Australian Competition Policy Review panel issues draft recommendations
A comprehensive review of Australia’s competition laws and policies has been welcomed by industry bodies as ‘the most significant’ review in this area in two decades.
The Harper Competition Review Draft Report was prepared by a Panel Chaired by Professor Ian Harper, and also included Sue McCluskey, Michael O’Brien SC, and Peter Anderson. The report builds on the important work of past initiatives, including The Hilmer Review and The Dawson Review.
The Panel was tasked with examining whether Australia’s competition policies, laws and institutions remained ‘fit for the purpose’, especially in light of the changing circumstances of the Australian economy that are expected to unfold over the next decade or more.
“The draft report is part of the most significant review in this area for over 20 years,” said Rod Sims, ACCC Chairman. “The ACCC particularly welcomes the panel’s view that there is a need to reinvigorate Australia’s competition policy, and ensure that competition policy evolves,” he said.
The Australian Chamber of Commerce and Industry (ACCI) has also welcomed the Draft Report. ACCI Chief Executive Officer, Kate Carnell AO, said “to secure the benefits of competition we must press forward with many of the difficult and important reforms outlined in the report”.
“The time is ripe to lay the foundation for a more open, competitive and prosperous economy,” Ms Carnell said.
The 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
- An ageing population
- New technologies
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.
The Panel has recommended that 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 has invited 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 Panel has recommended that 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.
Competition policy is aimed at improving the economic welfare of Australians. It is about making markets work properly to meet their needs and preferences.
According to the Panel, 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.
The Panel said “important unfinished business” remained from the original National Competition Policy (NCP) agenda, and that new areas had arisen where competition policy ought to apply.
Anti-competitive regulations remain in place despite significant progress made under NCP. The Panel has recommended 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.
In particular, the Panel has recommended that 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
Competitive neutrality remains a matter of concern for many stakeholders, including small businesses. The Panel has recommended that competitive neutrality policies be reviewed and updated against best practice, and that complaints handling processes and monitoring be improved.
In order to guide its consideration of whether Australia’s competition laws are fit for purpose, the Panel said it 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 Australia’s competition laws have served it well, the Panel has recommended specific reforms to enhance the effectiveness of the laws.
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 Panel said the central element of ‘taking advantage of market power’ is difficult to interpret and apply in practice. It has recommended 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 has also recommended 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. It has recommended that cartel provisions 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, according to the Panel.
The Panel has recommended changes to other approval processes, both authorisation and notifications, in order to reduce costs for business, particularly small business. It has also recommended that collective bargaining arrangements be made more flexible and easier for small business to use, and has invited views on whether there should be a specific dispute resolution scheme for small business for matters covered by the CCA.
Misuse of market power
The Panel said it considered 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 said it was 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 has proposed 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 Panel has recommended that the onus of proving that the defence applies should fall on the corporation engaging in the conduct.
Such a re-framing would allow the provision to be simplified, according to the Panel. 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.
Cartel conduct prohibition
The Panel has recommended that 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 Panel said there should be further consultation between the ACCC and business representatives with the objective of delivering more timely decisions in the informal review process.
It has recommended that 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 Panel has assessed Australia’s competition institutions – their current performance and preparedness for the future – and identified a gap in Australia’s competition framework. The Panel said Australia needed an institution whose remit encompasses advocating for competition policy reform and overseeing its implementation. This includes reforms agreed following this Review and future reforms.
The Panel has recommended replacing the National Competition Council (NCC) with a new national competition body, the Australian Council for Competition Policy (ACCP). The Panel said 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, the Panel said 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 Australian Competition and Consumer Commission (ACCC) for investigation of breaches of the law.
The Panel has recommended that the ACCC retain both competition and consumer functions. It also recommended 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 said it considered that the ACCC was 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. According to the Panel, this would bring an ‘outsider’s view’ and, in particular, allow business, consumer and academic perspectives to bear directly on ACCC decision making. Accordingly, the Panel has 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.
The ACCC said it will “closely consider” the Draft Report’s analysis of some institutional issues and that it “looks forward to the community discussion it will generate”. In particular, the ACCC said the suggestion that access and pricing regulation be separated from the ACCC was a “significant structural change”.
The ACCC said it would provide a detailed response to the Harper Competition Review Panel.
Although the report is a draft, it still presents specific recommendations, which the Panel said was for the purpose of stimulating debate. In a number of areas the Panel is seeking further input from stakeholders as well as feedback on the Draft Recommendations.
The Panel provided some background to the review, noted almost 350 submissions were received. Submissions on the Draft Report are due 17 November 2014.