Business awaits Ian Harper’s report on competition policy
By Sourced Externally
March 23, 2015
When Professor Ian Harper hits the send button on the final report on his wide-reaching competition policy he should include a warning notice to the Abbott government to “handle with care”.
Big business lobbyists, small business, the taxi industry, the local book industry and the pharmacy industry, along with others, are lining up to lobby the government on certain proposals in the final report.
The Minister for Small Business, Bruce Billson, said he expected to receive the report just before the end of the month, and would release it immediately – most likely next Monday or Tuesday – and allow eight weeks to consult with colleagues and key stakeholders before giving a government response.
In keeping with the draft report, the final report would be wide ranging and substantial. “It will be Hilmer 2.0,” Billson told The Australian Financial Review.
BUSINESS LOBBYING ON SECTION 46
Some of the more contentious recommendations, including amendments to Section 46 of the Competition and Consumer Act, which would introduce an effects test to existing misuse of market power rules, will be lobbied the hardest – and loudest – by big and small business.
The Business Council of Australia and the big retail giants are readying themselves, and their powerful lobbyists, to bury the proposals to amend Section 46.
Numerous small businesses, including craft beer groups who argue Lion and CUB are using their 90 per cent market dominance to edge them out of the $2.5 billion draught beer market, will lobby to bring about the reforms.
When the proposal to amend Section 46 was raised last year it was shouted down by the Business Council of Australia and prompted Wesfarmers, which owns supermarket giant Coles and hardware chain Bunnings, to describe it as a “ludicrous plan” that would stop consumers getting lower prices.
The stakes are high.
But Billson says from his last discussion with Professor Harper his sense was that the general direction of the draft report would remain in place but there might be some fine-tuning of Section 46. The panel has spent the past few months weighing up and analysing the hundreds of submissions it received in response to the draft report.
The taxi industry and pharmacy guild will also lobby hard against recommendations to deregulate their industries. Other proposals such as parallel importing on books will also cause a stir. Other recommendations will be drowned out by the noise of the few.
But the report is bigger than taxis, pharmacies and Section 46. It looks at electricity, gas and water, planning and zoning, parallel importing, transport, including road charges, intellectual property and the impact of technology on business – and so much more.
The Abbott government’s response to the report will be a big test as it is seen as favouring big business over small business, a perception that doesn’t sit comfortably with some members of the Liberal party and its National Party Coalition partners.
Billson is keen to release a set of recommendations that have an impact. “Competition law is an articulation of economic objectives,” he says. The members chosen for the panel reflect this.
NATIONAL PARTY SPEAKS OUT
But if some of the more contentious recommendations make it into the final draft, the Abbott government will have to walk a tightrope to make sure it doesn’t create a rebellion within its own ranks and the ranks of the National Party.
The National Party has been sending louder and louder messages that it wants to be heard on certain issues.
Indeed three National Party senators crossed the floor last week and supported a housing affordability motion from Family First Senator Bob Day. It was a spontaneous decision which clearly sent a message that the National Party is a separate party from the Liberal Party and therefore nothing should be taken for granted.
The Coalition won the federal election on a number of issues, including a promise to do a root and branch review of competition policy in Australia. It said it wanted to be a reformist government. Here is its chance.
The Harper Review comes at a time when a concentration of power in many industries has made it difficult for small businesses to compete. Section 46 of the act, which is about prohibiting a company using its substantial market power for the “purpose” of killing or substantially damaging competition, is riddled with ambiguities.
These ambiguities and a lack of an effects test, have made it virtually unworkable. This is evidenced by the number of legal cases that have been lost by the ACCC in recent years.
The most recent case was against Pfizer, where it alleged Pfizer had misused its “substantial” market power and engaged in exclusive dealings in relation to the supply of a particular product to pharmacies for the purpose of “substantially” lessening competition.
The ACCC lost the case in the Federal Court last month but instead of walking away it decided to lodge an appeal.
The message was clear: the ACCC will keep fighting these cases because they are too important to ignore.
ACCC: ‘GAP IN THE LAW’
The chairman of the ACCC Rod Sims is blunt: “If you want a market economy to be dynamic and you want those with market power to be challenged but you can’t challenge them because a provision in the act is not workable, you have a problem.”
Sims said if amendments to Section 46 were adopted, including the introduction of an effects test and amendments to overcome limitations with the application of “take advantage”, there would be fewer examples of companies with market power trying to exclude their competitors.
In its submission to the Harper Review, the ACCC said it has “long argued that the failure of section 46 to consider the effect of conduct by a firm with substantial market power is a gap in the law”.
The draft report recommended radical amendments to Section 46 on the basis that it wanted its focus to be about protecting competition, not competitors. It put up two defences, which many believe should be removed.
“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 draft report says.
The big question is whether politics will get in the way.
Over the past 20 years Section 46 has attracted significant debate and numerous reviews, with little political appetite for change.
Former ACCC chairman Allan Fels says it is now time for action. He says Australia and New Zealand are the only countries in the world where competition policy continues to have a purpose test.
Indeed Fels believes competition law should be condensed and simplified to bring it into line with the United States and Europe.
Fels has done a draft law which has reduced the competition part of the act from tens of thousands of words to about 2000 words.
He says more than 20,000 words, or 74 pages of the provisions, are drafted in 19 forms of behaviour instead of the key principle of whether it substantially lessens competition. “This fact alone has caused courts, regulators and practitioners to get caught up in legal technicalities rather than the underlying competition issues,” he says.
To describe the report as a hot political potato is an understatement. The government’s response will be out after the federal budget as putting it off any longer will incur the wrath of small business and its many supporters in the Coalition. The clock is ticking for decisive action.