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Substantial changes to competition law and policy: Harper Review Final Report
The Competition Policy Review Panel has this afternoon released its Final Report, recommending wide-reaching changes to competition laws, the institutions that enforce them and the competition policy landscape.
The Report traverses a broad range of industry-specific considerations as well as the detail of theCompetition and Consumer Act 2010 (CCA) and the role of key regulators such as the ACCC, with implications for all areas of the economy.
This update highlights some of the key recommendations. We will be following up with more detailed analysis of these and other aspects of the report of the coming weeks.
The Panel has undertaken an extensive review of the operation of the CCA and made a number of significant recommendations to simplify its structure and address perceived gaps in the law. Key recommendations are outlined below.
Misuse of market power
In perhaps its most far reaching recommendation concerning competition laws, the Panel has called for sweeping changes to the misuse of market power provisions in the CCA.
The Panel has suggested new drafting for s 46, and the key prohibition reads:
A corporation that has a substantial degree of power in a market shall not engage in conduct if the conduct has the purpose, or would have or be likely to have the effect, of substantially lessening competition in that or any other market.
The proposed new test removes the "take advantage" element, introduces an "effects" test, and replaces the specific categories of exclusionary conduct with an overall "lessening of competition" standard.
The recommendation is not surprising and is an improvement on the Panel’s draft recommendation. However, it is a significant change to the law and the proposed prohibition does not directly target exclusionary misuse of market power (as the current law does).
The well-accepted challenge with this law is to avoid chilling the competitive conduct of larger firms (which would leave consumers worse off) while also preventing firms with market power from excluding competitors from the market.
The proposed prohibition does not address that challenge head on, but instead leaves the resolution of this important question to open-ended factors for the Court to consider. These factors include efficiency and innovation, which is positive, but there is no clear protection for conduct with a legitimate business justification defence. This may have unintended consequences in the long term.
In summary, under the Panel’s recommendation the dividing line between lawful and unlawful conduct would be less clear.
This introduces greater uncertainty and will likely result in higher internal compliance costs for large businesses, more investigations and potentially more litigation, without necessarily delivering a superior outcome in terms of competition enforcement.
In relation to merger reviews, the Panel has made a number of recommendations to streamline the various review processes and promote faster decisions.
In relation to the informal merger review process, the Panel recommends that the ACCC should consult further with business representatives in order to deliver more timely decisions in informal merger reviews.
In relation to the formal merger exemption processes (i.e., the formal merger clearance process which has never been used and the merger authorisation process), the Panel recommends they should be combined and reformed to remove unnecessary restrictions and requirements that may have deterred their use. While the Panel encourages further discussion on the exact changes, it recommends the following general framework:
- the ACCC should be the decision-maker at first instance to decide mergers on essentially the current competition and public benefit tests;
- the formal process should not be subject to any prescriptive information requirements, but the ACCC should be empowered to require the production of business and market information;
- the formal process should be subject to strict timelines that cannot be extended except with the consent of the merger parties;
- decisions of the ACCC should be subject to review by the Australian Competition Tribunal under a process that is also governed by strict timelines; and
- the review by the Australian Competition Tribunal should be based upon the material that was before the ACCC, but the Tribunal should have the discretion to allow a party to adduce further evidence, or to call and question a witness, if the Tribunal is satisfied that there is sufficient reason.
Cartel conduct, Exclusionary provisions and exclusive dealing
The Panel has recommended significant changes to the operation of the prohibitions on anti-competitive agreements between competitors aimed at simplification and clarity. These include:
- if the proposal to remove s 47 completely is not adopted, the removal of the prohibition on exclusionary provisions (or collective boycotts) in the CCA, given that it is materially similar to the existing prohibition against market sharing cartels. Amendments are recommended to the cartel provisions to address any gap in the law this creates;
- a welcome, broader joint venture defence to cartel conduct, providing an exemption for all joint ventures, whether for the production, supply, acquisition or marketing of goods or services , provided there is no substantial lessening of competition.
- the repeal of the section 47 prohibition on exclusive dealing. Since this is already subject to a substantial lessening of competition test, it is proposed that the existing section 45 and s 46 will cover vertical agreements and refusals which lessen competition. This will also remove what was an overly complex and technical part of the law; and
- an exception for trading restrictions in relation to the supply or acquisition of goods or services (including in relation to intellectual property licensing), which replaces the existing anti-overlap provisions for vertical restraints and the exception for intellectual property licensing.
Consistent with submissions from the business and legal communities, the Panel has concluded that the current price signalling provisions are not “fit for purpose” and should be repealed. They have instead recommended the extension of s 45 to prohibit "concerted practices" which have the purpose or likely effect of substantially lessening competition. While the Panel has declined to define “concerted practices” in its suggested legislative drafting, it made the following observations:
The word ‘concerted’ means jointly arranged or carried out or co-ordinated. Hence a concerted practice between market participants is a practice that is jointly arranged or carried out or co-ordinated between the participants. The expression ‘concerted practice with one or more persons' conveys that the impugned practice is neither unilateral conduct nor mere parallel conduct by market participants (for example, suppliers selling products at the same price).
National Access Regime
The Panel considered the conclusions of the Productivity Commission in its recent review of the National Access Regime (embodied in Part IIIA of the CCA) as well as submissions made during its review.
The Panel concluded that Part IIIA should continue to provide a backstop to the current industry-specific access regimes and that it may also be needed for future access regulation of airport and port infrastructure.
However, the Panel was concerned that imposing an access regime upon privately developed single-user infrastructure is more likely to produce inefficiency. It therefore recommended that the scope of Part IIIA should be confined to ensure it is used in exceptional cases only, where the benefits arising from increased competition in dependent markets are likely to outweigh the costs of regulated third-party access.
To address this issue, the Panel recommended amendments to three of the declaration criteria in Part IIIA:
- criterion (a) should require that access on reasonable terms and conditions through declaration promote a substantial increase in competition in a dependent market that is nationally significant;
- 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 most significant of these proposed changes is to criterion (a), which represents a substantial raising of the bar for declaration.
The Review Panel has also recommended changes to:
- remove the per se prohibition against third line forcing, eliminating the need to notify the ACCC of common practices which generally result in consumer benefit;
- the resale price maintenance provisions, to introduce a simplified notification process while maintaining the per se prohibition on the conduct, making it the equivalent of the current third line forcing prohibitions;
- ensure that import and international competition are taken into consideration when making competition assessments; and
- strengthen the extra-territorial reach of the law.
The Panel has identified that Australia’s competition institutions should perform their existing functions of:
- competition and consumer regulation;
- access and price regulation; and
- competition policy, advocacy, analysis and oversight.
while recommending the introduction of a new function of performing market studies, focussed on enhancement of competition, not enforcement.
The Panel has recommended that competition and consumer regulatory functions be retained within the single agency of the ACCC. This is an important and sensible recommendation.
The Panel has also recommended that a separate, dedicated access and pricing regulator be established with responsibility for the current access and pricing functions undertaken by the ACCC and the National Competition Council (NCC). A separate access and pricing regulator conceptually makes good sense, but will be complicated to put in place given the very different regulatory models in different sectors and the need to bring the States on board. One downside, which tends to get overlooked, is the important role of the state regulators, such as the Independent Pricing & Regulatory Tribunal, the Essential Services Commission and the Queensland Competition Authority, both as regulators and as independent advisers to State Governments. The risk is there will be a hollowing out of their capacity to perform those roles.
In order to fill a gap in Australia’s competition framework, the Panel has recommended replacing the NCC with a new national competition body, the Australian Council for Competition Policy (ACCP). The ACCP should have remit to advocate for competition policy reform and oversee its implementation. The Panel also recommends that the ACCP have the power to conduct competition studies of markets in Australia and make recommendations for reform to relevant governments, or refer breaches of the law to the ACCC, on the basis of these studies. The ACCP proposal and the revitalisation of the national competition policy reform process may come over time to be seen as one of the Panel's most important recommendations.
The Panel has made a number of recommendations to extend the application of competition policy to more sectors of the economy with an aim to remove regulatory restrictions on competition wherever possible.
It has identified as priority areas for reform:
- the balance between intellectual property rights and competition law, which will likely be a controversial and difficult weighing exercise;
- an assessment of regulatory restrictions in relation to:
- planning and zoning laws;
- taxis and ride-sharing businesses, following the emergence of Uber;
- mandatory standards that apply to the manufacture and goods; and
- aviation and shipping.
The Panel has recommended immediate reform to laws regulating retail trading hours, parallel imports and pharmacies in order to remove barriers to competition.
Finally, the Panel has recommended that competition policy should be a key consideration in government procurement decisions and the privatisation of assets, particularly in relation to infrastructure assets.