Competition Policy Review
See also FINAL REPORT
The Harper Panel released its Draft Report, running to 313 pages, on 22 September 2014. The Panel released videos commentating on the report and also a number of very helpful infographs outlining components of the draft report.
Visit the Competition Policy Review website to download the report and associated material.
Submissions on the draft reportmay be made to the Panel until 17 November 2014.
The Draft Report contains 52 recommendations, broken up as follows:
- Competition policy (recommendations 1-15)
- Competition laws (recommendations 17-38)
- Competition institutions and governance (recommendations 39-48)
- Small business (recommendations 49-50)
- Retail markets (recommendations 51-52)
In relation to competition laws I have prepared some brief overviews of the proposed changes (PDF documents):
- cartels and exclusionary provisions
- anti-competitive agreements
- price signalling
- misuse of market power
- exclusive dealing
- resale price maintenance
- exemptions (authorisation/notification)
The Panel's infograph on the draft report highlights sets out the focus of the report and the key recommendations for change.
Source: The Australian Government Competition Policy Review
More detailed highlights from the Panel's draft recommendations and commentary will be progressively added to this site over the coming days and weeks; it will not re-produce the full report, but will provide an overview of key areas, set out the recommendations and re-produce key passages from the Report.
The following tables set out the nature of the recommendations, linking to the full recommendation.
Focus Recommendation No Competition principles Sets out principles that should guide implementation of competition policy - including promotion of consumer choice Rec 1 Human services Intergovernmental agreement should establish choice and competition principles in relation to human services Rec 2 Road transport Cost reflective road pricing should be introduced Rec 3 Liner shipping Repeal Part X but block exemption should be available. Rec 4 Coastal shipping Cabotage restrictions should be removed (subject to public interest assessment) Rec 5 Taxis Remove regulatory restrictions on competition Rec 6 IP review Independent review of IP should be undertaken focussing on competition policy issues in IP 'arising from new developments in technology and markets' Rec 7 IP exception Repeal ss 51(3) Rec 8 Parallel imports Remove remaining restrictions (unless in public interest and objectives can only be achieved by restricting comp) Rec 9 Planning and zoning Competition principles should be included in objectives of planning and zoning legislation Rec 10 Regulation review Governments should review regulations to ensure unnecessary restrictions on competition are removed - public benefit test should be applied. Process should be overseen by proposed Australian Council for Competition Policy (rec 39) Rec 11 Standards review Non-government mandated standards should be reviewed following same process as for other regulation (rec 11) Rec 12 Competitive neutrality policy Governments should review competitive neutrality policies (sets out specific matters to be considered) Rec 13 Competitive neutrality complaints Increase transparency and effectiveness of processes Rec 14 Competitive neutrality reporting Government businesses should be required to include a statement of compliance with competitive neutrality principles in annual reports Rec 15 Electricity, gas and water State and territory governments should finalise energy reform agenda Rec 16
Law Recommendation No Competition law concepts Central concepts, prohibition and structure should be retained Rec 17 Competition law simplification Simplify provisions - including by removing overly specified provisions and removing redundant provisions (likes 45(1)) Rec 18 Application of law to government entities Extend to Crown (inc local government) insofar as they undertake activity in trade or commerce. Rec 19 Market definition Retain but re-word definition of 'competition' to ensure competition from potential imports is considered Rec 20 Extra-territoriality Amend s 5 to remove requirement that contravening firm have connection with Australia and remove requirement for private parties to seek ministerial consent before relying on ET conduct. Rec 21 Cartels Simplify and create additional exemptions Rec 22 Exclusionary provisions Remove specific prohibition in s 45 Rec 23 Price signalling Repeal Division 1A; extend s 45 to capture concerted practices Rec 24 Misuse of market power Replace taking advantage and purpose elements with effects test (but add 'rational business decision'-type defence) Rec 25 Price discrimination No specific prohibition Rec 26 Exclusive dealing Simplify and remove per se ban on third line forcing Recs 27 & 28 Resale price maintenance Remain per se prohibited but with option for notification Rec 29 Mergers No change to merger law (inc no creeping acquisition law) but improve formal merger exemption process and combine with authorisation process with ACCC decision-maker at first instance plus merits review to Tribunal Rec 30 Secondary boycott Retain prohibition but require ACCC to report on enforcement and extend jurisdiction to state and territory supreme courts Rec's 31 and 32 Restricting supply or acquisition Limitation in ss 45E and 45EA re application to 'restrictions affecting persons with whom an employer "has been accustomed, or is under an obligation" to deal with' should be removed Rec 33 Authorisation and notification Simplify tests - only one application should be required for single transaction or arrangement and ACCC should be able to grant exemption if either conduct is unlikely to SLC or conduct is likely to result in net public benefit Rec 34 Block exemption power Introduce block exemption powers based on UK and EU framework Rec 35 Section 155 notices ACCC should review guidelines; requirement to produce documents should be qualified by obligation to undertake reasonable search Rec 36 Facilitating private actions Amend s 83 to extend to admissions of fact made by person against whom proceedings are brought Rec 37 National access regime Retain Part IIIA with modification - including that criterion (b) require it be uneconomical for anyone to develop another facility. Tribunal should have power to undertake merits review of access decisions. Rec 38
Focus Recommendation No Establish ACCP NCC should be dissolved and Australian Council for Competition Policy (ACCP) established to 'provide leadership and drive implementation of the evolving competition policy agenda'. Rec 39 Role of ACCP Broad role including advocacy, education, monitoring, identifying potential areas of competition reform, making recommendations on market design and regulatory issues (including proposed privatisations) and undertaking research into competition policy developments Rec 40 Market studies power ACCP should have power to undertake competition studies of markets in Australia and make recommendations to government or ACCC (comment sought on mandatory information gathering powers) Rec 41 Market studies requests Governments should have capacity to issue reference to ACCP to undertake market study. Market participants should have capacity to request market studies. Work of ACCP to be overseen by Ministerial Council on Federal Financial Relations Rec 42 Annual competition analysis ACCP to undertake annual analysis of developments Rec 43 Competition payments PC should undertake study of agreed reforms to estimate effect on revenue in each jurisdiction - if disproportionate competition policy payments should be made. Rec 44 ACCC functions ACCC should retain both competition and consumer functions Rec 45 Access and pricing regulator functions Should be transferred from ACCC and NCC and be undertaken by single national access and pricing regulator Rec 46 ACCC governance ACCC governance should incorporate wider range of business, consumer and academic viewpoints. Suggest replacing current Commission with Board or adding Advisory Board (view sought). Additional accountability through regular appearance before Parliamentary Committee. Rec 47 Media Code of Conduct ACCC should develop Code of Conduct for dealings with media to strengthen perception of impartiality Rec 48
Focus Recommendation No Small business access to remedies
ACCC should take more active approach in connecting small business to ADR where complaints have merit but are not priority for public enforcement.
ACCC should be resourced to test law on regular basis to ensure it operates as deterrence
Rec 49 Collective bargaining Should be greater flexibility in notification process for collective bargaining by small business. Rec 50
Focus Recommendation No Retail trading hours Remaining restrictions should be removed entirely or strictly limited to Christmas Day, Good Friday and morning of ANZAC Day Rec 51 Pharmacy Current restrictions on ownership and location should be removed - replace with regulations ensuring access and quality of advice that do not unduly restrict competition Rec 52
The Panel made a total of 52 draft recommendations that can be found throughout the Part 2 of the Report. They are reproduced below. I have also reproduced them on a separate recommendations page and produced a downloadable PDF of the draft recommendations.
The Panel endorses competition policy that focuses on making markets work in the long term interests of consumers. The following principles should guide Commonwealth, state and territory and local governments in implementing competition policy:
- legislative frameworks and government policies binding the public or private sectors should not restrict competition;
- governments should promote consumer choice when funding or providing goods and services and enable informed choices by consumers;
- the model for government provision of goods and services should separate funding, regulation and service provision, and should encourage a diversity of providers;
- governments should separate remaining public monopolies from competitive service elements, and also separate contestable elements into smaller independent business activities;
- government business activities that compete with private provision, whether for profit or not for profit, should comply with competitive neutrality principles to ensure they do not enjoy a net competitive advantage simply as a result of government ownership;
- a right to third party access to significant bottleneck infrastructure should be granted where it would promote a material increase in competition in dependent markets and would promote the public interest; and
- independent authorities should set, administer or oversee prices for natural monopoly infrastructure providers.
Applying these principles should be subject to a ‘public interest’ test, so that:
- the principle should apply unless the costs outweigh the benefits; and
- any legislation or government policy restricting competition must demonstrate that:
- it is in the public interest; and
- the objectives of the legislation or government policy can only be achieved by restricting competition.
Australian governments should craft an intergovernmental agreement establishing choice and competition principles in the field of human services. The guiding principles should include:
- user choice should be placed at the heart of service delivery;
- funding, regulation and service delivery should be separate;
- a diversity of providers should be encouraged, while not crowding out community and voluntary services; and
- innovation in service provision should be stimulated, while ensuring access to high quality human services.
Each jurisdiction should develop an implementation plan founded on these principles that reflects the unique characteristics of providing human services in its jurisdiction.
Governments should introduce cost reflective road pricing with the aid of new technologies, with pricing subject to independent oversight and linked to road construction, maintenance and safety.
To avoid imposing higher overall charges on road users, there should be a cross jurisdictional approach to road pricing. Indirect charges and taxes on road users should be reduced as direct pricing is introduced. Revenue implications for different levels of government should be managed by adjusting Commonwealth grants to the States and Territories.
The Australian Government should repeal Part X of the CCA.
A block exemption granted by the ACCC should be available for liner shipping agreements that meet a minimum standard of pro competitive features (see Draft Recommendation 35). The minimum standard of pro competitive features to qualify for the block exemption should be determined by the ACCC in consultation with shippers and the liner shipping industry.
Other agreements should be subject to individual authorisation by the ACCC.
Repeal of Part X will mean that existing agreements are no longer exempt from the competition provisions of the CCA. Transitional arrangements are therefore warranted.
A transitional period of two years should allow for authorisations to be sought and to identify agreements that qualify for the proposed block exemption.
Noting the current Australian Government Review of Coastal Trading, the Panel considers that cabotage restrictions should be removed, unless they can be shown to be in the public interest and there is no other means by which public interest objectives can be achieved.
States and Territories should remove regulations that restrict competition in the taxi industry, including from services that compete with taxis, except where it would not be in the public interest.
If restrictions on numbers of taxi licences are to be retained, the number to be issued should be determined by independent regulators focused on the interests of consumers.
The Panel recommends that an overarching review of intellectual property be undertaken by an independent body, such as the Productivity Commission.
The review should focus on competition policy issues in intellectual property arising from new developments in technology and markets.
The review should also assess the principles and processes followed by the Australian Government when establishing negotiating mandates to incorporate intellectual property provisions in international trade agreements.
Trade negotiations should be informed by an independent and transparent analysis of the costs and benefits to Australia of any proposed IP provisions. Such an analysis should be undertaken and published before negotiations are concluded.
The Panel recommends that subsection 51(3) of the CCA be repealed.
Remaining restrictions on parallel imports should be removed unless it can be shown that:
- they are in the public interest; and
- the objectives of the restrictions can only be achieved by restricting competition.
All governments should include competition principles in the objectives of planning and zoning legislation so that they are given due weight in decision making.
The principles should include:
- a focus on the long term interests of consumers generally (beyond purely local concerns);
- ensuring arrangements do not explicitly or implicitly favour incumbent operators;
- internal review processes that can be triggered by new entrants to a local market; and
- reducing the cost, complexity and time taken to challenge existing regulations.
All Australian governments, including local government, should review regulations in their jurisdictions to ensure that unnecessary restrictions on competition are removed.
Regulations should be subject to a public benefit test, so that any policies or rules restricting competition must demonstrate that:
- they are in the public interest; and
- the objectives of the legislation or government policy can only be achieved by restricting competition.
Factors to consider in assessing the public interest should be determined on a case by case basis and not narrowed to a specific set of indicators.
Jurisdictional exemptions for conduct that would normally contravene the competition laws (by virtue of subsection 51(1) of the CCA) should also be examined as part of this review, to ensure they remain necessary and appropriate in their scope. Any further exemptions should be drafted as narrowly as possible to give effect to their policy intent.
The review process should be transparent, with highest priority areas for review identified in each jurisdiction, and results published along with timetables for reform.
The review process should be overseen by the proposed Australian Council for Competition Policy (see Draft Recommendation 39) with a focus on the outcomes achieved, rather than the process undertaken. The Australian Council for Competition Policy should conduct an annual review of regulatory restrictions and make its report available for public scrutiny.
Given the unique position of Australian Standards under paragraph 51(2)(c) of the CCA, the Australian Government’s Memorandum of Understanding with Standards Australia should require that non government mandated standards be reviewed according to the same process specified in Draft Recommendation 11.
All Australian governments should review their competitive neutrality policies. Specific matters that should be considered include: guidelines on the application of competitive neutrality during the start-up stages of government businesses; the period of time over which start-up government businesses should earn a commercial rate of return; and threshold tests for identifying significant business activities.
The review of competitive neutrality policies should be overseen by an independent body, such as the proposed Australian Council for Competition Policy (see Draft Recommendation 39).
All Australian governments should increase the transparency and effectiveness of their competitive neutrality complaints processes. This should include at a minimum:
- assigning responsibility for investigation of complaints to a body independent of government;
- a requirement for the government to respond publicly to the findings of complaint investigations; and
- annual reporting by the independent complaints bodies to the proposed Australian Council for Competition Policy (see Draft Recommendation 39) on the number of complaints received and investigations undertaken.
To strengthen accountability and transparency, all Australian governments should require government businesses to include a statement on compliance with competitive neutrality principles in their annual reports.
State and territory governments should finalise the energy reform agenda, including through:
- application of the National Energy Retail Law with minimal derogation by all National Electricity Market jurisdictions;
- deregulation of both electricity and gas retail prices; and
- the transfer of responsibility for reliability standards to a national framework.
The Panel supports moves to include Western Australia and the Northern Territory in the National Electricity Market, noting that this does not require physical integration.
All governments should re-commit to reform in the water sector, with a view to creating a national framework. An intergovernmental agreement should cover both urban and rural water and focus on:
- economic regulation of the sector; and
- harmonisation of state and territory regulations where appropriate.
Where water regulation is made national, the body responsible for its implementation should be the Panel’s proposed national access and pricing regulator (see Draft Recommendation 46).
The Panel recommends that the central concepts, prohibitions and structure enshrined in the current competition law be retained because they are the appropriate basis for the current and projected needs of the Australian economy.
The competition law provisions of the CCA should be simplified, including by removing overly specified provisions, which can have the effect of limiting the application and adaptability of competition laws, and by removing redundant provisions.
The Panel recommends that there be public consultation on achieving simplification.
Some of the provisions that should be removed include:
- subsection 45(1) concerning contracts made before 1977;
- sections 45B and 45C concerning covenants; and
- sections 46A and 46B concerning misuse of market power in a trans Tasman market.
This task should be undertaken in conjunction with implementation of the other recommendations of this Review.
The CCA should be amended so that the competition law provisions apply to the Crown in right of the Commonwealth and the States and Territories (including local government) insofar as they undertake activity in trade or commerce.
The current definition of ‘market’ in the CCA should be retained but the current definition of ‘competition’ should be re worded to ensure that competition in Australian markets includes competition from goods imported or capable of being imported into Australia and from services supplied or capable of being supplied by persons located outside of Australia to persons located within Australia.
Section 5 of the CCA should be amended to remove the requirement that the contravening firm has a connection with Australia in the nature of residence, incorporation or business presence and to remove the requirement for private parties to seek ministerial consent before relying on extra territorial conduct in private competition law actions. The in principle view of the Panel is that the removal of the foregoing requirements should also be removed in respect of actions under the Australian Consumer Law.
The prohibitions against cartel conduct should be simplified and the following specific changes made:
- the provisions should apply to cartel conduct affecting goods or services supplied or acquired in Australian markets;
- the provisions ought be confined to conduct involving firms that are actual competitors and not firms for whom competition is a mere possibility;
- a broad exemption should be included for joint ventures and similar forms of business collaboration (whether relating to the supply or the acquisition of goods or services), recognising that such conduct will be prohibited by section 45 of the CCA if it has the purpose, effect or likely effect of substantially lessening competition;
- an exemption should be included for trading restrictions that are imposed by one firm on another in connection with the supply or acquisition of goods or services (including IP licensing), recognising that such conduct will be prohibited by section 47 of the CCA (revised in accordance with Draft Recommendation 28) if it has the purpose, or has or is likely to have the effect or likely effect of substantially lessening competition.
The CCA should be amended to remove the prohibition of exclusionary provisions in subparagraphs 45(2)(a)(i) and 45(2)(b)(i).
The ‘price signalling’ provisions of Division 1A of the CCA are not fit for purpose in their current form and should be repealed.
Section 45 should be extended to cover concerted practices which have the purpose, or would have or be likely to have the effect, of substantially lessening competition.
The Panel considers that the primary prohibition in section 46 should be re framed to prohibit a corporation that has a substantial degree of power in a market from engaging in conduct if the proposed conduct has the purpose, or would have or be likely to have the effect, of substantially lessening competition in that or any other market.
However, the Panel is concerned to minimise unintended impacts from any change to the provision that would not be in the long term interests of consumers, including the possibility of inadvertently capturing pro competitive conduct.
To mitigate concerns about over capture, the Panel proposes that a defence be introduced so that the primary prohibition would not apply if the conduct in question:
- would be a rational business decision or strategy by a corporation that did not have a substantial degree of power in the market; and
- the effect or likely effect of the conduct is to benefit the long term interests of consumers.
The onus of proving that the defence applies should fall on the corporation engaging in the conduct.
The Panel seeks submissions on the scope of this defence, whether it would be too broad, and whether there are other ways to ensure anti competitive conduct is caught by the provision but not exempted by way of a defence.
Such a re-framing would allow the provision to be simplified. Amendments introduced since 2007 would be unnecessary and could be repealed. These include specific provisions prohibiting predatory pricing, and amendments clarifying the meaning of ‘take advantage’ and how the causal link between the substantial degree of power and anti competitive purpose may be determined.
A specific prohibition on price discrimination should not be reintroduced into the CCA. Where price discrimination has an anti competitive impact on markets, it can be dealt with by the existing provisions of the law (including through the recommended revisions to section 46, see Draft Recommendation 25).
Attempts to prohibit international price discrimination should not be introduced into the CCA on account of significant implementation and enforcement complexities and the risk of negative unintended consequences. Instead the Panel supports moves to address international price discrimination through market solutions that empower consumers. These include the removal of restrictions on parallel imports (see Draft Recommendation 9) and ensuring that consumers are able to take legal steps to circumvent attempts to prevent their access to cheaper legitimate goods.
The provisions on ‘third line forcing’ (subsections 47(6) and (7)) should be brought into line with the rest of section 47. Third line forcing should only be prohibited where it has the purpose, or has or is likely to have the effect, of substantially lessening competition.
Section 47 should apply to all forms of vertical conduct rather than specified types of vertical conduct.
The provision should be re drafted so it prohibits the following categories of vertical conduct concerning the supply of goods and services:
- supplying goods or services to a person, or doing so at a particular price or with a particular discount, allowance, rebate or credit, subject to a condition imposed on the person that has the purpose, or has or is likely to have the effect, of substantially lessening competition; and
- refusing to supply goods or services to a person, or at a particular price or with a particular discount, allowance, rebate or credit, for the reason that the person has not agreed to a condition imposed on the person that has the purpose, or has or is likely to have the effect, of substantially lessening competition.
The provision should also prohibit the following two reciprocal categories of vertical conduct concerning the acquisition of goods and services:
- acquiring goods or services from a person, or doing so at a particular price or with a particular discount, allowance, rebate or credit, subject to a condition imposed on the person that has the purpose, or has or is likely to have the effect, of substantially lessening competition; and
- refusing to acquire goods or services from a person, or at a particular price or with a particular discount, allowance, rebate or credit, for the reason that the person has not agreed to a condition imposed on the person that has the purpose, or has or is likely to have the effect, of substantially lessening competition.
The prohibition on resale price maintenance (RPM) should be retained in its current form as a per se prohibition, but the notification process should be extended to include resale price maintenance.
The prohibition should also be amended to include an exemption for RPM conduct between related bodies corporate, as is the case under sections 45 and 47.
There should be further consultation between the ACCC and business representatives with the objective of delivering more timely decisions in the informal review process.
The formal merger exemption processes (i.e. the formal merger clearance process and the merger authorisation process) should be combined and reformed to remove unnecessary restrictions and requirements that may have deterred their use. The specific features of the review process should be settled in consultation with business, competition law practitioners and the ACCC. However, the general framework should contain the following elements:
- the ACCC should be the decision maker at first instance;
- the ACCC should be empowered to approve a merger if it is satisfied that the merger does not substantially lessen competition or it is satisfied that the merger results in public benefits that outweigh the anti competitive detriments;
- the formal process should not be subject to any prescriptive information requirements, but the ACCC should be empowered to require the production of business and market information;
- the formal process should be subject to strict timelines that cannot be extended except with the consent of the merger parties; and
- decisions of the ACCC should be subject to review by the Australian Competition Tribunal under a process that is also governed by strict timelines.
The ACCC should include in its annual report the number of complaints made to it in respect of secondary boycott conduct and the number of such matters investigated and resolved each year.
Jurisdiction in respect of the prohibitions in sections 45D, 45DA, 45DB, 45E and 45EA should be extended to the state and territory Supreme Courts.
The present limitation in sections 45E and 45EA, such that the prohibitions only apply to restrictions affecting persons with whom an employer ‘has been accustomed, or is under an obligation’ to deal with, should be removed.
The Panel invites further submissions on possible solutions to the apparent conflict between the CCA and the Fair Work Act including:
- a procedural right for the ACCC to be notified by the Fair Work Commission of proceedings for approval of workplace agreements which contain potential restrictions of the kind referred to in sections 45E and 45EA, and to intervene and make submissions;
- amending sections 45E and 45EA so that they expressly include awards and enterprise agreements; and
- amending sections 45E, 45EA and possibly paragraph 51(2)(a) to exempt workplace agreements approved under the Fair Work Act.
The authorisation and notification provisions in the CCA should be simplified:
- to ensure that only a single authorisation application is required for a single business transaction or arrangement; and
- to empower the ACCC to grant an exemption (including for per se prohibitions) if it is satisfied that either the proposed conduct is unlikely to substantially lessen competition or that the proposed conduct is likely to result in a net public benefit.
Exemption powers based on the block exemption framework in the UK and EU should be introduced to supplement the authorisation and notification frameworks.
The ACCC should review its guidelines on section 155 notices having regard to the increasing burden imposed by notices in the digital age.
Either by law or guideline, the requirement of a person to produce documents in response to a section 155 notice should be qualified by an obligation to undertake a reasonable search, taking into account factors such as the number of documents involved and the ease and cost of retrieving the documents.
Section 83 should be amended so that it extends to admissions of fact made by the person against whom the proceedings are brought in addition to findings of fact made by the court.
The declaration criteria in Part IIIA should be targeted to ensure that third party access only be mandated where it is in the public interest. To that end:
- criterion (a) should require that access on reasonable terms and conditions through declaration promote a material increase in competition in a dependent market;
- criterion (b) should require that it be uneconomical for anyone (other than the service provider) to develop another facility to provide the service; and
- criterion (f) should require that access on reasonable terms and conditions through declaration promote the public interest.
The Competition Principles Agreement should be updated to reflect the revised declaration criteria.
The Australian Competition Tribunal should be empowered to undertake merits review of access decisions while maintaining suitable statutory time limits for the review process.
The Panel invites further comment on:
- the categories of infrastructure to which Part IIIA might be applied in the future, particularly in the mining sector, and the costs and benefits that would arise from access regulation of that infrastructure; and
- whether Part IIIA should be confined in its scope to the categories of bottleneck infrastructure cited by the Hilmer Review.
The National Competition Council should be dissolved and the Australian Council for Competition Policy established. Its mandate should be to provide leadership and drive implementation of the evolving competition policy agenda.
The Australian Council for Competition Policy should be established under legislation by one State and then by application in all other States and the Commonwealth. It should be funded jointly by the Commonwealth, States and Territories.
Treasurers, through the Standing Committee of Federal Financial Relations, should oversee preparation of an intergovernmental agreement and subsequent legislation, for COAG agreement, to establish the Australian Council for Competition Policy.
The Treasurer of any jurisdiction should be empowered to nominate Members of the Australian Council for Competition Policy.
The Australian Council for Competition Policy should have a broad role encompassing:
- advocate and educator in competition policy;
- independently monitoring progress in implementing agreed reforms and publicly reporting on progress annually;
- identifying potential areas of competition reform across all levels of government;
- making recommendations to governments on specific market design and regulatory issues, including proposed privatisations; and
- undertaking research into competition policy developments in Australia and overseas.
The proposed Australian Council for Competition Policy should have the power to undertake competition studies of markets in Australia and make recommendations to relevant governments on changes to regulation or to the ACCC for investigation of potential breaches of the CCA.
The Panel seeks comments on the issue of mandatory information gathering powers and in particular whether the PC model of having information gathering powers but generally choosing not to use them should be replicated in the Australian Council for Competition Policy.
All governments, jointly or individually, should have the capacity to issue a reference to the Australian Council for Competition Policy to undertake a competition study of a particular market or competition issue.
All market participants, including small business and regulators (such as the ACCC), should have the capacity to request market studies be undertaken by the Australian Council for Competition Policy.
The work program of the Australian Council for Competition Policy should be overseen by the Ministerial Council on Federal Financial Relations to ensure that resourcing addresses priority issues.
The Australian Council for Competition Policy should be required to undertake an annual analysis of developments in the competition policy environment, both in Australia and internationally, and identify specific issues or markets that should receive greater attention.
The Productivity Commission should be tasked to undertake a study of reforms agreed to by the Commonwealth and state and territory governments to estimate their effect on revenue in each jurisdiction.
If disproportionate effects across jurisdictions are estimated, the Panel favours competition policy payments to ensure that revenue gains flowing from reform accrue to the jurisdictions undertaking the reform.
Reform effort would be assessed by the Australian Council for Competition Policy based on actual implementation of reform measures, not on undertaking reviews.
Competition and consumer functions should be retained within the single agency of the ACCC.
The following regulatory functions should be transferred from the ACCC and the NCC and be undertaken within a single national access and pricing regulator:
- the powers given to the NCC and the ACCC under the National Access Regime;
- the powers given to the NCC under the National Gas Law;
- the functions undertaken by the Australian Energy Regulator under the National Electricity Law and the National Gas Law;
- the telecommunications access and pricing functions of the ACCC;
- price regulation and related advisory roles under the Water Act 2007 (Cth).
Consumer protection and competition functions should remain with the ACCC.
The access and pricing regulator should be established with a view to it gaining further functions as other sectors are transferred to national regimes.
The Panel believes that incorporating a wider range of business, consumer and academic viewpoints would improve the governance of the ACCC.
The Panel seeks views on the best means of achieving this outcome, including but not limited to, the following options:
- replacing the current Commission with a Board comprising executive members, and non executive members with business, consumer and academic expertise (with either an executive or non executive Chair of the Board); or
- adding an Advisory Board, chaired by the Chair of the Commission, which would provide advice, including on matters of strategy, to the ACCC but would have no decision making powers.
The credibility of the ACCC could also be strengthened with additional accountability to the Parliament through regular appearance before a broadly based Parliamentary Committee.
The ACCC should take a more active approach in connecting small business to alternative dispute resolution schemes where it considers complaints have merit but are not a priority for public enforcement.
The Panel invites views on whether there should be a specific dispute resolution scheme for small business for matters covered by the CCA.
Resourcing of the ACCC should allow it to test the law on a regular basis to ensure that the law is acting as a deterrent to unlawful behaviour.
The CCA should be amended to introduce greater flexibility into the notification process for collective bargaining by small business. One change would be to enable the group of businesses covered by a notification to be altered without the need for a fresh notification to be filed (although there ought to be a process by which the businesses covered by the notification from time to time are recorded on the ACCC’s notification register).
The ACCC should take actions to enhance awareness of the exemption process for collective bargaining and how it might be used to improve the bargaining position of small businesses in dealings with large businesses.
Draft Recommendation 51 - Retail trading hours
The Panel notes the generally beneficial effect for consumers of deregulation of retail trading hours to date and the growth of online competition in some retail markets. The Panel recommends that remaining restrictions on retail trading hours be removed. To the extent that jurisdictions choose to retain restrictions, these should be strictly limited to Christmas Day, Good Friday and the morning of ANZAC Day.
Draft Recommendation 52 - Pharmacy
The Panel does not consider that current restrictions on ownership and location of pharmacies are necessary to ensure the quality of advice and care provided to patients. Such restrictions limit the ability of consumers to choose where to obtain pharmacy products and services, and the ability of providers to meet consumers’ preferences.
The Panel considers that the pharmacy ownership and location rules should be removed in the long term interests of consumers. They should be replaced with regulations to ensure access and quality of advice on pharmaceuticals that do not unduly restrict competition.
Negotiations on the next Community Pharmacy Agreement offer an opportunity for the Australian Government to remove the location rules, with appropriate transitional arrangements.
The Panel provided some background to the review, noted almost 350 submissions were received, noted the existence of other relevant reviews and provided information on how to provide feedback on the draft Report (submissions due 17 November 2014)
The Panel produced a long list of abbreviations for the report
ACCC - Australian Competition and Consumer Commission
ACCI - Australian Chamber of Commerce and Industry
ACCP - Australian Council for Competition Policy (proposed body)
ACL - Australian Consumer Law
AEMC - Australian Energy Market Commission
AER - Australian Energy Regulator
ALRC - Australian Law Reform Commission
BCA - Business Council of Australia
CCA - Competition and Consumer Act 2010
CDPP - Commonwealth Director of Public Prosecutions
COAG - Council of Australian Governments
CPA - Competition Principles Agreement
CSO - community service obligation
EU - European Union
GDP - gross domestic product
IP - intellectual property
IPART - Independent Pricing & Regulatory Tribunal (NSW)
NBN - National Broadband Network
NCC - National Competition Council
NCP - National Competition Policy
NDIS - National Disability Insurance Scheme
NDIA - National Disability Insurance Agency
NEM - National Electricity Market
NSW - New South Wales
NZ - New Zealand
OECD - Organisation for Economic Co‑operation and Development
PBS - Pharmaceutical Benefits Scheme
PC - Productivity Commission
PPP - public-private partnership
RPM - resale price maintenance
TPA - Trade Practices Act 1974
Tribunal - Australian Competition Tribunal
UK - United Kingdom
US - United States
The Executive summary is reproduced in full:
Reinvigorating Australia’s competition policy is essential to help meet the economic challenges and opportunities we face now and into the future.
Our competition policies, laws and institutions serve the national interest when focused on the long term interests of consumers.
Change is constant in the economic landscape, bringing opportunities as well as challenges. Exposing the Australian economy to greater competition through the 1980s and 1990s helped us make the most of economic opportunities as they emerged and also to face the challenges that arose.
The Panel has been tasked with examining whether Australia’s competition policies, laws and institutions remain ‘fit for purpose’, especially in light of the changing circumstances of the Australian economy that are expected to unfold over the next decade or so.
This Draft Report identifies three major forces affecting the Australian economy that will influence whether our competition policies, laws and institutions are fit for purpose.
The rise of Asia and other emerging economies provides significant opportunities for Australian businesses and consumers, but also poses some challenges. A heightened capacity for agility and innovation will be needed to match changing tastes and preferences in emerging economies with our capacity to deliver commodities, goods, services and capital. We need policies, laws and institutions that enable us to take full advantage of the opportunities offered.
Our ageing population will give rise to a wider array of needs and preferences among older Australians and their families. Extending competition in government provision of human services will help people meet their individual health and aged care needs by allowing them to choose among a diversity of providers.
New technologies are ‘digitally disrupting’ the way many markets operate, the way business is done and the way consumers engage with markets. The challenge for policymakers and regulators is to capture the benefits of digital disruption by ensuring that competition policies, laws and institutions do not unduly obstruct its impact yet still preserve traditional safeguards for consumers.
Competition policy is aimed at improving the economic welfare of Australians. It is about making markets work properly to meet their needs and preferences.
In the Panel’s view, competition policy should:
• make markets work in the long term interests of consumers;
• foster diversity, choice and responsiveness in government services;
• encourage innovation, entrepreneurship and the entry of new players;
• promote efficient investment in and use of infrastructure and natural resources;
• establish competition laws and regulations that are clear, predictable and reliable; and
• secure necessary standards of access and equity.
Important unfinished business remains from the original National Competition Policy (NCP) agenda, and new areas have arisen where competition policy ought to apply.
Ageing of Australia’s population will impose greater demands on health and aged care services. Establishing choice and competition principles in government provision of human services can improve services for those who most need them. If managed well, this can both empower consumers and improve productivity at the same time.
In the area of human services, the Panel recommends that:
• user choice be placed at the heart of service delivery;
• funding, regulation and service delivery be separate;
• a diversity of providers be encouraged, while not crowding out community and voluntary services; and
• innovation in service provision be stimulated, while ensuring access to high quality human services.
In the area of infrastructure, the Panel recommends introducing cost reflective road pricing linked to road construction, maintenance and safety to make road investment decisions more responsive to the needs and preferences of road users.
Reforms begun in electricity, gas and water need to be finalised.
Anti competitive regulations remain in place despite significant progress made under NCP. The Panel recommends that regulations restricting competition be reviewed by each jurisdiction, with particular priority given to regulations covering planning and zoning, retail trading hours, taxis, pharmacy and parallel imports.
Australia’s intellectual property regime is also a priority for review. We recommend that the current exception for intellectual property licences in the Competition and Consumer Act 2010 (CCA) be repealed.
Competitive neutrality remains a matter of concern for many stakeholders, including small businesses. We recommend that competitive neutrality policies be reviewed and updated against best practice, and that complaints handling processes and monitoring be improved.
In guiding our consideration of whether Australia’s competition laws are fit for purpose, the Panel asked a number of questions:
• Does the law focus on enhancing consumer wellbeing over the long term?
• Does the law protect competition rather than protecting competitors?
• Does the law strike the right balance between prohibiting anti competitive conduct and not interfering with efficiency, innovation and entrepreneurship?
• Is the law as clear, simple and predictable as it can be?
While the Panel considers that our competition laws have served Australia well, we recommend specific reforms to enhance their effectiveness.
These include changes to section 46 governing the misuse of market power to bring it into line with other prohibitions by focusing on protecting competition and not competitors. While the threshold test of ‘substantial degree of market power’ is well understood, the central element of ‘taking advantage of market power’ is difficult to interpret and apply in practice. We recommend that the provision be reformulated so that it targets anti competitive conduct that has the purpose, effect or likely effect of substantially lessening competition.
The Panel also recommends a number of changes to simplify and clarify the operation of the law, to bring to the forefront the competition policy objectives of the law and to reduce business compliance costs. The cartel provisions should be simplified, and the price signalling provisions removed and replaced by extending section 45 to concerted practices that have the purpose, effect or likely effect of substantially lessening competition. Merger approval processes should be streamlined.
We recommend changes to other approval processes, both authorisation and notifications, in order to reduce costs for business, particularly small business.
We also recommend that collective bargaining arrangements be made more flexible and easier for small business to use, and we invite views on whether there should be a specific dispute resolution scheme for small business for matters covered by the CCA.
The Panel has assessed Australia’s competition institutions - their current performance and preparedness for the future - and identified a gap in Australia’s competition framework. Australia needs an institution whose remit encompasses advocating for competition policy reform and overseeing its implementation. This includes reforms agreed following this Review and future reforms.
We recommend replacing the National Competition Council (NCC) with a new national competition body, the Australian Council for Competition Policy (ACCP). This should be an independent entity and truly ‘national’ in scope, established and funded under a co operative legislative scheme involving the Commonwealth, States and Territories.
Where competition reforms result in disproportionate effects across jurisdictions, competition policy payments should be made to ensure that revenue gains flowing from reform accrue to the jurisdictions undertaking the reform. The ACCP would be responsible for administering payments, based on actual implementation of reforms.
This new body would be an advocate and educator in competition policy. It would have the power to undertake market studies at the request of any government, and could consider requests from market participants, making recommendations to relevant governments on changes to anti competitive regulations or to the ACCC for investigation of breaches of the law.
The Panel recommends that the ACCC retain both competition and consumer functions. We also recommend a separate access and pricing regulator be established with responsibility for existing regulatory functions undertaken by the NCC and the ACCC, including the Australian Energy Regulator, but with relevant consumer protection and competition matters remaining with the ACCC.
The Panel considers that the ACCC is a well regarded and effective body but that its governance would be strengthened with input from individuals free of responsibility for its day to day operations. This would bring an ‘outsider’s view’ and, in particular, allow business, consumer and academic perspectives to bear directly on ACCC decision making. Accordingly, we have suggested enhancing the governance structure of the ACCC by adding a Board. The Draft Report canvasses two options for how this Board might be configured.
This is a draft report but still presents specific recommendations for the purpose of stimulating debate. In a number of areas the Panel seeks further input from stakeholders as well as feedback on the Draft Recommendations. We look forward to continuing our engagement with stakeholders on the issues before the Review.
The Panel briefly sets out the report structure.
Chapter 1 - Context for the Review
The Panel notes that Australia is exposed to competitive forces originating beyond our borders and the opportunities this has produced have improved living standards. The Panel provides a brief history of the opening up of the Australian economy to greater competition in the 1980's and 1990's and the impact of the National Competition Policy implemented in 1995 (noting that in 2005 the PC estimated 'productivity improvements and price reductions flowing from the NCP and related reforms ... raised Australia's GDP by 2.5 per cent'. The Panel highlights some of the improved consumer experiences flowing from the reforms - such as opening gas and electricity services to competition.
Strengthening competition brings economic benefits, including choice and diversity, as well as lower overall prices. An economy that responds more flexibly to people’s changing needs and preferences, with a wider array of products from a greater variety of sources at cheaper prices, improves the everyday lives of Australians. [p 12]
The Panel recognises disruption caused by reforms, but concludes that they should 'not stop otherwise beneficial reforms'
Notes the 'constant presence' of change in the 'economic landscape' and associated opportunities and challenges. The Panel identify three major forces for change influencing the Australian economy now and into the 'foreseeable future' (p 12):
- the industrialisation of developing nations and, in particular, the rise of Asia and the growing Asian middle class;
- ageing of the Australian population and falling workforce participation; and
- diffusion of digital technologies with their potential to disrupt established patterns of economic activity.
Developing nations and rise of Asia
The Panel notes that the 're-emergence of China and India as global economic superpowers is driving fundamental structural change in the global economy', but that we should not assume that 'the rise of Asia will remain uncontested opportunity'.
Australia will need policies, laws and institutions that help us make the most of the opportunities we face. In particular, we need to build adaptability, flexibility and responsiveness into our systems. A heightened capacity for agility and innovation will be needed to match changing tastes and preferences with our own capacity to deliver commodities, goods and services into Asia and elsewhere in the developing world.
The Panel notes that Australia's ageing population will 'increase demands on the health and aged care systems'. Currently approx 25% of government spend relates to health, age-related pensions and aged care and this is expected to rise to around half by about 2050. Efficiency and responsiveness of these sectors 'will be crucial'. (p 14)
Allowing people greater choice over their aged care arrangements, where this is feasible, as well as encouraging more diversity among providers will improve the system’s capacity to meet a widening array of needs and preferences among ageing Australians and their families. Competitive entry to aged care markets by innovative service providers will also help to place downward pressure on costs.
The digital revolution
The Panel notes that new technologies are 'transforming the way many markets operate'. See pp 14-15.
Innovative competitive entry of this type can lower cost to consumers and widen their choice of providers. It can also raise concerns about consumer safety. The challenge for policymakers and regulators is to capture the benefits of disruptive entry while preserving traditional safeguards against doubtful or dangerous market practices.
The Panel noted that competition policy 'is aimed at securing the welfare of Australians'.
Broadly speaking, [competition policy] covers government policies, laws and regulatory institutions whose purpose is to make the market economy serve the long-term interests of Australian consumers. Competition policy is about making markets work properly.
The Panel also emphasised here (and throughout the report) that the focus should be on the competitive process, not competitors (p 15):
... competition policy concerns the competitiveness of markets as a whole, not individual enterprises. Nonetheless, the disciplines of a competitive market compel efficiencies in the conduct of business, which in turn contribute to the productivity and competitiveness of enterprises.
The Panel further emphasised the importance of 'choice' and responsiveness to consumers (p 15)
We expect markets to be fair and we want prices to be as low as they can reasonably be. We also value choice and responsiveness in market transactions - we want markets to offer us variety and novel, innovative products as well as quality, service and reliability.
Access and choice are particularly relevant to vulnerable Australians or those on low incomes, whose day-to-day existence can mean regular interactions with government. They too should enjoy the benefits of choice, where this can reasonably be exercised, and service providers that respond to their needs and preferences. These aspects of competition can be sought even in ‘markets’ where no private sector supplier is present.
Maximising opportunity for choice and diversity, keeping prices competitive, and securing necessary standards of quality, service, access and equity — these are the things Australians expect from properly governed markets. A well-calibrated competition policy aims to secure these outcomes in commercial transactions and, where appropriate, also in the provision of government services.
Fit for purpose
The Panel identified six attributes of competition policy that they regarded as defining its fitness for purpose (page 16)
A competition policy that is ‘fit for purpose’:
- focuses on making markets work in the long-term interests of consumers; fosters diversity, choice and responsiveness in government services;
- encourages innovation, entrepreneurship and the entry of new players;
- promotes efficient investment in and use of infrastructure and natural resources;
- includes competition laws and regulations that are clear, predictable, and reliable; and
- secures necessary standards of access and equity.
Making markets work in the long-term interest of consumers
The Panel considered that competition policy, law and institutions 'serve the national interest best when focused on the long-term interests of consumers (p 16)
Consumers in this context are not just retail consumers or households but include businesses transacting with other businesses. In the realm of government services, consumers are patients, welfare recipients, parents of school-age children or users of the national road network.
The Panel again noted that the focus should be on the competitive process, not competitors (p 16):
A focus on the competitive process, rather than competitors, and the interests of consumers is a well-established principle in competition policy across the globe.
The Panel considered flexible, adaptable regulatory arrangements were needed and that market regulation should be as 'light touch' as possible. The Panel continued (p 17):
We need to allow success to emerge in response to market-driven factors, rather than prescribing rules that support firms of particular sizes at the expense of others. Doing the latter compromises the long-term interests of consumers. Success in the market should be driven by consumer interests, not the special interests of suppliers or providers.
The Panel noted that competition laws censure anti-competitive terms and abuse of market power, but that these 'interventions should be targeted and proportionate'. (p 17)
Fostering diversity, choice and responsiveness in government services
The Panel noted choice was a 'powerful dynamic force for improving our lives' and that government services could be adapted to better serve our needs. However, that does not mean we should have 'unlimited options' or face 'a bewildering array of possibilities', but rather it means 'having our needs and preferences met easily and affordably, in a timely fashion, and at a place and time of our choosing ...' (p 17).
The Panel noted that Australians would 'demand more government services over time, especially in health and education' and, if well managed, 'moving towards greater diversity, choice and responsiveness in the delivery of government services can both empower consumers and improve productivity ...'.
Encouraging innovation, entrepreneurship and entry of new players
The Panel observed that we are likely to see an acceleration of technological change in the future, particularly in the field of information and communications technology. This has resulted in more information available to all market participants, but has also allowed sellers to 'target their goods and services more accurately' (p 17.
The Panel notes existing laws and institutions can struggle to keep pace with rapidly evolving technological change. They need to be 'sufficiently adaptable to allow new entry to make innovation and potentially lower-cost products and services available to Australian consumers.' (p 18)
A competition policy that is fit for purpose must strike a balance between the long-term benefits to consumers of allowing new entrants to establish themselves in a market and protecting the public interest against dishonest or dangerous practices.
Promoting efficient investment in and use of infrastructure and natural resources
The Panel noted that Australia faces an 'unprecedented opportunity the thrive' in coming years as the 'middle class in Asia and beyond burgeons', but this will require 'wise and efficient investment'.
A competition policy that is fit for purpose facilitates mechanisms to signal the efficient investment in and use of our infrastructure. (p 19)
To optimise potential for allocation of natural resources, 'we need to ensure that planning, zoning and environmental regulations governing the use of our land and other natural resources, including water, are sensibly applied.'
Laws and regulations that are clear, predictable and reliable
Laws should be 'clear, predictable and reliable and administered ... without fear or favour.'
Our competition law must ensure that market participants, big and small, can compete in a way that allows the most efficient and responsive players to thrive.
The Panel noted tension between designing laws and regulations to deal with problems that emerge at any given time and building in flexibility to cope with changes in market circumstances. They continued (p 20):
This is especially relevant when new technologies are rapidly altering market conditions faced by businesses and consumers. The more tightly specified our laws, the more likely they are to lag behind developments in markets and possibly act against the long-term interests of consumers.
A competition policy that is fit for purpose should enshrine competition law that is sufficiently general in its design to accommodate evolving ways of doing business or engaging with consumers, but sufficiently reliable and predictable in its application so as not to discourage innovation and entrepreneurship.
Securing necessary standards of access and equity
The Panel noted that benefits and opportunities afforded by the market should not be 'reserved for the privileged few', with access and equity dictating 'necessary standards and genuine opportunities that all consumers should be able to enjoy, so that genuine choice, responsiveness and innovation are available to all' (p 20). This is particularly important for vulnerable consumers, 'especially in their dealings with government'.
This Part described the findings and set out the draft recommendations.
Chapter 2 - Competition Policy
This chapter provided an overview of the Panel's thoughts on competition policy and set out related recommendations. Detailed discussion of competition policy is contained in Part 3. The Panel also released useful infograph providing a visual overview of its recommendations on policy.
Source: The Australian Government Competition Policy Review
Chapter 3 - Competition Laws
This chapter provided an overview of the Panel's thoughts on competition laws and set out related recommendations. Detailed discussion of competition laws is contained in Part 4. The Panel also released useful infograph providing a visual overview of its recommendations on law.
Source: The Australian Government Competition Policy Review
Chapter 4 - Institutions and Governance
This chapter provided an overview of the Panel's thoughts on competition institutions and governance and set out related recommendations. Detailed discussion of competition institutions and governance is contained in Part 5. The Panel also released useful infograph providing a visual overview of its recommendations relating to competition institutions.
Source: The Australian Government Competition Policy Review
Chapter 5 - Small Business
This chapter provided an overview of the Panel's thoughts competition law and small business.
The Panel also released useful infograph providing a visual overview of its recommendations relating to competition and small business.
Source: The Australian Government Competition Policy Review
In addition to the infograph, a brief video from Panel member, Su McCluskey discusses how the Draft report deals with small business and regional issues.
Chapter 6 - Retail Markets
This chapter provided an overview of the Panel's thoughts competition law and retail markets.
The Panel also released useful infograph providing a visual overview of its recommendations relating to competition and retail markets.
Source: The Australian Government Competition Policy Review
Chapter 7 - Competition Principles
Chapter 8 - Regulatory Restrictions
Chapter 9 - Infrastructure Markets
Chapter 10 - Human Services
Chapter 11 - Competitive Neutrality
Chapter 12 - Procurement
Chapter 13 - Key Retail Markets
Chapter 14 - Introduction to Competition law Issues
In relation to the competition laws, Panel Member Michael O'Bryan QC has outlined some of the key issues and recommendations (including those relating to misuse of market power). See also the infograph relating to competition laws.
Further details forthcoming
Chapter 15 - Mergers
- No change to substance of s 50 (retain SLC test)
- No change to definition of market
- Definition of competition to be amended to make clear it captures competition from potential imports
- No change to law to allow for creation of national champions
- No creeping acquisitions law
- No change to informal merger review process
- Formal processes (clearance and authorisation) should be combined into a single process with ACCC decision maker at first instance subject to merits review by Tribunal
The Panel first notes that, despite earlier reviews generating debate about the appropriate test to be applied for mergers, the submissions to this review demonstrated 'near-universal support' for the substantial lessening of competition test.
The Panel noted concern about whether the current definition of market was sufficiently broad to capture global markets and market dynamics. The Panel accepted that the concept of market was 'central to the application of competition law, including the merger law' and noted that the meaning of market in Australian law has been very 'stable', quoting the famous QCMA passage:
A market is the area of close competition between firms or, putting it a little differently, the field of rivalry between them … Within the bounds of a market there is substitution - substitution between one product and another, and between one source of supply and another, in response to changing prices. So a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive. [fn: Re Queensland Co-Op Milling Association Limited and Defiance Holdings Limited (QCMA) (1976) 8 ALR 481 at 518]
The Panel considered it 'necessary and appropriate for the term "market" to be defined as a market in Australia' because the Act is concerned with the 'economic welfare of Australians'. However, they noted that this does not mean the Act 'ignores the forces of competition that arise outside Australia but which bear upon Australian markets' (p 193). In this respect, the Panel noted that the term 'competition' is defined to include competition from imported goods and services and considered that this has been recognised by the Tribunal and the ACCC. However, to ensure 'global sources of competition are considered where relevant the Panel considered that the current definition of 'competition should be strengthened to avoid any doubt that competition from potential imports as well as actual imports can be considered.
The Panel noted that 'to compete effectively, business must continuously pursue economic efficiency' which in many industries requires scale. 'Businesses may pursue mergers in order to achieve efficient scale to compete more effectively in global markets' (p 195). However, they took a cautious approach to the 'national champions' argument, noting that it is not clear 'whether, and in what circumstances, suspending competition laws to allow the creation of national champions is desirable from either an economic or consumer perspective' (p 195), noting Porter's research suggesting that the best preparation for global competition is 'exposure to intense domestic competition'. In addition, creation of 'national champions' may benefit shareholders while diminishing the welfare of Australian consumers.
The panel considered that the authorisation process provided sufficient flexibility for public benefits, including those associated with economies of scale, to be considered. The Panel's view is set out on p 198:
In many markets in Australia, achievement of efficient scale will not substantially lessen competition because of the constraining influence of imports. Such mergers are allowed under the CCA.
If the achievement of efficient scale through a merger will also result in a substantial lessening of competition in Australia, conflicting interests arise: the gain to the businesses that wish to merge through achieving greater efficiency against the potential detriment to Australian consumers due to the reduction in competition.
The Panel considers that such issues can be addressed under the existing CCA framework. ...
The Panel noted that the issue of 'creeping acquisitions' had been considered in discussion papers in 2008 and 2009 and that in 2011 the Act was emended to prohibit mergers likely to result in SLC in any market (removing the requirement that the market be substantial).
The Panel considered that there was a legitimate question 'regarding whether section 50 ... should be applied so that the anti-competitive effect of an individual merger is assessed by reference to the aggregate effect of other mergers undertaken by the same corporation ... within a stated period', but concluded that this would be complex and costly in the context of mergers and, as a result, 'in the absence of evidence of harmful acquisitions proceeding because of a gap in the law on creeping acquisitions' the Panel did not consider that the case for change had been made. (p 199)
Should merger review processes be aligned with other approval processes?
The Panel considered the proposal from some stakeholders that the timing of merger approval processes should be coordinated with other processes, such as foreign investment and financial regulator approvals. The Panel did not support the proposal, noting that they were not related and any attempt to coordinate would cause delays and impose an 'unwarranted burden on bidders and sellers' (p 200).
Merger approval process
Informal review process
The Panel noted that the informal clearance process was most commonly used and the majority of submissions supported the process because of its 'flexibility and relatively low cost'. The main concern raised by stakeholders was that in complex matters the process can be slow or unpredictable. The Panel considered that any attempt to formalise the informal process would reduce its flexibility and have timing and resource implications. They did not consider it 'sensible to attempt to regulate an informal process', but did suggest that there was scope for further consultation between business and the ACCC 'with the objective of developing an informal review process that delivers more timely decisions' (p 201).
Formal merger process - clearance and authorisation
The panel notes that the formal clearance process has not been used since it was introduced in 2007 and that only two applications for authorisation have been made tot he Tribunal since 2007.
The Panel considered the existence of a formal clearance option serves a useful process, but the process 'needs reform to remove unnecessary restrictions and requirements that may have acted as a deterrent to its use' (p 202). The Panel further considered that the dual processes for formal merger clearance (clearance and authorisation) is sub-optimal and should be improved in consultation with business, practitioners and the ACCC. The process should contain the following elements (p 203):
- ACCC to be first instance decision-maker (not Tribunal)
- ACCC should be able to approve a merger if satisfied it does not SLC or public benefits outweigh anti-competitive detriments (this would facilitate single approval process addressing competition and public benefit issues0
- Formal process should not be subject to any prescriptive information requirements, but ACCC should have power to require production of certain material
- Formal process should be subject to strict timelines that cannot be extended without consent of merger parties
- ACCC decisions should be subject to merits review by the Tribunal
Chapter 16 - Unilateral conduct
- Section 46: Amend s 46 - introduce effects test, remove 'take advantage' and current purpose test, add defence
- Section 46: If proposed changes made, repeal predatory pricing provision and other post-2007 amendments
- Section 46: No change to introduce divestiture remedy for s 46 breach
- No change to introduce price discrimination laws (should use s 46)
- No international price discrimination laws
- No change to existing unconscionable conduct laws
The Panel notes that most industrialised countries have introduced laws prohibiting abuse of power and that, common to those laws, is the principle that 'firms are entitled, and indeed are encouraged, to succeed through competition ... even if they achieve a position of market dominance through their success.'
The Panel also notes that large firms may enjoy strong bargaining power that may be abused when dealing with suppliers and customers and that policy concerns are raised when bargaining power 'is exploited through imposing unreasonable obligations' because this can 'traverse beyond accepted norms of commercial behaviour and can be damaging to efficiency and investment'. Law may be required t respond 'both as a matter of commercial morality and to protect efficient market outcomes.'
Misuse of market power
The Panel first notes the submissions to the Review seeking reform - predominantly arguing for an effects test - and those opposing it - concerned such a test would 'chill' competition and harm consumer welfare. The Panel then set out a useful history of the debate on s 46 in Australia, highlighting that of the 11 previous independent reviews and parliamentary inquiries that have considered the test, none have recommended an effects test (p 207). The Panel considered the long-running debate had been unproductive.
[page 208] The challenge is to frame a law that captures anti-competitive unilateral behaviour but does not constrain vigorous competitive conduct. Such a law must be written in clear language and state a legal test that can be reliably applied by the courts to distinguish between competitive and anti-competitive conduct.
Difficulties with current language of s 46
The Panel noted that the requirement that firms have a 'substantial degree of power in a market' enjoyed broad support and a case for change had not been made.
On the issue of take advantage the Panel noted that its meaning 'is subtle and difficult to apply in practice' when coupled with market power because market power is not a 'physical asset' or a 'commercial instrument', the 'use of which can be observed' (p 208). The Panel set out some of the cases dealing with the interpretation of 'take advantage' and concluded that the difficulties of interpretation revealed by these cases mean that
a serious question arises whether 'take advantage' is a useful expression by which to distinguish competitive from anti-competitive unilateral conduct. [page 209]
In relation to the purpose test, the Panel noted that at least its meaning was 'clear and capable of reliable application by the courts' but that the more significant issue was the focus of the test on harm to individual competitors rather than the competitive process:
Presently, the purpose test in section 46 focuses upon harm to individual competitors — conduct will be prohibited if it has the purpose of eliminating or substantially damaging a competitor, preventing the entry of a person into a market, or deterring or preventing a person from engaging in competitive conduct. Ordinarily, competition law is not concerned with harm to individual competitors. Indeed, harm to competitors is an expected outcome of vigorous competition. Competition law is concerned with harm to competition itself — that is, the competitive process. [page 210]
Proposal for reform
The Panel considered that a case for reform had been established and that s 46 could be re-framed in a way to clarify its intended meaning and improve its effectiveness. The Panel proposed removing the current take advantage and purpose elements and replacing these with 'purpose, effect or likely effect of substantially lessening competition' and, to avoid over-capture, including a defence based on whether the conduct would have been a 'rational business decision by a corporation' without SMP and would have the effect of advancing the long term interests of consumers. This is set out at p 210:
The Panel proposes that the primary prohibition in section 46 be re-framed to prohibit a corporation that has a substantial degree of power in a market from engaging in conduct if the proposed conduct has the purpose, or would have or be likely to have the effect, of substantially lessening competition in that or any other market.
The primary prohibition would make two significant amendments. First, it would remove the ‘take advantage’ element from the prohibition. Second, it would alter the ‘purpose’ test to the standard test in Australia’s competition law: purpose, effect or likely effect of substantially lessening competition. The test of ‘substantially lessening competition’ would enable the courts to assess whether the conduct is harmful to the competitive process. The application of that test will ordinarily make the ‘take advantage’ test redundant.
However, in recommending reform, the Panel wishes to minimise the risk of inadvertently capturing pro-competitive conduct, thereby damaging the interests of consumers. To remove any concerns about over-capture, the Panel proposes that a defence be introduced so that the primary prohibition would not apply if the conduct in question:
• would be a rational business decision by a corporation that did not have a substantial degree of power in the market; and
• would be likely to have the effect of advancing the long-term interests of consumers.
The onus of proving that the defence applied should fall on the corporation engaging in the conduct.
The Panel seeks submissions on the scope of the defence.
If these changes were introduced other post-2007 amendments could be repealed, including those relating to predatory pricing and attempts to explain meaning of taking advantage.
The Panel noted there is already a broad range of remedies available for breach and that these were sufficient - it did not recommend a divestiture remedy.
The Panel explains price discrimination and its benefits in some cases and also sets out the former prohibition on price discrimination. The Panel considered that restricting pricing flexibility can harm competition and consumers and price discrimination should only be prohibited where it substantially lessened competition. This is best addressed under s 46.
International price discrimination
The Panel explains this and noted that there are 'significant implementation difficulties associated with any attempt to prohibit international price discrimination' (p 214). However, it also noted that mechanisms currently used to 'circumvent international price discrimination can help to put competitive pressure on prices'.
The Panel favours encouraging the use of market-based mechanisms to address international price discrimination, rather than attempting to introduce a legislative solution. [Page 215]
The Panel also noted they had recommended removing restrictions on parallel imports (Recommendation 9) and that it had recommended an overarching review of IP law (recommendation 7) - the Panel also endorsed certain recommendations of the House of Rep's Standing Committee on Infrastructure and Communications relating to IT pricing.
The Panel concluded:
Attempting to legislate against international price discrimination could result in significant implementation and enforcement difficulties and risks negative unintended consequences. Instead, the Panel supports moves to address international price discrimination through market solutions that empower consumers. These include the removal of restrictions on parallel imports and ensuring that consumers are able to take legal steps to circumvent attempts to prevent their accessing cheaper legitimate goods. [Page 217]
Unfair and Unconscionable Conduct in business transactions
The Panel noted that abuse of bargaining position may not contravene s 46 because it may not materially harm competition, but may still 'so offend accepted standards of business behaviour that it is unconscionable' [p 217]. After briefly outlining the history of statutory unconscionable conduct provisions, the Panel reiterated that the concern of competition laws was to protect competition and not competitors and that this requires balancing 'preventing anti-competitive behaviour that undermines competition with not inhibiting behaviour that is part of normal vigorous competition'.
A separate but parallel principle is that the business and wider community expect business to be conducted according to a minimum standard of fair dealing. There are sound economic and social reasons for enshrining minimum standards within the law. Because it is difficult to prescribe such minimum standards, the law prohibits unconscionable conduct, leaving it to the courts to determine in a given case whether the conduct fails to conform to the dictates of good conscience. Unconscionable conduct is assessed by reference to the particular circumstances in which the conduct occurs and often (but not always) includes a pattern of behaviour which taken together constitutes unconscionability. [page 218]
The Panel considered the current unconscionable provisions appeared to be working well to meet the policy goals, but that there should be ongoing monitoring of these provisions 'as matters progress before the courts' - noting the present supermarket litigation.
Codes of conduct
The Panel noted there were three types of industry codes in the CCA - mandatory prescribed codes, voluntary opt-in prescribed codes and voluntary codes. The Panel also noted recent enactment of a new industry code remedies and powers framework. No recommendations were made.
Chapter 17 - Anti-competitive agreements, arrangements and understandings
- Simplify cartel laws (NZ a useful example)
- Modify cartel laws so they apply conduct affecting goods or services supplied or acquired in Australian markets and are confined to conduct involving firms who are actual or likely competitors (determined on balance of probabilities)
- Broaden JV exemption for cartels and similar forms of business collaboration
- Exempt from cartel provisions trading restrictions imposed by one form on another in connection with supply or acquisition of goods
- Remove separate prohibition of exclusionary provisions
- No change to immunity policy - in particular, no introduction of bar orders
- Competition laws should apply generally and not to particular sectors
- Price signalling: repeal div 1A (not fit for purpose)
- Price signalling: extend s 45 to cover concerted practices in addition to contracts, arrangements or understandings
- Exclusive dealing: Remove per se ban on third line forcing
- Exclusive dealing: reduce complexity of provision
- RPM: retain per se ban
- RPM: allow notification and add exemption for RPM between related bodies corporate
- Liner shipping: repeal Part X (see ch 19 - ACCC should have power to grant block exemptions and should develop one for conference agreements)
Detail to follow
Chapter 18 - Employment-related matters
- Secondary boycotts: no case for change re: employment exception
- Secondary boycotts: no case for change re: environmental and consumer exception
- Secondary boycotts: there would be value in ACCC including in annual report the number of complaints made re: secondary boycotts and the number investigated and resolved each financial year
- Secondary boycotts: consideration should be given to conferring jurisdiction on state and territory courts in addition to the Federal Court.
- Resolve conflict between object of ss 45E and 45EA and industrial conduct permitted by Fair Work Act (Panel favours competition over restrictions)
- Remove limitation in ss 45E and 45EA that applies the prohibition only to restrictions affecting persons with whom an employer 'has been accustomed, or is under and obligation'.
Detail to follow
Chapter 19 - Exemption processes
- Simplify authorisation and notification procedures
- Authorisation: business should be able to apply for authorisation of an arrangement through a single application without regard to specific provisions of the Act that may be contravened.
- Authorisation and notification: ACCC should have power to grant exemption if satisfied conduct is unlikely to SLC or if it is likely to result in a net public benefit
- Collective bargaining: need to enhance small business awareness of notification process + potential to increase flexibility (eg, enable group covered to be altered without need for fresh notification)
- Block exemption powers should be introduced based on framework in UK and EU
Detail to follow
Chapter 20 - Enforcement and remedies
- Current sanction for failing to comply with s 155 inadequate
- Comment requested on whether sanctions for contravening sections 45D, 45DB, 45E and 45EA are adequate
- No divestiture powers for s 46 contraventions
- Section 83 should be amended to apply to admissions of fact made by a corporation in another proceeding (in addition to findings of fact)
- Small business would be assisted by an effective dispute resolution system for competition law issues and where ACCC is not able to take proceedings in relation to a complaint it should communicate 'clearly and promptly its reasons for not acting and direct the business to available dispute resolution procedures'
- Overseas conduct: A foreign company should be subject to Australian competition laws regardless of whether it carries on business in Australia
- Overseas conduct: Remove need for ministerial consent before private companies can launch proceedings involving overseas conduct
- No power to seek cy-pres orders should be introduced
- No new power to use s 155 after ACCC has commenced proceedings
- ACCC should frame s 155 notice in narrowest form possible
- In complying with s 155 notice recipient should be required to undertake a reasonable search
Detail to follow
Chapter 21 - National access regime
- Current roles of ACCC and NCC should be combined into role of proposed access and pricing regulator
- Range of access regimes now appear to achieve original Hilmer policy goals re: bottleneck infrastructure - Part IIA now has only ltd role in regulating this bottleneck infrastructure
- Panel agrees with PC that scope of Part IIIA Regime should be confined because of potential costs
- Comment sought on categories of infrastructure to which Part IIIA might be and should be applied in future
- Declaration criteria: Criterion (a) - should require that access on reasonable terms and conditions through declaration 'promote a material increase in competition in a dependent market' as recommended by PC
- Declaration criteria: Criterion (b) - retain private profitability test (easier to assess in practice) and revise to exclude service provider from assessment of feasible duplication by anyone
- Declaration criteria: Criterion (f) - 'should require that access on reasonable terms and conditions through declaration promote the public interest'
- Tribunal should be empowered to undertake merits review of access decisions
Detail to follow
Chapter 22 - Institutional Structures for Future Competition Policy
Chapter 23 - Enforcement of Competition Law
Chapter 24 - Access and pricing regulation
Chapter 25 - Review of competition and regulatory decisions
Terms of Reference
The Terms of Reference were reproduced
See my submissions page