Labor promises jail for serious cartel conduct

By Michael Corrigan.

Key Points:
Serious cartel conduct would become a criminal offence under a Labor Government.

Although the Trade Practices Act has been amended numerous times in the last few years, it's still not in a form satisfactory to the Labor Party. As part of its election platform, it has said it will make the following changes to the Act.

Prison penalties for serious cartel operations within 12 months of gaining power (The previous Government had said it will introduce criminal penalties, but wanted further consultation and review over the detail).

A key policy question has been whether to introduce the notion of "dishonest intent" into any cartel offence. It is not required in the current Act which has opted for a so-called strict liability regime of not inquiring into the issue of intent to overcharge customers - the mere fact of competitors having colluded on price is enough under the existing law to invoke large penalties- but not jail sentences.

Given the ACCC’s concerns over the difficulty of proving liability in these cases, despite its recent big win in the Visy/Pratt case, one can expect the ACCC would quietly prefer that no element of dishonesty be required in any new criminal cartel offence. It is unclear where Labor sits on that question.

On the misuse of market power, given the Howard Government changed the Act in September 2007 to outlaw so called "below cost pricing" for anti-competitive purposes, it is quite unclear if Labor will persist with yet more reforms to the area of section 46 and misuse of market power such as including recoupment as a factor in section 46's treatment of misuse of market power.

Previous Labor proposals included

• changing the definition of "take advantage" in section 46;
• removing the dollar threshold for cases alleging unconscionable conduct in business transactions (section 51AC); and
• giving the ACCC power to deal with "creeping acquisitions". This will be controversial and difficult to enforce but is likely to involve a test of looking back over a series of acquisitions for a cumulative impact in allowing the ACCC to challenge a small acquisition which of itself would be unobjectionable.

What will be fascinating in any such process is to see how the current Commission will define retail markets; the current preference at the Commission is to define a small retail market as a 5-10 kilometres radius around the acquisition target.

On that approach there may be in many cases no "retail" cumulative impact of several widely dispersed small acquisitions because they each occur in separate unrelated markets across Australia.

The ACCC would need to look for some impact in a broader market or in a wholesale /supplier market which may be very difficult (in fact) to measure.

Finally, it looks from recent comments that Labor would review the area of port and rail bottlenecks and the question of third party access to infrastructure, under Part IIIA of the Act. This area is topical given Fortescue’s current applications against Rio and BHPBilliton and attention given to the bottlenecks involving the export coal chain in the Hunter Valley.