Andrew Murray (WA, Australian Democrats) Share this | Hansard source

If these amendments had been introduced in 2004, the same year as the recommendations of the Senate Standing Committee on Economics report in March 2004 into the effectiveness of the Trade Practices Act to protect small business, now a long 2½ years ago, they would have had my nearly unqualified support as a good first step in finally strengthening the Trade Practices Act from the perspective of small business and consumers. In fact, the amendments set out here mirror a number of the amendments I have proposed over the years based on the recommendations of that committee—amendments that have been supported by the opposition and that have been rejected by the coalition government on several occasions. I can only surmise that they were rejected because they were Democrat, not coalition, amendments, and that is pathetic, but it is true. I do not think it reflects well on the government, as a result.

Now that the Trade Practices Legislation Amendment Bill (No. 1) 2007 has come before us, and although my party and I support the bill, it still does need to be improved by further amendments such as those which have been circulated by me, on behalf of Senator Joyce and by Labor. The Senate Standing Committee on Economics reported on this bill in August. I wrote a precise set of additional remarks to the report. I do agree with many of the points raised in the Labor Party’s minority report and the report from Senator Joyce. I compliment Senator Joyce on being able to achieve some of his objectives since that report came down. The amendments contained in this bill generally reflect the minority senators’ report from 2004—that of the coalition senators, not the majority report of Labor and the Democrats. While I am as certain as can be that Senator Brandis, principal author of the minority report, would have gone further towards the majority position if his party had allowed him, the minority view is, nevertheless, a useful advance on the law as it stood.

The consequent Trade Practices Legislation Amendment Bill (No. 1) 2007 has two weaknesses: it is long overdue and it does not go far enough. Its strength is that it does not weaken the Trade Practices Act; it strengthens it in a number of ways. The bill will create a second deputy chairperson position for the ACCC and allow for the effective operation of the ACCC with that additional position focusing on small business. It amends section 46 of the act to provide that a corporation must not take advantage of a substantial degree of market power, either in the market in which the power is held or in any other market. It amends section 46 to provide that, for the purposes of determining the degree of power that a corporation has in the market, the court may have regard to any market power the corporation has that results in contracts, arrangements or understandings with others, or results in covenants that the corporation is bound by or entitled to the benefit of. It amends section 46 to provide that courts may take into consideration the supply of goods or services for a sustained period at a price less than the relevant cost to the corporation, and the reason for that conduct, when determining whether a corporation has misused its market power. It amends section 46 to provide that, without limiting the matters to which the court may have regard, a body corporate may have a substantial degree of market power, even though it does not substantially control the market or have absolute freedom from constraint by the conduct of its competitors or persons to or from whom it supplies goods or services. It amends section 46 to provide that more than one corporation may have a substantial degree of power in a market.

It makes amendments to ensure the continued consistency between sections 151AJ and 46 in relation to leveraging of market power, coordinated market power and predatory pricing. It makes amendments to the version of section 46 found in part 1 of the schedule to the Trade Practices Act, which is the version that applies in the states and territories by virtue of application legislation in those jurisdictions, to correspond to the changes in the bill. It amends section 51AC of the act to extend the non-exhaustive list of factors in sections 51AC(3) and 51AC(4) to provide that the court may also consider whether a party has a contractual right to vary, unilaterally, a term or condition of a contract between a supplier and a business consumer, or between an acquirer and a small business supplier.

It amends sections 51AC(9) and 51AC(10) of the act to raise the price limitations relating to the supply or acquisition of goods or services from $3 million to $10 million and it makes amendments to section 12CC of the Australian Securities and Investments Commission Act 2001, which applies the unconscionable conduct rules of section 51AC of the Trade Practices Act to the supply and acquisition of financial services, to duplicate the changes made by the bill to section 51AC.

When I read these, you will not be surprised to know that I get a sense of grievance, because I have heard much of it somewhere before. Several of those amendments reflect the gist and substance of amendments which I have moved in the past—although for a number of them the wording has changed very slightly from the wording that I proposed—and which have been rejected by the coalition and probably forgotten by people listening to this debate, because they were passed by. Two years have been wasted by the foot-draggers in the Treasurer’s office. It is absolutely unacceptable that that happened—this, I might add, from a Treasurer who has initiated brave and wholesale reform in many legislative areas under his control. His slow and modest efforts on trade practices law reform for small business stand in stark contrast to what otherwise is a very credible record in many areas.

I appreciate the amendment to section 46(1) of the Trade Practices Act, but, as Associate Professor Zumbo rightly states in his submission to the economics committee, in order for section 46 to be effective there is an urgent need to restore the parliamentary intention behind both the concept of a ‘substantial degree of power in the market’ and the concept of ‘take advantage’. I emphasise the words ‘both’ and ‘and’. I note that Senator Joyce was reported in the media as saying that he will put forward an amendment which addresses the concept of substantial financial power in a market, taking his lead from the 2004 report. He is right to do so.

The greater the financial power an entity has in any market, the greater freedom of action it has in undercutting the price of goods. This was shown in a recent story on Today Tonight featuring a small grocer located right beside a Woolworths store. When he reduced his prices, he was undercut. Even when he reduced the price to well below his cost, they followed him down. The only reason that this small grocer could do that was because Today Tonight was subsidising the difference between the cost price and the reduced sale price. Woolworths simply reacted to the competition with perfectly natural behaviour. But its effects in certain circumstances can be anticompetitive. It was shown that a Woolworths in another suburb where there was no grocer competition did not reduce its prices at all.

An entity does not have to be in a monopoly position or even in an oligopoly position to have substantial financial power in the market if it can take advantage of that financial power in the market to impose unsustainable prices on competitors. The reference to a ‘substantial financial power in the market’ would, many commentators believe, have the effect of overcoming the current problem with section 46 which arose from the Boral case. I will be proposing amendments which I hope will address these shortcomings. I believe that these amendments of mine will provide more guidance to the courts to overcome the difficulties presented by the Boral case—in particular in relation to the issue of ‘substantial degree of power in the market’. I am hoping that Labor and Senator Joyce, as supporters of trade practice law reforms for small business, will be willing to support these amendments.

Predatory pricing exists. It is a daily problem for many small and medium businesses, both upstream and downstream. From a public policy point of view, the issue is that the destruction of competitors, if taken to its logical conclusion, can result in the destruction of competition. That is why market power has to be regulated and constrained. That is why modern dynamic markets have proper competition law to restrain this sort of behaviour.

Section 46 of the Trade Practices Act currently applies only to the conduct of monopolists and near-monopolists, so small businesses have little protection against large and powerful corporations choosing to throw their financial and material resources around. Two possible measures could overcome this problem and still maintain fairness. The first is to remove the requirement to show intention and instead put in place a requirement to show that the actions of the alleged perpetrator have had the effect of damaging competition—in other words, you examine the results, not the intent. The second is to get behind the corporate veil by changing the onus of proof when the ACCC pursues the matter. The onus would fall on the defendant and not the applicant to show that there was no purpose of eliminating competition. A system of protecting and rewarding whistleblowers who provide evidence about collusive and anticompetitive conduct could also be considered.

The ACCC should be given a power to grant cease-and-desist orders against companies involved in anticompetitive behaviour. Such a power would allow intervention on behalf of small firms who are being harmed by the behaviour of a large competitor. Rather than wait years for a court to determine the legality of a firm’s behaviour—by which time the small business’s lease has expired and they have moved on—a cease-and-desist power, where it is relevantly and carefully applied by an independent regulator, would allow early intervention before a competitor was driven out of business by anticompetitive conduct. This would not affect normal competitive conduct, which can include price cutting. These are matters which could have been addressed in this bill but have not been, and the Democrats and small business have to await a time when a Labor government will give the Trade Practices Act some sharper teeth to truly protect small business. In that respect, I note the remarks of the shadow minister in the Senate and of Labor speakers in the lower house, and I will hold them to them.

In the 2005 report of the Senate Standing Committee on Rural and Regional Affairs and Transport on the operation of the Australian wine-making industry, there was reference to the discussion of unconscionable conduct in the 2004 report of the Senate Economics References Committee in relation to unilateral variation clauses in a contract, which allow one party to vary the contract without further negotiation or without the other party’s agreement. That recommendation by the rural and regional affairs committee was unanimous. During the Senate Economics References Committee’s inquiry, the ACCC had voiced concern that unilateral clauses could be unreasonably exploited by the stronger party, and it was the recommendation of the ACCC, followed by the Senate economics committee in its March 2004 report, that unilateral variation clauses should be added to the list of matters which a court may have regard to in deciding whether conduct is unconscionable. I refer to sections 51AC(3) and 51 AC(4) of the Trade Practice Act. I welcome those particular amendments wholeheartedly. But why were farmers and others made to wait two years for those amendments to come forward?

I have noted the argument articulated in the minority report of Labor senators which says that these amendments add little or nothing to the operation of the sections because unilateral variations are already a matter which the courts can take into account in determining whether there is unconscionable conduct. With respect to that argument—unless I have misunderstood it—we would not need statutes at all, of any kind, if that were true. Rather than subject business to the time and costs of courts, it is better to point to black-letter law and say to the stronger party, ‘You cannot do that; the legislation says that you cannot do that.’ That is much easier than having to say, ‘I don’t think you can do that; I think it’s unconscionable, so let’s all go to court,’ and, after a number of years—during which your lease has expired and you have gone out of business—and several hundred thousand dollars later, see if that is one of the things that the court will consider. Black-letter law in competition law is good, not bad, because it enables clearer decisions and clearer understandings to occur.

The practicalities of life on the front line of small business are substantially different, and this amendment is very welcome. However, you will see from my amendments that I do not think it goes far enough. In both Victoria and the United Kingdom there is legislation regarding unfair contract terms, and my amendments attempt to incorporate aspects of those pieces of legislation to beef up section 51.

This bill fails to address the substantial areas of creeping acquisitions and divestiture. These continue to be areas of concern for small business and the Australian community, and we continue to be out of step with major jurisdictions such as the United States, that dynamic market which has its terrific reserve power known as anti-trust legislation. Section 50 of the Trade Practices Act currently prohibits corporations from making acquisitions that would have the effect of substantially lessening competition. Divestiture can be ordered to remedy a breach of section 50. However, this provision is limited in scope. One limitation is the difficulty of applying it to creeping acquisitions. It is difficult to establish that a smaller, more recent acquisition following a series of other small acquisitions over a number of years finally tips the balance to create a substantial lessening of competition by someone moving into a monopolistic situation in a particular market.

Creeping acquisitions can allow very large corporations to achieve a market size that might have been prohibited by the ACCC if those acquisitions had been aggregated into one purchase which could therefore have fallen foul of the existing merger provisions in the Trade Practices Act. I think there is no better example of that point than the Franklins purchase, when the very large corporations that wished to take advantage of Franklins’ troubles and acquire the stores on the break-up were forced to divest or shape their acquisitions to ensure they did not achieve the kind of market power that was regarded as a danger to full competition—yet if they had achieved those same stores by creeping acquisitions there would have been no similar action.

In Australia, many markets are experiencing oligopolisation, which is a concentration of power in the hands of a small number of competitors. One that is of substantial concern to Australian consumers is the grocery market because they see that, if it becomes much more controlled than it is at present, that will directly impact their hip pockets, their choices and the opportunities for competition. It is a fact of life and economy that the big get bigger. With respect to our market and its size, sometimes that is natural, necessary and unavoidable. But as they get bigger they do develop the ability to operate more cheaply and efficiently. Over time, the smaller players are forced out of the market. That is the way of the market, and that activity is valuable while it promotes efficiency, innovation and competition—but only up to a point, as I said earlier.

Eventually, the destruction of competitors results in the destruction of competition, or the predatory intimidation of competitors reduces effective competition—and I have noted recent court cases where major retailers in the bread market and in the liquor market, for instance, have been had up for abusing their market power. Where that has occurred or will occur, the state must intervene to save the market from eating itself. By its very nature, the power to order divestiture should be regarded as largely a reserve power. As international precedents indicate, it would be seldom employed. It should be used rarely and used responsibly by an independent and powerful regulator. The great virtue of divestiture, of anti-trust power, is as a cautionary power, making oligopolies careful of abusing their market power. It would be used only where necessary to maintain or restore competition. This is an area which this country must address at some stage.

The United States Federal Trade Commission’s 1999 study of the divestiture process found that about three-quarters of divestitures appear to have created viable competitors in the relevant market. It further found that divestitures of ongoing businesses tended to succeed more frequently compared to asset divestiture. The ACCC has indicated that it is not supportive of an open-ended divestiture power, but it has supported consideration of a divestiture power where there is a breach of the section 46 prohibition on the abuse of market power. Examining divestiture in the context of section 46 is essential, but it may need even broader scope in light of Australian court decisions. At the very least, I believe that concentrated industry sectors need a trigger market-share percentage at which point the ACCC takes formal and public note of potential danger—similar to that used in Europe. Such thresholds recognise market power but do not constitute an automatic declaration of market dominance; nor are they an automatic signal as to the existence of anticompetitive prices or an abuse of power. They act instead as a trigger to the regulator to maintain a watching brief on the company concerned. I consider the figure of 25 per cent used under the United Kingdom Fair Trading Act as constituting a fair market-power measure. If such a measure were adopted in Australia, the ACCC would thereafter notify a company so identified that it needed to keep the ACCC advised of all market acquisition activity, with a specific requirement to report to the ACCC annually on the concentration of market power in the markets it operates in. The ACCC could then, of its own volition, review the company or the industry concerned.

I have previously moved amendments to allow the ACCC to order divestiture where an ownership situation has the effect of substantially lessening competition. This is necessary to ensure that the ACCC can effectively break up megagroups that substantially inhibit competition as a result of monopolistic characteristics and can reduce monopoly market power, particularly in regional markets, by requiring limited and selective divestiture. The government turned down those amendments. I will be moving those amendments again in relation to this legislation. I am also including amendments to expand the role of the ACCC to monitor prices. There will be those who argue that this will require an increase in staffing for the ACCC and cost a lot of money, but that is not the concern. The concern is to ensure competition is maintained and enhanced. The fact is that price monitoring through the ACCC is an effective way of making sure prices operate well in a competitive marketplace. It has been shown on a small scale by the FuelWatch website in WA with regard to petrol pricing, and it is an effective stratagem in key market sectors. (Time expired)