25 Nov 2015

Harper competition reforms largely endorsed by the Federal Government

The much anticipated response of the Federal Government to the Harper Review, the most comprehensive review into Australia's competition policies, laws and institutions since the Hilmer Review 22 years ago, has largely endorsed its recommendations, but has, for now at least, left unresolved a couple of hotly contested issues, including the "effects test" reform of section 46 of the Competition and Consumer Act 2010 (Cth) which proscribes the misuse of a firm's substantial market power, and the reform of Australia's pharmacy industry.

The response acknowledges the Harper Review is an important limb of the Federal Government’s forward economic policy agenda, to revitalise competition policy at both the State and Commonwealth level. The Government's stated objective is to reshape competition institutions, and modernise and simplify Australia’s competition laws to strengthen competition and incentives to innovate, empower consumers, and promote better use of and investment in infrastructure. It has accepted 39 of 56 recommendations.

Removal of anticompetitive regulations and restrictions

The Harper Review recommended that anticompetitive regulations be removed, in particular, regulations governing:

  • retail trading hours;
  • parallel imports of books, and
  • restrictions on the location and ownership of pharmacies.

Harper also recommended that regulations covering planning and zoning, taxis and ride-sharing and product standards also be reviewed with a view to removing any anticompetitive restrictions.

The Federal Government has acknowledged that a number of these matters are relevantly a State or Territory responsibility. To help them to carry out these reforms, the Government has proposed reintroducing the making of competition payments to those State and Territories implementing significant competition reforms that improve productivity and increase economic growth.

However, the current restrictions on the ownership and location of pharmacies, will remain in place until at least 1 March 2017 when an independent review of pharmacy remuneration and regulation is expected to report.

Modification and simplification of competition laws: small business concerns

The Government proposes to undertake further consultations on reform of the hotly contested section 46 of the Act (which prohibits a firm with substantial market power from taking advantage of that power for an anticompetitive purpose) by the inclusion of an effects test. The ACCC and small business may be disappointed with that outcome, although we would not be surprised if some changes are made to section 46 in due course.

The Government supports the following key recommendations which were made by the Harper Review in relation to the competition provisions of the Act, namely that:

  • class action and other plaintiffs will be permitted to rely on admissions of fact made in ACCC enforcement proceedings for cartel or other conduct. That change will be very significant for follow on class actions and may make respondents to ACCC cases think twice about their civil exposure if settling with the ACCC.
  • the cartel provisions in the Act be simplified to focus on cases where the parties are clearly competitors and amending the existing joint venture exception to provide that the cartel provisions will not apply to the provisions of contracts, arrangements or understandings entered into by joint ventures involving the production, supply, acquisition or marketing of goods or services where they do not have the purpose or effect of substantially lessening competition;
  • the current prohibition of exclusionary provisions (boycott arrangements and market sharing between competitors) will be removed from the Act and instead incorporated into the cartel provisions;
  • the provisions with respect to price signalling will be repealed. Instead, following UK and European law, there will be a new prohibition of concerted practices that have the purpose, effect or likely effect of substantially lessening competition; this could catch information exchanges between competitors and other practices which fall short of an agreement but which involve forms of cooperation that reduces competition
  • the per se prohibition on third line forcing be removed from the Act and that such conduct should only be prohibited where it has the purpose, effect or likely effect of substantially lessening competition;
  • the existing prohibition with respect to resale price maintenance be retained but that persons be able to notify the ACCC of proposed resale price maintenance conduct which, if not objected to by the ACCC, would then be permitted;
  • the formal merger clearance process and the merger authorisation process be combined and reformed to remove existing unnecessary restrictions and requirements. This would see the ACCC acting as the relevant decision-maker at first instance (unlike the current position with respect to merger authorisations) with the Australian Competition Tribunal acting as the appeal body hearing any reviews of a decision made by the ACCC;
  • the current prohibitions on secondary boycotts be retained, and the maximum penalty for secondary boycotts to be increased to the same level as that applying to other breaches of the competition law;
  • the existing authorisation and notification processes under the Act be simplified so that only a single authorisation is required for each single business transaction or arrangement (unlike the current position where a person may need to submit a number of separate authorisation applications in respect of the same conduct); and
  • ensure that competition in Australian markets includes competition from goods and services imported or capable of being imported into Australia.

Criteria in National Access Regime to be tightened

The Government has adopted the recommendations of the Productivity Commission's 2013 Report to tighten the access criteria. This means that for the purposes of satisfying the declaration criteria under Part IIIA of the Act, a person seeking declaration of the relevant services will need:

  • in respect of criterion (a) ‒ to undertake a comparison of competition with and without access on reasonable terms and conditions through declaration to demonstrate that access (or increased access) to the monopoly service would promote a material increase in competition in an upstream or downstream market; and
  • in respect of criterion (b) ‒ to demonstrate that the service is a natural monopoly such that the total foreseeable market demand could be met at least cost by the facility.

Government activities in trade or commerce

The Government has also stated its support in principle for the expansion of the application of the Act's competition provisions to government activities conducted in trade or commerce. It has indicated that it will consult further with the States and Territories in relation to that matter.

Exclusive dealing

The Government did not accept the Harper Review's recommendation that the prohibition with respect to exclusive dealing be repealed. That provision (section 47 of the Act) prohibits the imposition by suppliers or customers of restrictive conditions which have the purpose or effect of substantially lessening competition.

Section 155 notices

The Government will amend section 155 so that:

  • it is a defence to a "refusal or failure to comply with a notice" that a recipient of a notice can demonstrate that a reasonable search was undertaken in order to comply with the notice.
  • The fine for noncompliance with section 155 of the CCA should be increased in line with similar notice based evidence gathering powers in the Australian Securities and Investments Commission Act 2001.

Reshaping institutional arrangements

The Government supports the continued existence of the ACCC as the relevant competition and consumer law regulator, although it remains open to the suggestion that the ACCC's current access and pricing functions be performed by a single national Access and Pricing Regulator.

The Government has also provided its support to the establishment of a body to oversee the progress on competition reform. It will further discuss the design, role and mandate of that body with the States and Territories.

The response notes a number of improvements to ACCC processes and communications.

Informal merger review process: The ACCC has recently committed to the Government to improve stakeholder engagement and understanding of ACCC merger decisions, including through changes to detailed engagement strategy planning, engagement with a broader range of stakeholders in the course of a merger review, trial of a third party consultation conference, and better communication of decisions through public documents that explain the ACCC’s merger process and analysis to the broader community, including small business and consumer stakeholders.

Section 155 guidelines: the ACCC will review its guidelines on section 155 notices, having regard to the increasing burden imposed by notices in the digital age.

Media Code of Conduct: further to the Government’s Statement of Expectations of the ACCC, the Government expects the ACCC to take into account this recommendation and establish, publish and report against a Code of Conduct for its dealings with the media with the aim of strengthening the perception of its impartiality in enforcing the law.

Communications with small business: the Government supports the ACCC taking steps to improve its communications with small businesses (and complainants more generally). The Government has asked the ACCC to consider introducing changes to improve transparency and clarity for small businesses on why it is unable to pursue certain complaints. The Government will continue to liaise with the ACCC with a view to enhancing public disclosure of operational procedures and decision making processes where it is appropriate and feasible to do so. The ACCC will also be asked to consider how it can more actively connect small businesses to alternative dispute resolution (ADR) schemes where appropriate.

Collective bargaining: the ACCC should take steps to enhance awareness of the exemption process for collective bargaining and how it might be used to improve the bargaining position of small businesses and amend its collective bargaining guidelines to provide information about the range of factors considered relevant to determining whether a collective boycott may be necessary.

Sector-specific reforms

The response also includes specific actions in relation to a number of other sectors.

Human services: the Government will commission a Productivity Commission review into human services, which will include research on past or ongoing reforms in different jurisdictions that incorporate principles of choice, competition and contestability.

Road investment and usage: The Government will continue consultations with the States and Territories focusing on ensuring road infrastructure services best and most efficiently meet the needs of users. This work will continue to be progressed through the Transport and Infrastructure Council and supporting working groups, reporting to COAG including on steps to transition to independent heavy vehicle price regulation by 201718.

Intellectual property: An inquiry into Australia’s intellectual property arrangements was commissioned by the Treasurer on 18 August 2015. The Productivity Commission released an issues paper for its inquiry on 7 October 2015. The terms of reference for the inquiry provide that the Productivity Commission is to have regard to the findings and recommendations of the Harper Review in the context of the Government’s response. The inquiry report is expected to be provided to the Government in August 2016.

Planning and zoning regulations: the Government encourages the States and Territories to review planning and zoning regulations and include competition principles in the objectives of planning and zoning rules so that they are given due weight in decision-making and will continue discussions with States and Territories on ways to promote these reforms.

Energy: the Government will continue to work with COAG to finalise the Energy Market Reform Agenda. The ACCC is due to report to the Government on its review of the competitiveness of the Eastern Australia gas market by April 2016. The Government through the COAG Energy Council has tasked the AEMC to review facilitated markets and pipeline frameworks to improve market efficiency, transparency and operation.

Water: The Government will work with the states to advance water reform.

Consumer access to data: The Government will task the Productivity Commission with reviewing options to improve accessibility to data, including as part of its human services review.

Trading restrictions in industrial agreements: This issue is being considered further as part of the Productivity Commission Review of the Workplace Relations Framework, which is scheduled to provide its final report to the Government in November 2015.

What happens now?

The Government's response requires discussions with States and Territories, Productivity Commission and other reviews, a discussion paper about section 46 and consultation on draft legislation amending other provisions of the CCA, so there is still considerable further engagement with States and Territories, the public, ACCC, business groups and legal advisers about these reforms.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.