Australia: Reforms To Australia's Competition Framework: Cabotage Regime And Liner Shipping Exemption

Last Updated: 1 December 2015
Article by Maurice Thompson and Avryl Lattin

On 24 November 2015, the Australian Government released its much anticipated response to the Harper Competition Policy Review, supporting or partly-supporting 44 of 56 recommendations. Through the implementation of the Government's response it aims to reinvigorate Australia's competition reform and deliver improved markets for the benefit of consumers and the Australian economy. The package of changes will be the first major reform to Australia's competition policy since the National Competition Policy was introduced following the Hilmer Review in 1993.

Background

In 2013, the Government commissioned Professor Ian Harper (and a Competition Policy Review Panel) to carry out an independent 'root and branch' review of Australia's competition laws and identify reforms to boost Australia's long-term productivity and growth. The Harper Report was released in March 2015 with 56 recommendations for competition policy.

In its response, the Government has announced that it supports 39 of the 56 recommendations in full (or in principle), with a further five recommendations partly supported. A number of the remaining recommendations have been noted and may yet be supported after further consultation with key stakeholders.

This update provides an overview of the Government's response to the recommendations and likely legislative changes that will follow.

Modification of Competition Laws

On competition law generally, the Government has supported a recommendation to adopt a new set of overarching principles to guide competition law-making across all levels of government. The guiding principles seek to promote the long term interests of consumers and stipulate that the development of legislation and government policy should not restrict competition unless:

  • the benefit of the restriction to the community as a whole outweighs the costs; and
  • the objectives of the legislation or government policy can only be achieved by restricting competition.

This means that prospective legislation and policy relating to competition law will be subject to a public interest test.  The Regulatory Reform Agenda will also be specifically expanded to include review of competition regulations across all levels of government.

In response to various specific recommendations, there will be a number of changes to the Competition and Consumer Act 2010 (Cth) (CCA) including in respect of price signalling, concerted practices, exclusionary conduct provisions and cartel laws.

Given the exposure of the Australian economy to global competition, the definition of competition under Australian law will be expanded to take into account competition from goods imported or capable of being imported, or services rendered or capable of being rendered by persons outside Australia.

Cabotage

Since the 1 July 2012 enactment of the Costal Trading (Revitalising Australia Shipping) Act (CTA), costal shipping trading has been highly regulated, procedural and cumbersome for foreign-flagged vessels. The impact of a bureaucratic and complex licensing regime has dramatically decreased the participation of foreign-flagged ships which trade within Australian waters.

Pursuant to the Harper Review Recommendation 5, it was proposed that cabotage restrictions 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.

The Government has 'noted' this recommendation and referred to the announcement made by the Minister for Infrastructure and Regional Development, Warren Truss, that the Government's plans for costal shipping will be implemented as soon as practicable. More detailed information on the Harper Review recommendations in relation to Australian coastal shipping can be found in our earlier update, please click here to view the update.

Liner Shipping

Under Part X of the CCA, liner shipping services may enter into agreements among themselves in relation to freight rates, the quantity and types of cargo to be carried and trade routes. Upon registration, the parties are afforded an exemption from cartel conduct prohibitions which would otherwise apply. Registered shipping operators who engage in cartel conduct, such as price fixing and bid rigging, are exempted from potential criminal and civil liability.

The Harper Review recommended that Part X of the CCA should be repealed. In effect, this would mean that the shipping sector would be subject to the normal operation of the CCA which imposes core prohibitions on cartel conduct under Part IV of the Act. A two year transitional arrangement was recommended to apply to existing agreement which would no longer remain their exemption status. In substitute for Part X of the CCA, the Harper Review recommended that the ACCC should grant a block exemption to liner shipping agreements to meet the minimum standard of pro-competitive features.

The Government has indicated that it 'remains open' to adopting this recommendation and will introduce a general class exemption power into the CCA, permitting the ACCC to authorise broad classes of conduct. Importantly, however, this means that Part X of the CCA remains in force in its present form.

The Government's decision to press pause on these recommendations will be welcomed by key shipping exporters, importers and consumers. In response to the Harper Review, independent submissions emphasised the challenges which would accompany the repeal of Part X of the CCA, in particular:

  • the likely increase in the costs of importing and exporting cargo within the Australian market, which would have detrimental cost repercussions for consumers; and
  • the removal of the certainty of Part X of the CCA and consequent disruption of an already highly regulated industry sector.

It appears that that Government has paid heed to these concerns, and remains committed to working alongside linear shipping stakeholders to ensure that arrangements remain competitive, efficient and are aligned with Australia's relevant international law obligations.

Next Steps

Although the real impact of the reforms will not be known until draft legislation is formulated and released for public consultation, the implementation of many of the Harper Review recommendations will inevitably reshape competition across a number of markets.

Twelve recommendations from the Harper Review remain under consideration by the Australian Government, pending further consultation with state and territory governments and industry bodies. It remains to be seen how the Government will address those recommendations and the extent to which they will be supported. Some tough decisions lie ahead, particularly around the misuse of market power provision ( see update), the extraterritorial application of the CCA and the manner in which the enforcement powers of the ACCC will be modified to reflect the burden of production notices in the digital age.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Maurice Thompson
 
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