Big End Of Town V Small Business – “Effects Test”

CPA Australia recently spoke out in support of the Minister for Small Business, Bruce Billson, in a push for an ‘effects test’ in competition policy reform. A key recommendation of the Harper Review of competition policy was to introduce an “effects test” in section 46 of the Competition and Consumer Act (CCA Act).

Mr Billson, as part of competition policy reform, is pushing for an amendment of section 46 of Australian competition law by implementing an effects test. We understand Cabinet is divided on the issue and the Greens have expressed “disappointment at former Prime Minister Abbott’s indication that he is crab-walking away from introducing an effects test”.

Effects test

The Harper Competition Policy Review recommended the introduction of an effects test.
Recommendation 30 – Misuse of Market Power

The primary prohibition in section 46 of the CCA should be re-framed 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.
To mitigate concerns about inadvertently capturing pro-competitive conduct, the legislation should direct the court, when determining whether the conduct has the purpose, effect or likely effect, of substantially lessening competition in a market, to have regard to:

• the extent to which the conduct has the purpose, effect or likely effect of increasing competition in the market, including by enhancing efficiency, innovation, product quality or price competitiveness; and
• the extent to which the conduct has the purpose, effect or likely effect of lessening competition in the market, including by preventing, restricting or deterring the potential for competitive conduct or new entry in the market.

Such a re-framing would allow the provision to be simplified. Amendments introduced since 2007 would be unnecessary and could be repealed. These include specific provisions prohibiting predatory pricing, and amendments clarifying the meaning of ‘take advantage’ and how the casual link between substantial degree of market power and anti-competitive purpose may be determined.
Authorisation should be available in relation to section 46, and the ACCC should issue guidelines regarding its approach to the provision.
This recommendation is reflected in the model legislative provisions in Appendix A.

CPA Australia

CPA Australia Chief Executive, Alex Malley. said the Minister’s proposed reform is showing his Cabinet colleagues what can be done when you are across the issues and connected with stakeholders.
“The actions taken by Bruce Billson in the design and development of an effects test for competition law is a template for good policy-making that other Ministers should study,” Mr Malley said.
“The effects test will enhance protections for small businesses against larger rivals who may seek to misuse their market power. The reforms will provide additional incentives for businesses of all sizes to innovate and compete, by reducing the fear of anti-competitive behavior by some larger and more established businesses.”

Mr Malley said complaints from big business and its representative bodies were “entirely expected and can be discounted. The Minister is staring down those concerns and has made the right call to support its introduction.”

Mr Billson, in his statement on August 5th, said markets dominated by two or three large companies were common in Australia, occurring in many industries and at multiple levels of the supply chain.

“Without healthy competition, or at least the threat of competition, it can be too easy for such large dominant companies to lapse into comfortable duopolies or oligopolies to the detriment of Australian consumers and the economy,” he said.

Business Council of Australia (BCA)

The Business Council of Australia President, Catherine Livingstone, made a public statement on August 3rd, expressing concerns about the introduction of an effects test.

“The competition law framework is absolutely critical for our economy and section 46 is settled, well-understood by business, and works to protect the competitive process as intended,” she said.
“In considering whether to change it, we need to be cautious, especially when we are looking at a contentious proposal that multiple reviews have rejected in the past, and at a time when businesses are in dire need of policy certainty.”

Ms Livingstone expressed concern that changing the ‘misuse of market power’ provision by introducing an effects test, and removing the ‘take advantage clause’, would cause major regulatory uncertainty for business. She said it would deter innovative pricing, product development or business expansion that would be good for consumers.

CPA Australia, on the other hand, believes Australia has been built on small business and Mr Malley and many others recognise that as Australia transitions “to a knowledge-based economy, it’s clear that more innovative and competitive businesses are essential for jobs growth and a more prosperous economy”.

AADA notes that an effects test is common practice in 125 countries around the world, and experts believe that it is time Australia caught up. Mr Billson has correctly pointed out that Australia and New Zealand are unique in that they have more concentrated markets but weaker misuse of power protections than all other developed economies. Professor Allan Fels AO is of the view that an effects test is not seen as problematic in other countries.

Council of Small Business of Australia (COSBOA)

The COSBOA has expressed concern at recent statements from the BCA and its supporters.

Peter Strong, CEO of COSBOA, stated:  “We know from hard experience that when big business associations and the likes of Coles, Woolworths and their supporters claim to represent what is good for small business, it is time to worry. The continued over-reaction to an effect test by some of the businesses in the big end of town is very concerning and bizarre.

“COSBOA’s members know that an effects test exists in nearly all jurisdictions across the world, and no negative impact has occurred for honest large businesses. We know that the ACCC would be unlikely to apply an effects test, if businesses behaved ethically and professionally. The worry from a few dominant players in the market shows the overwhelming need for the effects test to be in place.
“The business plans for Coles, Woolworths, and for the “Shoppies” union and the SDA (Shop, Distributive and Allied Employees Association), must be fragile indeed if an effects test can cause them to crash and burn. If this is a fact, we have a bigger problem in Australia. What we need is leadership from big business on the issue of competition, to match that of the leadership shown by the minister responsible for competition, Bruce Billson. Australia’s productivity and capacity to deal with constant change is at risk.”

Mr Strong also drew attention to Australian grocery prices being some of the highest in the world, due to the dominance by too few companies.

Dealers will recall that in December 2014 the Federal Court made declarations that Coles had engaged in unconscionable conduct in 2011 with its suppliers. The Court ordered Coles pay combined pecuniary penalties of $10 million and costs. The Court also ordered Coles to enter into a court-enforceable undertaking to the ACCC to establish a formal process to provide options for redress for over 200 suppliers referred to in the proceedings. In June this year, the independent arbiter, Jeff Kennett, instructed Coles to refund over $12 million to suppliers.

Australian Chamber of Commerce and Industry (ACCI)

Kate Carnel AO, CEO of ACCI, is supportive of an effects test amendment to the CCA Act to address the concerns of small business about the misuse of market power, and is surprised at the level of opposition coming from the big end of town. While ACCI and others supported Mr Billson in taking the matter to Cabinet on September 1st, the Government decided to defer this key recommendation of the Harper Review.

It appears that powerful and heavy lobbying by vested interests, lawyers, and federal Shadow Treasurer, Chris Bowen, could lead to the loss of an opportunity for substantial economic reform, and fail to bring Australia’s competition policy laws in line with those of other developed countries.

Mr Billson referred to limitation of the capacity “for less well-resourced market participants to understand the rules, and favors firms which can afford the legal representation to deftly dodge the ‘landmines’ and potentially engage in anti-competitive conduct while remaining just within the bounds of the enforceable law.” His media release can be accessed at www.brucebillson.com.au
In a recent interview with radio announcer Alan Jones, Mr Billson condemned Labor for lining up with the BCA. He said, “I cannot possibly imagine why, other than they have drunk the Kool-Aid that the Business Council of Australia are putting around.”

Dealers are encouraged to make their views known on this issue by raising it with the AMDC and the AADA.