Jennifer Hewett, 23 November 2015

The Turnbull government’s response to the Harper Review of competition has neatly sidestepped the policy minefield sitting right in the middle of it. Hiving off any decision on Professor Harper’s recommendation for a radically changed Section 46 of competition law for further consideration obviously does not resolve the argument. But delay is a lot more appealing than the alternative of a public brawl right now.

The big business community will be mightily relieved at warding off what most boards and executives saw as a massive threat to their companies daily operations, let alone their ability to expand and compete efficiently. The small business community, Professor Ian Harper and the Australian Competition and Consumer Commission’s Rod Sims are likely to be irritated their arguments have not received the traction they believe they deserve.

It’s not so unusual, of course, that different interest groups, including those within the business community, adopt different interpretations of the likely effect of proposed changes. But the passion aroused by this particular provision is still extraordinary. Both the opponents and proponents of change argue that is because Section 46 is so crucial to the healthy functioning of the economy and to business behaviour.

The Harper review essentially backed a change to what is known more colloquially as the “effects test” relating to the abuse of market power. It recommended wording to prohibit such firms with substantial market power engaging in conduct that “has the purpose, or would have or be likely to have the effect, of substantially lessening competition in that or any other market”. That’s as opposed to just having to prove that such a company had “taken advantage” of its power for the purpose of damaging or deterring a competitor.

A now very ex-small business minister Bruce Billson had championed this change right up until it was finally quashed in cabinet by the now even more ex-treasurer, Joe Hockey. The Harper review became another of those Abbott government reform packages left drifting in political no-man’s land because it all seemed too hard. Malcolm Turnbull’s need to soothe the Nationals as part of his ascension to the prime ministership meant he agreed Cabinet could look again at the contentious issue of Section 46. Just mention Coles and Woolworths to a Nationals MP and wait for the eruption about the supermarket chains’ effect on competition in country towns and on terms for suppliers.


But under the Turnbull government, the treasurer rather than the small business minister is officially in charge of competition policy. It was clear to Turnbull and to Scott Morrison that any hope of a general response to the competition review as part of a new dynamism in reform would be overwhelmed by arguments over Section 46. Even Labor is in the rare position of being in furious agreement with big business. It rejected the pressure to introduce an effects test when in office and remaining opposed.

Despite their enthusiasm for many of the other 55 Harper recommendations, most larger companies also preferred to ditch the whole review rather than have the government accept this one measure. The Turnbull government was left in no doubt of this after a renewed and fierce lobbying effort over the last few months co-ordinated by the Business Council of Australia. No one publicly pushed the case more strongly than Richard Goyder, as CEO of Wesfarmers and owner of Coles.

But the alarm among most businesses of any size was genuine. In their view, Sims and Harper had completely misjudged this aspect of competition law with potentially disastrous results. That can be a tricky argument to make in an environment where disruption is regarded as the new commercial reality and also a highly desirable force in terms of promoting innovation, productivity and smaller challengers.

Rod Sims agrees with Ian Harper that the current wording of Section 46 is wrongly directed at individual competitors rather than to the competitive process. Another of Sims’ criticisms is that the wording of “take advantage” is too vague a concept. Even 2008 amendments to tighten up the law haven’t persuaded him.

The Harper recommendations include proposals to “mitigate concerns about inadvertently capturing pro-competitive conduct”. This is supposedly by “having regard to whether the behaviour would enhance efficiency, innovation, product quality or price competitiveness”. It also excused behaviour that would be regarded as a rational business decision from a company that did not have that substantial market power. Business leaders, naturally backed by their lawyers, insist this sort of change would turn the section into a lawyer’s picnic, create uncertainty and chill competition. Former ACCC chairman, Graeme Samuel, is equally damning about the Harper recommendation – and of the view of his successor.


How, the critics demand, could a large company protect itself from a law that made it an offence to engage in behaviour that simply had the effect or likely effect of substantially lessening competition? In their view, normal competitive behaviour, including innovation and providing improved or cheaper services, would too easily become a legal matter. Just the prospect of having to defend an action would discourage behaviour that would otherwise be considered routine. They also dismiss the argument Australia is out of step with international competition law, insisting other jurisdictions don’t have a baldly defined effects test and that the threshold is more nuanced.

And despite a convenient traditional tendency of Australian companies to form powerful duopolies to divide up the market – a charge most often levelled at the two big supermarket chains – the advent of global competition does make such objection harder to sustain. The concept of competition in a domestic market is now very different. The growing market share of Aldi is cited as Exhibit A.

But for now, Turnbull and Morrison want to avoid walking down the (supermarket) aisle with anyone.

Extracted in full from the Australian Financial Review.