tag:theconversation.com,2011:/ca/topics/ian-harper-15790/articlesIan Harper – The Conversation2015-11-25T19:07:31Ztag:theconversation.com,2011:article/512002015-11-25T19:07:31Z2015-11-25T19:07:31ZTurf wars loom over new competition policy body<p>The Federal Government has agreed to the Harper Review’s recommendation to establish a new competition body in charge of policy development.</p>
<p>The new institution - for now known as the Australian Council for Competition Policy (ACCP) - will implement Australia’s competition policy agenda, including reforms arising from the Harper Review. But it also has a broader role, driving policy issues over the longer-term.</p>
<p>The ACCP would be the successor in spirit and fact to the National Competition Council (NCC). The role of the NCC - initially extremely important following the Hilmer review - has become very narrow over recent years. With last year’s budget, it was effectively declared a dead duck when it was stripped of its staff.</p>
<h2>The states and territories also have a say</h2>
<p>The ACCP would be yet another example of “co-operative federalism”, with the body created under the law of one state and then extended to other states, the territories and the Commonwealth via additional legislation. </p>
<p>This model has proven extremely effective in a range of areas (for example, energy regulation), but means that the Federal Government cannot resolve the nitty gritty by itself.</p>
<p>Accordingly, the government’s response to the details of Harper’s various recommendations concerning the new body is to declare that its “design, role and mandate” would be discussed with the states and territories. While perfectly understandable, this approach means the new body has all the appearances of a drum: we have an idea of how the outer shell looks but, for now, it is quite hollow.</p>
<h2>Ambivalence reigns</h2>
<p>In the meantime, the government seems quite ambivalent about some of the substantive recommendations which Harper makes in respect of this body.</p>
<p>Key recommendations include empowering the ACCP to undertake “market studies”, whether on its own initiative or in response to requests by governments and even market participants. The ACCP, according to Harper, should also have the power to make recommendations to governments regarding regulation, and even to the Australian Competition and Consumer Commission (ACCC) on its investigations. </p>
<p>While this last power would be quite novel, the others are eminently sensible. Indeed, Australia’s competition regime is clearly the poorer for a lack of regular market studies, and particularly the occasional review of ACCC merger decisions. Without such studies, we are never in a position to learn from history.</p>
<p>The government responds, however, that the ACCC currently has scope to conduct market studies, including under ministerial direction (as occurred, for example, with the<a href="https://www.accc.gov.au/about-us/consultations-submissions/public-consultations/grocery-inquiry-2008"> 2008 Grocery Report</a>). It also notes that the Productivity Commission has the power to undertake studies of this nature.</p>
<p>Thus, declining to outline its own position on this recommendation, the government formally shelves it for discussion with the states and territories. The government adopts a very similar approach on the recommendation that the ACCP undertake regular analyses of developments in the competition policy environment. While it remains “open” to this recommendation and promises to discuss it with the others, it points out that the ACCC already does this work.</p>
<h2>Reality bites</h2>
<p>It is indeed true that other bodies can undertake market studies and general competition policy analysis, including sometimes at their own direction. The ACCC and its predecessor, the Trade Practices Commission, has in its time produced extremely thorough, informative and useful reports into particular industries and issues - the TPC’s report into the collapse of <a href="http://catalogue.nla.gov.au/Record/2967113">Compass Airlines in 1992</a> is a prime example.</p>
<p>But the ACCC has extremely limited resources, and is simply not in a position to initiate such processes itself. Furthermore, it is hardly the best organisation to consider whether its handling of specific issues (such as market power investigations or merger clearances) represents best practice. Likewise, the Productivity Commission - which is essentially made up of economists - is not always well-placed to undertake assessments of issues so clearly rooted in the law.</p>
<p>In any case, it seems odd to create a policy body and then not endow it with these powers.</p>
<h2>The ACCC’s position</h2>
<p>The government’s ambivalence as to the new body’s precise role may reflect the ACCC’s general opposition to Harper’s institutional recommendations. </p>
<p>The ACCC has been broadly supportive of the Harper proposals and yesterday released <a href="http://www.accc.gov.au/media-release/accc-welcomes-the-government%E2%80%99s-response-to-the-harper-review">a short bland statement of general support</a> for the government’s response. <a href="http://competitionpolicyreview.gov.au/files/2014/12/ACCC.pdf">But it is fiercely protective of current institutional arrangements</a>. </p>
<p>The ACCC’s opposition to Harper’s proposed changes largely relates to suggestions that its regulatory functions be rolled into a separate body, with the ACCC’s role being limited to general enforcement of the law. (The government has been non-committal on this point.)</p>
<p>But the ACCC also strongly objects to Harper’s view that its advocacy, education and market review functions be limited. It did however concede - a touch grudgingly - that other bodies could also be charged with such tasks.</p>
<p>The ACCC defended its ground, not by pointing to its track record on market studies but by essentially pitching for new funding to undertake these studies. In doing so, it cited various overseas regulatory bodies with combined enforcement, regulatory and policy roles.</p>
<p>But in the same way we like media diversity, institutional diversity and even competition has clear benefits. </p>
<p>The ACCC’s role in relation to mergers, in particular, occurs almost entirely behind closed doors. If only in this area, objective third-party reviews of ACCC assessments - comparing the ACCC’s predictions with actual market developments - could only enhance its decision-making. Such transparency is also likely to result in improved court outcomes for the ACCC, as the robustness of its analysis becomes more broadly appreciated.</p>
<p>In any case, the argument has been postponed for now. The government agrees there should be a new policy body: it just doesn’t have a clear view what that body should do.</p><img src="https://counter.theconversation.com/content/51200/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alexandra Merrett does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The federal government will implement Harper’s much-pushed for recommendation for a new competition policy body - but how its fits with other regulators is uncertain.Alexandra Merrett, Competition Lawyer; Senior Fellow, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/512462015-11-25T02:56:43Z2015-11-25T02:56:43ZWe’ve already had consultation on the effects test: more is just a political smoke screen<p>Big business continues to hold the government to ransom over the Harper review’s proposed reform of the misuse of market power prohibition in Australia’s competition legislation.</p>
<p>In the government’s response to the review panel’s recommendations announced yesterday – on section 46, more consultation is proposed. </p>
<p>More consultation needed – really? The Harper review received 950 submissions and held countless public and private workshops, forums and meetings, including with big business groups, and the lawyers that typically represent them. Once the final report was in, “consultation” between the former Abbott-led government and the Business Council of Australia continued over the issue.</p>
<p>The prohibition in section 46 has been the subject of reviews, inquiries and reform proposals on more than 10 previous occasions, spanning 1976 to 2004.</p>
<p>The proposed further consultation is said to be for the purpose of exploring “further options to strengthen” the prohibition. In Treasurer Scott Morrison’s words, it will examine whether there is a “part Harper” option available. Is this meant to imply that all the possible options have not been explored already? Given the extensive and protracted consultation to date, that proposition lacks credibility.</p>
<p>The more convincing explanation for prolonging the section 46 agony is that it will enable the government to negotiate big business support for other reforms – particularly in the area of tax. In such negotiations, section 46 may well feature as a bargaining chip.</p>
<p>The principal assertion made by objectors is that an effects test will produce uncertainty that will “chill” competition.</p>
<p>The <a href="https://theconversation.com/au/topics/effects-test">many compelling arguments</a> in favour of reform of section 46, and <a href="https://theconversation.com/explainer-what-is-the-competition-effects-test-39424">an effects test</a> specifically, need not be rehashed but it is worth pointing out that such a test is not some novel invention of the Harper panel. It replicates the test which has applied in the Australian competition rules dealing with mergers and exclusive dealing for years and is aligned with international approaches.</p>
<p>Similar claims - that uncertainty would deter discounting - were made about the notorious “Birdsville amendment” to section 46 (an amendment aimed specifically at predatory pricing) some years ago. In the end, no such effect was discernible. </p>
<p>Ironically Harper has recommended that the Birdsville amendment should be repealed. Not because it created uncertainty, but because it was misguided and unnecessary - a result of the politics of big versus small business that plagues competition law and other fields of regulation in this country.</p>
<p>The Birdsville saga is a neat illustration of the most likely outcome of the political compromises that Morrison’s proposed “consultation” necessarily involve. A probable outcome is incoherent and/or unworkable law. There are also often unforeseen spill-over effects.</p>
<p>What the reform opponents may not fully appreciate is that if section 46 remains in its current condition, or if an unworkable alternative “option” is introduced, there is every likelihood that the Australian Competition and Consumer Commission (ACCC) will ramp up its enforcement of the prohibition on unconscionability (unfair trading) as a proxy for enforcement of section 46. And, in some respects, this will make the enforcement task easier.</p>
<p>The unconscionability prohibition does not require proof of substantial power in a market, or taking advantage of such power for a proscribed purpose. The “substantial power” and “taking advantage” elements are what have foiled the ACCC’s attempts to punish and deter anti-competitive conduct by powerful firms for years.</p>
<p>What is more, the unconscionability prohibition invokes moral rather than economic judgments about commercial conduct. In the words of judges who have interpreted the provision, the standard is whether the conduct is “against conscience” or contrary to “moral and normative standards, broadly cast”. What could be more uncertain than that?</p>
<p>Under the competition rules, businesses are free to conduct themselves unfairly as long as they are competing. That is seen as in the interests of consumers. Competition is inherently unfair. Under the unconscionability rules, by comparison, the test for liability is in essence about whether the business has acted fairly, ethically even.</p>
<p>Perhaps big business takes comfort in the fact that the penalties for unconscionability (maximum $1.1 million) are lower than for misuse of market power (maximum $10 million or higher if the alternative formulae of 10% of corporate turnover or three times the gain from the contravention, are employed).</p>
<p>But the reputational damage from an unconscionability suit is at least as great. And it is this fall-out, in the eyes of customers and suppliers, that arguably keeps business leaders up at night. The rapid fire settlement by Coles of the <a href="https://theconversation.com/too-big-to-care-will-coles-and-woolies-lift-their-game-in-2015-36430">unconscionability cases</a> brought against it by the ACCC last year, including a public apology by its CEO, is a case in point.</p>
<p>Aside from the hard-to-avoid conclusion of capture, what the government’s continued dithering and deferral on section 46 reveal is that it failed to foster a constituency for reform in this foreseeably controversial corner before the Harper Review was started or reported on. The only constituency that was garnered was with the small business sector. That is not surprising given that the review was initiated and led by Small Business Minister, Bruce Billson, who has since exited left stage.</p>
<p>However, in the tally of winners and losers from this unfortunate episode in competition law history, it will not just be a story of big business triumphing (yet again) over small. The broader narrative will be one of good politics triumphing over good law.</p><img src="https://counter.theconversation.com/content/51246/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Caron Beaton-Wells receives funding from the Australian Research Council.</span></em></p>In kicking the can down the road on section 46, the federal government has chosen good politics over good law.Caron Beaton-Wells, Professor, Melbourne Law School, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/511912015-11-25T00:02:15Z2015-11-25T00:02:15ZHarper response is good economics and smart politics<p>The adults are back in charge in Canberra.</p>
<p>Don’t believe me? </p>
<p>Then look at the federal government’s response to the recommendations of the Competition Policy Review, chaired by Professor Ian Harper. It is measured and thoughtful. It avoids unnecessary fights but keeps pushing forward the reform agenda. It may not impress the “reform junkies”. But it is very smart politics.</p>
<h2>Getting the states on board</h2>
<p>Many of the Harper recommendations focus on areas like human services, trading hours regulation, or uber and taxi regulations, that are outside the direct control of the federal government. So the big benefits from the Harper reforms will come through engagement with the states. The federal government will use two elements from Professor Fred Hilmer’s 1990s reform process to gain state support. </p>
<p>The first is a new Competition Principles Agreement (CPA). Harper recommends this. The original CPA between the federal and state governments underpinned the Hilmer reforms. A new CPA will underpin the Harper reforms. The federal government hopes to have this in place within a year. </p>
<p>A new CPA will include elements of the original Hilmer version. For example, it is likely to include a review process to test if legislative restrictions on competition serve the public interest. </p>
<h2>Incentive payments</h2>
<p>The second way the federal government will gain state support is through a new system of incentive payments. In the 1990s, the National Competition Council administered the Hilmer incentive payments. But when the payments ran out in the early 2000s, the reform process slowed and, in many areas, stopped. </p>
<p>The payments were not large but they were politically important. However, the Harper report missed the political element of the payments, focusing only on their economic basis. As a result, recommendation 48 of the Harper review based any new payments on a vague bureaucratic process. </p>
<p>In contrast, the federal government’s response to Harper recognises the need for clear incentives. Thus “[t]he Government is willing to consider payments to states and territories for regulatory reviews where subsequent reforms improve productivity and lead to economic growth” (p.10). The government accepts recommendation 48 but its response deliberately refers back to the earlier reforms. </p>
<p>This approach underpins the acceptance by the government of most of the Harper recommendations in areas such as human services reform, road transport, and both water and energy reform.</p>
<h2>Avoiding unnecessarily fights</h2>
<p>The government has not accepted all the Harper recommendations. It has side-stepped some of the hard fights. While this may upset free-market advocates, it reflects a government that knows what fights to pick and when. </p>
<p>For example, it simply “notes” recommendations on air and sea transport restrictions (called “cabotage”). It notes the recommendation to extend competition rules to intellectual property. But it avoids both fights.</p>
<p>Similarly, the response notes the recommendation that has caused most public contention - on the “misuse of market power” test (section 46)- but “will consult further”. It will also “continue discussions” on whether or not the access and pricing regulator should be separated from the Australian Competition and Consumer Commission. </p>
<p>It is smart politics to know which fights are not worth the effort. The debate on section 46 seemed destined to derail the entire reform process. But it is a second order issue compared to the potential reform gains from the other Harper recommendations. The response recognises this. </p>
<h2>Competition laws and small business</h2>
<p>The federal government has accepted almost all of the other Harper recommendations on competition laws. This will lead to simpler, better laws. It will remove politically inspired additions to the legislation that were unworkable or potentially harmful. It will also streamline areas such as the convoluted and complex cartel laws. </p>
<p>The government has taken a balanced approach to small business. The response was released on the same day that the former small business minister, Bruce Billson, announced that he would <a href="http://www.abc.net.au/news/2015-11-24/former-small-business-minister-bruce-billson-quits-politics/6968382">retire from politics at the next election</a>. While Billson put a lot of effort into the argument on section 46, the real gains for small business are elsewhere in Harper. </p>
<p>In particular, the government has supported the collective bargaining recommendations that re-enliven collective boycotts by small business. These have been missing in action since a decision by the Competition Tribunal to not allow chicken growers to collectively boycott in the mid 2000s. If small business can effectively collectively bargain and collectively boycott, they will gain significant countervailing power when dealing with large buyers or suppliers. </p>
<p>The government was faced with differing recommendations on infrastructure access laws – one set from Harper and one set from an earlier Productivity Commission (PC) inquiry. The government chose the PC version. This was the right call and reflects the original intent of the laws. </p>
<p>The rebooted reform process will need oversight. Harper recommended a new Australian Council for Competition Policy (ACCP). The government’s response recognises “the need for a body to oversee progress on competition reform”. However, it also recognises that both the federal and state governments must design any new institution. Working out exactly what the ACCP will be and how it will function is a key part of the work for the next 12 months. </p>
<h2>The next 20 years</h2>
<p>The response is mature and thoughtful. It reflects the recent changes in Canberra. It should be welcomed by both the opposition and the states. The Hilmer reforms underpinned the last 20 years of Australia’s economic growth. This response to Harper should underpin the next 20.</p><img src="https://counter.theconversation.com/content/51191/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen King is a member of the National Competition Council, the body with oversight of the infrastructure access laws.</span></em></p>The response to the Harper recommendations on competition policy reform was mature and wisely sidestepped the issue that could derail debate on it.Stephen King, Professor, Department of Economics, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/396402015-04-02T03:53:48Z2015-04-02T03:53:48ZHarper Review: a mixed basket for Coles and Woolworths<p>The findings and recommendations of the Harper competition review are a mixed bag and likely to meet with a correspondingly mixed reaction from stakeholders in the retail grocery sector. </p>
<p>Consistent with concerns aired in a string of sector-related inquiries and investigations in recent years, submissions were made by independent grocery retailers alleging that the major supermarket chains, Coles and Woolworths, misuse their market power, including through “predatory pricing” and other anti-competitive tactics. </p>
<p>Suppliers too raised previously well ventilated concerns about misuse of market power and unconscionable conduct by the major chains, as well as about reduced innovation and consumer choice through the growth of private brands.</p>
<h2>An “effects” test for misuse of market power</h2>
<p>In a general recommendation - not specific to the retail grocery sector - the panel proposed amendments to the prohibition on misuse of market power (section 46 of the Competition and Consumer Act 2010). </p>
<p>The essence of the proposal is to replace the prohibition on a firm with substantial market power “taking advantage of that power for an anti-competitive purpose” with a prohibition on such a firm engaging in conduct “with the purpose, effect or likely effect of substantially lessening competition”. </p>
<p>Section 46 has a long chequered history and, as with previous reviews, debate over its efficacy occupied much of the panel’s time.</p>
<p>The arguments for and against adopting an “effects” test, and the form of panel’s recommended amendment, have been canvassed at length elsewhere (including on <a href="https://theconversation.com/explainer-what-is-the-competition-effects-test-39424">The Conversation</a>). Suffice it to say there are good reasons to regard the case against as overheated, particularly the charge that it will “chill” competition. More likely to have that effect is the structure of the market, characterised by high concentration and barriers to entry. </p>
<p>Properly interpreted and applied, the effects test should not capture pro-competitive or efficient conduct. As noted in the Harper report - and reflected in Australian and international competition law - just because conduct harms a competitor or competitors, will not mean that it substantially harms the competitive process.</p>
<p>The panel has usefully recommended that the amendment provide guidance to courts to weigh pro-competitive and anti-competitive aspects of the conduct in question. This is a task US courts have been undertaking for years and one that Australian judges are just as well equipped to perform.</p>
<p>Nor should the objection that the change will create uncertainty and raise compliance costs for big business hold much sway. At the risk of flippancy, it could be observed that any measure that increases costs for Coles and Woolworths can only assist in levelling the playing field in the sector. </p>
<p>More seriously, an effects test is not some novel invention of the review panel. It replicates the test which has applied in the Australian competition rules dealing with mergers and exclusive dealing for many years and is also aligned with international approaches.</p>
<p>It is worthwhile remembering that similar claims that uncertainty would deter discounting were made about the notorious “Birdsville amendment” to s46 (an amendment aimed specifically at predatory pricing) some years ago. In the end, no such effect was discernible. Ironically Harper has recommended repeal of the Birdsville amendment - not because it created uncertainty, but because it was misguided and unnecessary, a result of the politics of big versus small business in this country. </p>
<p>Coles and Woolworths will continue to lobby against the recommended change to s46, claiming higher prices for consumers as amongst the potential effects. The Business Council of Australia has expressed concern over the uncertainty for business and lawyers remain divided on the issue. Of the few economists who have had a say, there is also little common ground (see <a href="http://theconversation.com/harper-makes-case-for-competition-overhaul-experts-react-39582">here</a>, for example, the divergence between two former ACCC Chairmen on the issue).</p>
<p>Given this, and despite strong support by the ACCC and others, the likely adoption of the panel’s misuse of market power recommendation is at best uncertain. One possible outcome is a modified version of the proposed amendment that reflects a compromise between interest groups. Such a compromise risks distorting the law to make it economically incoherent and practically unworkable. Regrettably, there is no shortage of precedent for this type of outcome in Australian competition law history. </p>
<h2>Wait and see on unconscionable conduct</h2>
<p>On the prohibition on unconscionable conduct, the panel adopted a “wait and see” approach, pointing to the <a href="http://theconversation.com/accc-signals-strategic-change-in-battle-with-supermarkets-26288">ACCC’s recent successful litigation against Coles for unconscionable conduct</a> involving its suppliers as indicative of the prohibition working as intended. </p>
<p>At first glance, the $10 million penalty seems substantial. But it has to be looked at in the context of the maximum penalty for conduct of this kind being set $1.1 million per contravention. (The penalty for Coles reflecting the fact that there were so many contraventions.) In something of an understatement the judge in the case observed, this is “arguably inadequate for a corporation the size of Coles”. </p>
<p>Regrettably, the review panel did not address the question of maximum penalties for unconscionable conduct. </p>
<h2>Code of conduct</h2>
<p>The panel also noted that introducing a properly designed and effective industry code should protect suppliers. The Food and Grocery Code of Conduct was established in February 2015 and the ACCC has identified compliance as a top enforcement priority this year. </p>
<p>The Code has its fair share of sceptics but its introduction should be seen at least as a positive acknowledgement by the major chains that some change in their supply chain management strategies is necessary. </p>
<p>That said, industry codes under the Competition and Consumer Act lack teeth and it is disappointing that the panel shied away from recommending meaningful civil penalties for code breaches. </p>
<p>Even if the approach taken by Franchising Code in January this year were extended to other codes (a measure the panel neither supported nor opposed), the penalties are relatively light - a breach exposes a franchisor or franchisee to $8,500 penalty issued by the ACCC or a pecuniary penalty of up to $51,000 imposed by the court. These are likely to be meaningless in the retail grocery sector context.</p>
<h2>Regulatory reforms to remove entry barriers</h2>
<p>In preserving competition, the panel’s primary focus was on removing impediments to the entry and expansion of new players, including planning and zoning law reform, reviewing regulatory restrictions on liquor sales, and deregulating retail trading hours. As noted by the panel, these reforms will require significant political leadership and incentives at all levels of government.</p>
<p>The panel largely dismissed concerns about the domination of Coles and Woolworths stultifying competition. But it would be far-fetched to suggest that the sector is anything other than a duopoly, despite the continued growth by Aldi and Costco. </p>
<p>And while the panel focused on regulatory barriers to entry, it did not say much about strategic barriers – that is, the use of pricing and other commercial strategies designed to keep competition at bay. Perhaps the panel viewed any such strategies can be tackled under the re-energised section 46.</p>
<p>Predictions that such litigation will be brought by small business would be fanciful. Indeed the panel set out at length the hurdles that small businesses face in taking enforcement action in their own right. </p>
<p>Of course, the ACCC might well bring proceedings and under chairman Rod Sim, has demonstrated a commitment to litigating more under the Act. But the ACCC lacks the formidable resources of the large companies that it would be taking on and it will have to be strategic about the cases it chases.</p>
<h2>Expansion into other sectors</h2>
<p>The panel also gave fairly short shrift to concerns surrounding the expansion of chains into other retail sectors such as hardware, liquor, electronics, gambling. </p>
<p>It may well be right that such diversification creates efficiencies for the firms concerned and could increase competition in these sectors. </p>
<p>However, this view does not necessarily address the long term concerns that these sorts of growth strategies may lead ultimately to concentration and the creation of strategic entry barriers in other important retail sectors at the level currently in retail grocery.</p>
<h2>Social disruption</h2>
<p>The panel acknowledged submissions about adverse social changes, in particular the loss of community amenity caused by a move of supermarket chains into regional and rural areas. </p>
<p>But these “are not matters to be addressed by the competition law. They reflect broader economic and social changes that are often the outcome of competition.” Technically, this is correct. However, it raises the broader issue for government as to whether competition should trump other non-economic values and interests in our society (see my related comment <a href="http://theconversation.com/coles-v-accc-finding-the-balance-between-fair-trading-and-competition-33135">here</a>).</p>
<h2>Prediction?</h2>
<p>If any prediction can be confidently made concerning the retail grocery sector, it is that the review will do little to dampen the controversy that this sector has attracted and will continue to attract into the future.</p><img src="https://counter.theconversation.com/content/39640/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Caron Beaton-Wells is leading a research project on supermarket power funded by the Australian Research Council.</span></em></p>Supermarket giants are predictably opposed to
Harper Review’s effects test, but the report is a mixed bag when it comes to other retail competition issues.Caron Beaton-Wells, Professor, Melbourne Law School, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/396292015-04-02T01:57:41Z2015-04-02T01:57:41ZThe Harper Review – let’s focus on what will make a real difference<figure><img src="https://images.theconversation.com/files/76847/original/image-20150402-31302-1tj5dux.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Harper Review should focus attention on planning and zoning reform as a crucial way of improving competition. </span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/theenmoy/10483354033/in/photolist-gYnVVk-9vb9wV-bziG6r-afgdAv-hBGDh-8oRjr1-gfqhbb-ej9eDU-9wVQLA-dT5HSz-5Aoruo-2sHhs-bVEeGU-dS98sh-nibWzA-gYmV6j-gNnrUa-2LzFw9-6VEa4N-7fw2T9-8MCUGP-7EnFL3-7K14vS-dqM7sW-8uyKiB-9zS8Qe-2S5xRb-4NLz9a-5zjdzv-7LLavx-81JsAU-gLRQC4-6HtaHT-k2AgmE-9DJPBM-aSiqRX-3hupQx-dKSqd1-7LPM1s-9wo78V-dVnNPe-gCTyrj-fYLirv-cNSLao-Ge6F8-gRgdmx-mLJXjT-b4zNvV-8pqsiX-7EnFY1">Flickr/Theen Moy</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>A battleground is already forming over the Harper Report recommendations, especially the suggestion to change the misuse of market power prohibition and bring in an “effects test”. </p>
<p>But this debate is missing what is important about the Harper Review. At a time when economic conditions are deteriorating and both federal and state governments are facing narrowing funding options, there is a pressing need to look beyond piecemeal issues and focus on whether the review will help make a tangible difference to our economic prosperity.</p>
<p>Last year’s G20 Communiqué held in Brisbane acknowledged the close link between competition and prosperity:</p>
<blockquote>
<p>Competition is central to the operation of markets. Efficient and well-functioning markets are essential for catalysing private sector investment, ensuring an efficient allocation of resources and lifting economic growth. Fostering competition is critical for our economies. … Productivity is increased by stronger competition because a strong competition framework generates the incentives to attract the most efficient firms into markets.</p>
</blockquote>
<p>If our objective is to use the Harper recommendations to drive innovation, efficiency and consumer choice, there are bigger issues on which to focus community debate.</p>
<p>To achieve the outcomes Australia committed to in its G20 Comprehensive Growth Plan, we need a concerted effort on competition policy reform to “raise Australia’s economic growth potential, create one million new jobs over the next five years … and support continued improvements in national living standards”. </p>
<p>Our attention should be focused therefore be on the areas the Harper Review has identified as not serving our long-term interests. Improving health and education delivery, reforming retail planning and zoning rules, and removing unnecessary barriers to consumer choice, are just a few areas in which competition policy can deliver substantial and enduring benefit to the entire Australian community. </p>
<p>Of course, as Harper has already acknowledged,there has already been quite a deal of work and some achievements in these areas. </p>
<p>While not easy to reform, the likely gains will be significant. Furthermore, while there remains a need for varying degrees of regulation, it should not unnecessarily stifle competition, choice and innovation.</p>
<p>The Panel recommends that all Australian governments commit to a set of principles common to competition policy reforms, such as promoting consumer choice and their long-term interests, and committing to the separation of public monopolies. Such principles might seem self-evident, but are worth repeating given the increasingly complex challenges facing governments intent on economic or social reform.</p>
<p>Human services - health, education and community services – has not been an area at the forefront of competition policy reform. It is unfinished business following the transformational Hilmer reforms of the 1990s. </p>
<p>The Panel reintroduces some big difficult challenges. While acknowledging innovations in delivery, it echoes Productivity Commission views that even a small improvement in efficiency in the sector would make a large difference in the quality and quantity of services and in the level of government outlays. </p>
<p>The ultimate recommendation – that each Australian government should adopt choice and competition principles in delivery of human services - is underwhelming, but in carefully describing the advances made, the present challenges and the way other countries have tackled this issue, the report shines a light on this important area. It is a shame the Panel did not think it could venture further in this area than to recommend trials and pilot schemes.</p>
<p>Acknowledging prior reports from the National Competition Council, the Australian Competition and Consumer Commission (ACCC) and the Productivity Commission, the Panel issues a direct challenge for COAG – that within two years each government should implement reforms ensuring planning and zoning laws do not unnecessarily restrict competition.</p>
<p>There has been enough study of this issue - it is time for action. As the Productivity Commission reported last year, most state and territory governments have conducted major reviews in recent years, but change has been slow and patchy. An earlier study for NSW concluded that comprehensive planning and zoning reform could net benefits of up to $1.4 billion per annum for the state.</p>
<p>Overall, the Panel has produced a comprehensive critique of the competition policy issues Australia will need to address if we are to improve consumer welfare through economic efficiency and better consumer choice. Focusing on the issues most likely to pay the highest dividends for consumer and government efficiency is a sufficient enough challenge. Let’s not get distracted by debates over the narrower issues the report also canvasses.</p>
<p>Reports do not, of themselves, deliver change, but they can be a powerful catalyst if embraced and promoted. Unfortunately, recent experience suggests that worthwhile reports are often dispatched to the dust bin.</p>
<p>That occurs more often than not if there is no strong community, business or cross-party political will to debate, adopt and implement recommendations. Implementing the Harper recommendations, whatever their final form may be, will not be easy. Federal and state governments will need to put differences aside and deal with entrenched interests if positive outcomes are to result.</p>
<p>Opinion leaders within the community will need to debate those recommendations that provide the biggest gains, rather than focus on areas of legal drafting that might be emotive but are unlikely to contribute much to our national competitiveness or productivity.</p><img src="https://counter.theconversation.com/content/39629/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Russell Miller AM is Adjunct Professor, ANU College of Law sand a Member of the Minter Ellison Australasian Competition Group.
</span></em></p>The main question to ask of the Harper report is: what will make a tangible difference to our economic prosperity?Russell Miller, Adjunct Professor, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/394242015-03-31T19:09:33Z2015-03-31T19:09:33ZExplainer: what is the competition ‘effects test’?<figure><img src="https://images.theconversation.com/files/76518/original/image-20150331-1231-rzul1k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Harper competition policy review recommendations include changing the way misuse of market power can be prosecuted. </span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/cyron/60170135/in/photolist-5fHD3v-6dHoTm-pD7oJS-gkX79d-2ePTp-841x7o-6jou8-4dRD4V-eLoqgq-faBVQA-w3Dj-fP3tAJ-bkw7Jg-6gP4tW-aPDrSB-5QQhr-gpnsD7-oR3YY6-e817Us-epP3-8WNL9c-dXA6vq-68JLCH-nLsAsN-8hhWng-4DprSZ-5rzpwv-e9PuCS-e9PtxQ-e9HPhK-6xFUo-7nuZ7C-dp8h8t-5QQhL-5QQgE-6cZmzE-puNBKq-4GQfE1-6MuJSq-9w9S8w-71A2ww-5GGdGZ-6kc5iS-ospN3-zUhb-64JqKd-34df3o-5QQgZ-5QQgV-5QQhc">Image sourced from www.shutterstock.com</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Extensive lobbying by the Australian Competition and Consumer Commission (ACCC) and some interest groups appears to have brought an “effects test” one step closer, following <a href="http://competitionpolicyreview.gov.au/files/2015/03/Competition-policy-review-report_online.pdf">the recommendations of Ian Harper’s Competition Policy Review panel</a>. </p>
<p>But what is an effects test, and what would it mean?</p>
<p>All the fuss relates to section 46 of the Competition and Consumer Act: the provision of our competition laws which regulates unilateral conduct. There are numerous laws affecting arrangements between two or more parties, but only section 46 - which prohibits the misuse of market power - focuses on big business acting alone.</p>
<h2>How does section 46 work now?</h2>
<p>Section 46 has had several formulations. But for most of the last three decades, it has had the same basic structure. One must prove that the relevant party had substantial market power, that it took advantage of that power, and that it did so for a “proscribed purpose” (generally described as an anti-competitive purpose). </p>
<p>Section 46 as currently drafted is notoriously difficult to establish. The threshold of substantial market power is very high (more than half of the cases fail on this point alone). It is also extremely difficult to prove “taking advantage” - while the courts have said this means no more than to “use” market power, this element accounts for most of the other court failures. </p>
<p>Oddly, proving a company’s purpose does not seem to be a sticking point before the courts, although the ACCC tells us that there are many cases it would have pursued but for this issue.</p>
<h2>What do we mean by an effects test?</h2>
<p>The effects test as proposed by Professor Harper retains the first element of the current section 46 - substantial market power - but removes the other two. </p>
<p>In their place, an effects test has been inserted.</p>
<p>An effects test is a shorthand way of referring to whether conduct has the purpose or likely effect of substantially lessening of competition. This test appears in a number of other provisions of the Competition and Consumer Act, and is perhaps best known in the context of mergers.</p>
<p>Back in 2013, Small Business Minister, Bruce Billson, went on the record as a fan of the effects test, <a href="http://www.heraldsun.com.au/news/coalitions-bruce-billson-wants-to-rewrite-accc-misuse-of-market-power-laws/story-e6frf7jo-1226599639364">saying</a> that it would make it easier for the ACCC to win section 46 cases. </p>
<blockquote>
<p>We are just trying to make sure that the toolkit available to the Australian Competition and Consumer Commission is fit for purpose. In my mind, the toolkit needs to be revisited to deal with the modern and emerging economy. There are some deficiencies.</p>
</blockquote>
<h2>Why is an effects test controversial?</h2>
<p>Why then does the effects test strike fear in so many? The big end of town thinks it will prohibit good (“pro-competitive”) conduct. At the same time, others worry that it makes a difficult test even harder. </p>
<p>Confusingly, both points are valid.</p>
<h2>Could it catch too much? A: yes!</h2>
<p>By looking at effect, not purpose, attention is only focused on the outcome of conduct, not its rationale. But as the High Court said back in its first consideration of section 46: </p>
<blockquote>
<p>Competition by its very nature is deliberate and ruthless. Competitors jockey for sales, the more effective competitors injuring the less effective by taking sales away. Competitors almost always try to “injure” each other in this way… and these injuries are the inevitable consequence of the competition s46 is designed to foster.</p>
</blockquote>
<p>The trouble is that “injuring” your competitors can result in a lessening of competition. So observing such injuries tells you nothing about whether they have occurred due to competition that ultimately benefits consumers or because of a misuse of market power that will harm consumers. </p>
<p>Traditionally, we have relied on the taking advantage element to resolve this dilemma: we have been comfortable with the cut and thrust of competition, so long as the company concerned isn’t taking advantage of its special position in the market. If it is only doing what everyone else is capable of doing, that’s fine. </p>
<p>But the Harper Panel says that taking advantage currently fails to do the job of distinguishing good from bad, as its interpretation by the courts is too unpredictable. It’s not clear, however, how an effects test will do any better. In its draft report, the Harper Panel proposed a defence to discern whether conduct was pro- or anti-competitive. But that defence was widely criticised and has been dropped from the final recommendation.</p>
<p>In its place, the panel has suggested that legislative guidance be provided to the courts in applying the new provision. It further recommends that companies be able to seek authorisation (never before allowed for section 46 conduct): this would allow parties to obtain statutory immunity in advance of engaging in conduct if it can prove that there is a sufficient benefit to the public. Finally, it calls for the ACCC to issue guidelines.</p>
<h2>Could an effects test catch too little? A: yes!</h2>
<p>Completely contrary to the position of big business, some are concerned that an effects test makes proving a contravention of section 46 even harder. Why? Well, there are numerous prohibitions in the legislation which already use the effects formulation, and such cases don’t get to court with any more frequency than do section 46 cases.</p>
<p>Furthermore, the ACCC’s long-term success rate in effects cases is not materially different to its success under section 46. Proving anything substantially lessens competition is extremely difficult.</p>
<p>It is also notable that we’ve had an effects test for misuse of market power for almost two decades with no result. In the telecommunications sector, there is a special effects test applied in addition to the standard section 46. This forms part of a suite of laws that were brought in to keep Telstra in line as the market was deregulated (these laws have also been slated for review). But, despite regular concerns with Telstra’s conduct over the years, the ACCC has never prosecuted an effects case under these provisions. </p>
<h2>Will an effects test mean more cases?</h2>
<p>The real proof will be in the pudding: if an effects test is introduced, will it mean more cases? Whatever the merits of the current test, it is clear that we have too few matters going to Court. </p>
<p>Competition cases are extremely complicated and expensive. Legal costs would start in the vicinity of $2-4 million with the risk of much more if the matter is appealed (as is often the case) or you lose (in which case, you need to pay a significant proportion of your opponent’s costs). </p>
<p>The ACCC’s budget is constrained and private litigants have been missing in action over recent years, so don’t hold your breath for more cases.</p>
<p>All that said, this is just a recommendation. Australian competition policy is a poster child for the saying, “many a slip twixt cup and lip”.</p><img src="https://counter.theconversation.com/content/39424/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alexandra Merrett does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The “effects test” aims to boost prosecutions for misuse of market power. But will it really make it easier for the ACCC to win cases?Alexandra Merrett, Competition Lawyer; Senior Fellow, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.