Wednesday, 8 August 2007
Trade Practices Legislation Amendment Bill (NO. 1) 2007
The original question was that this bill be now read a second time. To this, the honourable member for Prospect has moved as an amendment that all words after ‘That’ be omitted with a view to substituting other words. The question now is that the words proposed to be omitted stand part of the question.
In my contribution today, I want to set out the purpose of the Trade Practices Act, the amendments that the government has moved and the further amendments that the member for Prospect and shadow minister for competition policy has moved. It is worth asking why we have a Trade Practices Act; what is its purpose? If we are to fashion and sustain an open, competitive economy in Australia, we need some basic rules under which it can operate.
I happen to be from the spectrum of the argument that supports competition and openness. I am a very strong supporter of the opening up of the Australian economy to competition from abroad and from within Australia, which the Hawke and Keating governments brought about. Before the election of the Hawke government, the Fraser government and various other coalition governments had dominated the government of Australia since about 1949. The only Labor government had been the Whitlam Labor government, which held office between 1972 and 1975. Over that period of predominantly coalition rule, the Australian economy became heavily regulated. It was an inward-looking economy where, over that period, competition was discouraged, deals were stitched up and tariff protection was raised relentlessly.
That did not bring out the best in Australian entrepreneurs; it brought out the worst. It meant that, by 1983, the Australian economy was sclerotic; it was uncompetitive. Unemployment had exceeded 10 per cent; so too had inflation. Indeed, 90-day bank bills—short-term interest rates—reached a record of 22 per cent on 8 April 1982. As a result, the economy was in a shocking state, which was not only because of the drought or a one-off event but also because of policy sloth over a very long period.
It took the election of a Labor government to recognise that the economy needed to be opened up. It was a Labor government that recognised that today’s productivity growth is tomorrow’s prosperity and that it was essential to lift productivity growth below the very low levels that had been recorded up to that time. Australia’s poor productivity growth was very much responsible for us slipping down the international ladder in terms of our living standards compared with those of other rich countries. So the Hawke and Keating governments embarked on a program of reform, designed to lift productivity growth through the opening up of the Australian economy. All of the major markets were liberalised, beginning with the floating of the dollar and financial market deregulation, followed by product market deregulation, where quotas and tariffs were reduced, and then by labour market liberalisation through the introduction of enterprise bargaining in 1993. Incidentally, upon election in 1996, the coalition lauded and supported enterprise bargaining; they said it was a great reform. You do not hear them talking about enterprise bargaining anymore. They talk only about individual contracts. But that is a debate that will continue robustly inside and outside this chamber at other opportunities.
I ask, then, about the role of trade practices legislation in the opening up of an economy, because, on the surface of it, trade practices regulation is adding more regulation. But, if we are to create an open, competitive economy, some rules are needed. In the first instance, enforceable property rights are needed; otherwise, why work if you can just hack into someone’s bank account and steal their money? If you have no property rights and no rights over the value of your own labour, you can be enslaved, but we do not do that in market economies; we ensure that there are some basic rules that establish and enforce property rights.
But in an open, competitive economy we also need to be vigilant. We need to be vigilant against anticompetitive behaviour, and that is where the Trade Practices Act comes in, because, 217 years ago, Adam Smith lamented, and in fact foresaw, the behaviour of some businesspeople and their disposition to collude—to get together and create cartels, to create anticompetitive circumstances to the great cost of the public. It is that monopoly behaviour that Adam Smith described as the enemy of the public good. Adam Smith foresaw, in one way, and called for, in another, the implementation of trade practices acts in market economies. They are essential to ensure that it is truly an open, competitive economy.
So Australia’s economy was as an open, competitive economy and the productivity growth that the previous Labor government had expected did in fact occur. During the 1990s, the miracle decade of productivity growth, labour productivity grew, on average, by 2.6 per cent per annum. But, as the Labor Party has pointed out time and time again, since the turn of the century, productivity growth has faltered. During the 2000s to date, productivity growth has fallen from that miracle 2.6 per cent to 2.1 per cent. In the period since the end of 2003 it has fallen away further to an average of 1.2 per cent per annum and in the last 12 months to 0.9 per cent per annum. If today’s productivity growth truly is tomorrow’s prosperity, these are very worrying developments.
That is why we need to ensure that we embark upon a new productivity-raising reform agenda. That productivity-raising reform agenda of course will have as its central feature investment in the talents of our young people. It will have the reduction of red tape for business, large and small, in Australia—red tape that had been piled up over the last 11 years. It will involve wise investment in infrastructure, such as Labor’s national high-speed broadband network. But, as important as all of these are, it will also involve ensuring that Australia has an effective Trade Practices Act to ensure that we have open, competitive markets and to ensure that there is not the capacity legally to collude, to engage in predatory pricing and to engage in unconscionable conduct—all at the expense of openness and competitiveness.
Labor’s approach to the Trade Practices Act amendments has been guided by this principle: Labor supports competition. Labor is barracking for consumers, for lower prices. Labor is not in the business of protecting business from competition. To the contrary: Labor has faith and confidence in the business community that it performs best in competitive markets, and it is the role of amendments to the Trade Practices Act to ensure competition, not to protect particular businesses, whether they be big businesses, medium sized businesses or small businesses. It is not to protect them from competition but to help enable them to survive and thrive in an open, competitive market.
It is against that yardstick that we have measured the government’s amendments. They constitute some very modest progress. They are better than nothing, and for that reason Labor will support them. Those amendments are a product of four years deliberation following the recommendations of the Dawson committee report. The Dawson committee report made a number of other recommendations which have not been accepted by government. So over the period of this government to 2007 there has been a slackness in the resolve that any government should have to ensure that competition prevails, that consumers get the lowest possible prices. We want consumers to get low prices through the operation of competition, and it is a sensible response to the problems being experienced around Australia today of the high cost of living.
If you ask anyone around Australia, they complain of the high cost of living. If we can bring that competition blowtorch to the cost of living, we will keep costs down. Since the amendments of the government make some progress, we will support them but, frankly, we are very disappointed in them. If this is the best the government can do after three or four years deliberation on the Dawson committee report, then it tells us a lot about this government’s attitude to competition. It tells us that this government is not fair dinkum about the open, competitive economy just as previous coalition governments were never fair dinkum about creating an open, competitive economy. It was Labor that had to do that, and there would need to be a Rudd Labor government to ensure that we remain an open, competitive economy and that we combat the disposition of some businesses to collude and behave as cartels.
I will go through a small number of the amendments that Labor want, which are definable not only by the amendments that we are accepting but by the ones that we have rejected. There have been plenty of people in the small business community—and they do not speak for the small business community at large—who have wanted us to go much further and in some cases to protect them from competition. That is not our business; that is not our go. We want to make sure that competition prevails, and that is what the amendments that Labor want would do.
The first amendment relates to recoupment. This issue arose in a High Court decision in relation to Boral. In 2003 the High Court found that, since Boral, in reducing the price of cement below its cost, could not necessarily have recouped the losses from that below-cost pricing, it had not engaged in predatory pricing. The effect of that decision was to gut section 46 of the Trade Practices Act. It meant that the ACCC or another complainant would have to prove that, in order for predatory pricing to be found, the business that was doing the below-cost pricing was able to recoup all of those losses subsequently. It meant that the legislation only applied to monopolies because it could only be a monopoly that could be sure of recouping those losses. If there were one, two or three competitors in the market, they might not be able to fully recoup those losses. As a consequence, the High Court ruled that is not predatory pricing: go for your life. As a result of that decision, the ACCC has not taken any further cases because they believe it to be a waste of taxpayers’ money; they would all fail. The government has not addressed that fundamental problem in its amendments, and we will. Through our amendments we are going to remove the requirement, the obligation, to demonstrate that a business that was engaged in below-cost pricing would have had the ability to recoup all those losses. We want to take that away as an essential test. That will make it easier on the ACCC or another complainant to demonstrate that predatory pricing has occurred.
You would think that if the government were interested in genuine competition it would support Labor’s amendments. We do not like the idea of any business large or small—especially a large one in this case, because it would have the power to do it—driving its competitors out of the market through below-cost pricing and then putting the prices back up. Our amendments are designed to deal with the problem of predatory pricing. If the government were fair dinkum, it would say, ‘That’s fair enough,’ because the ACCC says, ‘That’s fair enough.’ If you look at the various submissions that the ACCC have made since the Dawson committee report and various Senate inquiries, you will see that it supports the provision that Labor has put in its amendments relating to recoupment. It supports making that section of the Trade Practices Act effective again, and we support the ACCC in its endeavours.
The next area is the area of creeping acquisitions. At present the ACCC does not have the power to take account of other recent acquisitions in assessing whether the purchase of a small competitor by a larger competitor is anticompetitive. So the ACCC is obligated to assess the single purchase of a competitor with reference to the whole market but cannot assess the purchase with reference to previous purchases made—in other words, if a big company is taking over lots of small ones. Say, in the supermarket area, the ACCC wants to be able to take account of the fact that this might not be the first acquisition but the 99th acquisition. Again, this is a power that the ACCC has sought, and the government will not give it to them. Why is that? Why is the government so relaxed about creeping acquisitions, about larger businesses being able to gobble up the small rivals and not be found to be in breach of the Trade Practices Act? I find that very curious, because that is anticompetitive behaviour. If you are able to gobble up all your competitors you become a monopolist. We do not support that; we support competition.
The next amendment that Labor is moving relates to cartel operations. The Dawson committee report itself recommended jail terms for serious cartel behaviour. This is not some sort of extreme Left committee; it was very conservative in relation to the recommendations that it made. In the United States there are jail terms for serious cartel behaviour. In many Western countries there are jail terms for serious cartel behaviour. Labor is not modelling its amendment on some former Eastern bloc country.
That is right. Why won’t the government do this? It says it will now, but we probably have only two, three or maybe four weeks of parliamentary sittings remaining and this recommendation was made in 2003. I do not support jail terms for a range of other offences under the Trade Practices Act. One of the many reasons for that is that the ACCC will find it very hard to get a conviction because the courts will not want to send company directors or executives to jail. But you need to be able to respond to serious cartel behaviour with jail terms, and that is why we are recommending it.
With regard to enforcement powers, we want to make sure that the ACCC can continue gathering evidence after an injunction has been sought. We want to ensure less expensive justice for small businesses and medium enterprises. Our amendments would allow them to go through the relatively less expensive Federal Magistrates Court. We want the deputy chair to have a small business background. Most of these recommendations have the support of the ACCC, they are pro-competition and they will ensure that Labor can deliver lower prices over time because we will ensure that the open competitive economy, fashioned by Hawke and Keating, remains open and is not closed through the sloth of this government through its meagre amendments to the Trade Practices Act.
I welcome the opportunity to make some comments on the Trade Practices Legislation Amendment Bill (No. 1) 2007 and to challenge the government where I think it has been weak on reform in Australia. As the opposition has stated in this debate, it is good to see the Treasurer finally doing some work with respect to this important issue. It has taken him a long time, but I suppose it is a bit like his football team: eventually they might win a premiership. At least he has got to the goal line on this occasion.
As previous speakers have noted, in 2004 the Senate Economics References Committee produced a report on the effectiveness of the Trade Practices Act. The majority report, to which the government senators were not party, made recommendations for far-reaching reform in Australia on the trade practices front. Unfortunately, here we are three years later debating a bill that does very little to implement that reform and, in doing so, to rectify the weaknesses in the Trade Practices Act that have long been identified. Nevertheless, I join with my colleagues today in supporting this bill if for no better reason than it will do no harm and it may do a little good.
I want to raise a very important area of reform on the trade practices issue that is completely missing in this bill. I refer to one of the major challenges to Australia at the moment that involves the working of the Trade Practices Act, and that goes to infrastructure bottlenecks in Australia’s major export supply chains, principally coal and iron ore, and the failure by the Treasurer to take reform in this vital area seriously. This is not just the view of the opposition; it is also the view of major mining companies in Australia such as BHP and Rio Tinto. They are crying out for reform and they are sick and tired of the tardiness of the Treasurer and the Howard government with respect to this area of reform. The end result is that we have lost out on the export front and on jobs, and the nation’s slice of the economic cake is smaller than it should be because of the lack of commitment by the Treasurer to the task before him.
The failure to reform is caused in large part by Australia’s regulatory regime, and I refer specifically to the Trade Practices Act. At the moment, the current operation of the act is dampening investment that is needed to keep Australia’s coal and iron ore exports growing. Even today there has been reference not only to the potential in China but also to the growing potential out of India. This is not a minor issue. It is a major issue that goes to the heart of Australia’s continued economic growth. The failure of the Treasurer to take this issue seriously is now undermining Australia’s reputation with our coal and iron ore customers to such an extent that Japanese coal buyers visited Australia just a few weeks ago to convey their concern about export bottlenecks.
As we appreciate, coal is Australia’s biggest export industry. It is worth $23 billion a year. Japan has historically been our most important trading partner, yet the Treasurer and the Howard government have had their eyes off the ball when it comes to investing in critical rail and port infrastructure that actually gets coal to market. The record shows that over the last decade supply chains from the Hunter Valley and Bowen Basin have been fragmented and bogged down in regulatory disputes, many of which have unfortunately centred around competition law and have proven to be a barrier to investment and efficiency in operation. With multiple infrastructure owners, operators and regulators, there has been insufficient alignment of these objectives and their objectives and a lack of incentive to invest. This has come at substantial cost to Australia.
Inefficiency and underinvestment in the coal supply chains—rail and port alone—have cost Australia more than $1 billion in export income over the last two years. That is not an insignificant amount of export income. Moreover, it is not only our reputation with customers that is at risk. The global trade in thermal coal jumped by almost 20 per cent over the last two years, but the record shows that unfortunately, despite that growth, Australia was only able to respond with 3.8 per cent growth in exports over that period. Over the same period—and this is interesting—Indonesia has overtaken Australia to become, for the first time, the world’s largest coal exporter. That might not mean much to the Treasurer, but it does mean a lot in terms of the size of Australia’s economic cake. It is also about positioning us over the next decade or two with respect to these key export markets.
In that context, we should not forget that there were serious problems in the 1980s when Japanese buyers became concerned about the reliability of iron ore supplies from Australia. We live in a global market, and buyers will shop around to guarantee security of supply. That is what they did in the 1980s; that is how the giant Brazilian iron ore industry was born. One would have thought that the Treasurer would have learned from those experiences. Having said that, I am pleased that cooperation is now winning the day in both Queensland and New South Wales. But there remains an absence of national leadership from the Australian government or any apparent will by the Treasurer and the Howard government to address the impediments to investment and regulatory issues for the long term. I can assure the House that this $23 billion export industry and the rail and port infrastructure that supports it will be a national priority for a federal Labor government.
I also say to the House that we cannot allow the inefficiency and capacity constraints in the coal supply chains to be extended to one of the most efficient export ore chains in the world—namely, the Australian iron ore industry. The iron ore supply chain today is highly efficient; it is a world leader; it is best practice. The system is vertically integrated rather than fragmented, and this is the source of the high level of efficiency. Growth of Australia’s iron ore exports is so far keeping pace, thankfully, with global growth in iron ore trade. However, the application by Fortescue Metals for access to BHP Billiton’s Pilbara rail tracks remains unresolved after three years because of the Treasurer’s monumental failure last year to make a considered decision on the future of the Newman railway. He unfortunately went missing in action. Instead of doing the right thing and clearly articulating the national interest case, the Treasurer went missing in action. That has seriously upset major international iron ore mining companies. I believe this was the clearest demonstration of why the Treasurer is no leader and no potential Prime Minister, because when it comes to doing the hard yards he ducks for cover.
No-one would argue against an efficient and effective access regime for all rail haulage for all Pilbara iron ore producers. But the unwillingness of both BHP Billiton and Rio Tinto to make further vital infrastructure investments in rail because of the risk posed by future third-party access arrangements that could limit their ability to recoup the investment or operate their facilities at maximum efficiency is equally understandable. According to a report by Port Jackson Partners in 2006, Australia stands to lose approximately $43 billion in export income and $13 billion in capital investment over the next 20 years if an access regime is imposed on Pilbara railway infrastructure under part IIIA of the Trade Practices Act. This part of the act is crying out for reform. Historically, part IIIA was one of the Hilmer reforms and initially was well intended. The purpose of regulated access was to prevent owners of monopoly infrastructure refusing, and correctly so, to supply competitors subject to certain limits. These were, firstly, that there needs to be spare capacity, otherwise access obligations will create a disincentive for expansion where new investment is clearly needed; secondly, that there needs to be an improvement of competition—for example, if an owner uses a facility to supply export markets, access will not improve competition but will weaken the owner-exporter; and, thirdly and finally, that access has to be necessary, not merely convenient, otherwise a third party will always prefer to use someone else’s facilities to avoid the cost and risk of investment in their own facilities.
Hilmer recognised these principles, but over the last decade some of these caveats have been lost. The net effect is that the application of competition law now favours access seekers over the operation of existing owners who have borne the huge risk of investment, who maintain the infrastructure at best practice and who operate sophisticated, integrated logistic chains to supply their export markets to the benefit of Australia at large. Consequently, the view of many in the industry is that part IIIA now effectively creates a disincentive to new investment. On these critical regulatory issues for infrastructure investment the Prime Minister and the Treasurer have been missing in action for more than a decade, and the costs to the nation speak for themselves.
I raise these issues because I think this reform is required now. Australia is losing out because of the government’s failure to address these important issues. More importantly, if we do not make these decisions then investment will start going elsewhere, just as occurred with iron ore in Brazil and is now occurring with coal in Indonesia. Our responsibility is to make sure we have an investment regime in place which enables us to chase medium- to long-term investment in Australia. The issues I raise today represent a serious barrier to success in chasing that investment. If we as a nation do not provide investment certainty for coal and iron ore companies, if we cannot guarantee that they can recoup their investments, get their products to market and meet their contractual commitments with customers such as Japan, then they will take their money and go elsewhere in the world. That is the truth of the matter, and we saw that in the eighties with respect to the development of the iron ore industry in Brazil. I simply say on behalf of the opposition that it is time for the Treasurer to seriously consider an amendment to part IIIA to provide a discretionary power to exempt export facilities from the scope of part IIIA, subject to a public or national interest test which would include a requirement to take into account export infrastructure efficiency.
It is not a big ask; it is fundamental to securing investment for Australia’s future and being able to say to our important customers such as Japan, China and India that we can supply on time and meet our contractual obligations. It is also about grabbing the growth potential out there with respect to exports of important minerals such as iron ore and coal. Such a change would implement recommendations of the 2001 Productivity Commission report and of the government’s Exports and Infrastructure Taskforce report of 2005. Both those reports identified the need to reduce regulatory risk to encourage new investment, which is urgently needed in export infrastructure.
I raise these issues today because this is an important debate. I also seek to send a signal to government that its tardiness on reform of part IIIA is now a clear problem to Australian industry. We cannot allow it to go on and I think that it is the responsibility of the Treasurer to apply his mind to this area of urgently needed reform.
The bill obviously seeks to clarify the operation of section 46 of the Trade Practices Act and the abuse of market power. It also amends part IVA of the act, which deals with unconscionable conduct. This is a commendable amendment from the opposition’s point of view, and previous speakers, including the member for Rankin, made detailed comments on those key issues. I would simply say in conclusion that, while we have some reform, it is a drop in the ocean compared to the more far-reaching reform that I have raised in my speech to the House this afternoon. I commend the bill to the House but I ask the Treasurer to have a hard look at this issue. That is the view not just of the opposition but of key export investors in Australia such as BHP and Rio Tinto.
For so long the government has laid claim to being the great defender of small business, yet the introduction of the Trade Practices Legislation Amendment Bill (No. 1) 2007 would certainly come as a disappointment particularly to those in small business, whom this government claims to defend. This bill has taken far too long to come to this parliament, and many would be left wondering why it has taken so long and yet does so little.
There are few who would question the importance of the Trade Practices Act, as it is a key plank in consumer protection and the prevention of restrictive trade practices by companies. It is essential for providing consumers and small businesses with confidence so that they can adequately participate in competition within markets. As such, it is important that from time to time the act be amended to reflect contemporary business practices or to improve upon its operations. Amendments that strengthen competition should be welcomed and are certainly welcomed by this side of the chamber.
Strong and effective competition laws provide the environment that allows businesses to compete effectively in open markets, which is ultimately to the benefit of consumers. To allow competition laws to diminish or to have their value eroded through time only acts to the detriment of business and consumers. It is important that the Australian competition laws remain at a level comparable to those of world’s best practice. As with any legislation of this nature, there is a range of views on how that should best be achieved and how it should best operate. I will make further comments on this a little later on. The important thing to remember is that the application of the Trade Practices Act, and regular maintenance and improvement of it, is not the means through which uncompetitive businesses or industries can be saved. The Trade Practices Act protects and preserves the value of competition first and foremost. Accordingly, the Trade Practices Act should provide a sound basis for fair and reasonable competition to occur in the markets.
As I mentioned earlier, this bill has taken some time in coming. It has been some time, primarily because this government has been far too willing to have the Trade Practices Act near wither on the vine. It is interesting that this bill has been introduced in the lead-up to another election. I say that in the context of the government’s approach to the ongoing maintenance and improvement of the act. Members will recall that, in the lead-up to the 2001 election, the government responded to the growing concerns of the small business community about the operation of this act and it promised a review. In 2003 that review concluded in the handing down of the Dawson report. The government provided a detailed response to the report and signalled its intention to legislate in the future.
Following the release of the Dawson report, the High Court handed down a decision in the Boral case, which has been well cited so far during this debate. The Boral case involved the abuse of market power and was significant in terms of the operation of section 46 of the act. The Senate economics references committee conducted an inquiry into wide-ranging aspects of this application of the Trade Practices Act. The Labor senators recommended that the act be strengthened, and, unsurprisingly, the government senators recommended something less. Despite the fact that the bill mirrors the recommendation of government senators, it has nevertheless taken since 2004 to get this far. As I said at the outset, from the perspective of many small business operators this bill is disappointing both in its context and its timeliness.
The provisions of section 46 relating to the misuse of market power are always cause for debate. They are also subject to varying interpretations about how this provision should properly operate. People have diverse expectations when it comes to section 46, and diverse expectations about the relative ease of action under section 46.
The bill that we have before us today does a range of things. In summary, firstly, it clarifies that a substantial degree of power in a market is a lower threshold than a substantial degree of control; secondly, it clarifies that a corporation can have a substantial degree of market power even if it does not have freedom of constraint; thirdly, it makes clear that more than one corporation can have a substantial degree of power in the market; and finally, it clarifies that the court may take into account a substantial period of below-cost pricing when considering whether a firm has abused its market power, and that a court can consider the company’s reasons for engaging in below-cost pricing.
The amendments fall short of the preferred position which was recommended by the ACCC. While the amendments in the bill go some way to dealing with the recommendations of the ACCC to the Senate inquiry, they certainly fall short. Bear in mind that the ACCC also recommended:
Section 46 requires amendment to provide that in cases involving allegations of predatory pricing, a finding of expectation or likely ability to recoup losses is not required to establish a contravention of section 46. Such amendment would ensure the application of section 46 is consistent with parliament’s stated intention.
Labor’s view is simple: that the strengthening of section 46 can be more effective by dealing with recoupment and ascribing a legal definition to the words ‘take advantage’. I will be supporting Labor’s proposals to strengthen section 46 as such proposals are an important improvement to the act.
The improvement to the unconscionable conduct provisions of the act is important but, again, the changes stop well short of what many believe they should be. Unconscionable conduct allows legally binding transactions to be disallowed or set aside when one party is at a special disadvantage in dealing with another party to a transaction because of a range of circumstances that affect their ability to look after their own interests and the other party to the transaction unconscionably takes advantage of the opportunity.
The section of the Trade Practices Act dealing with unconscionable behaviour applies to goods and services. Limitations exist on the operation of this relevant section of the act, and the bill before us seeks to change that limit. Currently, the act limits the application of the unconscionable conduct provisions where services involved are less than $3 million. This limit was primarily designed to protect small business.
The majority of the report of the Senate committee recommended that the monetary limit be removed entirely as, by its very nature, it is arbitrary and that unconscionable conduct should be illegal in all circumstances. This is a position that has been supported by a range of small business groups and the ACCC but, notably, it was not supported by the government senators and, consequently, it has not found its way into the amendments which are contained in this bill. Instead, this bill seeks to raise the application level to $10 million—that is from $3 million to $10 million. While Labor supports this amendment because it makes sense, this level could just as easily be $12 million, $15 million or $50 million. The arbitrariness of the monetary value remains no matter what level is set and no matter what monetary value is finally determined. Through time it must be adjusted. It is patently obvious that establishing a monetary level for the threshold of illegal behaviour is unnecessary. That is why Labor takes the same view that was adopted by the majority recommendation of the Senate inquiry, and as was made in the recommendations of the ACCC—that is, that a monetary value for the purpose of assessing unconscionable conduct is not necessary and should not be part of the section of the act. For this reason I will be supporting the amendments forwarded by the shadow Assistant Treasurer to abolish that threshold.
While the bill puts forward a number of amendments that small business and others have been clamouring for for some time now, there are some notable omissions. I will not try to outline all of them here at this stage, but there are some notable ones which I would like to draw attention to. In the government’s response to the Dawson review released in April 2003, it indicated that it would introduce criminal sanctions for serious cartel behaviour. In his media release announcing the response the Treasurer said:
The Government has, in principle, accepted the proposal to introduce criminal sanctions for serious cartel behaviour, subject to further examination of the issue by a working party.
In a media release that followed in February 2005, entitled ‘Criminal penalties for serious cartel behaviour’, the Treasurer said:
I am announcing today that the Australian Government will amend the Trade Practices Act 1974 to introduce criminal penalties for serious cartel conduct.
In the same media release the Treasurer went on to say that the maximum penalty would be five years imprisonment and a fine of $220,000. The point I am making is that the government certainly emphasised that it was going to be strong on cartel conduct.
Despite this rather impressive media splash to describe how tough it was going to be on cartel conduct, absolutely nothing has eventuated in that respect. The government has not introduced legislation that would enact its announcements despite the fact that the case for a custodial sentence remains strong and remains consistent with the approach taken by similar jurisdictions. It applies in the US and other similar jurisdictions looking to have criminal sanctions where there is serious cartel conduct. This is not something that was just an afterthought; this was a recommendation that the government responded to and something it said it was going to do. Yet after all this time there has not been one word on that recommendation; in fact, the government has avoided it. The government has not introduced legislation that would enact its announcements in any way, shape or form.
Another notable omission in the bill is an amendment that would give the Federal Magistrates Court jurisdiction over section 46 and section 83 based cases. I support Labor’s amendment in this regard. I support Labor’s amendment because it is a serious attempt to bring legal action to a level that is reasonably accessible for those seeking redress. Currently the act requires that actions brought under section 46 and section 83 must be brought before the Federal Court. The fact that these actions are required to be brought before the Federal Court means that small businesses who seek to take an action are faced with substantial costs. If these actions were able to be brought before the Federal Magistrates Court, this would not only reduce costs but also open up the very real prospect of using that jurisdiction’s conciliation process to resolve matters without a full hearing—which I would have thought would be in everyone’s interest, particularly a small business operator trying to protect a business under section 46.
It should not be a surprise that the government has not taken action to place legal remedies within the reach of most people. Having legal remedies that, by virtue of the costs of the jurisdiction in which they are found, are out of the reach of those who might seek to use them, is akin to not having any legal remedy at all. The government, of course, neglects to provide the detail of the hurdles that are faced in seeking legal redress, but it certainly tries to perpetuate the myth. One only has to look at the WorkChoices legislation, where aggrieved employees face going to the Federal Court to pursue unlawful termination actions. Most recently, we had the fake fairness test. To have it reviewed, employees have to run the full gamut of the Federal Court jurisdiction and may in fact end up in the High Court.
If this is a reflection of the attitude of this government when it comes to legal redress, it should come as no surprise to the small business community that this government would take no action to make legal redress more accessible and more affordable. A move to allow small business to have access to legal action through the Federal Magistrates Court is reasonable. Members opposite who support small business, who truly believe that small business should have reasonable access to redress, and who truly understand and want to support the desires of small business should vote in support of Labor’s amendment. Not to do so will demonstrate how little they care about small business operators.
I also wanted to raise the issue of mergers and acquisitions—an issue that has been quite topical of late and is a concern for many small business operators. It is important that the government’s failure to act on creeping acquisitions is noted by the House today. The ACCC’s power to intervene in some mergers is not in question, but the fact that it is not able to consider creeping acquisitions that impact on national markets is in question. The cumulative impact of a number of acquisitions is something that the ACCC cannot examine; however, it is something that it wishes to examine—and why shouldn’t it be something that ACCC can examine? If you can examine one acquisition and make sure that there are not unfair practices emerging out of it, why would you be prevented from looking at a whole series or pattern of acquisitions that could have an accumulative effect on a national market? Quite frankly, these are things that the government has neglected in putting together this bill. The government has had since 2004 to deal with these things, but we are yet to see anything occur in that respect. Laws that facilitate competition, outlaw anticompetitive behaviour and act to exert downward pressure on prices to the benefit of consumers are essential. That is why I request that members consider voting for Labor’s amendments. (Time expired)
I have had the benefit of reading the Treasurer’s second reading speech and note his conviction that the Trade Practices Legislation Amendment Bill (No. 1) 2007 will improve the Trades Practices Act’s ability to foster competition in Australian markets and to protect us from anticompetitive and unconscionable conduct. How this bill adds anything new to existing provisions which purport to safeguard small businesses from bigger rivals is a mystery. How this bill contributes substantively to existing provisions that purport to ‘enhance the welfare of Australians through the promotion of competition’ also remains a mystery. Nonetheless, the debate into these trade practices matters, particularly the issue of misuse of market power, is timely indeed. It comes at a time when PricewaterhouseCooper’s report suggests that Australia’s two biggest retailers hold 79 per cent of the market in Australia despite mum-and-dad grocers making up 50 per cent of the sector’s workforce.
The bill also comes at a time when an election is looming and the Howard government would have us believe that it is friends with almost anyone and anything. We have heard the Howard government proclaim self-righteously that it is ‘the best friend Medicare has ever had’, despite trying to gut our universal healthcare system. We have also heard the con that the government is the best friend ordinary workers have ever had, despite the government’s unfair and extreme industrial relations laws. Now the government is trying to pull the wool over the eyes of small businesses by suggesting that mum-and-dad proprietors have no better friend than the Howard government.
The government has sought to use these trade practices amendments as a case in point. In a document published in 2004 titled Committed to small business the Prime Minister rightly extolled the virtues of small business and the important contribution it makes to Australia’s economy. The Prime Minister said:
The Government’s commitment to small business is undiminished. That is why we remain attuned to their needs and why we continue to respond to their concerns with practical measures.
One of the ‘practical measures’ is identified further in the document as amending section 46 of the Trade Practices Act ‘to provide additional guidance to the courts in the consideration of predatory pricing cases’. Despite the government’s assurances as far back as 2004, these amendments to section 46 of the Trade Practices Act contain changes so mild that they are, in effect, not real changes at all. The amendments proposed in this bill are hopelessly ineffective and bear the hallmarks of a government engaged in smoke and mirrors—promise plenty, deliver little and create a false expectation that you are locking in people’s prosperity. This is transparently cynical politics at its worst.
Remarkably, it has taken three years to deal with legislation that apparently was a priority for the government. The government has also remained ‘attuned to the needs’ of small business by responding with measures three years down the track that are anything but practical. During the inquiry into this bill by the Senate Standing Committee on Economics, New South Wales Labor Senator Ursula Stephens asked a number of pertinent questions which the chair ruled out of order. The questions were highly relevant. Senator Stephens sought advice from Associate Professor Frank Zumbo, a distinguished expert in trade practices law, on the complexity of the government’s proposed changes to the Trade Practices Act and whether, in his view, they are so complex that they would have taken this long to draft. Professor Zumbo was not given the opportunity to respond. Suffice to say, we all know what the answer would have been, as do members of the government. These amendments are so minimalist and simplistic that they would have taken a competent draftsman days, not years, to draft. It has taken three years for the Howard government to deal with a matter of priority, and it has done so in a perfunctory and disingenuous fashion. One can only assume that matters which have not been prioritised by the government will make fascinating reading for those with a penchant for ancient history.
Small business and all Australians who are the beneficiaries of competition laws are entitled to shake their heads at the ineptitude shown by the government in managing the very obvious failings in the Trade Practices Act. All manner of experts in trade practices have pointed out the failings, yet nothing has been done. The government should have done more in the past, and it could be doing more now, to resuscitate some sections of the Trade Practices Act. The government has chosen not to. We do not know whether it did not have the political will or whether it fell captive to furious lobbying from those with no interest in promoting a level playing field for small and big business. However, there are several things of which we can be sure: the Trade Practices Act is no friend of small business; the Howard government is no friend of small business, given these disingenuous amendments; consumers will be the ultimate losers in any failure to keep market power under check; and substantive amendments to section 46 are long overdue.
As a result of the High Court’s 2003 decision in Boral, big business will not have ‘substantial market power’ unless they have the power to raise prices without losing any custom to their rivals. This notion of having absolute freedom of constraint to raise prices before one is considered to have a ‘substantial degree of market power’ has rendered section 46 useless. It is hard to imagine any business having this power unless it was a monopoly or near monopoly. Presumably a business with any small or large competitors will lose at least some of its custom to those competitors if it raises prices. Section 46 cannot purport to foster competition when one can only resort to the provision when the market is already a monopoly, or close to it. This runs completely counter to the purpose of an amendment introduced in 1986 to replace the ‘substantial control of market power test’ to the current ‘substantial degree of market power’ test. The then Attorney-General, Lionel Bowen, stated:
Unfortunately, section 46 as presently drafted has proved of quite limited effectiveness in achieving that result, principally because the section applies only to monopolists or those with overwhelming market dominance.
The current interpretation of section 46 ‘substantial degree of market power’ test has had the same effect, but by different means. This much is obvious, given that the Australian Competition and Consumer Commission has not launched a single section 46 case since the Boral decision. The ‘substantial power’ test is a threshold issue which then triggers the operation of section 46. If the ACCC or a small business is unable to leap over this onerously high threshold, the accused company’s conduct automatically escapes scrutiny. This also means any anticompetitive conduct escapes scrutiny. The lack of section 46 action by the ACCC should not be seen as a glowing endorsement of corporate conduct in Australia—not having a single case through the courts is analogous to a lack of penalties in a football match. While the teams are generally well behaved, surely the referee cannot be saying that both teams have been perfect for the duration of the match.
Past observations from the ACCC would suggest that the competition referee is saying anything but. To the contrary, it would be appear that this referee wants to act but the rules will not allow it to do so. The commissioner stated that the Boral decision has restored the section 46 threshold to ‘monopolists or near monopolists contrary to parliament’s intention behind the 1986 amendments’. While the amendments in this bill clarify that the ‘substantial power’ test is not the same as the ‘substantial cost’ test, this would have already been abundantly clear to the High Court during Boral when it read the 1986 amendment’s explanatory memorandum or the second reading speech of the minister at the time.
To say that a company may have substantial market power even though it does control a market, I think simply restates a consideration that has already been applied by the High Court in a string of cases, including Boral. The government is telling the High Court what it already knows. This bill, in my view, does not provide a clarification of the original intent of the test; it provides an affirmation of the High Court’s interpretation of the test, which now runs contrary to the best interests of small businesses and consumers.
Why is it not possible to amend section 46 to rid it of the misguided judicial gloss applied to it? I am not a legislative draftsman, nor have I had years to prepare, but a statement could be imposed to the effect that ‘a corporation may have substantial market power, even though it does not have the ability to raise prices without losing business to rivals’. This would allow the court to engage in a more sophisticated analysis of the issue—a broad analysis that is not initially stonewalled by an overly restrictive definition. Only then would we see the application of section 46 in the manner intended and only then would we see some serious scrutiny of corporate conduct. Of course, the government will not make such amendments. The government will say that the aim of competition is to beat competition. The government will say that ‘substantial market power’ threshold has been set deliberately high so as not to deprive consumers of the benefits of competitive innovation, such as reduced prices.
It is true that many businesses compete vigorously and fairly to capture market share through product and price differentiation. Naturally, competition should be vigorous; indeed, competition can be ruthless. However, this is not inconsistent with the proposition that there must be effective laws against any form of anticompetitive conduct, including the misuse of market power. The fruits of the misuse of market power may be beneficial for consumers in the short run; in the long run, however, such anticompetitive conduct threatens to eliminate firms that are providing options that consumers would actually prefer.
The intrusion of a new section 46 provision, as outlined earlier, will not cause any thorough haemorrhaging of marketplace competition. The amendment moved by the opposition will not stifle the fair competitive activities of business to the detriment of consumers. The line between vigorous and healthy competition and anticompetitive conduct can be hard to draw. That said, I think it is a line that must be drawn and not ignored—as the government has done. The Howard government cannot continue to hide behind the cloak of healthy competition if conduct is, in fact, strategically engaged in by powerful businesses to undermine the competitive process. Conduct that could be anticompetitive cannot continue to go undetected—and I am sure the government would agree with that.
The government ought to adopt our amendment, which provides sensible incremental steps. The influence or lack thereof of section 46 in protecting small businesses is part of the broader subject of what many believe to be the crises of the effectiveness of the Trade Practices Act. Many of the provisions in the act are said to be, at best, idealistic. Section 46 of the Trade Practices Act has come under increased fire for talking tough but delivering little.
It is not the only provision; there are many amendments that ought to have been proposed in this bill but have not been. Section 51AC of the Trade Practices Act, which prohibits unconscionable conduct, applies only to transactions under $3 million. The government proposes to increase this threshold to another artificial figure of $10 million. It seems absurd to me to suggest that unconscionable conduct during the course of a transaction that is one dollar above the threshold amount should no longer be pursued by the ACCC. The focus of section 51AC should be on the nature of unconscionable conduct, not on arbitrary dollar amounts. Unconscionable conduct is unconscionable conduct, irrespective of the value of the transaction in which that conduct arose. A one-dollar threshold has nothing to add to this analysis. I encourage the government to adopt the opposition’s amendment to abolish this arbitrary threshold.
Finally, I remind the Treasurer that the Dawson review, which reported in 2003, recommended the imposition of prison terms for individuals found to have engaged in serious cartel behaviour, yet four years later the government has still not legislated to this effect. Why? This is yet another example of hubris from a government that purports to remain attuned to our needs and to respond with practical measures. Far wiser heads than ours on these matters, including the Chairman of the ACCC and Professor Frank Zumbo, have identified the risk that the mere deterrent of financial penalties may enable cartel operators to weigh up those penalties against the millions that can be earned from a cartel.
This cost-benefit analysis needs to be removed from the cartel operators, and a bill that includes prison terms in the Trade Practices Act will go a long way to doing just that. Australia is one of the few countries in the OECD that does not have jail terms for serious cartel conduct, and it appears that that will be the case for some time.
The Howard Government cannot continue to pretend that the disparity between the power of small and big business does not exist. Members need only to visit any shopping mall or strip in my electorate of Lowe to see that the relationship is trammelled by inequality, which could lead to abuse by the powerful. The Trade Practices Legislation Amendment Bill (No. 1) 2007 does nothing to alleviate those concerns. The bill fails small businesses in the three key areas that I have mentioned: misuse of market power, unconscionable conduct and cartels. It does not represent genuine reform; it makes amendments that are purely cosmetic, not substantive. However, it does accurately reflect the approach of the government that drafted it: cunning, out of touch and ineffectual. I call on the government to adopt the amendments to be moved by this side of the House so that it can salvage something from a bill that will have a limited effect in a very limited range of circumstances.
I will also make a short contribution on the Trade Practices Legislation Amendment Bill (No. 1) 2007. I am very pleased to see the Minister for Small Business and Tourism in the chamber, even though she has decided not to make a formal contribution to this debate. I completely agree with the honourable member for Lowe and I will reinforce some of the points he made in his contribution. This government constantly claims to be the champion of small business. However, when push comes to shove it never stands up for small business, and this legislation is a classic example of that. Mr Deputy Speaker Hatton, if honourable members were to visit a shopping mall in Bankstown in your electorate or a shopping mall in the electorate of Lowe or a shopping centre in my electorate of Chifley, they could ask the small traders who pay high rents how they would benefit as a result of the amendments in this bill. I think it is fair to say that their response would be that they will not benefit very much at all. This legislation will not stop Woolworths or Coles, which receive very favourable rental rates for their premises, from continuing to do what they constantly do—that is, to lower their prices if they face competition. They are not required to lower them across the state or the city, and this amendment to the Trade Practices Act makes that abundantly clear.
As the shadow minister pointed out, if members were to look at the Senate report dealing with these amendments they would note that the Woolworths submission clearly states that these amendments break no new ground and that they merely codify legislative decisions made by the courts. What an indictment of the Minister for Small Business and Tourism that she cannot stand up for small business. She regularly comes to the dispatch box and claims to be a champion for small business, but Woolworths has said that the effect of these amendments on its operations will be exactly zero. That is abundantly clear.
This legislation amends the Trade Practices Act to state that a substantial degree of power in a market is a lower threshold than a substantial degree of control. The legislation clarifies the threshold to state that a corporation can have a substantial degree of power in a market even though it does not have freedom of constraint. The legislation also makes it clear that more than one corporation can have a substantial degree of power in a market. Section 46 will also be amended to clarify that a court may take into account a substantial period of below-cost pricing when considering whether a firm has abused its market power and that it may consider the company’s reasons for engaging in below-cost pricing. The legislation also proposes to appoint a second deputy chair of the ACCC.
In the lead-up to the 2001 election, the government—this alleged champion of small business—responded to small business concerns by promising a review of the Trade Practices Act. That was the Dawson review, which was tabled in 2003. It found that the Trade Practices Act was in need of only minor reform. The main recommendation was the imposition of prison penalties for individuals involved in serious cartel operations. The government accepted that recommendation and announced its intention to legislate accordingly in 2005. To date, that legislation has not been introduced and this bill makes no provision for said jail terms. It is worth noting that Australia is one of the few countries in the OECD without jail terms for serious cartel operations. The relevant prison term in the United States was recently increased from three years to 10 years.
I say to the minister for small business: your government promised jail terms for cartel operations. Why won’t you stand up for small business and insist that this legislation has jail terms when there are cartel operations? If not, why won’t you state that to the House? You did not participate in the second reading, but in the summing up why didn’t you state to the House what has changed your view? Why were you so hot to trot in insisting that you would bring down jail terms and you fail to do so in this legislation?
After the Dawson review was completed the High Court handed down its decision in the Boral case. This was only the third time that the High Court had considered a matter pursuant to Section 46 of the act, abuse of market power, and the first time the court had considered a predatory pricing matter. Predatory pricing is the practice of reducing prices below cost to drive competitors with fewer resources out of business. Other members have made contributions about section 46 and the misuse of market power. I want to place on record that, as far as small business is concerned, I believe that they do need protection from misuse of market power. I regret to say that I think shopping centres are replete in Australia with examples of misuse of market power. There are small businesses that are tenants in those shopping centres that put their financial lives on the line day in and day out and they have no recourse to justice. This legislation is not going to provide it. In fact, the minister for small business thought this was so inconsequential that she could not even make a contribution in the second reading debate.
Firstly, I would like to thank all those honourable members who participated in this debate today on the government’s Trade Practices Legislation Amendment Bill (No. 1) 2007. In the first instance, I make particular reference to the member for Batman’s contribution. His entire speech was devoted to the advocacy of big business, and we are here today ensuring that we are introducing amendments to the Trade Practices Act which are going to make it much easier for small business.
I would also like to make reference to the member for Chifley and the speech that he has just given. He has mentioned shopping centres and retail tenancies and for the member’s benefit—as he may not be aware—the government has already initiated a Productivity Commission inquiry into this. It is a very important issue for small business.
I could not allow this occasion to pass without also making some reference to the criticism that the member for Chifley levied at me. In terms of championing small business, I will stand and allow small business to make a decision as to who is the real champion of small business—this government or the opposition that the member for Chifley belongs to. When you look at tax reform, capital gains tax reform, superannuation reform, greater accessibility to the simplified tax system and especially workplace relations, getting rid of unfair dismissal and enabling flexibility in the workplace for small business with AWAs, I can tell you, it is no contest. This government is such a strong supporter of small business so, member for Chifley, do not get too carried away.
In summing up, the government’s bill delivers for small business in a number of important ways in enhancing the effectiveness of section 46 of the Trade Practices Act. The bill addresses the issue of predatory pricing, allowing the court to consider sustained below-cost pricing when looking at a breach of section 46. It clarifies the threshold for misuse of market power in a number of important ways. For example, it refers to leveraging power from one market into another. It specifies that more than one corporation may have a substantial degree of power in a market. It also provides that a corporation can have market power without substantially controlling that market. Further, the bill makes amendments to the unconscionable conduct provisions by raising the transaction limit from $3 million to $10 million. This limit assists in protecting small business from unconscionable conduct. The bill also provides that the court should look at whether a party can unilaterally vary a contract term or condition in considering whether there has been unconscionable conduct.
It also creates a deputy chairperson of the Australian Competition and Consumer Commission. The government has announced that the position will be held by a person who is experienced in small business matters, not, as the member for Rankin indicated, someone with just some background but someone who has actual experience in small business.
The government has consulted extensively with small business groups in developing these amendments. In fact, I can tell you that the government has consulted over many months with a number of the small business representative organisations. Following the passage of the government’s Trade Practices Legislation Amendment Act (No 1) 2006, known as the Dawson Act, the government has met with a number of groups to discuss the concerns of small business. We have not assumed what small businesses want; we have engaged one-on-one and in groups with the small business organisations. Both the Treasurer and I have been involved in those meetings along with the Leader of The Nationals in the Senate, Senator Boswell, as well as Senator Barnett.
I want to take this occasion to particularly acknowledge the work of Senator Boswell, whose strong advocacy on behalf of small business has been appreciated and has been instrumental in achieving and strengthening these amendments before the House. The consultative process has been a long and involved one but one which the government has worked hard at to try to get right. I particularly want to acknowledge the work of the Council of Small Business Organisations of Australia, COSBOA; the National Association of Retail Grocers of Australia, NARGA; the Fair Trading Coalition; and the National Farmers Federation. The government look forward to continuing our ongoing work program with all of these small business groups on all issues affecting small business.
The government welcomes the report of the Senate Standing Committee on Economics into the provisions of the bill. I would like to thank the committee for its timely consideration of and report on the bill. The committee’s inquiry attracted a broad range of submissions from groups interested in trade practices reform, and many of the above-mentioned groups made a submission to that Senate standing committee. I particularly welcome the committee’s conclusion that the bill should be passed in its current form.
This bill delivers for small business; it builds on the agenda implemented by this government to reform the Trade Practices Act. Earlier this year we saw the commencement of the government’s Trade Practices Legislation Amendment Bill (No. 1) 2006, which contained a number of reforms arising out of the review of the competition provisions of the Trade Practices Act, chaired by Sir Daryl Dawson. The act provided for a simpler notification scheme when small businesses collectively bargain under the Trade Practices Act, making the process quicker, easier and cheaper for small business. It significantly increased the maximum penalties for anticompetitive conduct to the greater of $10 million or three times the value of the benefit of the anticompetitive behaviour or, where that value cannot be determined, 10 per cent of the company’s annual turnover. The act also increased the powers of the ACCC, granting it increased search and seizure powers—and I note the member for Prospect spoke about that issue when he spoke earlier. In fact, we have already done that.
The government will shortly be moving to introduce legislation imposing criminal penalties for serious cartel conduct. The government is concerned about the ability of small businesses to be competitive in markets where there is cartel activity, where they are often the direct victims of cartel behaviour. If the opposition is really serious about doing something positive for small business and standing up for small business, it would not reinstate unfair dismissals and it would not get rid of AWAs. That, I can tell you, is the acid test for small business.
As I have said, this bill implements a number of important government announcements in relation to the Trade Practices Act and the protection of small business. It comes as a result of extensive discussions with key stakeholder groups. I believe that these amendments achieve the right balance of ensuring small business gets a fair go, while ensuring they can operate in a competitive environment and consumers can benefit from that competitive environment. I commend the bill to the House.
That the word proposed to be omitted (Mr Bowen’s amendment) stand part of the question.
Original question agreed to.
Bill read a second time.