) on submissions from the ACCC and Treasury, noting (at 1.17) that 'The ACCC and Treasury are in agreement that the current legislation was inadequate to deal with price signalling. This lack of power has become more notable in recent times, especially in relation to the banking sector'. Reference was made, again, to comments by ANZ CEO Mike Smith regarding proposed movement with the RBA's expected 25 base point move (a public comment that would almost certainly not contravene even the new laws).
The majority does observe, at 1.19, that 'ACCC and Treasury perspectives were not universally accepted'. They only refer to the ABA's submissions on this point (of course they were not alone) - the ABA had observed that among trade practices lawyers the majority view seemed to be that there was not a problem, concluding that 'we have not seen an overwhelming or even particularly persuasive argument for change' (at 1.20, quoting evidence by Steven Munchenberg).
The majority report then moves on to conclusions (apparently on the question of whether change is needed - the report's structure is not the easiest to follow) and, referring again to the Apco case and its significance in 'revealing limitations in the ACCC's powers' and confirmation from the ACCC and Treasury that 'the current legislation is limited and it must be strengthened if it is to deal with price signalling', they concluded that new price signalling laws were needed. They state (at 1.22) that 'Price signalling cannot be ignored and if left to occur then consumers will be disadvantaged and the competitive framework of markets is undermined' (although they provide no real evidence of that - other than comments by bankers about possible movements in the cash rate by the RBA). They then note (very oddly given the emphasis the government has given on restricting application of its bills to particular sectors - at least initially banking) - that 'both Bills before the committee would apply beyond the banking sector.
They conclude (at 1.23): 'the ACCC's current powers are insufficient to deal with price signalling and they must be strengthened to give the ACCC more power and as a warning to the market that this conduct will not be tolerated. The committee dismisses the view of the ABA that reform in this area is unnecessary.' [no details, of course, on why the ABA (and other) views on this point were dismissed]. It further concludes that the Billson bill is not the most effective solution and the government Bill 'provides a more effective solution' for dealing with price signalling (at 1.25).
Chapter 2: Comparison of the bills
Chapter 2 focusses on 'four key areas of comparison' between the bills
- whether the bills (dealing with 'price' signalling) apply only to prices or also to other market information
- whether the Bills require 'purpose and effect'
- whether it is reasonable to include a per se test [this is the gist of what they say the comparison will be - the introduction is so poorly written it's tough to discern the actual question]
- the coverage of the bills - whether the cover the whole economy or just a particular sector
Conduct within the scope of the bills
The Committee notes that the proposed section 45A in the Billson bill is restricted to communication of to price-related information, defined to include price 'or terms and conductions of the supply or acquisition ... that may have a bearing on the price ...'
They observe that the government Bill 'takes a different approach'. It applies two definitions - for the per se prohibition it applies to price-related information only and for the general prohibition (SLC test) it applies to price related information and to the capacity to supply goods or services and 'anything related to the business's commercial strategy for certain goods and services' (at 2.7)
The Committee notes that the ACCC criticised the Billson's bill's focus on prices, with the ACCC explaining that a range of collusive behaviour could affect market prices.
Accepting this, the majority observed (at 2.11) that on initial analysis 'the government Bill is to be preferred over the first Bill because of its wider application.' However, the Committee goes on to observe that it received evidence that 'any such legislation should be wider again. Here they (I think disingenuously) refer to submissions by Brent Fisse, Caron Beaton-Wells, and Luke Woodward who, they say, 'proposed that legislation should focus on collusive practices, rather than the disclosure of information'
(I say disingenuously because this suggests that the those submissions claim the bill was too limited and should be broader in a general sense, when in fact they were highly critical of at least certain aspects of the bill's breadth (in this respect Fisse and Beaton-Wells are highly critical of the bill's overreach and Luke Woodward, while in favor of introducing price signalling laws' and in extending them to a broader category of collusive practices, also expresses concerns about the bill's 'overreach' in the per se context) - this is not reflected in the Committee's 'analysis'.)
In the next paragraph (2.12) the Committee states 'One reason for this approach [it is not clear which approach they mean, but it appears to mean the approach in the Government's bill, but it cites pages from the submissions referred to in the preceding paragraph - but those submissions are not consistent, so it's hard to make sense of what the Committee is trying to say here] is that it prevents pro-competition legislation from inadvertently prohibiting competitive information disclosures' - overreach. It then claims the government Bill addresses overreach by creating two targetted offences [both the submissions to which they refer on this point criticise the overreach of the Government's bill!]. It claims the first offence relating to private disclosure would apply, for example, to the disclosures made in Apco, and the more general disclosures would only be prohibited where they substantially lessen competition. It also notes that the government bill provides for a broad range of exemptions, including notifications and authorisations.
The report then changes tack again and notes that some organisations were of the view that maintaining a price-based approach would be more appropriate - it refers only to the submission by Caltex in this respect, who also claim the bill 'should only apply to future prices' [while acknowledging this claim from Caltex they proceed to ignore it - not addressing whether or not the bill should only apply to future prices].
The majority then conclude on this point that 'the government Bill, which applies to a range of information disclosures rather than just prices, is superior to the first bill' (at 2.16) and '... the government Bill has broad scope while simultaneously targeting
Purpose and effect
[details to follow]
Substantial lessening of competition test
[details to follow]
[details to follow]
The (majority) report concludes that the 'government Bill is superior'. It also notes [very oddly] that the per se approach to private disclosures means that the 'conduct in the Apco case would be successfully prosecuted'.
It's odd because the most obvious limitation of the government bill is, of course, that it will be limited in its application to specific industries - initially only banking. So Apco would not fall within ANY of the government's price signalling prohibitions - unless and until, by regulation, it is extended to the retail petrol industry - and the Government has reiterated it has no intention of doing this until a more thorough review of the legislation is conducted (apparently that's not needed for banking!). This highlights one of the key problems with the bill - it appears designed to address the (perceived) cause of the ACCC's failure in the Geelong petrol case, but applies it to a fundamentally different (and more complex) industry without full consideration of the need or desirability of its application to that industry or the unintended consequences.
A dissenting report was produced by the Opposition Members (Mr Steven Ciobo MP, The Hon Bruce Billson MP, Mr Scott Buchholz MP, Ms Kelly O'Dwyer MP), which recommended that the opposition's bill be passed and the Government's bill be rejected.
[details to follow]
Submissions on the Competition and Consumer (Price Signalling) Amendment Bill 2010 have now been published here. Submissions have been made by:
3. Royal Automobile Association (RAA)
4. Australian Banker's Association (ABA)
6. Australian Automobile Association (AAA)
Submissions on the the Government's Competition and Consumer Amendment Bill (No.1) 2011 have now been published here. Note that less than three days notice was given for the making of submissions relating to this bill. As a result it is probable that many with an interest in the issue were prevented from making submissions due to the time constraints. Brief summaries of each submission will be added progressively.
1.a. Brent Fisse & Caron Beaton-Wells
Fisse and Beaton-Wells argue that the government bill is 'highly unsatisfactory and should not be enacted' (at 1.3). Recommendations are made for resolving major problems and achieving policy objectives 'without inflicting the complexity, overreach and impracticality of the CCA Bill' (para 1.3).
The major unresolved problems with the bill are identified (in Part 2) as follows:
A. 'Liability is not defined in terms of collusion or coordination of conduct between competitors in a market' (discussion of the economic literature in the field is provided)
B. 'The s 44ZZW prohibition unjustifiably imposes per se liability' (examples of situations in which this would apply inappropriately are provided)
C. 'The s 44ZZW prohibition is ill-defined' (various problems are identified, including the fact (pointed out by several commentators) that the prohibition is not limited to future pricing information but also applies to 'current and even historical pricing information' without justification)
D. 'The s 44ZZX prohibition against public or private information disclosure for a SLC purpose is misconceived' (details and examples provided)
E. 'The SLC purpose test in s 44ZZX is unlikely to work effectively' (the authors note that the SLC purpose test will be difficult to establish in practice - they note that it 'takes little imagination or skill to coat a facilitating practice with a thick layer of commercial justification.' (p 11) Several examples are provided)
F. 'The s 44ZZW and s 44ZZX prohibitions do not apply to all sectors of the economy' (they observe (at p 13) that 'As a general policy, competition laws should apply across all sectors of the economy and competition measures specifically directed to particular industries (whether by way of exemption or by way of additional regulation) should be avoided.' They also note the problems with making the legislation extendable by regulation, also identified by the Senate Standing Committee for the Scrutiny of Bills.)
G. 'The exceptions to the prohibitions under ss 44ZZY and 44ZZZ are inadequate' (the authors observe that, for reasons explained earlier in the submission, 'it makes no economic sense to base prohibitions on information disclosure instead of on collusion or facilitated coordination of market conduct'. Examples of the problems with current exceptions are provided)
The authors then make recommendations. The first is that the CCA Bill not be enacted. They then propose two amendments which could achieve the 'policy objective of prohibiting practices that facilitate anti-competitive coordination between competitors is achievable by amendments that would avoid the complexity, overreach and impracticality of the provisions in the CCA Bill' - they are:
1. 'add a prohibition against engaging in a concerted practice as s 45(2)(c)' [this is based on the EU concept of concerted practice] and
2. 'provide a collaborative venture exception that applies to the prohibitions under s 45(2) (and to the prohibitions relating to cartel provisions under Part IV Division 1A)'
Explanations of these proposals are provided.
2.a. Business Council of Australia
BCA submits that the ‘case has not been made for legislation’ in relation to price signalling.
If the legislation is to proceed BCA claims that, in addition to the exceptions added following the exposure draft, an exception to the per se private disclosure prohibition relating to ‘ordinary course of business’ or ‘legitimate commercial activity’ should be added.
The BCA also re-iterated its opposition to the use of ‘regulation making power’.
[more detail forthcoming]
3.a. Mr Luke Woodward
Woodward (current partner of Gilbert + Tobin and previously ACCC General-Counsel and Executive General Manager, Compliance Division), submitted that Australia’s competition laws don’t fully protect consumers from anti-competitive practices and that reform should be made to address the ‘gap’ in the law. However, he identified two key issues which, he claimed, could be addressed through amendment to the bill.
1. ‘The per se prohibition on price signalling is likely to overreach’ and this overreach is not fully addressed through inclusion in the Bill
2. The Bill may not go far enough in catching collusive conduct.
With appropriate amendment he submitted it should be of general application.
Limits of current legislation
Woodward noted the current position in the legislation which requires ‘commitment’ in order to prove the existence of an arrangement or understanding, citing Justice Gray in Leahy Petroleum. He claimed the legislation should cover conduct between competitors in which (a) ‘information about price increases is passed between them in the hope that a general price rise could be achieved’; and (b) ‘urging a decision to increase a price, particularly with follow-up or complaint calls’.
Woodward noted that this sort of conduct is prohibited in other countries, including Germany and in Europe where, he claimed, the problem doesn’t arise ‘because the EC law prohibits anti-competitive concerted practices as well as agreements’, defining a concerted practice as ‘two or more parties [acting] together for a common objective’ without the need for commitment.
Issues with the bill
Woodward notes that the ‘Government has moved to mitigate the overreach’ in the Exposure Draft through revisions which extend the range of exemptions and extend the application of the notification process.
However, while Woodward welcomed extension of notification, he also noted that ‘the inclusion of a notification exemption of itself is not a sufficient response to the potential overreach of the law, and in particular to the private price related information disclosure prohibition. A notification regime may have the appearance of administrative simplicity and speed, but the reality is it does not necessarily achieve either.
While noting the overreach of the per se prohibition Woodward also noted that there was a ‘risk that the two new proposed prohibitions will not capture broader anti-competitive concerted practices.’
• ‘the general information disclosure prohibition only prohibits disclosures which have an anti-competitive purpose (not an anti-competitive effect)’ and
• ‘the more narrowly drawn per se private price related information disclosure only applies to price related information disclosures’ and
• ‘both provisions focus on the act of information exchange and information disclosures, which may not properly reflect the range of concerted practices which may be anti-competitive in purpose or effect’.
In this respect Woodward refers to the Sydney Petrol case in which the (then) TPC failed in proving price fixing in circumstances where the SA proposed an increase in retail margin of around 10 per cent, notwithstanding that there was ‘a marked Sydney wide increase in petrol prices’. Woodward notes that this would also fail to be captured by the proposed price signalling law.
Woodward claims the deficiencies could be resolved with straight-forward amendments:
• Include an exception/defence for private price related information made ‘in the ordinary course of business and not for an anti-competitive purpose’.
• ‘Insert an anti-competitive concerted practices offence in s 45 to cover the gap’.
• ‘Include in the list of factors relevant to purpose in s 44ZZX(2), whether the communication was in the ordinary course of business.’
4.a. Allen & Overy
5.a. Australia Bankers' Association
6.a. Rule of Law, Institute of Australia
7.a. SUNCORP Bank
9.a. Australian Institute of Petroleum
10.a. The Australian National Retailers Association
12.a. Australian Automobile Association
13.a. Law Council of Australia