Harper Review recommends major changes to competition laws - Trade Regulation & Practices

ABOUT THE HARPER REVIEW

On 31 March 2015, the Competition Policy Review Panel (Panel) released the much anticipated Final Report of the 'root and branch' review of the Competition and Consumer Act 2010 (Cth) (Act) (Harper Review). The Final Report comes one year after the Australian Government announced its Terms of Reference on 27 March 2014 (see here for our earlier article) and is the most comprehensive and significant review of Australian competition policy, laws and institutions since the 1993 Hilmer review.

This article briefly canvasses the key recommendations in the Final Report. We will shortly publish a more detailed analysis of the Final Report.

The review process allowed for significant stakeholder input during the consultation process and following the release of the Draft Report on 22 September 2014 (see here for our earlier article). The Panel received 484 non-confidential submissions on the Draft Report and 320 non-confidential submissions on the Issues Paper.

The recommendations in the Final Report are far reaching and will impact on many aspects of Australia's economy. The Panel identified globalisation, our ageing population and the digital revolution as major forces affecting Australia's economy and these factors informed the Panel's decision making process.

KEY CHANGES FROM THE DRAFT REPORT

While the Draft Report made 52 draft recommendations, the Final Report makes 56 recommendations. The additional four recommendations consist of two competition policy recommendations and two implementation recommendations. The key changes from the Draft Report are highlighted below.

Competition laws

The Panel has changed three of its recommendations:

Misuse of market power – after seeking submissions on the scope of the proposed defence to section 46 of the Act in Draft Report, the Panel now recommends providing the court with facts that it must consider in determining whether there is a substantial lessening of competition;
Arrangements that affect competition / Exclusive dealing – instead of simplifying the exclusive dealing provisions in section 47 of the Act, the Panel recommends that this provision should be repealed as exclusive dealing conduct will still be captured under section 45 of the Act (anti-competitive agreements) and the revised misuse of market power provision in section 46 of the Act. The prohibition against arrangements affecting competition will in addition, be expanded to capture "concerted practices" that substantially lessen competition; and
Industrial agreements – the Panel recommends that non-employment trading restrictions in awards and industrial agreements should be subject to competition laws and that the ACCC should be given the right to intervene in proceedings before the Fair Work Commission.

Competition policy

There are two new competition policy recommendations for:

Government procurement – promoting competition should be a central feature of government procurement and privatisation frameworks and processes; and
Informed choice – governments should work with industry, consumer groups and privacy experts to allow consumers to access information in an efficient format to improve informed consumer choice.

Implementation

The remaining two new recommendations relate to the implementation of the recommendations in the Final Report:

Implementation – the Panel recommends that the Commonwealth Government discuss the Final Report with the states and territories as soon as practicable; and
Economic modelling - the Productivity Commission should be tasked with modelling the recommendations of the Harper Review as a package (in consultation with jurisdictions) to support discussions on policy proposals.

Notwithstanding the fact that the Government has been in possession of the Final Report for some period of time, these last recommendations, if implemented, will mean that there is still some considerable period of time before any changes are implemented.

PANEL'S RECOMMENDATIONS

Some of the most significant recommendations are discussed below.

Competition policy

The Panel found that competition policy should be reinvigorated and modernised by focusing on consumer choice, by reforming and deregulating certain industry sectors and by committing to competition principles. The Panel has identified eight areas, including regulatory restrictions and government procurement, where reform should have the most impact.

The Panel recommends removing regulatory restrictions that unnecessarily restrain competition unless the restrictions satisfy a public interest test.

The most high profile or controversial of these are restrictions relating to pharmacy ownership and the taxi industry. The other main recommendations are in relation to:

the removal of remaining retail trading hour restrictions;
the removal of restrictions on parallel imports;
the consideration of competition in planning and zoning rules; and
mandatory product standards.

Government procurement

The Panel recommends that tendering should focus on outcomes, not outputs, and should not be prescriptive nor simply focused on value for money. Instead, as noted above, promoting competition should be a central feature of government procurement and privatisation frameworks and processes. The Panel recommended that all governments should review their policies governing commercial arrangements with the private sector including commissioning, public-private partnerships and privatisation, and the proposed Australian Council for Competition Policy (ACCP) (that would replace the National Competition Council (NCC)) should be responsible for reporting on that review.

Competition laws

The Panel has considered the effectiveness of the competition laws and has made recommendations that will significantly impact the competition provisions in the Act. The Panel has also envisaged the form of these proposed provisions and have annexed model legislative provisions in the Final Report. The key recommendations are as follows:

Misuse of market power – the Panel's view is that section 46 of the Act is deficient in its current form because the provision does not usefully distinguish pro-competitive from anti-competitive conduct. The Panel recommended an 'effects test' (in both reports) whereby the prohibition should be reformulated to prohibit a corporation that has substantial market power from engaging in conduct that has the purpose, effect or likely effect of substantially lessening competition, consistent with other competition law prohibitions. The Final Report also recommends that authorisation should be available in relation to section 46 of the Act and that the ACCC should issue guidelines regarding its approach to the provision.

Cartel provisions – the Panel recommends changes to simplify and clarify the operation of the cartel provisions to reduce business compliance costs. The Panel also considers that the per se prohibition of exclusionary provisions, as defined in section 4D of the Act, is no longer necessary since, in practice, such conduct is materially the same as cartel conduct in the form of market sharing and there is an unnecessary overlap. The Panel is of the view that the current cartel provisions are excessively complex and that given the potential for criminal sanctions, conduct between actual rather than potential competitors should be prohibited. The Panel also recommended that there should be greater clarity about the exemptions from the prohibitions, including a clearer exemption for collaborative conduct that does not have the purpose or likely effect of substantially lessening competition. This would be broader than the current joint venture exemption.

Arrangements that substantially lessen competition (including price signalling, exclusive dealing and third line forcing) – the Panel recommends that the existing prohibition to conduct having the purpose or likely effect of substantially lessening competition (section 45 of the Act) should be extended to prohibit "concerted practices" which have the same purpose or effect. Casting this prohibition in this way will assist in simplifying the Act in that:

this will remove the need for a separate price signalling prohibition within the Act, which the Panel regards as not being fit for purpose¹;
the exclusive dealing provisions should be repealed as they are no longer necessary², as the prohibition will broadly cover all conduct that has the purpose or effect of substantially lessening competition; and
similarly, the Panel also recommends that third line forcing should no longer be a per se offence but should only be prohibited if it has the purpose or likely effect of substantially lessening competition.

Block exemption power – to reduce costs for business, especially for small business the Panel also recommends the introduction of a block exemption power to the ACCC. This will be an important addition particularly for the shipping industry given that the Panel has also recommended the repeal of Part X of the Act which provided exemptions for Liner Shipping Arrangements. Under the recommendations, Liner Shipping Arrangements will be like other arrangements and subject to the Act. Such agreements will therefore be covered by block exemptions (if they are implemented) or through authorisation. In the Final Report, the Panel specifically states that the block exemption power would enable the ACCC to create safe harbours in relation to conduct that is unlikely to raise competition concerns and that the ACCC should also maintain a public register of all block exemptions, including those no longer in force.

Merger approval processes – the Panel repeated its draft recommendation that the ACCC should seek to be more timely with its merger approval decisions and that there should be further consultation with businesses. The Panel considers that timeliness and transparency issues can also be dealt with by way of parties pursuing the formal clearance or authorisation process. The Panel also recognised the complexity of these processes and recommended that some of the existing merger approval processes should be streamlined or reformed to remove unnecessary restrictions that have deterred their use. In addition to the draft recommendation the Final Report also recommends that merger review processes and analysis would also be improved through the ACCP conducting post-merger evaluations to determine whether the ACCC's processes were effective and its assessments borne out by events.

Authorisation and notification – the Panel also repeated its earlier recommendation to simplify this process by ensuring that only a single authorisation application is required for a transaction or arrangement. Further, the Panel recommends that the Act should be reformed to introduce greater flexibility into the notification process for collective bargaining by small business and that the ACCC should also amend its collective bargaining notification guidelines to include information about the range of factors considered relevant to determining whether a collective boycott may be necessary to achieve the benefits of collective bargaining. The amendment of this ACCC guideline may also improve understanding of the collective bargaining and collective boycott provisions and promote their use, thereby potentially strengthening the bargaining position of small business in dealing with large business.

Competition institutions

The Panel identified that there is currently a gap in the existing competition institution framework and recommended that the NCC be dissolved in favour of establishing a new independent competition body, the ACCP. The functions of the ACCP would include:

advocacy, education and promotion of collaboration in competition policy;
identifying potential areas of reform and independently monitoring the implementation of agreed reforms;
making recommendations to government on specific market design issues, regulatory reforms, procurement policies and proposed privatisations; and
undertaking research in competition policy developments in Australia.

The Final Report also reaffirmed that competition and consumer functions should be retained by the ACCC as a single agency. As noted above, the Panel has recommended that the ACCC can be strengthened by having half the ACCC Commissioners appointed on a part-time basis and abolishing the Deputy Chair positions. The Panel has found that the current ACCC structure is too internally focused and the introduction of part-time positions would provide the ACCC with a contemporary and broader spectrum of views.

Lastly, similar to the Draft Report, the Final Report recommends the introduction of a single access and pricing regulator, the Access and Pricing Regulator (APR). The APR would perform a number of access and pricing functions currently conducted by the ACCC, NCCC and Australian Energy Regulator.

Small business

In addition to the recommendations that impact businesses more generally, the Final Report makes other specific recommendations for small business. Significantly, the Panel believes that small business needs greater assurance that competition complaints can be dealt with and that the ACCC should actively connect small business to alternative dispute resolution services. The final recommendation on access to justice extends the draft recommendation by recommending that small business commissioners, small business offices and ombudsmen should work with business stakeholder groups to raise awareness of their advice and dispute resolution services. This final recommendation also makes reference to some recommendations from the Productivity Commission's Access to Justice Arrangements report that the Panel also endorses.

The Panel has also had regard to the recent Coles decisions and has come to the view that current unconscionable conduct provisions are working as intended to meet their policy goals. However, the Panel noted that if deficiencies in the operation of the provisions become evident, they should be promptly remedied.

NEXT STEPS

This Final Report of the Harper Review serves as a platform for future competition reform. The Final Report includes information on implementing the reforms, and estimates of their economic benefits. The Panel has also included a 'road map' for implementation and model legislative provisions for many of the proposed competition law reforms.

The Commonwealth Government will consider this Final Report and will most likely issue a formal response before implementing any of its recommendations. Although the Commonwealth Government has voiced its support of the broad direction of the Final Report,³ the extent to which the Commonwealth Government will implement any of these recommendations, how they will be implemented and when these changes will actually occur remains uncertain.

The Minister for Small Business (The Hon Bruce Billson MP) has called for consultation on the Final Report to seek feedback from industry, consumers and all levels of government on the final recommendations, especially where there have been changes since the draft report. This consultation is expected to inform the Commonwealth Government's response to the report later in the year. The Commonwealth Treasury has announced that following the Commonwealth Government's response, appropriate legislative changes will be developed for further consultation. Formal written submissions are due by 26 May 2015.

Footnotes

¹ The Panel is of the view that the current price signalling prohibitions are not fit for purpose in that they only apply to the banking industry, which is inconsistent with the policy objective that the Act should apply to all businesses generally.

² If the recommendation to repeal the exclusive dealing provision is not adopted, the Panel has also proposed a simplified exclusive dealing provision in Annexure A of the Final Report.

³ Australian Government, Treasury website – see here (accessed on 31 March 2015).

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.


Most awarded firm and Australian deal of the year Australasian Legal Business Awards	Employer of Choice for Women Equal Opportunity for Women in the Workplace (EOWA)

Australia: Harper Review recommends major changes to competition laws