Professor Harper and his panel will surely become known as the 'Wizards of Oz' if all the changes to competition law and policy recommended in the Final Report of the Competition Policy Review are actually made.
The 56 recommendations in the Report are a yellow brick road for the Government to follow if it wants to find productivity growth in Australia – a road winding through those areas of the economy in need of reform, focussing on the principle of consumer choice in sectors such as health, education and community services, in addition to recrossing old ground on issues such as pharmacy location and ownership laws, and removal of retail trading hour restrictions.
In summary, the Report recommends an overhaul of cartel laws, removing special price signalling rules, reframing the prohibition on misuse of market power, streamlining merger clearance processes, and rewriting the rules on supply chain restraints, including third line forcing.
In a welcome advance from the draft report last year, there is even a set of what the Final Report describes (perhaps optimistically) as "model legislative provisions". This will allow constructive commentary on a concrete set of proposals for the Government to consider.
These recommendations, and the effect they will have (if ultimately passed) on businesses large and small, are summarised below.
A new institution and changes at the ACCC
The Report recommends changes to ACCC institutional arrangements so that:
- half of the ACCC Commissioners should be appointed on a part-time basis to broaden the diversity of views and experience of the Commission; and
- the ACCC's current access and pricing jurisdiction be transferred to a new regulator.
The recommendation to split out from the ACCC its regulatory access and pricing role will be controversial, facing headwinds not least from the ACCC itself, which sees synergies from its regulatory access and pricing role sitting under the same roof as its enforcement role.
A key recommendation is the creation of a new body, the Australian Council for Competition Policy (ACCP), to provide leadership and drive implementation of the evolving competition policy agenda. The central role of the ACCP will be to advocate for competition across the national economy and to advise governments on how to adapt competition policy to changing circumstances facing consumers and business.
The ACCP will also act as an independent assessor of progress of reform, undertaking an annual analysis of the developments in the competition policy environment thusholding governments at all levels to account.
A new institution such as the ACCP will play a valuable role in reinvigorating competition policy in Australia both in terms of leading the policy debate and assessing the implementation of competition reforms by governments. We think there is a good prospect that the government will adopt this recommendation.
Cartel laws & price signalling
The Report recommends simplification of the cartel laws which, consistent with Minter Ellison's submission, it finds are excessively complex.
There are recommended draft amendments to:
- apply the law to conduct wherever occurring between persons who compete to supply goods or services to, or acquire goods or services from, persons resident or carrying on a business in Australia. This is an approach similar to that currently proposed in New Zealand's draft cartel law.
- limit cartel provisions to cartels between actual competitors and 'likely' competitors – the current threshold for 'potential' competitors is very low, having been applied in a recent case where 'is at least possible' that the parties would be competitors.
- broaden both the joint venture defence to cartel conduct and the scope of the current exemptions for 'vertical conduct' between suppliers and customers, which are all subject to the prohibition on arrangements that substantially lessen competition.
While the detail of the model provisions needs to be considered carefully, these recommendations, if followed, should improve the ability of businesses that don't actually compete (but that might in future) to engage with one another in productive joint economic activities.
Importantly, the Report finds that the prohibitions against price signalling (which are currently confined to the banking sector) do not strike the right balance, distinguishing between pro- and anti-competitive behaviour, and should be removed.
But at the same time, the recommendation is that the general prohibition on anti-competitive agreements, arrangements and understandings should be extended to cover so-called 'concerted practices'. The Report suggests that although the term hasn’t been used before in Australian competition laws, the concept of concerted practices "has a clear and practical meaning and no further definition is required for the purposes of legal enactment". This is likely to be a controversial conclusion.
Misuse of market power
The debate over misuse of market power will likely continue to rage, but the Report has come down firmly on the side of change, finding that the law to date has been ineffective and that the polarised debate about change to date has been unproductive. It has offered a simple proposal for the Government's consideration.
The Report suggests that the section be reframed so that it prohibits corporations with a substantial degree of market power engaging in conduct that has the purpose, effect or likely effect of substantially lessening competition, but in determining that issue a court is directed to "have regard to" the purpose or effect of conduct:
- enhancing efficiency, innovation, product quality or price competitiveness; and
- preventing or deterring "the potential for" competitive conduct in the market or new entry to the market.
This approach makes two major changes to the current law. First, it removes the "take advantage" requirement linking conduct to power, which has bedevilled several ACCC enforcement actions. Second, it moves away from a bespoke purpose-based test to the well known standard test of purpose, effect or likely effect of substantial lessening of competition.
The approach places more confidence in our Courts to make judgments about unilateral conduct that is good and unilateral conduct that is bad, based on an inclusive set of principles.
Exactly how the model provision will work and whether it will provide sufficient certainty as to what a business can and can't do in advance of actually doing it will no doubt be the subject of intense consideration through the consultation period.
No changes are recommended to the substantive rule that prohibits anti-competitive mergers. The Report rejects concerns expressed in some quarters about creeping acquisitions and 'national champion' arguments.
It recommends streamlining the formal merger clearance and authorisation processes so that:
- formal clearance (on pure competition grounds) and authorisation (on public benefit grounds) mechanisms are collapsed into one;
- the ACCC is the first instance decision maker with a strict timeframe to decide if it is satisfied that the merger doesn’t lessen competition or that the public benefits outweigh the anti-competitive detriments;
- the Australian Competition Tribunal should be the merits review body for ACCC decisions.
The detail of these proposals is not part of the model legislative provisions and remains to be worked out.
Third line forcing
Third line forcing is a common business practice where a party supplies a customer on condition that the customer also acquire something from another person.
The Report bravely, but quite correctly, suggests (as have many previous reports) that third line forcing should not be per se illegal as it is now, but rather should be permitted unless it has an anti-competitive purpose or likely effect. Such a reform is sensible – it would reduce business compliance costs without unduly risking competition.
Submissions make a difference – Next steps
The Report notes the value of submissions made to the Review Panel.
Minter Ellison's two submissions to the Review focussed on some discrete issues: such as the desirability of a clearer conceptual approach to competition laws, in particular the need to reduce complexity of cartel laws. Further, we suggested that international price differentials should be addressed by removing remaining parallel import restrictions rather than attempting to prohibit price discrimination by international suppliers. We are pleased to see those suggestions have been adopted in the Report.
Unfortunately, not everything we suggested has been picked up by the Report. For example, we advocated:
- removing resale price maintenance as an offence altogether unless it has the purpose or effect of substantially lessening competition. Disappointingly, the Panel has recommended retention of the current per se prohibition on resale price maintenance, although it has recommended allowing notification of resale price maintenance, which is a welcome practical step towards liberalising this outdated per se prohibition.
- extending existing exemptions for related bodies corporate to cover and protect single economic entities or 'systems' (such as franchise networks), even those falling short of the technical definition of related bodes corporate, so that coordination between businesses within the system is not treated as an arrangement between competitors subject to per se offences
One thing is fairly certain, however, when it comes to competition law reform – there will always be a next time! On this occasion, the next time comes quickly with the Government announcing a "focussed 8-week consultation on the detailed recommendations" with submissions due by 26 May 2015. This will inform the Government’s response to the Report later in the year. Following the Government’s response, appropriate legislative changes will be developed for further consultation.