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Australia – Government’s ‘Root And Branch’ Review Of Competition Policy.

9 January, 2014

 

Legal News & Analysis – Asia Pacific – Australia – Competition & Antitrust

 

The Government has made it clear that it will conduct a ‘root and branch’ review of Australia’s competition law and policy. The necessary steps to get this happening are now well underway with the release of draft terms of reference for comment by States and Territories.

 

The review panel is expected to be established early in the 2014 with the review to be completed within 12 months.

 

The draft terms of reference are unusually detailed. But they make clear that the Government intends the Review to be very comprehensive. The Review will not narrowly focus on the provisions of the Competition and Consumer Act 2010 (CCA), but will also touch on broader aspects impacting on competition across the Australian economy, including in its administration.

 

Some will be concerned about the apparent scope of the Review with broadly framed objectives and directives combined with some specific references to areas of regulation and exemption, such as the Commonwealth infrastructure access regime, international liner cargo shipping, analysis of key markets (groceries, utilities and automotive fuel), parallel import restrictions, international price discrimination and privatisation and corporatisation of government business enterprises.

 

To some degree the inclusion of areas that have been the subject of separate reviews over the last decade or so, can be seen as the Government intending to deal with unfinished business where previous recommendations have been made and not ultimately implemented or brought to conclusion.

 

There is only one express exclusion from the Review. The Panel is only to consider the provisions of the Australian Consumer Law1 to the extent they relate to protections for small business (such as from unfair and unconscionable conduct).

 

How this broad agenda will be achieved within the 12 month period will be a challenge for the Panel and we can expect a defining of priorities at an early stage. In this regard the Issues Paper that the Panel is required to release early in the process will be important. We can expect to see this in early 2014.

 

The Objective And Principles Of The Review – Clause 1

 

The opening clause of the draft terms of reference makes clear that the Review has a very broad objective. The Panel will be required to make recommendations for appropriate reforms to improve the Australian economy and the welfare of Australians.

 

Those recommendations are expressly not to be limited to legislation that governs Australia’s competition policy.

 

Pleasingly, the Panel is directed to the need to identify and remove impediments to competition and to focus on such impediments that are not in the long term interest of consumers or the public interest.

 

Four principles are to guide the Panel’s recommendations.

 

  1. No market participant should be able to engage in anticompetitive conduct: This principle mirrors the opening principle that was to guide the National Competition Policy review of 2003 (which led to the HiImer report). Curiously, however, it omits the inclusion of an express reference to where such conduct is ‘against the public interest’. That would be a preferable inclusion that more accurately reflects the applicable overriding principle.
  2. Productivity boosting microeconomic reform: This principle directs the Panel to identify reforms that are centred on the realisation of what is described as ‘fair, transparent and open competition’ that is said to drive ‘productivity, stronger real wage growth and higher standards of living’. While it is perhaps unfortunate that the ill-defined concept of ‘fair competition’ finds its place here, this is an appropriate and relevant principle for the Review.
  3. Government vs private sector: This principle identifies a preference for the private sector, rather than government, to operate where markets are functioning, or can function, effectively or where contestability can be realised.
  4. Removing regulatory burdens: When assessing the costs and benefits of competition regulation the Panel is directed to be mindful of removing the regulatory burden on business.

 

Law, Policy And Agencies To Effectively Achieve Key Objectives – Clause 2

 

In the lead up to this Review there has been some concern that the terms of reference would focus on sectoral interests and lose sight of the objective of competition policy to protect the competitive process rather than individual competitors or business operators.

 

Clause 2 of the draft terms of reference appears to deal with this by requiring the Panel to make recommendations aimed at ensuring that competition regulation, policy and regulatory agencies effectively: 

 

  • protect and facilitate competition,
  • provide incentives for innovation and creativity, and
  • meet world’s best practice.

 

While the specific interests of small business and general concerns about specific industries (including groceries and petrol) are mentioned in the detail that follows, it is pleasing that the broader competition objectives are emphasised in the terms of reference.

 

Effectiveness Of The Law And Regulatory Agencies – Clause 3

 

Reviewing The CCA And The Regulator(s)

 

In the very detailed drafting of clause 3 of the draft terms of reference we see attention drawn to the current competition law (in the CCA) as well as relevant regulatory agencies. While not named these agencies include the ACCC, the AER, the National Competition Council and the Australian Competition Tribunal.

 

The question is posed as to whether the CCA and regulatory agencies are operating effectively in light of:  

 

  • the regulatory balance between the Commonwealth, States and Territories,
  • increasing globalisation,
  • changing market and social structures,
  • technological change, and
  • the need to minimise business compliance costs.

 

In considering this question the Panel is required to consider the following.

 

  1. Codified law: In a direct query as to the approach to drafting and structure of the CCA, the question is posed: is our highly codified competition law responsive, effective and certain in its support of its economic policy objectives?2
  2. Regulatory agencies: Are the operations and processes of regulatory agencies transparent, efficient, accountable and providing reasonable certainty?3
  3. Competition and Consumer Act: Does the CCA appropriately protect the competitive process and facilitate competition. Again, it is pleasing to see the focus on the competitive process. In this broadly framed direction it is open to the Panel to review (and recommend revision of) all of the current competition law. There follows an inclusive shopping list of matters to be included in this legislative review.4
    • Are current legislative provisions functioning as intended – what does our experience with the law show in this regard?
    • Is section 46 (our misuse of market power provision) doing its job by meeting expectations and capturing all behaviours of concern and does it ‘support the growth of efficient businesses regardless of their size’?
    • Can we more effectively frame or administer any areas that are currently uncertain or rarely used? In other words, can we make our law more accessible and relevant?
    • Do codes of conduct and unfair and unconscionable provisions ‘provide an adequate mechanism to encourage reasonable business dealings’ (particularly in relation to small business)? This is an understandable and significant focus on the small business sector that, encouragingly, highlights potential areas for remedies that are less likely to undermine the competitive process.
    • Are existing exemptions and historic sector-specific arrangements still warranted (e.g. the exemptions for international liner cargo shipping provisions in Part X)? 
    • Is National Access Regime in Part IIIA of the CCA adequate (having regard to the Productivity Commission’s recent inquiry)? 

 

International Best Practice – Clause 3.4

 

Appropriately, the Panel is directed to consider whether our law, enforcement arrangements and appeal mechanisms are in line with international best practice. This is an important inclusion in the draft terms of reference and allows the Panel to consider different approaches across the globe for regulating competition. We can expect that this will include both those jurisdictions where competition/antitrust law is well established (such as the US and Europe/UK) as well as in countries where competition law has been the subject of recent developments in policy, law, and administration (such as Asia).

 

In keeping with the drafting of the terms of reference there are a number of specific questions posed in relation to our competition law, enforcement and appeals.5

 

  1. Do they foster a productive and cost-minimising interface between the ACCC and industry (eg immunity applications and merger clearances)?
  2. Do they provide appropriate enforcement mechanisms, including in terms of:Do they adequately address competition issues in emerging markets and promote entrepreneurship and innovation (noting new technologies and e-commerce environments, etc)?
    • effective administration and enforcement,
    • accessibility to enforcement and remedies – particularly to small business,
    • the extent to which new enforcement powers, remedies or enhanced penalties might be needed to prohibit anticompetitive conduct?

 

Reforms For Consumer Benefit, Innovation And Competitiveness – Clause 4

 

The Panel is to advise on appropriate changes to legislation, institutional arrangements and others measures having regard to impact on long-term consumer benefits in relation to value, innovation, choice and access to goods and services and capacity of Australian business to compete domestically and internationally.6

 

Specifically, the Panel is to query the following.7

 

  1. Natural monopolies: Are existing regulatory frameworks leading to efficient outcomes in markets with natural monopoly characteristics? 
  2. Competitiveness of key markets: Are key markets competitive (including, groceries, utilities and automotive fuel)? Do we need to change the CCA (and related laws) to enhance consumer, producer, supplier, retailer opportunities in those key markets and their broader value chains?
  3. Alternatives to the CCA: Are there ways, other than the CCA, to address anticompetitive market structure, composition and behaviour?
  4. Specific features of key markets: Does concentration and vertical integration in ‘key Australian markets’ impact on the welfare of Australians? In considering this question the Panel is to ensure that any change to competition policy is consistent with national economic policy objectives.
  5. Barriers to competition: Are there opportunities to remove unnecessary and inefficient barriers to entry and competition to reduce complexity and eliminate administrative duplication?
  6. International trade: Are there ways Australians can access goods and services at internationally competitive prices, including by removing remaining parallel import restrictions and international price discrimination?

 

Government Business Activities – Clause 5

 

Specifically, the Panel is asked to consider whether government business activities and service providers serve the public interest and promote competition and productivity? In addressing this question, the Panel is to consider:

 

  • separating government funding of services from service provision,
  • privatisation,
  • corporatisation,
  • price regulation that improves price signals in non-competitive segments, and
  • competitive neutrality policy.

 

Enhancing Competition – Clause 6

 

Finally, the Panel is to consider what are the most appropriate ways to enhance competition? The terms of reference specifically refer to:

 

  • removing regulation, and
  • working with stakeholders to put in place economic devices that ensure a fair balance between regulatory expectations and self-regulation, free markets and the promotion of competition. 

 

End Notes

 

  1.  And the related consumer protection provisions for financial services in Division 2 of the Australian Securities and Investment Commission Act 2001.
  2.  Clause 3.1.
  3.  Clause 3.2.
  4.  Clause 3.3 – with the detail set out in clauses 3.3.1 to 3.3.6.
  5.  Clauses 3.4.1-3.4.3.
  6.  Clause 4.
  7.  Clauses 4.1 to 4.6.

 

herbert smith Freehills

 

For further information, please contact:

 

Chris Jose, Partner, Herbert Smith Freehills

chris.jose@hsf.com

 

Herbert Smith Freehills Competition & Antitrust Practice Profile in Australia

 

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