28 April 2008

Reviewing Federal Government's Amendments to the Trade Practices Act 1974


Keynote Address to the 4th Annual Trade Practices and Corporate Compliance Summit, The Grace Hotel, 77 York Street, Sydney

Thank you for the opportunity to speak at this trade practices conference.

As practitioners, you understand the importance of the Trade Practices Act in the Australian economy.

I think, intuitively, the Australian public also understands the importance of the Trade Practices Act – although it won't always be couched in those terms.

They certainly understand the importance of competition, of fair dealing and transparency.

The Rudd Government takes both consumer affairs and competition policy very seriously. I have been appointed as the first ever Federal Minister for Competition Policy, as well as the first Consumer Affairs Minister since 1998.

This is a reflection of the importance that Labor places on competition policy. The ALP has a strong legacy of competition reforms, having been responsible for the introduction of the TPA in 1974 and substantial improvements to the Act in 1986 as well as the instigation of the National Competition Policy.

The NCP put in place many of the policy settings that have resulted in Australia's strong economic performance over the past decade.

These competition reforms have had a cascading effect throughout the economy. And a strong, competitive economy benefits all Australians.

Assisting markets to be competitive

Competition policy promotes competition as a key means for maximising welfare. It focuses on the promotion of economic growth and efficiency, by eliminating or minimising distortions on competition.

A key goal of competition policy is economic efficiency. Efficiency leads to the kind of outcomes sought by policy makers, importantly without the need for direct intervention in, or regulation of, particular industries or activities.

That said, efficiency itself is not the objective of competition policy. Rather, increased welfare is.

This is explicitly recognised in Australia's competition laws, the object of which is to enhance the welfare of Australians through the promotion of competition. Welfare is paramount.

It also finds expression in the 'public benefit' exceptions from the strict application of some of our competition laws.

However, unregulated markets do not always produce the most efficient result. There is a role for governments to manage markets that do not produce efficient outcomes. For example, markets can provide an inadequate supply of information. Efficiency often requires that information be freely disseminated.

Petrol price inquiry

An obvious example of this is information regarding the price of petrol.

The ACCC's December 2007 report Petrol prices and Australian consumers highlighted the lack of transparency in petrol prices in Australia. It found that there were "fundamental structural issues that raise concerns about current operations and future competitiveness" of the Australian petrol industry.

The report confirmed that petrol prices are largely determined by international factors. But the Government is committed to promoting further competition and transparency in the Australian petrol market. And we have acted to address some of the problems that the ACCC identified.

Immediately following the release of the report, we gave the ACCC the power to carry out formal monitoring of petrol prices to ensure motorists are getting a fair go. In order to enforce these new powers, we have appointed a dedicated petrol commissioner at the ACCC.

Earlier this month, the Prime Minister and I announced the establishment of Australia's first National FuelWatch Scheme to promote competition and transparency in the petrol market. The establishment of this Scheme will help ensure motorists are not paying a cent more than they have to at the bowser.

FuelWatch does two very important things. First, it restores competitive risk to the retail fuel market. At the moment, there is an exchange of information between service stations about pricing through the Informed Sources website. A service station can increase prices and can see, immediately, in real time, whether their competitors have responded. There is very little risk of loss of market share.

FuelWatch will force service stations to nominate their best price. They will not be able to risk being priced above their competitors. In a market that so much depends on turnover, retailers will not be able to risk being priced even 1 cent above their competitors.

The second thing FuelWatch will do is empower consumers. It will massively increase the information available to consumers when making their purchasing decisions. Motorists, from 3pm each day will be able to look up on website or call a toll free number and find out the price of petrol for the next day. If petrol is going up, they'll be able to bring forward their purchase. If it's going down, they'll be able to delay their purchase.

On any given day, the gap between the cheapest and most expensive petrol, in any given capital city is substantial. This reform will enable consumers to access what is, in effect, as we economist would say 'perfect information' to drive their purchasing decisions.

This reform fits well with this government's ethos – promoting transparency and competition to the benefit of consumers.

Petrol prices will always be linked to fluctuations in international oil markets. If the global price of crude oil goes up, Australian retail prices will be affected. The National FuelWatch Scheme cannot alter that fact, and no government policy can guarantee that petrol prices will always go down.

But the Scheme will give motorists the information they need to make decisions that best suit them when deciding when and where to buy petrol.

The FuelWatch Scheme represents a major change to petrol retailing in this country, and we want to get it right. Accordingly, the Government will be reviewing its effectiveness after its commencement, to see what – if any – improvements can be made.

Legislative reforms

Also within the ethos of this government is amending the TPA to ensure proper competition across the economy.

In 1986, as I have mentioned, the Hawke Labor government strengthened the TPA to ensure it applied not just to monopolies but to firms which held a substantial degree of market power.

Over the years, I believe, a series of court decisions have undermined the operation of the Act, Section 46 in particular.

It is not just me who believes this, the ACCC has been making this point for several years. The ACCC has been fighting with one hand behind its back when it comes to anti-competitive conduct.

In opposition we indicated that we would strengthen the TPA to restore it to its original 1986 intention.

Today I can confirm that we will proceed to amend the Act, and these amendments will be introduced by spring sitting of parliament.

Strengthening section 46

The amendments introduced last year by the previous government to improve the operation of section 46 were a case of "too little, too late". At the time, Labor supported those changes, but more needs to be done.

The first of the required change relates to recoupment. Concerns have long been expressed that the High Court's decision in the Boral case has meant that an ability to recoup losses incurred from below cost pricing is a necessary precondition in establishing a breach of section 46, predatory pricing cases.

Section 46 should provide that recoupment is not required to be proved when alleging predatory pricing. It may be a relevant factor, but it should not be a necessary one.

Take advantage

The Government will amend section 46 in relation to the definition of 'take advantage'. This was one of the key recommendations coming out of the Senate's examination of the operation of the TPA in 2003.

In the Government's view, the High Court's interpretation of 'take advantage' in the Rural Press case has unduly narrowed the application of section 46. In that case, the Court endorsed a test which inquires whether a corporation could have undertaken the conduct in question without possessing a substantial degree of market power.

In effect, this means that if it is possible for a firm to engage in the relevant conduct without having market power, it will be held not to have taken advantage of its market power. This would be so even in circumstances where the corporation would have had no incentive to engage in the relevant conduct.

Such a test defeats the Parliament's intention in amending the act in 1986, when it lowered the threshold for section 46 from one of market control to market power. It should be amended to define the meaning of 'take advantage' in order to correct this narrowed application, whilst ensuring that a sufficient causal connection between the offending conduct and substantial market power remains.

Jurisdiction of the Federal Magistrates Court

The Government also wants to ensure less expensive justice for small businesses and medium enterprises.

At present, small businesses may be deterred from taking action in response to a misuse of market power by a larger business due to the expense, delay and complexity of commencing proceedings in the Federal Court.

We will change the Act so that appropriate section 46 cases can be heard in the Federal Magistrates Court. The simpler and relatively less costly processes available in the FMC would assist in the access to justice for many smaller claimants.

In addition we will act on our commitment to remove the monetary threshold that currently applies to section 51AC claims of unconscionable conduct in business transactions. This will enhance the protection offered by the section for non‑listed businesses involved in transactions over $10 million.

This focuses the operation of the section on the wrongdoing involved, not confining it to arbitrary limits affected by the structure of particular transactions.

The ACCC has consistently called for its information gathering powers under section 155 to be enhanced, to enable it to retain them when seeking an injunction. In addition, doubts have been recently raised about the point in time at which the ACCC's ability to exercise its section 155 powers cease prior to commencing proceedings.

I intend to amend the TPA to ensure that the ACCC retains it section 155 powers after it has sought an injunction, but stopping at the point it commences substantive proceedings. The scope of the powers themselves would remain unchanged.

The Government will also legislate to require that one of the deputy chair positions at the ACCC has a small business focus.

At present, at least one member of the ACCC must be a person who has knowledge of, or experience in, consumer protection. In future, one deputy will be required to have similar qualifications in small business.

Together, these changes will substantially strengthen the operation of Section 46 of the Act and again allow the ACCC and others to begin anti-competitive cases with some prospect of success. This has not been the case for some time.

This brings me to Section 46AA – the so called Birdsville Amendment. I think even the instigators of Birdsville would acknowledge that this is a law that was born out of frustration. Frustration of the previous government's failure to strengthen section 46 and restore the market power test to its original intention.

I have reached the view that having separate predatory pricing offences is, on balance a good thing. Predatory pricing is the most prominent type of anti-competitive behaviour, and arguably, the most insidious.

However, having strengthened the substantial degree of market power test, there is no need, in my view, to have a separate 'market share' test for predatory pricing. Having a new 'market share' test creates considerable uncertainty in the market as to how it will be interpreted by the courts.

This is not an uncertainty that can be easily or quickly dissipated.

Accordingly we will legislate for the test for breaches of 46AA to be a 'substantial degree of market power.'

More reforms …

These are important reforms, but they are not the be all and end all of our trade practices reforms.

I made it clear when we were in opposition that the Government believes we should add mergers and acquisition powers of the TPA to creeping acquisitions.

Creeping acquisitions refer to the practice of buying a number of individual assets or businesses in a chain of transactions over time. These transactions may not individually raise competition concerns, but it is argued that – when considered collectively – they may amount to a substantial lessening of competition in a market.

Concerns have been raised that section 50 of the TPA does not enable the ACCC to effectively deal with incremental acquisitions. It is argued that the current substantial lessening of competition test can only assess the impact of mergers in a forward‑looking 'with or without' test.

I have also noted that concerns in relation to creeping acquisitions have been raised during to the ACCC's grocery inquiry. The Government is closely monitoring the progress of that inquiry, and we will consider any recommendations made by the ACCC in relation to creeping acquisitions.

Before making changes, however, we need to ensure we get the balance right. There is a fine balance to be reached here: we want the ACCC to be given the ability to stop the incremental gathering of unhealthy market power, but at the same time we do not want to stop small business people, who have built up good will in their business over a substantial period of time, from gaining a good price for their business.

I'm confident we can reach that balance. However, it will take a substantial degree of consultation – working through all the issues.

I'll soon be announcing how we'll engage on that process of consultation.

Criminalisation of serious cartel conduct

Finally, as you would all be aware, one amendment that Labor is moving on relates to cartel operations. At the start of this year I released a draft bill for public comment, which would introduce a new cartel criminal offence, and make related amendments to the TPA.

The bill proposes substantial penalties for breaching of the new offence. For corporations, the maximum fine would be the greater of $10 million, or three times the financial gain obtained by the offending conduct. Individuals involved in a breach of the new offence would face fines and up to 5 years in gaol.

As I've noted in my public comments on this bill – the threat of a gaol term focuses the mind like no other penalty. Offenders ought not to be in a position to write off a penalty for cartel conduct as a mere cost of doing business. There must be an effective deterrent.

Cartels harm consumers and they harm the economy. They distort the ordinary processes of innovation and product development. The worldwide economic harm from cartels is extremely large. Conservative estimates by the OECD suggest it exceeds many billions of dollars every year. And these costs are borne by us all.

Criminalising cartel behaviour in Australia is long overdue, and implementing this commitment will bring us into line with our major trading partners, and equivalent economies around the world. The increasingly multi‑national flavour of many cartels makes it doubly important that we bring ourselves up to world's best practice in this area.

The Government is currently considering the results of the consultation on the draft bill.

I've worked my way through all the submissions an am weighing up the options to improve the draft bill. There are some vexed issues – but we'll be making our determination in an open and transparent way and will at the end of the day have a package which involves the right balance on those vexed issues.


Competition policy and trade practices are a key area of reform for this government.

They are at the centre of our economic reforms: in the tradition of Labor governments, making markets work, driving efficiency and putting consumers at the forefront of government policy.

Many of you have, or will, make submissions on the various draft legislation discussion papers that are part of this reform process. I thank you for that - Consultation and open and transparent decision making are a key part of our way of doing business.

And you can be assured that there will be plenty of focus and attention from the government on competition matters for you to comment on.

Thanks you for you time.