27 August 2011

'Developments in Competition Policy', Opening Address to Law Council of Australia, Competition and Consumer Workshop


Thank you.

I am pleased to have the opportunity to speak today.

I would like to acknowledge:

  • Stephen Ridgeway, Chair of the Competition and Consumer Committee of the Law Council of Australia;
  • Rod Sims, Chair of the ACCC and his Commissioner colleagues;
  • Jim Murphy, Executive Director of the Markets Group at the Commonwealth Treasury
  • And a special acknowledgement to the planning committee for their tireless work in putting together the Competition and Consumer Committee's Annual Workshop

It is worth noting that this gathering today is Rod's first official speaking engagement as head of the regulator and I know that you are all looking forward to hearing him outline his philosophy and vision for the ACCC.

Today I would like to reflect upon some of the competition and consumer law developments in recent years, with a particular emphasis upon some of the developments of the past 12 months.

Competition law has an interesting and well documented history in Australia. Our first attempt to establish a national competition law occurred with the introduction of the Australian Industries Preservation Act in 1906, but the effectiveness of the Act was frustrated by a number of successful constitutional challenges.

Efforts to establish a national competition law were revived in the 1960s and resulted in the enactment of theTrade Practices Act 1965, the Restrictive Trade Practices Act 1971 and the Trade Practices Act 1974.

The various incarnations of a national competition law have not only recognised the importance of promoting consumer welfare by prohibiting conduct that stifles competition, but have also recognised that vigorous competition provides the incentive for business to innovate, thereby promoting productivity, efficiency and higher employment in the economy. And of course, this tradition has continued with the commencement of the Competition and Consumer Act 2010 on 1 January this year.

The Government considers that the principles underpinning the competition law framework that has emerged over the past four decades have served Australia well.

The nature of competition law, involving the delicate balancing act between the interests of consumers, producers and suppliers, necessarily means that we are continually challenged to assess and reassess whether our legal framework has the balance right.

At the heart of competition law in Australia has been the pursuit of consumer welfare, but as Justice French observed in 2004, since the enactment of the Trade Practices Act,

'there have been ongoing pressures to broaden or diversify that general [consumer welfare] objective in favour of the protection of particular classes of competitor ... There has also been ongoing pressure to qualify or limit the application of the Act with respect to particular sectors of the economy.'

Indeed, the consumer welfare objective is best pursued by creating a regulatory framework where participants can compete freely and vigorously.

An effective regulatory framework will guard against monopolistic behaviour, restrain market participants from engaging in collusive and restrictive practices, work to remove the barriers to entry for new participants and help empower consumers to make informed decisions.

In balancing the competing interests of the participants within a market, the competition framework should never put consumer welfare behind the interests of a particular competitor.

The Parliament has the difficult task of weighing up the competing demands for regulation and de-regulation to ensure that we strike the right balance.

While many of the core elements of Australia's competition laws have been relatively stable since 1974, the resilience of these core elements has sometimes disguised some of the more robust and sometimes recurring debates around competition policy.

The parameters of these debates can vary dramatically. For example, the debate can oscillate between whether prices are too high or too low, whether companies are too small to compete or too large to compete against.

Of course, the interpretation of our regulatory framework by the courts has a significant impact on that debate, and no doubt this week's decision on the Metcash case will occupy many hours of discussion at conferences like these.

This debate is healthy because it is our competition laws that shape markets and establish the rules of the game.

Australian Consumer Law (ACL)

Before reviewing some of the recent developments in competition law, however, I wish to direct some of my remarks to the significance of achieving the first single national consumer law in this country.

While our competition laws largely regulate the conduct of participants competing against each other within markets, consumer protection laws are an important part of ensuring that that our legal framework remains consumer focussed. The production and supply of goods and services is not an end in itself, but is a means to the end of meeting the needs and demands of the consumer.

Consumer laws not only protect consumers from harm, but they provide consumers with the confidence that they can freely transact with suppliers and producers within an overall framework that is designed to ensure the supremacy of the consumer.

Just as the path towards national competition laws in this country has been a long one, so too has been the journey to a national consumer law.

As you all know, from 1 January 2011, the Australian Consumer Law (ACL) replaced 20 State, Territory and Commonwealth consumer protection laws.

The consolidation of the nation's consumer and product safety laws were key parts of the Productivity Commission's 2008 consumer policy recommendations, which were estimated to benefit the Australian economy by up to $4.5 billion a year.

As a micro-economic reform, the ACL is a significant achievement of the Council of Australian Governments, and as a consumer law reform, it is the most important in a generation.

We now have a national product safety system, consumer guarantees, regulations against unfair contract terms and rules for unsolicited consumer agreements.

While it is still relatively early days for the ACL, I am very pleased to report on its successful implementation over the last eight months.

The ACL provides a platform for consumers to confidently participate in competitive – and often rapidly changing – markets.

It is against this backdrop that I wish to comment on some of the recent developments in our competition laws.

Criminalisation of cartel behaviour

Since coming to office in 2007, the Labor Government has been determined to ensure that our laws adequately address anti‑competitive behaviour in the marketplace.

One of our early and significant initiatives was to criminalise cartel behaviour.

A 1998 OECD recommendation condemned hard-core cartels as the most egregious violations of competition law, and called upon OECD members to ensure that their laws adequately prohibit such cartels and that they provide the investigative tools and arrangements necessary to identify them, the enforcement procedures needed to combat them and effective sanctions so as to deter them.

Whilst at that time, hard‑core cartel conduct was already prohibited in Australia under the existing provisions of the Act, criminal sanctions did not apply.

As we promised before the 2007 election, we introduced legislation to give effect to the OECD Recommendation within the first 12 months of coming to office.

We legislated criminal penalties for serious cartel conduct, with maximum criminal penalties for individuals of a 10‑year jail term and/or a fine of $220,000. Corporations today could be faced with penalties of up to $10 million, three times the benefit obtained, or otherwise 10 per cent of annual turnover.

Criminalisation of these forms of anti‑competitive conduct is an acknowledgement that Australia, like other developed countries, will simply not tolerate the detriment caused to the consumer and the Australian public by these forms of conduct.

Price signalling

While Australia has strong laws prohibiting cartel conduct, it has long been considered that there has been a gap in Australian competition laws that fails to address certain types of price signalling and information disclosures which, while falling short of being a "contract, arrangement or understanding", can have a similarly anti‑competitive effect.

The Australian Competition and Consumer Commission (ACCC), has for some time, been expressing concerns around various instances of conduct amounting to anti‑competitive price signalling and information disclosures that have escaped any sanction because they have fallen short of the "contract, arrangement or understanding" definition.

In 2009, the Department of the Treasury issued a discussion paper which sought submissions regarding the adequacy of the current interpretation of the term "understanding" in section 45 of the Act to capture anti‑competitive conduct. That process identified that anti‑competitive price signalling and information disclosures were not captured by the Act and rather than amend the meaning of understanding, this anti‑competitive conduct could be directly targeted by new prohibitions under the Act.

As you all know, price signalling was a major piece of the Government's Competitive and Sustainable Banking Reforms package announced late last year.

A regulatory response to anti‑competitive price signalling emerged as regulator and community concerns grew about the communication of interest rate movements among the major banks. These concerns were elevated by some of the more conspicuous public statements made by senior bank executives regarding their intentions to raise interest rates if their competitors raised rates first.

The Government remains determined to eliminate these anti‑competitive practices so as to ensure that our banking institutions are competing as hard as possible for their customers' business.

The Government undertook consultation on how to introduce provisions to deal with this anti‑competitive behaviour while minimising the risk of unintentionally prohibiting benign conduct and imposing an unnecessary regulatory burden on business.

On 7 July 2011, the Government's price signalling bill passed the House of Representatives, and last week it was introduced into the Senate.

These new laws will focus on the banking sector, where the ACCC has indicated there is strong evidence that anti‑competitive price signalling is occurring. We have been very clear that these laws would only be extended to other sectors of the economy after further detailed consideration.

The Bill contains two prohibitions.

The first prohibition prohibits the private disclosure of pricing information to a competitor, where doing so is not in the ordinary course of business.

The second prohibition is on the disclosure of information related to price, supply or production capacity or commercial strategy to a competitor, where that disclosure has been made for the purpose of substantially lessening competition in a market.

We recognise that businesses need certainty and appropriate guidance so that they can conduct legitimate activities within commercial timeframes – and keep providing services to customers.

The Bill introduced in the House in March had a number of specific exceptions, for example in relation to continuous disclosure obligations, joint ventures, and disclosures to acquirers or suppliers of goods or services.

In the House the Government moved amendments so that further exceptions are provided that give clear guidance to business about what conduct is, and is not, subject to the prohibitions.

Mergers and Acquisitions

The second key legislative change that has come before the Parliament in the past 12 months relates to the issue of 'creeping acquisitions'.

The mergers and acquisitions provisions in section 50 of the Act fulfil an important role in preserving the effectiveness of the competitive process by preventing mergers and acquisitions which substantially lessen competition in a relevant market, while at the same time allowing mergers that do not "substantially lessen competition" to proceed.

The 1993 Hilmer report stated its view that 'the role of a merger provision is to distinguish between welfare enhancing and welfare reducing mergers and acquisitions'.

There has been a long‑standing debate in Australia as to what is the appropriate balance to be struck for section 50.

The 1974 Trade Practices Act applied a substantial lessening of competition test.

In 1977, the substantial lessening of competition test was replaced with a market dominance test to prohibit acquisitions that resulted in or substantially strengthened a 'position to control or dominate a market' – a higher threshold, meaning less mergers were caught.

The changing of section 50 from a test based on market dominance to a substantial lessening of competition test was made in the Trade Practices Legislation Amendment Act 1992.

There have been many discussions as to whether the law prohibits too few or too many mergers and acquisitions and our legislative test has shifted the pendulum from one end to the other.

The Government's proposed amendments to section 50 help to clarify what is considered to be the appropriate balance between merger activity that constitutes anti‑competitive outcomes, and those that do not.

The Competition and Consumer Legislation Amendment Bill 2011 was re‑introduced into the Parliament in June of this year and meets the Labor Government's commitment to introduce amendments to address concerns around creeping acquisitions.

The Bill amends the Act to:

  • clarify that a court or the ACCC can consider the impact of a proposed merger on competition in 'any' market, ensuring consideration can be given to the competitive impacts of a merger on multiple markets in the one investigation; and
  • clarify that the ACCC or a court can examine local markets where creeping acquisitions concerns may arise in the future by removing the requirement that the market be 'substantial'.

These amendments do not attempt to dramatically change the law, as the existing framework has served us well. Rather, they attempt to clarify the Parliament's intention as to how the law should be interpreted in two ways that the Government feels will strengthen a key provision within our framework of competition laws.

The amendments respond to specific problems with specific remedies, rather than responding with general remedies that could have unintended consequences for overall economic activity and employment.

Misuse of market power

There is a view among some sectors of the community that, particularly in markets exhibiting oligopolistic characteristics, the current competition policy framework does not do enough to prohibit certain forms of conduct that some argue may be anti‑competitive.

The misuse of market power provisions are directed towards the conduct of those market participants who, by virtue of their size, market share or position in the market, have market power.

These provisions aim to distinguish between conduct that represents vigorous competition and conduct that has an anti‑competitive purpose. Drawing an appropriate line between these two propositions has always been a contentious exercise.

The major supermarket chains and the retail sector

At present, the supermarket sector is front and centre of this ongoing debate.

The recent so‑called "price wars" between Coles and Woolworths have attracted much attention. The focus of this debate has been less upon whether competition has been occurring ‑ as I think we can all see that it has been occurring in a very aggressive way ‑ and has been more focussed upon the extent to which competition laws should be concerned with the impacts of such aggressive competition upon certain competitors and producers.

To the extent that these debates remain focussed upon consumer welfare, rather than the protection of competitors and producers, this is a legitimate competition law debate. However, one might also question whether some of the objectives being sought by some interests in this debate might be more appropriately pursued under the banner of industry policy rather than through the amendment of our competition laws.

For my part, I find it novel to be fielding complaints that prices of certain staples are too low rather than too high. This is novel given the widespread concern across the community about the cost of living and the pressures being placed upon household budgets.

At a time when there are such concerns over the cost of living, it is competition that has provided people with new choices, has delivered a more diverse range of products at lower prices, and which has effectively raised consumers' incomes and allowed them to purchase other goods and services or even increase their savings.

The most serious competitive pressure on our two major supermarket chains in recent times have been as a result of the entry of ALDI and Costco into the grocery retailing market. These businesses have the size and supply chains in place to provide substantial and differentiated choice to consumers on a national scale.

ALDI with its low price, own brand offerings and Costco with its bulk savings formats give consumers substantial new choices and more flexibility for these purchases which make up a large proportion of our income expenditure.

An effective competition policy framework also has the power to drive innovation, and the retail sector is an example of where competition is changing the nature of the market.

As you are probably aware, the Productivity Commission released its draft report on the retail sector in Australia earlier this month. Significantly, the report indicates that the changing nature of retail in Australia is part of a global structural shift driven by increasing trade exposure through the rise of online retail.

Thanks to the internet and the rise of web and social media‑based retail, we are seeing fresh competition injected into Australia's retail market.

While it is true that some businesses may have difficulties adapting, other businesses will be inspired to innovate and grow to a more efficient scale and respond more readily to consumer needs and preferences. Increased competition ‑ brought about by the relatively low start up and running costs of online retailers ‑ is a confronting reality faced by traditional 'bricks and mortar' retailers.

The emergence of online retailing is having a substantial impact.

It is estimated that in 2010, online spending reached $28 billion with strong growth expected to continue. With the rollout of the National Broadband Network (NBN) and the increased sophistication of mobile phones, these trends look to continue well into the future.

A competitive retail sector is desirable for both consumers – including businesses as purchasers ‑ as well as the economy at large. It puts downward pressure on prices and produces stronger businesses that embrace changes in technology to deliver a better outcome for their industry and for consumers.

There is no doubt that, in a changing environment where new technology is shaping markets, legislators and regulators will need to remain nimble‑footed in ensuring that both our consumer laws and our competition laws remain relevant and effective.


The Government is committed to ensuring the ongoing relevance and effectiveness of Australia's competition and consumer law frameworks. This continues the Labor Party's longstanding history of promoting a competition and consumer policy framework that delivers consumer welfare and ensures that the Australian economy remains internationally competitive in a dynamic global economy.

While competition policy has always been characterised by demands to protect certain competitors and certain industries in response to pressure from special interest groups, governments must govern for the many and not the few.

From the introduction of the ACL and the criminalisation of cartel conduct through to the introduction of the proposed new price signalling provisions and creeping acquisitions amendments, the Government has been pursuing a very strong competition and consumer law agenda that has remained focussed on efficient markets and consumer welfare.

These will be the guiding principles upon which the government continues to approach competition and consumer law into the future.

I hope you enjoy the conference and I look forward to hearing any suggestions to further improving competitive forces in Australia.

Thank you.