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The competition shake-up that needs to deliver
With the release of its draft report, the Harper Review has held true to its ‘root and branch’ epitaph. Many of the suggested reforms are a positive step towards creating a more focussed and effective competition regime. The question for us all is whether this will see competition blossom?
The Panel led by Professor Ian Harper shows a genuine effort to reinvigorate the promotion of competition by suggesting reform of Australia’s competition institutions and simplifying competition laws and processes. This is a good thing.
Many of the recommendations propose changes that should correct past legislative curiosities that unfortunately pervade our law.
The Panel’s recommendations deal with old chestnuts in debates on competition policy and extend the debate into other areas in which the Panel considers that competition policy should have greater influence, including the delivery of human services.
These are very significant areas of future reform. But there will be much public debate and political machinations before we see final developments in these areas.
The Panel has decided that a new era requires new institutions.
To replace the all but defunct National Competition Council the Panel says we should have a new competition advocate in the Australian Council for Competition Policy. The ACCP is to lead and drive the evolving competition policy agenda. As a special little surprise to many, including the ACCC we suspect, the ACCP is also to be the holder of the new power to conduct market studies.
This area is in need of a refresh and we are hopeful that a new body can breathe life into this important policy area and be a reinvigorated advocate for competition policy.
Equally dramatic is that the ACCC is to be split. That split is not in competition and consumer law – those functions stay together.
But the ACCC’s role in regulating markets with bottleneck infrastructure is to shift to a new Access and Pricing Regulator. While it has been on the agenda of State governments for many years to see the Australian Energy Regulator’s functions go to a new regulator, the Panel goes further. The access and pricing regulation of all regulated industries, energy, telecommunications and water, as well as others governed by the general access regime (rail, ports, etc) are to go to this new regulator.
The ACCC may not be enthusiastic about these institutional reforms. It has long seen itself as an advocate for competition policy and has favoured retaining its current functions.
The suggested reforms are a positive step towards creating a sleeker, more focussed and effective ACCC with a responsibility for competition and consumer law enforcement. The new regulator can then focus on the different (if related) function of overseeing regulated markets.
The Panel has also recommended changes to the governance arrangements for the ACCC. This is perhaps surprising when it says that the ACCC is both ‘well regarded’ and an ‘effective body’ – statements to which we agree.
Of course, the law has not escaped the Panel’s attention. Many of its recommendations propose changes that should correct past legislative curiosities that unfortunately pervade our law.
Most will simplify and clarify rather than radically change the law.
A constant critique in respect of the current law is that it is too complex and too prescriptive. The Panel has taken these comments on board and made suggestions for simplification across a range of areas. These include a simplification of the provisions dealing with cartels and joint ventures, as well as the elimination of standalone provisions in respect of exclusionary conduct which overlap with the cartel provisions. It is also good to see the Panel recommending the repeal of various ineffective amendments which have been added to section 46 in recent years.
Some of the proposals will clearly have the intended effect. For other proposals, particularly where the Panel has requested further consultation, the devil may be in the detail.
In the debate that is to come, many will focus again on the proposed changes to section 46 which generally follow what the ACCC has suggested. The Panel has tried to reflect the public debate by acknowledging the potential for over-reach. We will need to await the next round of consultation to know where the Panel finally lands on the proposal to include a business strategy exception.
We applaud the proposal to consolidate and streamline the formal merger processes that currently sit alongside the largely effective informal clearance process. The existing formal processes are extremely burdensome and are unable to fulfil their intended purpose to provide greater transparency, timeliness and accountability for the few complex mergers that need those features. The Panel proposes to combine the formal processes by allowing the ACCC (and the Australian Competition Tribunal on review) to consider both competition issues and public benefits (including merger efficiencies). While there may be other ways to deal with this, the proposal may work.
Of course it remains to be seen how calls for a simplified and streamlined Act will make their way into legislation where the notion of simplicity can be lost in the drafting.
We await the final recommendations to make sure the efforts to review the root and branch allow competition to blossom.
Key Observations – Competition Law
Market power: this hotly debated area looks like leading to the most significant change to the law by introducing a prohibition against using market power for the purpose, effect or likely effect of substantially lessening competition. But, reflecting some of the public debate on this issue, the Panel recognises that this test will potentially over-reach and proposes an exception for business strategy and rationale. It leaves for further consultation the scope of that exception.
Repeal of the below cost pricing provision: on the back of its proposed reform to the market power provision, the Panel recommends repeal of recent changes concerning market power including to the so-called Birdsville amendments regulating below cost pricing. It also recommends that other recent changes to section 46 be repealed.
Leave price discrimination to market power: the Panel rejects calls to reintroduce a prohibition on price discrimination. The Panel does not recommend any attempt try to regulate international price discrimination, recommending instead that this should be dealt with by improving competition, for example by removing parallel importation restrictions.
Merger process: the Panel does not propose any regulation of the ACCC’s informal process but recommends that the ACCC should liaise with industry to try and improve that process. For the formal processes (clearance and authorisation) the Panel recommends the combination of the clearance and authorisation processes into a single process which is less cumbersome but which allows both competition and broader public interests (including efficiencies) to be considered. The Panel says that this formal process should go to the ACCC with a right of review to the Competition Tribunal.
Cartels: the Panel says that we can do better in the way we have framed our cartel laws which are currently overly complex and should be simplified. This should not substantially alter the law but would be welcomed changes.
Primary boycotts: the Panel says we should remove the prohibition against exclusionary collusive conduct in section 4D. While the provision survived the earlier cartel reforms, the Panel now recommends that these provisions be subsumed into the cartel provisions.
Price signalling: the current provisions dealing with anticompetitive disclosure of information are set for repeal. Instead the Panel recommends that the general prohibition on anticompetitive arrangements be extended to include ‘concerted practices’.
Clarify the drafting of exclusive dealing: the Panel recommends that the current complex drafting of section 47 be simplified.
Third line forcing should not be per se illegal: the panel recommends that third line forcing should only be illegal subject to a competition test. This reform has been proposed in prior reviews of Australian competition policy.
Small business: some might complain that there is very little for small business in the Panel’s recommendation – others will say that the Panel has correctly resisted calls for radical measures to protect small business. The Panel appears to support alternative dispute resolution for small business but has left this for further consultation. The Panel considers that collective bargaining processes should be further streamlined and encouraged but no clear recommendations are made in respect of these matters. The Panel recommends no change to the unconscionable conduct laws, preferring that the current law be allowed to develop in the Courts.
Extra-territorial reach: the extension of the law to conduct outside of Australia will be clarified and strengthened by removing the requirement that the party engaging in the conduct be connected with Australia (by residence, incorporation or business presence). This reform may be quite significant for prosecution of international cartels.
The burden of section 155 Notices: a potentially significant proposal is to make compliance with mandatory section 155 notices subject to a ‘reasonable search’ qualification. This could serve to substantially reduce the burden of compliance. The Panel also recommends that the ACCC review its guideline on section 155 to take into account increasing burden of compliance in the digital age.
National access regime: important recommendations are made to amend the criteria for declaration. Importantly, criterion (a) is to require that access promote a material increase in competition in a dependent market, as opposed to any one market as currently drafted. Also, criterion (b) (relating to whether it would be uneconomical to develop another facility) is to make clear that the question of whether duplication is uneconomical for the service provider is excluded. The Panel favours merits review from declaration decisions be available to the Australian Competition Tribunal. Finally the Panel seeks further comment on other issues under Part IIIA including, again significantly, whether Part IIIA should be confined in its scope to the categories of bottleneck infrastructure cited by the Hilmer review.
Key Observations - Institutions
Oversight of the ACCC: even though the Panel considered that the ACCC is ‘well-regarded’ and an ‘effective body’ it recommends that governance structures should play a greater role in the ‘checks and balances’ over the ACCC’s activities. The Panel puts forward two options to allow for a wider range of business, consumer and academic viewpoints to improve ACCC governance. First is to replace the Commission with a Board of executive members and non-executive members with business, consumer and academic expertise. The second is to add an Advisory Board, chaired by the ACCC Chair, to provide advice, including strategic advice but with no decision-making powers.
A new competition advocate: the National Competition Council was established by the Hilmer reforms is to be a replaced by a new Australian Council for Competition Policy. This ‘ACCP’ is to lead and drive the implementation of the evolving competition policy agenda. The ACCP will be the ‘clear advocate’ for competition policy – a role which the Panel considers can be an ‘uneasy role’ for the ACCC.
New market studies power but not for the ACCC: The ACCC in its submission to the Review wanted a new power to conduct market studies with mandatory information powers. Significantly, the Panel recommends a market study power, but says that this should be given to the ACCP and not the ACCC and leaves for further comment whether the ACCP should have mandatory information gathering powers.
The ACCC’s functions divided: the Panel rejects calls to split the ACCC’s competition and consumer functions. Significantly, however, it recommends that all access and pricing functions in regulated industries (including electricity, gas, telecommunications and water as well as the general access regime) be split from the ACCC to a new Access and Pricing Regulator. This is a profound change. The Panel rejects arguments that there are synergies achieved by combining the functions.
ACCC as a player in the media: the Panel recommends that the ACCC should develop a media code of conduct to strengthen the appearance of impartiality.
Key Observations – Competition Policy
Competition principles reformulated: True to the ‘root and branch’ nametag, the Panel proposes a set of competition principles aimed at redirecting all governments to the need to allow competition to affect markets in the long term interests of consumers.
Targets for competition reform: specific sectors are identified as needing action by governments (at all levels) to allow competition principles to operate including human services, taxis, transport, pharmacy and planning. In respect of human services, the Panel urges governments to agree guiding principles that focus on user choice, separation of funding, regulation and service delivery, diversity of providers and innovation in service delivery.
Reintroduction of competition payments: the Panel recommends the reintroduction of the government incentives that were a key part of the legislative review as part of the Hilmer reforms.
Parallel imports: the Panel recommends that the restrictions on parallel imports be removed. This is qualified by allowing the restrictions where they are in the ‘public interest’ and the objectives can only be achieved by restricting competition.
Removal of specific regulation of liner shipping: the Panel recommends the removal of the historically separate treatment of shipping conferences in international liner shipping, which currently provide very broad exemptions from competition law.
The anticipated Harper Review Panel Draft Report (Draft) reviewing Australia’s competition policy was released on 22 September. At over 300 pages and containing more than 50 specific recommendations the Draft sets out an ambitious reform agenda. It reflects a genuine effort to reinvigorate competition policy as a means to provide benefits for all Australians.
Given the breadth of the subject matter, and the scope of the recommendations, not every recommendation will find favour in all quarters. If pursued, many of the recommendations would assist in creating a more efficient economy and a more focused and effective competition law regime. Of course, as is the case with most efforts at legislative reform, the devil will be in the detail. For example, while the Panel made a number of recommendations to simplify the law it did not, with certain exceptions, provide specific drafting proposals.
The YouTube clips and infographics which accompanied the release of the Draft are a symbolic preview of the Panel’s assignment - to assess the current competition policy in light of contemporary pressures on the Australian economy and formulate recommendations as to how competition policy should be changed in order to ensure the competitiveness of the Australian economy. At least on paper it seems to have met this task.
The Draft considers three areas of reform:
- Competition law: substantive changes to the provisions of the Competition and Consumer Act 2010 (Cth) (CCA). While broad in coverage, most simplify rather than radically change the law. That said, the simplification of the existing law would be a welcome development for the business community and practitioners,
- Institutions: out with the old and in with the new. The Panel recommends that the National Competition Council be replaced with a new body the Australian Council for Competition Policy and that various industry specific market regulation functions, currently performed by the ACCC, be transferred to a new body, and
- Competition policy: a guiding light to government on the implementation on competition policy and a call to reform the regulatory framework restricting competition in a number of industries including the taxi, pharmacy and human services.
While there are no guarantees that any of the reforms will be implemented, those which open up segments of the economy to more competition may have significant longer term impact. Professor Harper has suggested that competition reform could grow the economy by 2.5% a year. Changes to the institutions responsible for the administration of competition law and policy, as well as changes to the CCA itself, may have less of an impact on the overall economy. These reforms are, nevertheless, substantial. In this note we consider some of the key proposals, with a particular focus on proposed amendments to the CCA and changes to institutional structure.
The Panel has undertaken a detailed analysis of Australia’s competition laws, and has proposed a number of reforms to simplify and remove unnecessarily complex laws and processes, while retaining the underlying policy intent of the CCA. To its credit, the Panel has particularly focussed its attention on areas where overly detailed laws have contributed to uncertainty, consequently imposing costs on business and the economy.
Key recommendations include:
- misuse of market power: introducing an effects test as well as a defence to respond to concerns that an effects test will capture pro-competitive behaviour,
- merger approval processes: consolidating the formal merger approval processes into a single process which allows both competition and broader public interests to be considered,
- cartel conduct: simplifying the cartel provisions and removing the prohibition on exclusionary provisions, as well as including a broader joint venture defence and a new exemption for vertical supply arrangements,
- price signalling prohibitions: removing the complex and technical price signalling legislation, and extending the current prohibition against agreements that have the purpose or effect of substantially lessening competition to also prohibit ‘concerted practices’ where two or more firms regularly disclose or exchange price information,
- vertical restraints: redrafting complex exclusive dealing provisions to apply to all forms of vertical arrangements, as well as removing the strict prohibition on third line forcing,
- resale price maintenance: maintaining the strict prohibition against resale price maintenance conduct, but allowing such conduct to be notified – a quicker and less expensive process than authorisation,and
- enforcement: facilitation of private proceedings to allow admissions of fact made by a corporation in one proceeding to be used as prima facie evidence against the corporation in follow-on proceeding, and adjustments to the ACCC’s mandatory information gathering powers.
Misuse of market power
Introduction of an effects test
A major proposal for reform by the Panel, and one which would result in a significant change to the law, is its recommendation that an ‘effects’ test should be introduced to section 46.
Section 46 prohibits a corporation holding a substantial degree of market power from taking advantage of that market power for the purpose of substantially damaging a competitor, preventing the entry of a person into a market, or preventing a person from engaging in competitive conduct. This prohibition focuses on the purpose of the corporation engaging in the conduct.
Proponents of an effects test argue that the CCA should focus on conduct that lessens competition, rather than the purpose of the conduct. It has also been asserted that a focus on subjective purpose makes it difficult for the ACCC to prove a contravention of section 46.
The Panel has recommended the section be amended to introduce an effects test. The prohibition recommended by the Panel would apply to ‘conduct [having] the purpose, or would have or be likely to have the effect, of substantially lessening competition’.
This change may make it easier for the ACCC to bring successful prosecutions in this area. The ACCC has stated that it has not brought proceedings in a number of circumstances where a dominant firm has used its market power with significant economic effects, but in circumstances in which it would have been difficult to establish the proscribed purpose.
The Panel has responded to concerns that an effects test would over-reach and lead to a chilling of competitive behaviour by suggesting a defence to section 46. The corporation relying on the defence to section 46 would bear the onus of showing that the conduct in question:
- would be a rational business decision by a corporation that did not have a substantial degree of power in the market, and
- would be likely to have the effect of advancing the long-term interests of the consumer.
The Panel has sought submissions on the scope of the defence
The introduction of a defence which will create an evidentiary burden on companies is unlikely to satisfy critics of the effects test proposal on the grounds that it may ‘chill’ legitimate competitive conduct. In particular, there may be concerns over what ‘advancing the long-term interests of consumers’ means. We expect there to be a number of submissions on this proposal.
The Panel also recommends repealing a number of amendments made to section 46 which, in our view, reflect ineffective and unnecessary attempts over time by Parliament to ‘clarify’ section 46. Amendments targeted for repeal include:
- the specific prohibition against predatory pricing,
- amendments clarifying the meaning of ‘take advantage’, and
- amendments stating how the causal link between the substantial degree of power and anti-competitive purpose may be determined.
Merger approval process
The Panel concluded that the merger provisions in the CCA are working effectively. It did propose a number of recommendations for improvement to both the informal and formal merger review processes.
Informal merger approval process
As a flexible process for obtaining merger clearance, the vast majority of the submissions to the Review supported the informal merger clearance process.
Concerns were raised however, that the current informal merger process does not cater well for more complex mergers and that for these mergers the process can be slow or unpredictable, and lack transparency.
While the Panel recognised the public interest in ensuring the timely and transparent public administration of mergers, it concluded that it was undesirable to try to regulate an informal process. To this end, the Panel’s recommendations were limited to further consultation between the ACCC and the business community to develop a more timely informal review process outside any formal legal framework.
Formal merger approval process
The formal merger process has not been used since its introduction into the CCA.
Seeking to provide a formal merger approval process that is an accessible and effective alternative to informal merger clearance, the Panel recommends combining the merger authorisation and formal merger clearance processes into one streamlined process.
While ultimately leaving the specific features of the process to be settled in consultation with business, competition lawyers and the ACCC, the Panel set out the following general framework:
- the ACCC to be given responsibility for approving or opposing merger applications, with parties having a right of review to the Tribunal,
- merger clearance to be granted on either a competition test or a public benefit test, allowing merger parties to make a single application addressing both issues (if relevant), and the ACCC to approve the merger on either test,
- no prescriptive information requirements, although the ACCC to have the power to require production of business and market information in order to test the arguments that are advanced by the merger parties, and
- strict three month timelines for each of the ACCC and the Tribunal to make a decision, which cannot be extended except with the consent of the merger parties.
These would be significant procedural changes to the current merger review processes. If implemented, it will be interesting to see whether such changes encourage use of the formal merger process in more complex merger transactions. In particular, the imposition of a three month timeline would overcome some of the perceived deficiencies in the informal merger process.
Prohibitions against cartel conduct
The CCA’s cartel provisions have been roundly criticised as being overly complex and prescriptive. Reflecting those concerns the Panel concluded that the provisions in their current form are excessively complex, and fail to provide business with sufficient clarity and certainty.
Without providing specific drafting, the Panel recommends a simpler and shorter form of the current law. While this recommendation is not expected to radically alter the substance of the existing law, a simpler law is to be welcomed. Of course, it remains to be seen whether simplified provisions can make their way into legislation, where the notion of simplicity can be lost in the drafting.
The Panel also provides recommendations about:
- the territorial reach of the law: the Panel recommends that the cartel provisions should only apply to cartel conduct that affects goods or services supplied or acquired in Australian markets.
- the level of competition needed between the parties: the Panel recommends that the cartel provisions should apply only to corporations who are actual competitors, or who are more likely than not to be in competition with each other rather than corporations for whom competition is a mere possibility.
Finally, the Panel also recommends the removal of the prohibition on exclusionary provisions, considering that in practice the conduct is materially the same as market sharing cartel conduct. While, in theory it is possible to come up with situations where exclusionary conduct might not also constitute cartel conduct, it is clear that the significant overlap in these provisions creates unnecessary complexity.
Exemptions to cartel conduct
The Panel proposes two exemptions to cartel conduct - for joint ventures and vertical supply restrictions.
The Panel considered the current joint venture defence required businesses to comply with unnecessary technical requirements which added to business compliance costs. The Panel instead recommends a simple but broad exemption for joint ventures and similar business collaborations that do not have the purpose or effect of substantially lessening competition.
Simplification of the current joint venture defence is sure to be welcomed by the business community. The specific requirements of the current provisions are difficult to apply with certainty, leading to companies spending significant time and money structuring arrangements to ensure that they can receive the protection of the joint venture defence.
The Panel also recommends the introduction of a new exemption for restrictions imposed in vertical supply arrangements that do not have the purpose or effect of substantially lessening competition. While an exception to the cartel laws already exists for conduct that can be characterised as exclusive dealing, the Panel was concerned that this exception does not cover all forms of vertical supply restrictions. The recommendation for a broader exemption, assessed under a competition test, is a sensible proposal that will add clarity and certainty in this area.
Price signalling conduct
The Panel recommends removing the complex price signalling legislation that currently only applies to the banking sector. In its place, the Panel recommends extending the existing general prohibition on anti-competitive agreements to also cover ‘concerted practices’ in any sector of the economy. A ‘concerted practice’ is described as a regular practice undertaken by two or more firms.
While the removal of the price signalling legislation is a desirable change that will simplify the CCA, it will be interesting to see how this particular recommendation is received. Given that the price signalling legislation currently only applies to the banking sector, this proposal has the potential to reach companies in a wide range of other industries who engage in conduct that can broadly be described as ‘price signalling’.
This recommendation will be of particular interest in light of the recent court proceedings commenced by the ACCC against petrol retailers alleging an anti-competitive arrangement or understanding relating to the disclosure of pricing information.
The Panel recommends a simplification to the overly complex exclusive dealing provisions of the CCA.
In place of the current law, which seeks to prohibit a number of categories of vertical restrictions, the Panel seeks to reduce complexity by prohibiting two categories of vertical conduct:
- supplying or acquiring goods or services to or from a person, subject to a condition imposed on the person that has the purpose, effect or likely effect of substantially lessening competition, and
- refusing to supply or acquire goods or services to or from a person, for the reason that the person has not agreed to a condition imposed on the person that has the purpose, effect or likely effect of substantially lessening competition.
The proposed simplification would be a welcome change and would provide laws in this area which are easier for business to understand and comply with.
Third line forcing
The Panel also recommends that the current strict prohibition on third line forcing be removed, such that third line forcing only be prohibited where it has an anti-competitive purpose or effect. This change was also recommended by the Dawson and Hilmer Reviews in 2003 and 1993 respectively. It will be interesting to see whether Parliament adopts the recommendation on this occasion.
Resale price maintenance
The one vertical trading restraint which the Panel considers should be kept as a strict prohibition is resale price maintenance.
Although acknowledging that such conduct can often have little effect on competition in a market, the Panel noted the ACCC’s concerns about the potential for resale price maintenance to cause significant competitive harm, including by facilitating collusion between retailers or suppliers, or excluding retailers or suppliers from the market.
The Panel did, however, recommend that resale price maintenance should be able to be notified rather than authorised. This would be a more timely and less expensive avenue for parties to obtain an exemption from the CCA (provided they can demonstrate public benefit grounds).
The Panel also recommends, consistent with other sections of the CCA, that resale price maintenance between related bodies corporate should be excluded from the operation of the CCA. This would be a sensible outcome, as there is no apparent policy reason for the prohibition on resale price maintenance to apply to related companies.
Removing barriers to remedy
The Panel’s recommendations focused on removing unnecessary barriers to bringing actions in respect of competition law. The Panel made the following recommendations in this regard:
- section 83 of the CCA should be amended such that admissions of fact made by a corporation in one proceeding can be used as prima facie evidence against a corporation in subsequent (follow on) private proceeding. This recommendation may require further consideration by the Panel as this change to the law may affect the incentives of parties to resolve disputes in an efficient manner. If this recommendation is implemented, businesses will need to carefully consider any exposure to follow-on actions when considering a strategy for settling enforcement litigation brought by the ACCC; and
- unnecessary barriers to extra-territorial actions be removed, this includes:
- amending section 5 of the CCA to remove the requirement that the contravening firm has a connection with Australia in the nature of residence, incorporation or business presence; and
- removing the requirement that private parties seek ministerial consent before initiating a proceeding that involves overseas conduct.
In relation to small business, the Panel recognised that it is not feasible for the ACCC to investigate and bring proceedings in relation to each complaint, however the ACCC should communicate with individuals in circumstances when is does not take further action on a complaint and, where appropriate, direct the consumer to alternative avenues for recourse. The Panel promotes the value to small business of an effective dispute resolution system and has invited views in relation to whether there should be a specific small business dispute resolution system for competition law related matters.
The ACCC’s investigatory powers
Section 155 notices
The Panel recognised that it may be necessary to give the ACCC strong coercive powers to investigate possible contraventions of the CCA, particularly in relation to clandestine cartel offences. However, there needs to be an ‘appropriate balance’ between the value of these coercive powers and the significant burden that can be faced by businesses when responding to these notices.
In this regard, the Panel provided two recommendations:
- the ACCC should accept responsibility to frame section 155 notices in the narrowest form possible, and
- in complying with a section 155 notice, the obligation to search for documents should be subject to a requirement of reasonableness, having regard to factors such as the number of documents involved and the ease and cost of retrieving the document. This obligation may be implemented through an amendment to the CCA, or through an appropriate ACCC guideline.
These recommendations, if implemented, should go some way to addressing business concerns regarding the cost of compliance with section 155 notices, particularly in circumstances where a section 155 notice has been issued to a party and there is no allegation that that party has been involved in a contravention.
In addition, the Panel agreed with the ACCC’s submission that the current penalty of $17,000 for a failure to comply with a section 155 notice was inadequate and should be increased. While the penalty for failure to comply with a section 155 notice is lower than an equivalent penalty under the Australian Securities and Investments Commission Act 2001 (Cth), the Panel has not presented any evidence that the current penalty is inadequate as an incentive to deter non-compliance. Further comment was sought on the adequacy of penalties for contravention of section 45D, 45DB, 45E, and 45EA.
National Access Regime
One of the main issues arising from the Draft is the future of the National Access Regime under Part IIIA.
The National Access Regime was established to enable third party access to bottleneck infrastructure where it was apparent that economic efficiency would be enhanced by promoting markets that were dependent upon access to that infrastructure. Under the National Access Regime, the Minister must be satisfied of specified criteria in order to declare an infrastructure service and thereby enable a third party to seek access to that service. The National Access Regime was recently reviewed by the Productivity Commission which recommended that it should be retained but that the criteria used for declaring infrastructure should be revised.
While the Panel clearly endorsed the important role played by access policy since the Hilmer Review, it also noted that subsequent development of sector-specific access regimes for almost of all of the industries identified by the Hilmer Review. This has been supplemented by various complementary regimes imposed by various State governments. As a result, in recognition of the broad costs associated with applications for access under Part IIIA, the Panel has correctly questioned what role Part IIIA has to play and whether its future role should be more limited. The Panel has sought further comment on the future of the National Access Regime, including whether it should be confined in its scope to the categories of bottleneck infrastructure cited by the Hilmer Review.
As well as recommending that the National Access Regime should be administered by a new access and pricing regulator, the Panel recommended that the declaration criteria should be revised to ensure that third party access can only be mandated where it is in the public interest. In particular:
- criterion (a) should require that access on reasonable terms and conditions through declaration promote a material increase in competition in a dependent market,
- criterion (b) should require that it be uneconomical for anyone (other than the service provider) to develop another facility to provide the service, and
- criterion (f) should require that access on reasonable terms and conditions through declaration promote the public interest.
The Panel’s views in relation to criterion (b) are a welcome recognition that, of the tests being advocated for interpreting criterion (b), this is the only test which allows for a practical – and more certain – application of the criterion, without the need for complicated (and uncertain) future predictions about market conditions.
The Draft also considered the role of the Tribunal. Following the High Court’s decision in the Fortescue/BHP Billiton case,1 the Tribunal’s review is limited to a review of the Minister’s original decision, by reference to the materials which were before the Minister. The Panel’s comments provide some further certainty that all appropriate information should be considered by the Tribunal on a review.
The Panel has made a number of recommendations regarding the structure of the ACCC. It also advocates the creation of two new bodies and the dissolution of the NCC. The new bodies are:
- a new competition advocate – the Australian Council for Competition Policy (ACCP) – to navigate the next wave of competition policy reform, and
- a new access and pricing regulator – which would take over current ACCC functions in this area.
Promoting an effective regulator in the ACCC
While the Panel described the ACCC as a ‘well-regarded and effective body’, it concluded that the ACCC would benefit from certain structural changes.
The Panel discussed two options to introduce a diversity of views into the decision-making of the ACCC:
- replacement of the current Commission with a Board that contains both executive and non-executive directors. The role of executive directors would be equivalent to that of the current commissioners, while independent non-executive directors could provide business, academic or consumer expertise, while not being involved in the day-to-day functions of the ACCC, or
- retention of the current Commission structure and the introduction of an Advisory Board without decision-making powers. The Advisory Board could consist of members with equivalent expertise to the non-executive directors described above and Commissioners, including the Chairperson of the ACCC could also be members of the Advisory Board.
A new competition advocate
Correctly in our view the Panel noted that the impetus for competition policy reform has stalled in recent years with the National Competition Council all but defunct.
As a result, it has recommended a new independent and national body to lead and drive the implementation of the evolving competition policy agenda – the ACCP. The ACCP would be funded by the Commonwealth, States and Territories and report to their respective Treasurers. It would assess the progress of reform, make recommendations on competition policy issues and refer matters to the ACCC for investigation. Among the most curious inclusions in the Report is the recommendation that the ACCP have the power to conduct market studies.
The Panel recommends assigning the ACCP, rather than the ACCC, with a market studies function to create a consistent, effective and independent method for governments to seek advice and recommendations on recurrent and emerging competition policy issues. The Panel recommends that all governments, market participants and regulators should have the capacity to issue a reference to the ACCP.
We are hopeful that a new body can breathe life into this important policy area and be a clear advocate for competition policy.
A new access and pricing regulator
The Panel also recommends, as a component of its call to governments to recommit to reform of infrastructure markets, the creation of a new national access and pricing regulator. Australia is unique in having a single body carrying out competition, consumer protection and regulatory functions – other jurisdictions typically have separate competition and regulatory authorities, indeed many have industry-specific regulators.
This regulator would undertake the following regulatory functions:
- the powers given to the NCC and ACCC under the National Access Regime,
- the power given to the NCC under the National Gas Law,
- the functions undertaken by the Australian Energy Regulator under the National Electricity Law and the National Gas Law,
- the telecommunications access and pricing functions of the ACCC, and
- price regulation and related advisory roles under the Water Act 2007 (Cth).
The Panel considered that a single dedicated regulator would ‘sharpen focus and strengthen analytical capacity’, promote consistency as well as reduce the costs associated with multiple regulators.
We consider that these structural changes are a positive development. A sleeker, more focussed ACCC will be created with a responsibility limited to its core competencies in competition and consumer law enforcement, while the new regulator can then focus on the different (if related) function of overseeing regulated markets.
The Draft conducts a ‘sweeping’ analysis of competition policy in Australia. It identifies competition policy as an important tool to enhance the interest of consumers and benefit the Australian economy. The Draft sets out a revised set of competition principles which it considers are attuned to the current and emerging Australian economy. Having an agreed set of principles to guide government policy decision making provides an appropriate framework to consider and prioritise various policy options.
The principles in the Draft inform its recommendations regarding specific priority sectors for reform.
Removing anti-competitive regulation and encouraging innovation
The Panel highlights the need to address ‘unfinished business’ from the original National Competition Policy reforms in 1995. As part of those reforms, governments were given competition payments to assess and implement where necessary reforms to potentially anti-competitive legislation. While significant progress was made - 1,800 individual pieces of potentially anti-competitive legislation were identified, 85% of which were reviewed for reform by government – the Panel, relying on the ACCC submission, notes that impetus for reform ‘slowed considerably’ once the payments ceased.
The Draft recommends a reinvigoration of regulatory review by government to assess potentially anti-competitive legislation and remove unnecessary restrictions. To assist, it is notable that the Panel recommends a reintroduction of the competition payments.
While the Panel notes the impracticability of it examining the field of regulatory restrictions, it does identify a number of priority categories for which it provides the following recommendations:
Please click here to view the table.
In addition to the above priority areas, the Draft also considers the role played by standards for goods and services, including professional licensing.
While the Panel notes that licensing requirements for professional services can raise barriers to entry and highlighted the importance of removing unnecessary restrictions on service provision, it stopped short of making a specific recommendation for the formal review of professional licensing requirements.
On the other hand, the Panel did consider that review of Australian Standards was necessary given their unique position under the competition law – arrangements that seek to implement the standards are exempted from the operation of competition law. If implemented, this recommendation would have the effect of removing currently mandated standards that are either not in the public interest or whose policy objective (eg. industry harmonisation) can be achieved without restricting competition.
Expanding choice and improving quality in human services
While many of the areas are considered above have been the subject of prior reforms, or at least debates about possible reforms, the Panel’s focus on the human services sector is of particular interest.
The Panel calls on governments to develop intergovernmental agreements relating to healthcare services, having regard to the following four principles:
- The separation of funding, regulation and service delivery, to ensure that regulation is made in the best interests of consumers,
- User choice, to improve quality and diversity by encouraging providers to tailor their services to individuals,
- Diversity of providers, including government, private and voluntary services, which promotes choice and innovation by bringing to bear different perspectives in service provision, and
- Innovation, without compromising quality.
The Draft draws heavily on the experience of the UK’s public service reforms, holding the reforms as a benchmark for consumer choice in human services provision. Whether Australia goes as far, will wait to be seen.
Improving competition with government
A large number of submissions raised concerns about an uneven playing field between government businesses and the private sector.
To address this, the Panel recommends review of competitive neutrality policies by an independent body (the proposed ACCP), and that policies include certain minimum procedural requirements relating to complaints handling and reporting in order to improve transparency, accountability and effectiveness.
This opinion piece was first published on Business Spectator here, 23/09/2014.