Summary

The Federal Government has released its response to the Competition Policy Review (Harper Review).

While a majority of the Harper Review's recommendations are supported by the Federal Government, much of any reform agenda will depend on the Government's ability to persuade the States to implement key changes.

Implementation of the Harper Review recommendations will introduce important changes to the Competition and Consumer Act 2010 (Cth), Australia's taxi services, retail trading hours and restrictions on parallel imports. However, the Government has deferred a decision on the most controversial recommendation of the Harper Review: the adoption of an "effects test" for the prohibition against misuse of market power.

In this eBulletin we look at a number of the Government's key responses to the recommendations.

Background

On 31 March 2015, the final report of the Harper Competition Policy Review was publicly released. The Harper Review recommended significant reforms to Australia's competition policy framework, including substantial changes to the Competition and Consumer Act 2010 (Cth) (CCA).

On Tuesday, the Government released its response to the Harper Review indicating its support for 39 of the recommendations in full or in principle, and five in part. In relation to the remaining 12 recommendations, the Government remains open to further review and consultation, including with the State and Territory governments.

The Government has indicated a willingness to engage the State and Territory governments to "advance an ambitious reform agenda".

Amendments to competition law

The Government says it will advance reforms to streamline and modernise competition laws. While most of the Harper Review's recommendations have been accepted, two important legislative reforms will not proceed for the time being. Just as significantly, all draft legislation will have to be the subject of consultation with Australia's States and Territories.

Simplification

The Government has accepted the Harper Review's finding about the unnecessary complexity of Australia's competition legislation and will develop a proposal to simplify the competition provisions in the CCA, following consultation by the Treasury with the Australian Competition and Consumer Commission (ACCC) business groups and legal advisers.

Application to Government activities

The Government has accepted in principle the recommendations on the application of the CCA to government and will consult further with the States and Territories on the implications of extending the CCA to all government business activities.

Definition of 'competition'

The Government has supported the recommendation to take greater account of international trade in the CCA and will develop draft legislation for consultation which includes in the definition of competition:

"competition from goods imported or capable of being imported, or from services rendered or capable of being rendered, by persons not resident or not carrying on business in Australia".

Extraterritoriality

The Government does not support removal of the requirement that a contravening firm have a connection with Australia by way of residence, incorporation or business presence. It does, however, acknowledge that off-shore firms may engage in conduct that harms competition in Australia and will further consider how best to address this.

The current requirement that private litigants obtain ministerial consent to commence proceedings for conduct that occurred overseas will be repealed.

Misuse of market power

The Harper Review suggested that the prohibition against misuse of market power be reframed 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".

The Government has not adopted this recommendation, but has instead acknowledged concerns raised in the submissions to the Harper Review that the introduction of an "effects test" might chill competition. The Government has indicated that it will consult further on the options to reform the provision and will release a discussion paper in February 2016.

Small business groups have criticised the delay by the Government to reach a final decision on the controversial recommendation, whilst other commentators are not surprised that the Government has sought further time to make a final decision on the most contentious element of the report.

Cartel provisions

The Government has supported the simplification of the prohibitions against cartel conduct (including price signalling) and will develop draft legislation to simplify definitions to improve clarity and certainty.

Exclusive dealing

Rather than adopt the recommended repeal of the exclusive dealing provisions in section 47 of the CCA (as this conduct is already effectively addressed by sections 45 and 46), the Government will consider simplification of section 47 as part of the overall proposal to simplify competition laws.

However, in what is welcome news, the Government does support repeal of the per se prohibition against third line forcing.

Secondary boycotts

The Government has acknowledged that secondary boycotts are harmful to trading freedom and therefore harmful to competition. It has therefore supported the recommendation to bring the maximum civil penalty level for contravention of secondary boycott provisions in line with the civil penalties for contravention of other competition law provisions.

Australian Competition and Consumer Commission

The Government supports streamlining of the ACCC merger clearance processes and will liaise with the ACCC in an effort to secure more timely decisions in the informal merger approval process.

The functions of the ACCC will be retained. However, the Government has supported the recommendation that the ACCC report regularly to a broad-based Parliamentary committee, such as the House of Representatives Standing Committee on Economics.

The Government will also liaise with the ACCC to improve the ACCC's communication with small businesses.  This is with a view to improving transparency in relation to complaints and raising awareness of alternative dispute resolution processes.

The Government remains open to annual analysis of developments in the competition environment, and noted that the ACCC currently undertakes work of this nature.

The Government rejected the recommendation that ACCC commissioners should be appointed on a part-time basis, and reaffirmed the requirement that the Commission be constituted by at least one small business commissioner.

Policy recommendations

The Government has supported many of the Harper Review's policy recommendations. Significantly, however, it has also acknowledged that many of the policy recommendations target areas within the States' responsibilities. The Government has expressed clear willingness to work with the States to implement reform. It has asked the States and Territories to identify their own priorities with a focus on areas where review will result in stronger productivity and economic growth.

Deregulation of taxis industry

The review recommended that the Government prioritise regulatory review of taxis and ride-sharing and the Government has supported this recommendation. 

The Government expects that implementation of this recommendation will permit new entrants to the taxi industry, and will generate robust competition in an industry that was previously heavily restricted and strictly regulated.

Reduction of restrictions on retail trading hours

The recommendation that restrictions on retail trading hours be removed and mandatory closures be strictly limited to Christmas Day, Good Friday and the morning of ANZAC day is supported. It is not expected that trading times for alcohol retailing and gambling will be affected.

The Government recognises that States and Territories are at different stages of regulatory reform, with the Northern Territory and Australian Capital Territory no longer regulating trading hours. It has asked the remaining States to consider "whether these restrictions are impeding competition and the ability of retailers to meet customer demand for greater flexibility and choice, and whether they can be removed without imposing undue pressure on retailers to remain open when it is uneconomical to do so".

Abolition of restrictions on parallel importation

The Government supports the recommendation that parallel import restrictions on books be removed but has not adopted the recommendation in relation to second-hand cars.

This will reduce prices for consumers and encourage local booksellers to be more competitive with international suppliers.

Removing restrictions on pharmacies

The Government recognises the need for competition in the pharmacy sector but has not supported the recommendation to remove restrictions on ownership and location of pharmacies.

Instead, it has indicated the agreement by the Pharmacy Guild to undergo an independent public review of pharmacy remuneration and regulation.

Looking forward

The Turnbull Government's response to the Harper Review does indicate an appreciation that Australia needs an open, fair and effective competition regime that reflects today's economy and further promotes consumer choice.

The real test, however, will be the extent to which the Government can garner support from the States and other stakeholders. With differing - and often polarised - views throughout the business community and consumer groups, this is unlikely to be straightforward.