In a speech delivered yesterday at the CEDA State of the Nation conference in Canberra, Chairman of the ACCC Rod Sims has given the clearest indication yet of the position which the ACCC will take on the Government’s Review of Competition Policy.

We commend the speech to you as a telling insight into the ACCC’s stance on a number of key issues.

Read on for our comments on the following matters addressed in the speech (click on the links to jump to the one that interests you the most):

Please contact us to discuss any issues in more detail.

The ACCC’s stance on privatisation

Mr Sims laments the loss of the ‘competition culture’ that followed the Hilmer reforms of the early 1990s. While in favour of opening up more sectors of the market to competition, Mr Sims warns against privatisation at the cost of future long-term efficiency through competition:

“Where governments are increasingly failing is in ‘how’ to privatise. Privatising in ways that limit competition in order to maximise the sale proceeds is the wrong way.”

The current review by the Australia Competition Tribunal of AGL’s proposed acquisition of Macquarie Generation is clearly at the forefront of Mr Sims’ mind in this regard.

Special mention is also made, however, of State governments privatising ports without “appropriate access regimes, nor controls on pricing.”

With further privatisations clearly on the agenda, we can expect the ACCC to be very active in seeking to ensure that the way in which privatisation is achieved does not result in long term competitive detriments. Indeed, Mr Sims flags in his speech that he will be taking the unusual step of writing to all governments “to point out that the trend towards selling monopoly or near monopoly assets with the primary aim of maximising proceeds, without due consideration of the competition implications, is effectively a tax on future generations”.

National champion arguments given short shrift

Mr Sims also refers in this context to national champion arguments being forwarded in support of mergers within the private sector. A recent example of this is the argument made by Murray Goulburn in favour of its failed bid for Warrnambool Cheese & Butter for a national dairy champion to compete effectively in export markets, which was vigorously opposed by the ACCC.

Mr Sims is clear about the ACCC’s attitude to such arguments:

“The argument is a contradiction: if you cannot beat your rivals at home how can you hope to do so overseas? Firms involved in cosy duopolies or oligopolies in Australia are unlikely to succeed on the world stage.”

Mr Sims is equally dismissive of arguments that mergers should be cleared simply on the basis that returns for existing competitors are low and the merger would create a more ‘rational’ market structure.

Competition to boost productivity

To illustrate the potential for regulatory intervention to promote productivity, Mr Sims gives the example of the introduction of congestion pricing in relation to roads to generate better road usage signals than the existing road user charges. Generally, Mr Sims indicates that he would like to see the Competition Policy Review focus on ways in which more effective use could be made of price signals in a variety of sectors.

Mr Sims also calls for the revocation of Part X of the CCA which provides cartel immunity to registered international shipping lines to enable cooperation between them, and the removal of red tape (such as licensing requirements) affecting competition in the domestic shipping sector.

Reforms to competition laws, processes and institutions

Mr Sims identifies three areas where Australia’s existing competition laws could be improved:

  • the prohibition on misuse of market power;
  • price signalling or ‘facilitating practices’; and
  • the cartel provisions.

Mr Sims states that “competition laws should be directed towards the principle of economic efficiency, and the law should proscribe conduct that undermines such outcomes.”

He then goes on, citing the recent Cement Australia case, to argue that the existing law prohibiting misuse of market power, and in particular the requirement that a firm with substantial market power must ‘take advantage’ of that power in order for there to be a contravention, has meant that conduct by firms possessing market power engaged in with a “documented anti-competitive purpose and a significant anticompetitive effect” may still not result in a breach. This is a situation which, in Mr Sims’ view, favours incumbents to the detriment of competition.

Mr Sims also calls for the removal of the current limitation on the application of the price signalling laws to the banking sector, and for a simplification of the cartel provisions while maintaining ‘current policy settings’. In relation to the existing cartel laws as drafted, Mr Sims states that “concerns include the potential difficulty in achieving a successful criminal prosecution, where a jury must be directed on complex competition matters, and the interpretation and application of the various defences and exceptions”.

Resistance to a ‘break up’ of the ACCC and call for a market studies power

Mr Sims argues strongly against the suggestion from some quarters that there would be a benefit in splitting up the functions of competition enforcement, consumer protection and economic regulation among separate agencies.

It is appropriate, in Mr Sims’ view, that these functions be performed by a single agency as they all go to the same purpose of “making markets work as they should”.

Mr Sims cites the recent proceedings brought by the ACCC against Coles for unconscionable conduct against its suppliers as an example of a use of a consumer protection power to drive a market outcome, a use which in Mr Sims’ view might not have occurred to an agency solely concerned with consumer protection.

Finally, in a call which echoes his comments on the limitations of the misuse of market power provisions, Mr Sims notes that the ACCC’s submission to the Competition Policy Review will call for the ACCC to be given a market investigation power.

Such a power is a feature of a number of competition law regimes overseas, particularly in Europe. For instance in the UK a market investigation can be conducted to determine if there is an adverse effect on competition in a given market which may arise from conduct by firms but also from structural features of a market (such as barriers to entry or expansion). The UK regulator can then take action to remedy those effects by accepting undertakings from market participants or imposing orders.

Read in the context of Mr Sims’ comments regarding the inadequacies of the misuse of market power provisions, and the need for a focus on “making markets work”, Mr Sims clearly sees such a power as providing a way for the ACCC to promote economic efficiency without (as the current regime requires) needing to attach its investigation to a potential breach by a corporation of one of the existing conduct provisions in Part IV.