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AustraliaCompetition and Consumer Amendment (Misuse of Market Power) Bill 2014

Inquiry into Competition and Consumer Amendment (Misuse of Market Power) Bill 2014

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The Bill
Introduced 6 March 2014

About this Review

The Bill was introduced as a Private Members Bill by Senator Nick Xenophon The Bill would provide the Court with the power to order a corporation to reduce its market share, where the corporation has been found to have contravened subsections 46(1) or 46(1AA) of the Act.

The Senate referred the Bill to the to the Senate Economics Legislation Committee for inquiry and report. Invitations for submissions were sent out by the Committee on 1 April (it was apparently not intended to be an April Fools joke).

See further my bill page.

 

Report

The Committee was originally due to report by 24 June. This was extended until 17 June and on 15 July it was further extended to 4 December 2014. On 4 December 2014 the deadline was extended yet again until 26 February 2015.

The final report was released in February. The committee, chaired by Senator Sean Edwards, recommended that the Senate not pass the bill. Senator Nick Xenophon, who introduced the bill, produced a dissenting report entitled 'Competition laws - the butter knife needs to be replaced with a sword of Damocles'. Senator Canavan also made additional comments, in which he expressed a view that a divestiture remedy should be included for breaches of the misuse of market power provisions, but not in the form provided for in this bill.

The Committee identified three key issues relevant when considering divestiture for misuse of market power:

  1. How to divest assets of an established company
  2. Would a divestiture power be a justified and proportionate response to a contravention?
  3. Are the proposed amendments the best remedy to perceived market issues?

The Committee noted community concern about the market power or share of certain firms, but concluded:

2.43 Even so, the committee does not consider a convincing case has been made for the introduction of a divestiture power as a remedy for the misuse of market power. Evidence has not demonstrated that the potential advantages of such a power would outweigh the likely disadvantages. In particular, the evidence received by the committee was compelling in questioning the courts' ability to 'fix' perceived problems with a market by ordering that certain assets of a large, complex and unified business organisation be divested. The committee is concerned that court-ordered divestiture would risk significant disruption and economic damage, with unpredictable consequences for competition.

2.44 In the committee's view, the evidence available suggests that the debate about section 46 should be focused on whether the prohibitions contained in it are effective, not whether further penalties need to be available. The committee notes this is the approach that appears to have been taken by the current independent review of competition policy being chaired by Professor Ian Harper. The Harper Review provides an opportunity for a thorough and holistic examination of competition policy, and the committee awaits the Harper Review's final report with great interest.

 

Submissions

Submissions were sought from individuals and organisations and were due by 30 June 2014.

Four public submissions were initially released. None supported the bill (Treasury submission was neutral providing Committee with information generally):

  • Law Council of Australia (opposed)
  • LIV Young Lawyers’ Law Reform Committee (authored by Joel Silver) (opposed)
  • Australian National Retailers Association (opposed)
  • Treasury (background information)

Subsequently the following submissions were published.

  • SPAR Australia Ltd
    (claims total failure of s 46 to prevent market abuse and reform is needed - it makes no sepcific recommendation inr elation to the proposed bill, save that it does not consider that it will have any impact on behaviour absent changes to s 46 itself.)
  • Master Grocers Australia
    (references MGA's submission to Harper Panel - attached to this submission - and a YouTube video (which no longer appears to be available for viewing) - no specific discussion of bill)
  • South Australian Independent Retailers
    (attaches submission to Harper Review - under its previous name, Independent Supermarket Retailers Guild of SA - no specific recommendations on bill)
  • Mr Angelos Kenos
    (brief letter submission - claims two major supermarkets have excessive powers which they 'use to dominte the market and to obliterate their competition'. No specific comment on the bill)

Law Council of Australia (Business Law Section)

Notes that s 46(1) is 'reasonably settled', is supported by a growing body of case law and its substance is 'broadly in line with international standards in relation to anticompetitive, dominant firm conduct'. In relation to divestiture orders, LCA notes that each of the previous reviews of Australian competition laws which have considered whether divestiture powers should be introduced for s 46 contraventions have concluded that 'no such power should be introduced'. The submission sets out reasons why such powers have been rejected in the past as well as other reasons why divestiture powers could have adverse impacts on the market.

The submission also notes that while such powers exist in the US, it has been 'used only sparingly' and 'other than by consent' no such order has been made by the 1960's; similarly, while divestiture powers exist in the EU and Canada they have never been used.

The LCA cautions against the introduction of divestiture powers and expresses the view that the current sanctions for s 46 are sufficient.

In relation to the bill proposed, the LCA notes that it 'provides only indirectly for the divestiture of some of the business assets of a corporation which contravenes s 46' which 'introduces further uncertainty and complexity' (the problems with this are then identified in further detail).

The LCA 'recommends that the proposed s80AD not be introduced'.

LIV Young Lawyers' Law Reform Committee

The submission details the proposed new provision and the reasons advanced for its introduction. It then sets out the existing provision and the penalties currently available for s 46 contraventions. Parallels are drawn with section 50 and its associated divestiture power (s 81).

In relation to the proposed s 80AD several concerns are expressed. First, it is noted that s 80AD 'as drafted, invites the Courts to take an overly interventionist role both in the marketplace, and more problematically in the management of certain corporations' - this, it is submitted, 'would represent a drain on limited Court resources'. The s 80AD, which would 'involve the effective creation of new businesses', provide for 'reshaping the market'. The power would exist regardless of available ACCC resources and for 'a divestment to be equitable and viable, comprehensive modelling is needed for any new entities proposed, as well an understanding of how the existing market structure, and how the realignment, would impact upon it.'

Australian National Retailers Association

Makes clear it is not supportive of the bill:

'Forced divestiture in a small and dispersed market such as Australia would undermine value and choice for consumers, and jeopardise jobs and investment in the retail sector, including in regional communities.'

Claims the Bill

'is the latest attempt by the anti-supermarket lobby to prevent Australian families from having continued access to a wide range of groceries at affordable prices in convenient locations. The nature of Australia’s small population across a large geographic area means there are many industries that may only have two or three firms operating at scale. None of these sectors have been subjected to the same barrage of false claims and myth-making that major supermarkets have endured.'

Notes that despite all recent reviews, the conclusion has been the same - that 'competition in the sector is vibrant and vigorous'.

The submission then sets out specific objections to the bill:

  • Existing penalties are sufficient
  • 'The argument for more penalties is based on false assertions' (in particular, the assertion in the Explanatory note that a lack of competition is leading to higher prices for consumers).
  • The bill provides for divestiture without proof of a misuse of market power (noting subsection 80AD(4) gives the Court the ability to force divestiture even without prosecution' [note: this requires consent - see proposed s 80AD(4)]
  • Lack of detail about extent of divestiture (no limits)

Submission notes the seriousness of a divestiture penalty and claims it is inconsistent with the concept of a 'proportional penalty', would destroy shareholder wealth, disrupt employment and reduce customer choice and/or increase prices.

ANRA also note that, while available as a remedy in US, Canada and the EU, it has never been used in the latter jurisdictions and rarely applied in the US. Also notes the 'practical problem' that the ACCC and Courts 'have no experience in how to split up companies'.

Treasury

Treasury made a 23 page submission providing information to the Committee. It notes that the timing of the inquiry overlaps with the Competition Policy Review.

Competition law, market power and market share

Treasury sets out the object of the CCA and the benefits of competition. It then describes s 46 and notes that neither s 46(1) nor 46(1AA) 'prohibits a large market share or a high degree of market power per se, even a monopoly' but rather protect the competitive processes and not 'individual competitors':

'They are not designed to produce or promote any particular market structure or composition. The role of section 46 is to distinguish between vigorous competitive activity (which is desirable) and economically inefficient, monopolistic practices that may harm the competitive process, which drives efficient outcomes and benefits to consumers.' (page 5)

Treasury notes that market power and market share are distinct economic concepts (it goes on to explain these concepts - particularly on page 6) and, in relation to share, notes:

Comparisons across countries suggest that some markets in Australia are more concentrated than in some other advanced economies. Between 2005 and 2007, the top two grocery retailers’ market shares of grocery and supermarket sales were 54 per cent — in the United Kingdom they were 42 per cent; in Canada 51 per cent; in New Zealand 100 per cent; in Ireland 35-45 per cent; and in the Netherlands around 45 per cent. However, the supermarket industry is evolving over time, with international competitors such as ALDI and Costco emerging as new sources of competition in recent years [footnote omitted; page 7]

Powers currently available in response to findings of misuse of market power

Treasury then sets out current penalties/remedies for contravention of s 46. It notes that divestiture is not currently available, but if it were it would be more severe than the existing penalties. It notes that divestiture for mergers (which is available under s 81) is

'a natural solution to a substantial lessening of competition, as the pre-merger structural state of the market is a state the court can return to via use of the remedy, though it is not always possible to ‘unscramble’ a transaction post-acquisition. In the merger context, divestiture is appropriate, the Dawson Review noted, as "it deals with recent conduct (the acquisition of identifiable shares or assets) that has given rise to a breach of the Act."' [page 8]

As such, it is not considered a penal provision. Nevertheless, it has rarely been used.

Arguments for and against the inclusion of a divestiture power

Treasury notes that a number of previous inquiries have considered whether divestiture is appropriate for s 46 and sets out arguments considered for and against its inclusion. It also usefully sets out a table of previous reports and their consideration of this issue (page 10) making clear that none supported a broader divestiture power for s 46 save for the Senate Economics References Committee Inquiry into the Effectiveness of the Trade Practices Act 1974 in protecting Small Business (2004).

International experience

Notes broader divestiture powers in some other jurisdictions but note they have rarely, if ever, been used. Notes 2006 OECD report which states that divestiture provisions for misuse of market power are "not available under the competition laws of many other OECD countries, and where they are available, they are treated somewhat sceptically by the legal frameworks in place there." (page 10, citing OECD Policy Roundtable, Remedies and Sanctions in Abuse of Dominance Cases (2006), page 33). A table setting out existing divestiture powers and their application is then set out from page 14.

Conclusion

Treasury draws no conclusions from the information it provides and offers not recommendations; however, it would be difficult to find any support for the bill from any of the information provided in this submission.

 

Committee

Chair

Senator Sean Edwards (South Australia, LP)

Members

Senator David Bushby (Tasmania, LP)

Senator Sam Dastyari (New South Wales, ALP)

Senator Mark Bishop (Western Australia, ALP)

Senator Matthew Canavan (Queensland, NATS)

Senator Alan Eggleston (until 1 July 2014) (Western Australia, LP)

Senator Chris Ketter (Queensland, ALP)

Senator Louise Pratt (until 1 July 2014) (Western Australia, ALP)

Senator John Williams (until 1 July 2014) (New South Wales, NATS)

Senator Nick Xenophon (South Australia, IND)