Stephen Bartholomeusz, 24 November 2015

The winner from the Turnbull Government’s response to the Harper committee’s review of competition laws is, at least for the moment, big business. The loser, while in a broad sense it has had some wins, is probably the Australian Competition and Consumer Commission.

The dominant issue (or at least the most contentious one) that came out of the review and its recommendations was a proposed re-writing of the abuse of market power, or Section 46, provisions of the Competition and Consumer Act.

The committee’s recommendation would have seen the introduction of an ‘effects’ test into the section, so that companies with substantial market power acted in a way that had the effect or likely of substantially damaging a competitor or preventing them from entering a market — regardless of whether that was the intention — would breach the law.

The recommendation was aggressively supported by the ACCC but aggressively opposed by the big business lobby groups and big businesses themselves.

The ACCC argued that under the current law (which has been reviewed repeatedly over the past few decades but left intact), the need to establish that the company had taken advantage of its market power for the purpose of damaging a competitor was too difficult to mount a successful action before the courts. It likened the committee’s underlying notion of shifting the emphasis from damage to competitors to damage to the competitive process.

The bigger end of business, however, argued — and previous reviews of the section have agreed — that introducing an ‘effects test’ with or without some attempt to create safeguards against actions that damaged competitors but enhanced the competitive process would introduce uncertainty and have a chilling effect on competition.

Whether it was the politics of the issue — government support for the recommendations would have created an even bigger backlash from the corporate community — or the more fundamental implications and unintended consequences the recommendations might have for the intensity of competition within the economy, the government has put the issue on a shelf until next year.

It should, of course, be said that the deferment of a decision on Section 46 was only one of 56 recommendations in the committee’s 539-page report. The government has supported 39 of them in full or in principle, five in part and remains open to the other 12.

Much of the focus of the report relates to opening up government services to competition, which will involve significant discussion with the states, but which does hold the promise of substantial longer-term productivity gains and a boost to economic growth.

The debate of Section 46 had overshadowed the far more pervasive and potentially more profound changes that a broader view of the report promises if its recommendations become actions. Postponing any decision on the abuse of market power provisions doesn’t impact the core of the report.

The government plans to consult further on options to strengthen the misuse of market power provisions, defusing the issue for the moment and at least deferring the fight.

That is, however, still a loss, whether momentary or permanent, for the ACCC. It took a very strong public position on Section 46.

Of more direct concern to the commission will be the government’s stance on recommendations that affect its own working.

The Harper committee recommended the establishment of an Australian Council for Competition Policy to provide leadership and drive implementation of the competition policy agenda. It would also be the advocate for competition policy, monitor progress in implementing reforms, identify future areas for reform, undertake research in policy developments in Australia and offshore and conduct ‘ex-post’ evaluations of some mergers.

It would also be the body that undertook competition studies of markets, advised governments on changes to regulation and the ACCC on potential breaches of the Act the commission administers and produced annual competition analysis.

The ACCC chairman, Rod Sims, in his recent KGB Interview supported the establishment of the council as a body that helped drive implementation of the competition reform agenda, but not all the recommendations as to its responsibilities.

Sims wasn’t at all happy with the committee’s recommendation that the ACCC should be subject to a media code of conduct that inhibited its ability to advocate for competition or speak to particular policy issues, like privatisations. He also won’t like it that the government has endorsed the recommendation that the proposed council would conduct the market studies.

Far more disconcerting for the ACCC, however, will be the government’s stance that it remains open to the committee’s proposal that the ACCC should be carved up, with the commission looking after consumer protection and competition and a new body established to regulate all access and access pricing issues.

Those functions (like telecommunications access and pricing) sit within or alongside the ACCC and, Sims has argued, generate significant synergies and sharing of intellectual property.

In effect, the ACCC could become an agency more like the Australian Securities and Investment Commission, pre-occupied mainly with administering competition and consumer law, rather than an economic regulator and, in a practical sense, policy maker. Its brief would probably be much more limited and less powerful if the government adopted the recommendation.

A small win for the commission was the government’s rejection of the recommendation that half its commissioners should be part-timers but the government does support the proposal that the ACCC reports regularly to a parliamentary committee.

It was notable that, while the ACCC welcomed the government’s response, its statement didn’t refer to Section 46, nor did it express an opinion on the recommendations that would affect the commission itself.

One suspects the proposed creation of an access and pricing regulator will, given the government has yet to reach a concluded position on the recommendation, likely to be the subject of a lot more (and quite intense) dialogue between the commission and the government.

Extracted in full from The Business Spectator.