Recommendations by Harper Competition Review receive government fanfare but government promises ‘further consultation’

Posted by AFN Staff Writers on 1st April 2015
Recommendations by Harper Competition Review receive government fanfare but government promises ‘further consultation’
Recommendations by Harper Competition Review receive government fanfare but government promises ‘further consultation’

The Australian Government has released the Final Report of the Harper Competition Policy Review, which has made 56 recommendations for reforms across three key themes: competition policy, laws and institutions.

The Government had asked Professor Ian Harper and an expert panel to undertake an independent ‘root and branch’ review of competition policy. The Government claimed this was the first comprehensive review of Australia’s competition framework in more than 20 years.

The Review Panel has declared that the evidence presented to the Panel throughout the review suggests that reform was not only overdue, but “critical to improving Australia’s productivity performance and to sustaining our living standards into the future”.

The Panel identified three factors contributing to “persistent forces for change” that will shape the Australian economy now and into the future:

  • The rise of Asia and other emerging economies
  • Australia’s ageing population
  • New technologies that are ‘digitally disrupting’ the way many markets operates, the way business is done and the way consumers engage with markets

The Australian Government is seeking feedback on the Report’s recommendations from industry, consumers and all levels of Government, which will inform the Government’s response to the report later in 2015. Following the Government’s response, appropriate legislative changes “will be developed for further consultation”.

Misuse of market power regulation ‘deficient’

The Panel said its review found that section 46 of the Australian Competition and Consumer Act (CCA), which deals with the misuse of market power, was “deficient in its current form”. The Panel said section 46 of the CCA “does not usefully distinguish pro-competitive from anti-competitive conduct”, and that its sole focus on ‘purpose’ was “misdirected as a matter of policy and out of step with international approaches”.

The Panel said section 46 should instead prohibit conduct by firms with substantial market power that has the purpose, effect or likely effect of substantially lessening competition, consistent with other prohibitions in the competition law. It should direct the court to weigh the pro-competitive and anti-competitive impact of the conduct.

The Panel has recommended a number of changes which it said will “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 Panel has recommended that the cartel provisions should be simplified. It has also recommended that the price signalling provisions should be removed and replaced, by extending section 45 governing contracts, arrangements and understandings that affect competition to also cover concerted practices that have the purpose, effect or likely effect of substantially lessening competition. Further, it has recommended that the prohibition on exclusive dealing in section 47 should be repealed.

The Panel has also recommended that secondary boycott provisions should be retained and effectively enforced. It said that trading restrictions in awards and enterprise agreements (except to the extent they relate to the remuneration, conditions of employment, hours of work or working conditions of employees) should be prohibited by the CCA, and that merger approval processes should be streamlined.

The Panel has also recommended changes to other approval processes, both authorisation and notification, and introducing a block exemption power for the Australian Competition and Consumer Commission (ACCC), to reduce costs for business, especially small business. Collective bargaining and collective boycott arrangements should be made more flexible and easier for small business to use. The Panel has recommended that the ACCC should be proactive in assisting small businesses to seek other forms of redress when it decides not to pursue a case on their behalf.

The Panel said it considered that recent cases in the Federal Court instituted by the ACCC against supermarket group Coles for unconscionable conduct in its dealings with certain suppliers indicated that the current unconscionable conduct provisions were “working as intended to meet their policy goals”.

New competition body, Australian Council for Competition Policy, recommended

In assessing Australia’s competition institutions — their current performance and preparedness for the future — the Panel said it had identified a gap in Australia’s competition framework. To fill this gap, 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 as well as 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, 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 reform implementation. 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. It could also consider requests from market participants to either recommend changes to anti-competitive regulations to relevant governments or refer breaches of the law to the ACCC for investigation.

The Panel has recommended that, while the ACCC retain both competition and consumer functions, a separate access and pricing regulator be established with responsibility for existing regulatory functions undertaken by the NCC and the ACCC. These regulatory functions would include all those currently performed by the Australian Energy Regulator (AER) but exclude relevant consumer protection and competition functions, which would remain with the ACCC.

Recommended changes for ACCC governance

The Panel said it considered that, although the ACCC is a well-regarded and effective body, “its performance would be strengthened by including a more diverse range of views and experience at the Commission level”. The Panel said this could be achieved by introducing part-time Commissioners whose commitments beyond the ACCC would “broaden the Commission’s perspective, and whose part-time status would make them more independent from the day-to-day management of ACCC business”.

The Panel has also recommended that Commissioners no longer be designated with specific responsibilities, for example, for small business or consumer protection, but that “the Commission as a whole be required to have regard to all sectors and interests”.

Intellectual Property recommendations

The Panel said it found that disruptive technologies, especially digital technologies, were a “pervasive force for change in the Australian economy”. It said new technologies “foster innovation, which in turn drives growth in living standards”. According to the Panel, access to and creation of intellectual property (IP) “will become increasingly important as Australia moves further into the digital age”.

The Panel said that, given the influence of Australia’s IP rights on facilitating (or inhibiting) innovation, competition and trade, it believed that the IP system should be designed to operate “in the best interests of Australians”.

The Panel has recommended that the Australian Government ask the Productivity Commission to undertake an overarching review of intellectual property in the form of a 12-month inquiry. It said the review should focus on competition policy issues in intellectual property arising from new developments in technology and markets; and the principles underpinning the inclusion of intellectual property provisions in international trade agreements.

The Panel said it considered it appropriate that commercial transactions involving IP rights, including the assignment and licensing of such rights, be subject to the CCA, in the same manner as transactions involving other property and assets.

Competition in retail markets

Competition in retail markets has been an important focus for the Review, including competition in grocery and fuel retailing, regulations on planning, zoning and trading hours, and specific regulations such as those affecting pharmacy and liquor retailing. The Panel has recommended a number of changes that will apply to retail markets to promote competition and benefit consumers.

Planning and zoning laws

The Panel has recommended an immediate review of planning and zoning rules to ensure that planning regulations were working in the long-term interests of consumers. It acknowledged that a number of reviews were already underway, and that this provided the opportunity to compare across jurisdictions to determine best practice as a basis for updating and improving current requirements.

According to the Panel’s recommendations, the following competition policy considerations should be taken into account in a review of planning and zoning laws:

  • Arrangements that explicitly or implicitly favour particular operators are anti-competitive
  • Competition between individual businesses is not in itself a relevant planning consideration
  • Restrictions on the number of a particular type of retail store contained in any local area is not a relevant planning consideration.
  • The impact on the viability of existing businesses is not a relevant planning consideration.
  • Proximity restrictions on particular types of retail stores are not a relevant planning consideration.
  • Business zones should be as broad as possible.
  • Development permit processes should be simplified.
  • Planning systems should be consistent and transparent to avoid creating incentives for gaming appeals.

The Panel said an independent body, such as the proposed Australian Council for Competition Policy (ACCP), should work with States and Territories to oversee incorporation of competition policy principles in planning and zoning rules. The Panel said the ACCP should also report to jurisdictions on progress in implementing these principles.

Retail trading hours

Regulation of retail trading hours varies across Australia. The Australian Capital Territory, Northern Territory, Victoria, Tasmania and New South Wales have almost completely deregulated retail trading hours, whereas Western Australia, South Australia and Queensland retain significant restrictions.

The Panel has recommended that remaining restrictions on retail trading hours should be removed. To the extent that jurisdictions choose to retain restrictions, the Panel said these should be strictly limited to Christmas Day, Good Friday and the morning of ANZAC Day, and should be applied broadly to avoid discriminating among different types of retailers. The Panel said deregulating trading hours should not prevent jurisdictions from imposing specific restrictions on trading times for alcohol retailing or gambling services in order to achieve the policy objective of harm minimisation.

Removal of parallel import restrictions recommended

The Panel report claimed that “parallel import restrictions are similar to other import restrictions (such as tariffs) in that they benefit local producers by shielding them from international competition”. It claimed that “they are an implicit tax on Australian consumers and businesses”.

The impact of changing technology and shifting consumer purchasing practices (such as purchasing books online) means that some of these restrictions are easily circumvented. According to the Panel, however, removing remaining parallel import restrictions would promote competition and potentially lower prices for consumers.

The Panel said many of the concerns raised in submissions around relaxing parallel import restrictions, including concerns about consumer safety, counterfeit products and inadequate enforcement, could be addressed directly through regulation and information. The threat of parallel imports may also induce international suppliers to re-think their regional arrangements, according to the Panel.

The Panel has recommended that restrictions on parallel imports should be removed unless it can be shown that:

  • the benefits of the restrictions to the community as a whole outweigh the costs ; and
  • the objectives of the restrictions can only be achieved by restricting competition.

Consistent with the recommendations of recent Productivity Commission reviews, the Panel has recommended that parallel import restrictions on books and second-hand cars should be removed, subject to transitional arrangements as recommended by the Productivity Commission. It said remaining provisions of the Copyright Act 1968 that restrict parallel imports, and the parallel importation defence under the Trade Marks Act 1995, should be reviewed by an independent body, such as the Productivity Commission.

Pharmacy ownership restrictions ‘should be relaxed’

The Panel said it considered that current restrictions on ownership and location of pharmacies were not needed to ensure the quality of advice and care provided to patients. According to the Panel, 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 said it considered 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 to medicines and quality of advice regarding their use that do not unduly restrict competition.

According to the Panel, negotiations on the next Community Pharmacy Agreement offer an opportunity for the Australian Government to implement a further targeted relaxation of the location rules, as part of a transition towards their eventual removal. If changes during the initial years of the new agreement prove too precipitate, the Panel said there should be provision for a mid-term review to incorporate easing of the location rules later in the life of the next Community Pharmacy Agreement.

The Panel said a range of alternative mechanisms exist to secure access to medicines for all Australians that are less restrictive of competition among pharmacy service services providers. In particular, the Panel said tendering for the provision of pharmacy services in underserved locations and/or funding through a community service obligation should be considered. The Panel said rules targeted at pharmacies in urban areas should continue to be eased at the same time that alternative mechanisms are established to address specific issues concerning access to pharmacies in rural locations.

Australian Food News reported in September 2014 that some industry commentators had suggested that relaxing pharmacy ownership laws would see Australia’s major supermarkets move into the sector.

Small business recommendations

The Panel said it had been especially mindful of the concerns and interests of small business in the context of the Review. Accordingly, the Report contains a number of recommendations relevant for small business.

Recommended changes to strengthen the misuse of market power provision “are intended to improve its clarity, force and effectiveness so that it can be used to prevent unilateral conduct that substantially harms competition”.

The Panel said it believed that “small business needs greater assurance that competition complaints can be dealt with”. It said the ACCC “could play an important role in connecting small business to alternative dispute resolution services, and that developing industry codes with practical and effective dispute resolution processes could also help to ensure that small business has access to justice”.

The Panel has recommended that the CCA should be reformed to introduce greater flexibility into the notification process for collective bargaining by small business.

“Improved understanding of the collective bargaining and collective boycott provisions could also promote their use and potentially strengthen the bargaining position of small business in dealing with large business,” the Panel said.

The Panel said “other recommendations to reform competitive neutrality policy and review regulatory restrictions, including standards, occupational licensing, and planning and zoning rules can enable small business to compete more effectively”.