On 31 March 2015 the much anticipated Final Report of Australia's Competition Policy Review Panel was released. The Panel has recommended the abolition of the liner shipping exemption to Australia's anti-cartel laws and the deregulation of the current cabotage regime – two recommendations that will be of considerable interest to the maritime sector and the many sectors which rely upon it, both within Australia and throughout the Asia Pacific region.
In 2013, the incumbent Liberal-National Party Coalition Government of Tony Abbott (Abbott Government) commissioned an independent 'root and branch' review of Australia's competition laws and policy in recognition of the fact that the Australian economy has changed markedly since the last major review of competition policy in 1993. The review was undertaken by a four-member Competition Policy Review Panel chaired by Professor Ian Harper (Harper Review). The recommendations regarding the liner shipping exemption and cabotage comprise just two of a total of 56 recommendations.
Australian competition law and the liner shipping exemption
Part X of Australia's Competition and Consumer Act 2010 (CCA) permits liner shipping operators to enter into agreements among themselves in relation to the freight rates to be charged, and the quantity and types of cargo to be carried, on particular trade routes and register those agreements. Registration confers an exemption from the cartel conduct prohibitions in the CCA that would otherwise be applicable.
For almost 50 years, Part X has provided liner shipping services with a degree of immunity from Australia's competition laws. The exemption for registered agreements between shipping operators (which may otherwise amount to illegal cartel behaviour such as price fixing) was enacted, and has survived, due to concerns regarding cost, capacity and scheduling. Consortia arrangements between shipping lines enable the sharing of space on pooled vessels so that a more frequent and wider range of port calls can be offered to shippers at a much lower cost than would otherwise be possible. It is therefore unsurprising that:
- Part X has enjoyed (and continues to enjoy) strong support from shippers in Australia
- Many of Australia's major trading partners, including China, Japan, Korea, Singapore and the United States, have competition laws permitting similar consortia arrangements between shipping lines
The most recent major reviews of Part X were conducted by the Australian Productivity Commission in 1999 and 2005. In 1999, the Commission concluded that on balance Part X served Australia's national interest, whereas in 2005, the Commission recommended that Part X be repealed or reformed. In response to the 2005 review the then Australian Government opted for reform rather than repeal.
The Harper Review's recommendations regarding the liner shipping exemption
With respect to Part X, the Harper Review has recommended that:
- It should be repealed and the liner shipping industry should be subject to the normal operation of the CCA
- The Australian Competition and Consumer Commission (ACCC) should be given power to grant block exemptions for conference agreements which contain a minimum standard of pro-competitive features
- The minimum standard of pro-competitive features to qualify for the block exemption should be determined by the ACCC in consultation with cargo interests and the liner shipping industry
- Other agreements that risk contravening the competition provisions of the CCA should be subject to individual authorisation (presumably on the basis of the normal net public benefit test)
- A transitional period of two years is allowed for the necessary authorisations to be sought and to identify agreements that qualify for the proposed block exemption
The Panel made these recommendations despite having had the benefit of detailed and persuasive submissions from the peak industry bodies in Australia representing carriers and shippers, arguing for the retention of Part X.
The repercussions of a repeal of Part X
Any repeal of Part X would present a number of challenges for stakeholders (and not least of all exporters, importers and consumers) within and outside Australia:
- It would seriously destabilise current liner services, which are vital to the continuity of access to all export markets
- It could deprive shippers, and by extension their customers, of the reduced costs, more frequent sailings and increased choice that Part X facilitates
- It would replace the certainty of the Part X arrangements with complexity and bureaucracy at a time when the maritime sector is already being subjected to unprecedented levels of regulation
- It would result in Australia adopting a law inconsistent with the laws of many of its major trading nations, adversely impacting upon international liner shipping arrangements throughout the Asia Pacific region
- In the longer term it could facilitate regional market domination by the major lines and/or 'super alliances'
Should the Abbott Government (or any subsequent Australian government) contemplate acting on the Harper Review's recommendations regarding Part X, they can expect robust submissions from the same key stakeholders whose comprehensive and persuasive submissions appear to have been largely ignored by the Harper Review.
Cabotage following the enactment of the Coastal Trading Act
On 1 July 2012, the previous Australian Labour Party (ALP) government of Julia Gillard enacted the Coastal Trading (Revitalising Australian Shipping) Act (CTA) and related legislation – the most comprehensive changes to the regulation of coastal trading in Australia in almost a century. The CTA replaced the relatively simple system of licences and permits existing under the Navigation Act 1912 with a complex three-tier licensing regime comprising general licences, temporary licences and emergency licences (for more information regarding this licensing regime click here).
Since the enactment of the CTA, operators of foreign-flagged ships wishing to participate in coastal trading have been forced to deal with a set of procedures that are cumbersome, bureaucratic, impractical, uncertain and heavily stacked in favour of Australian operators. However, it would be wrong to assume that the only interests to have been adversely affected by the enactment of the CTA are foreign-flagged ships. On the contrary, the CTA presents, and will continue to present, a major problem for anyone seeking to ship cargo on Australia's coastal trade. In that regard, we note that:
- The participation of foreign-flagged ships in the coastal trade has decreased dramatically, meaning less competition for Australian operators
- The lack of competition has caused a substantial escalation in shipping costs to the point where Australian shippers are paying up to double the freight rates that could be offered by foreign-flagged ships in a deregulated coastal trade
- High-volume shippers are being deprived of the flexibility required to meet unplanned or urgent coastal shipping requirements due to unforeseen changes to operations or external factors
- A number of foreign-flagged operators engaged in coastal trading provide specialised services that cannot be provided efficiently (or at all) by the Australian operators – this is of particular significance to shippers of heavy and break-bulk cargo
The Harper Review's recommendation regarding cabotage
After observing that cabotage restrictions raise the cost and administrative complexity of coastal shipping services, the Harper Review recommended that cabotage restrictions on coastal shipping should be removed, unless it can be demonstrated that the:
- benefits of the restrictions to the community as a whole outweigh the costs; and
- objectives of the policy can only be achieved by restricting competition.
Given these caveats, the Harper Review's recommendation does not go as far as the May 2014 recommendation of the National Commission of Audit (an independent body established by the Abbott Government) that cabotage policy be abolished in its entirety, removing all regulation of access to coastal trading – a recommendation which most stakeholders in the coastal shipping sector have embraced. Indeed, the inclusion of the caveats means that the recommendation loses much of its impact given that it was made without having addressed the two key lines of enquiry contemplated by the caveats.
A recommendation without a path through the Australian Senate?
It is apparent from recent statements within – and outside – the Australian Parliament that the opposition parties (comprising the ALP and several minor parties who control the balance of power in the Australian Senate) are very likely to oppose any attempt by the Abbott Government to roll back the CTA and deregulate coastal trading. It follows that there is no guarantee that the reforms foreshadowed by the Abbott Government will become law, despite the unsatisfactory nature of the present cabotage regime. It seems most unlikely that the Harper Review's recommendation will alter this state of affairs.
Upon receiving the Harper Report, the Minster for Small Business stated that there would be approximately eight to ten weeks' consultation with industry bodies and that he would hold talks with ministerial colleagues and state governments before the government prepared a "game plan" to respond to the report's 56 recommendations.
Given the massive amount of subject matter covered by the Harper Review, it remains to be seen whether the recommendations concerning the liner shipping exemption and cabotage are seriously contemplated by legislators. That said, these are issues of critical importance to the shipping sector, and the sectors which rely upon it, and many stakeholders may take the view that submissions should be made to legislators sooner rather than later.
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