Nola Marino (Forrest, Liberal Party) Share this | Hansard source

I rise to speak on the Trade Practices Legislation Amendment Bill 2008. I endorse the coalition’s opposition to the proposed amendments to section 46 of the Trade Practices Act, known as the ‘Birdsville amendment’. These amendments seek to amend existing subsection 46(1AA) so that the terms ‘substantial market share’, ‘substantial period’ and ‘relevant cost’ are omitted and the wording of the subsection will be in the same terms as subsection 46(1). The proposed amendments are supposed to reduce uncertainty as to the act’s operation and to improve its ability to target anticompetitive unilateral conduct.

The coalition introduced the Birdsville amendment in September 2007 and it has been in place for less than a year. Clearly this is not long enough for the amendment to have been tested properly in the courts, and the provisions have not been in place long enough for it to be clear why they might need to be changed. There have been 75 complaints to date; however, there have been no court cases yet. Effectively, the Birdsville amendment has not been tested through the courts.

The breadth of submissions and the nature of the recommendations by the 2004 Senate committee reflected a level of frustration experienced by both business and the ACCC with the manner in which section 46 had been interpreted by the courts. As a consequence of those interpretations, the ACCC had not been able to successfully prosecute a number of corporations which it had considered had engaged in a misuse of market power. Therefore the Trade Practices Legislation Amendment Bill (No. 1) 2007 was introduced into the Senate on 20 June 2007. The two subsections (1AA) and (1AB) included ‘substantial share of a market’ and became known as the Birdsville amendment. The subsections were significantly different from subsection 46(1), which provides:

A corporation that has a substantial degree of power in a market shall not take advantage of that power …

The Birdsville amendment prevents a company with a substantial market share from selling or offering to sell goods or services below cost for a sustained period of time for the purpose of:

(a)

eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market; or

(b)

preventing the entry of a person into that or any other market; or

(c)

deterring or preventing a person from engaging in competitive conduct in that or any other market.

The Labor government’s proposed amendment would change ‘market share’ to ‘market power’. The coalition opposes this amendment. Small business in particular is concerned that the meaning of ‘market power’ as defined by the High Court is too narrow. Labor’s amendment would further reduce the scope of the Birdsville amendment and make it harder for small businesses, via the ACCC, to bring an action against corporations or large businesses which engage in predatory pricing. The term ‘market share’ is also likely to be a simpler economic term for the courts to apply.

Changes to the amendment will return a level of uncertainty to the Trade Practices Act to the detriment of small business, as the threshold test will change from ‘market share’ to ‘market power’. The definition of market power defined by the High Court following the Boral case in 2003 is a very high threshold, which essentially applies to only monopolists or near monopolists.

The changes will also make it even more difficult for a small business to assess whether it has a case against a larger competitor for predatory pricing. Just imagine you are the corner store in a small community, or in Bunbury or Busselton in my electorate in the south-west of Western Australia, and you need to bring a case against one of the two major supermarket chains in Australia or perhaps even Costco, that retailing giant planning to open in Australia. This is a company with annual sales of around US$65 billion. It would be a daunting prospect for any small business to bring a case in such a David and Goliath situation, particularly as a significant proportion of small businesses are family owned and run. Making the time, going through the process and finding the money to do so in such circumstances can be prohibitive for small business owners. ‘Market share’ as a definition in this instance would be critical to the small business.

Regardless of the threshold test that is used, be it market share or market power, to be found guilty of predatory pricing a business would have to price their goods below cost with the intent of substantially damaging or eliminating competition. However, the Birdsville amendment does not stop legitimate and procompetitive discounting, as is claimed by some large business organisations. The amendment will only be triggered by below-cost pricing where that occurs over an extended period of time for an anticompetitive purpose. It should not stop any company from matching a competitor’s price, holding Christmas or any other clearance sales or sales to clear old stock at the end of the trading day. Customers will not miss out on this activity.

Small business is the engine room of our economy. We understand very well that there are millions of people employed in small business—nearly half of the working population. There are approximately 2.5 million small businesses in Australia, representing 96 per cent of businesses, and there are over 13,000 local small businesses in my electorate of Forrest. A majority of these are family businesses, and I will not compromise those businesses or those families by agreeing to amendments that will in any way lessen their capacity to compete with the duopolies that are open for business in many areas.

Given the importance of the small business sector and the fact that we know that numbers of small business actually increase competition in the marketplace to the benefit of consumers, the coalition will not support the government’s proposed amendments to the Birdsville amendment. This was enacted only at the end of 2007. I believe it needs time to work and to be tested through the judicial system. We want to ensure that small businesses are not forced out of the market by unfair competitive practices by much larger competitors. The only businesses that could be affected by the Birdsville amendment would be those who are engaging in predatory pricing or, in other words, selling goods below cost in order to substantially damage or eliminate their competition. Effectively, that is the misuse of market power through market share, which it is the intent of section 46 to deal with.

If predatory pricing is allowed, consumers will ultimately pay higher prices due to a lessening of competition, with fewer businesses in the market. Small businesses will be forced to close, and families and communities will suffer. Predatory pricing occurs when a corporation prices a product below some measure of cost and it does so with the intention of driving a competitor out of the market. The corporation subsequently raises the price again in an attempt to recoup the losses it incurred as a result of its below cost conduct. This is referred to as ‘recoupment’. In effect, predatory pricing is an exclusionary tactic, because the corporation is actively seeking to exclude competitors for the product from the market in its pricing. This can be done in one of two ways: the corporation excludes an existing competitor from the market for the product because the competitor cannot match the below cost price that has been set, or, for a new competitor, the corporation sets the price so low that it deters anyone else from entering the market.

The difficulty with predatory pricing is that, in some instances, it can appear to be a legitimate competitive behaviour because the existence of a price war is often an indicator of competition—as happened in the Boral case. I note a recent article by the Australian Financial Review’s chief political correspondent, David Crowe, who wrote of Associate Professor Zumbo’s comments that the Birdsville amendment protected small business without raising any risk that short-term or legitimate discounting practices could be considered predatory. Associate Professor Zumbo said that small business taking action under the law needed to prove that bigger rivals had substantial market share, priced their goods below cost, did so for a sustained period and did so for an anti-competitive purpose. I also note that the National Association of Retail Grocers of Australia is concerned the changes will not improve the Birdsville amendment. Ken Henrick, CEO, recently stated to the Senate committee that NARGA was not entirely comfortable with a return to the concept of market power, largely because of the precedent set in the Boral case.

In addition, this bill also seeks to extend the jurisdiction for section 46 cases to the Federal Magistrates Court and to remove the price threshold for unconscionable conduct. The coalition also does not support the proposal to allow the Federal Magistrates Court to hear section 46 cases. They are, of their nature, complex and usually long and unlikely to be beneficial to small businesses. Conducting the hearings in the Federal Magistrates Court will not necessarily make them less complex or shorter. In fact, section 46 cases can often end up in the High Court of Australia. The Federal Court of Australia has a well-developed competency and long experience in hearing such cases and is best placed in hear section 46 cases.

The Law Council of Australia has expressed concern that the government’s amendments to enable section 46 cases to be dealt with by the Federal Magistrates Court will not have the effect of lowering costs and could, in fact, potentially increase them. I reiterate that the coalition opposes these changes to the Birdsville amendment in section 46. It has not had enough time to prove itself and be tested by the court system. The Birdsville amendment defines a company’s influence by its market share, not its market power. Market power is a more general concept that was too hard to prove. It also allows small business a fighting chance, and they should be provided with that continuing opportunity.

Let me remind the House that it is the Labor government that have been inconsistent on this matter, as they unanimously supported the introduction of the Birdsville amendment last year. We have already seen a fall in business confidence since the election of the Rudd Labor government, and we have seen the government receive the worst rating of any government in Australia in the latest Sensis business index for small and medium enterprises. In fact, the report shows business confidence has fallen eight percentage points to reach 25 points, the lowest level since the survey began 15 years ago and less than half the level recorded at the same time last year

We have also seen the introduction of the GroceryWatch website. On this website we see the Rudd government endorsing one of the two major supermarket chains as having the lowest prices in the vast majority of regions across Australia. However, Kevin Rudd has said that, to increase competition, there needs to be a greater number of retailers to challenge the two major supermarket chains. Yet his government has officially advised people to buy their groceries at one of the two major chains. This is nothing more than free promotion for the major supermarket retailers. The Assistant Treasurer was quoted in the West Australian on 26 June as saying:

We’re not doing it for a price impact, we’re doing it to give people more information ...

I would ask: what does this information on the GroceryWatch website actually deliver to people who live in regional Australia, who do not live close to one of these major supermarket chains? The site notes that basket prices for individual stores are not available. How does this help someone living in my electorate in the towns of Harvey or Augusta? For the $3.70 difference in price on what is termed a ‘basic staples’ basket when I checked the site on Saturday, someone in these towns would have to get in their car and drive to find them. With the current price of fuel, this would cost a lot more than the potential savings.

I would ask again: how does this site help people in those small towns, and how does it encourage people to support small business in their small towns? These are the businesses that set up in areas that the major supermarket chains do not. These small supermarkets provide an invaluable service and support to the community. They provide prizes for local raffles and support the local sporting and community service organisations. How does recommending that people travel to shop at one of the major supermarket chains help regional small business, local people or their community?

Today, former Woolworths boss, Reg Clairs, is quoted in the Australian as fearing for Australian’s food industry under the Coles-Woolworths duopoly and the growth of global manufacturers. He said he was concerned about the power at the top of the chain. Mr Clairs is quoted as saying:

… there’s been a greater emphasis on the retailer taking charge of the supply chain … I am immensely worried about the ultimate destiny of a lot of food manufacturers in this country.

And further:

… ultimately, the global manufacturers will take the power base.

I would add here that it will not only be food manufacturers who will be at risk; it will be our farmers, our growers, our small and local businesses and their communities. And they will continue to be at risk.

Section 46 is about the misuse of market power, and anyone in small business is very aware of the challenges and issues involved in taking on a major corporation or a large business, firstly, in the marketplace itself and, secondly, in the courts through the Trade Practices Act. The Birdsville amendment was born out of the frustrations and community concerns that came to light in the inquiry of the former Senate Economics References Committee into the effectiveness of the Trade Practices Act in protecting small business. The concerns centred around the High Court’s interpretation of section 46 of not providing adequate protections to small business. The intention of the section was to provide a simpler test, a market share test that was easier to understand and litigate, rather than a market power test.

I will not support any changes to the act which reduce the competitiveness of small businesses, increase their exposure to major corporations and increase the misuse of market power. As I said earlier, small businesses are a critical part of the economic and social fabric of many regional centres and towns right across Australia. The majority of these businesses are family owned and run. They are a major employer nationally. They are the cornerstone of our society and a critical player in strengthening competition in the marketplace. And let us not forget that a win for small business is a win for consumers every time.

See this speech in context