Competition Policy Review
Draft Report - Recommendations
The Panel made a total of 52 draft recommendations. Download all draft recommendations in PDF form.
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.
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.
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.