A207/99 23rd December 1999
The Government has accepted the recommendations of the Productivity Commission to retain Part X of the Trade Practices Act 1974, but will implement some further amendments to improve the application of competition policy principles to international liner shipping and to protect the interests of Australian shippers (exporters and importers).
The decision was announced today by the Deputy Prime Minister and Minister for Transport and Regional Services, John Anderson, and the Assistant Treasurer, Senator Rod Kemp, when they released the Productivity Commission’s report on Part X.
Part X provides liner shipping companies with limited and conditional exemptions from the general competition rules of the Trade Practices Act, in order to allow them to collaborate to provide joint scheduled shipping services for Australian shippers.
A summary of the Commission’s recommendations and findings and the Government’s response is attached.
In addition to the Commission’s recommendations, the Government has decided that the Minister for Transport and Regional Services and the Australian Competition and Consumer Commission should have some increased powers to address concerns about unreasonable anti-competitive behaviour.
"We would like to thank the Productivity Commission and all those who provided submissions and assistance in reviewing this legislation," the ministers said. "Part X has a significant impact on Australia’s interests as a major user of international liner shipping."
Media Contacts:
Mr Anderson’s Office: Paul Chamberlin 02 62777680 / 0419 233 989
Senator Kemp’s Office: Richard Allsop 02 62777360 / 0419 482 497
Note: Copies of the Productivity Commission’s report can be obtained from the Commission’s Website at http://www.pc.gov.au or purchased from Government INFO SHOPS in all capital cities.
PRODUCTIVITY COMMISSION’S REPORT ON PART X OF THE TRADE
PRACTICES ACT 1974 - THE GOVERNMENT’S RESPONSE
RECOMMENDATIONS
OVERALL RECOMMENDATION
Part X should be retained and re-examined in 2005.
Agree. The Commission found that Part X:
- involves minimal – but adequate – regulation and promotes commercial relationships and commercial dispute resolution;
- is neutral with respect to market arrangements and has not hindered efficient market outcomes or hindered competitive forces in liner shipping markets;
- has supported the negotiating position of Australian shippers (ie. exporters) and assisted in providing them with predictable service outcomes;
- is compatible with international regulatory regimes; and
- is low cost.
It is appropriate that our regulatory regime be periodically reviewed, given the dynamic nature of international liner cargo shipping.
RECOMMENDATION 8.1A
Clarify that the exemption relating to rate setting extends to land-based charges that normally form part of the ‘terminal-to-terminal’ shipping contract (that is, one that includes not only the ‘blue water’ component but also the sorting and stacking of containers within a container terminal). The Commission favours widening the definition of terminal from the present ‘within the limits of a wharf as under the Customs Act 1901’ to include terminals located within the metropolitan area of port cities.
Agree. However, this will be clearly defined as contracts covering ocean transport as well as loading and discharge operations undertaken on behalf of a liner shipping company. These operations may take place at terminals on the waterfront or some inland depot type facility used for assembling export cargo for delivery to a port, or delivering cargo to importers.
RECOMMENDATION 8.1B
Confirm existing practice of allowing members of shipping conferences to negotiate collectively with stevedores.
Agree. Allowing carriers to negotiate a conference rate with stevedores promotes efficient outcomes, as it allows conference carriers in each trade to utilise countervailing market power in negotiations with stevedores in the duopoly stevedoring market prevailing in most Australian ports.
RECOMMENDATION 8.2
Delete sections 10.14.2 and 10.22.2, which allow the fixing of door-to-door freight rates by conferences for outward and inward liner shipping respectively. Deleting these sections will require the insertion of a clause in sections 10.14.1 and 10.14.2 permitting conferences to set terminal-to-terminal rates.
Agree (the response to Recommendation 8.1A is relevant to this recommendation). The normal basis of liner carriage today is terminal-to-terminal.
RECOMMENDATION 8.3
Repeal section 10.05, which prohibits price discrimination in certain circumstances. The Commission considers that the price discrimination provisions of Part X serve no useful purpose and indeed are potentially harmful if they discourage efficient price discrimination. In addition they would be extremely difficult to implement.
Agree.
RECOMMENDATION 8.4
Add a national interest test, similar to that in section 10.67 of Part X, to apply to any determination by the Minister in relation to sections 10.45(a)(v) and 10.53. This amendment would ensure that shippers’ interests were taken into account explicitly in a Ministerial determination as to whether a conference or non-conference carrier with substantial market power was misusing market power in order to hinder an efficient Australian carrier.
Agree.
RECOMMENDATION 8.5
Provide for more effective and flexible enforcement of undertakings. The provisions of section 87C of the TPA could serve as a useful model.
Agree. While enforcement provisions have been resorted to only very infrequently, a greater range of sanctions would be useful, and will further encourage conference members to abide by the rules, and facilitate the commercial resolution of disputes between conferences and shippers.
FINDINGS
In addition to making recommendations, the PC's report contains findings on several issues on which it decided not to recommend amendments to the current legislation:
Finding 8.1 - Terminal Handling Charges (THCs): the method of dealing with THCs should be a matter for negotiation between shippers and carriers;
Finding 8.2 - Importers: should not be precluded from forming a collective to negotiate THCs if a cost effective mechanism can be devised, but imposing the
arrangements applying to outward shipping conference agreements to inward conference agreements could pose significant jurisdictional problems for little benefit;
Finding 8.3 - Discussion Agreements: these non-binding agreements (which cover conference and non-conference carriers) should not be treated differently from other forms of cooperation among carriers;
Finding 8.4 - Closed Conferences: sufficient competitive pressures exist to negate any potential monopoly power of closed conferences;
Finding 8.5 - Non-Conference carrier with substantial market power: the current controls in Part X should be retained;
Finding 8.6 - Registration of conference agreements: provides important transparency benefits and should be retained;
Finding 8.7 - Funding of Australian Peak Shippers Association (APSA): should come from beneficiaries of its activities, namely Australian shippers; and
Finding 8.8 - Regulation of International Liner Shipping: should be retained in the Trade Practices Act rather than being transferred to a separate Act.
GOVERNMENT’S RESPONSE
The Government has accepted Findings 8.1, 8.5, 8.6, 8.7 and 8.8. In respect of the other Findings the Government has made the following decisions:
Finding 8.2
The current practice of providing inward liner shipping lines with a blanket exemption to collaborate as conferences, without any of the obligations imposed on outward shipping conferences, exposes importers to possible abuse of market power by inward conferences. The Government has decided that, as far as practicable, the arrangements applying to outward conferences should also apply to inward conferences.
It is recognised that care will need to be taken to avoid conflicts of jurisdiction that may arise where inward conferences are subject to competition laws in the country of export.
Both the USA and the European Union have exercised jurisdiction over inward and outward conferences for some time. The OECD has established a set of principles concerning the regulation of international liner shipping, which include ones aimed at avoiding problems from overlapping jurisdictions. The Government will be guided by these principles.
Finding 8.3
The Government has noted the PC’s view that discussion agreements (ie non-binding agreements covering conference and non-conference carriers) should not be treated differently from other forms of cooperation among carriers.
However, the 1993 independent review of Part X, chaired by Mr Patrick Brazil AO (Brazil Review), came to the conclusion that additional powers were needed to protect shipper interests in respect of agreements of that type. The Government has also noted that exporters that participated in the PC review considered that discussion agreements should be subject to greater scrutiny and controls.
Discussion agreements, and similar types of arrangements among shipping lines, have the potential to cover a very large proportion of carriers in a particular trade and as such have the potential to significantly reduce the current levels of competition in liner trades.
This in turn could lead to unreasonable increases in freight rates and/or unreasonable reductions in shipping services.
Accordingly, the Government has decided that the Minister for Transport and Regional Services, and the Australian Competition and Consumer Commission (ACCC) should have increased powers to deal with concerns that may arise from the operation of certain agreements that are likely not to result in a public benefit (eg. accords and discussion agreements). These concerns are only likely to arise in ‘exceptional circumstances’.
Under these arrangements, the ACCC will be empowered to undertake an investigation on its own initiative into such agreements and make recommendations to the Minister. The Minister will have the power to suspend the operation of such agreements (in whole or in part) if, after consultations with affected parties (ie conference lines and shippers), the conference lines do not give a court enforceable undertaking that would make suspension unnecessary.
The Government recognises that shipping lines need to have confidence that the Part X exemptions will stand so long as they conduct their business in accordance with the objects of Part X, and do not engage in conduct that is, or is likely to be, against the public benefit.
Guidelines will be issued covering the exercise of the increased powers granted to the Minister and the ACCC. This will include a preliminary assessment, by the ACCC, of the need for a public inquiry and the following criteria for assessing whether ‘exceptional circumstances’ exist:
- the agreement covers a substantial majority of shipping lines and capacity in a trade;
- the conduct of the parties to the agreement has led to, or is likely to lead to, an unreasonable increase in freight rates or an unreasonable reduction in services; and
- the public benefit flowing from the agreement is outweighed by the anti-competitive detriment.
It is intended to consult the relevant industry parties in the preparation of the guidelines.
Decisions made under the increased powers will be reviewable by the Australian Competition Tribunal in line with arrangements applying to authorisations and notifications under Part VII of the TPA.
Finding 8.4
The Government accepts the PC’s finding that shipping lines should be allowed to continue to form ‘closed conferences’ (ie. those that require agreement by existing members before new members are admitted).
However, where refusal to admit a new member to a conference is considered to be contrary to the interests of shippers, the Minister and the ACCC would be empowered to investigate the situation. If such an investigation reveals that refusal to admit the new member is unreasonable, the Minister will be empowered to exercise the powers mentioned under Finding 8.3 above, with such a power being reviewable by the Australian Competition Tribunal.