The Nationals initiate competition reform…with a little help from the Greens.

A consequence of the recent leadership spill, and subsequent change of Prime Minister, may be a shift in Australia’s competition policy.

Following events in Canberra, the National Party renegotiated its coalition agreement with the Liberals and in doing so appear to have secured support to reform, or at least revisit, section 46 of the Competition and Consumer Act (CCA) in accordance with the Harper Review’s recommendations.

The Harper Review considered Australia’s competition policy, laws and institutions and their final report released in March this year made a large number of recommendations for the improvement of competition policy in Australia. These recommendations included the introduction of an ‘effects’ test to the prohibition on misuse of market power in section 46 of the Act.

Section 46 currently prohibits a company with a substantial degree of market power from taking advantage of that power to damage a competitor, prevent a competitor from entering a market or preventing competitive conduct in a market.  This requires an applicant prove that:

  1. a corporation has a substantial degree of market power;
  2. has taken advantage of that power in any market; and
  3. has done so with the purpose of damaging a competitor.

Proving an abuse of power is rarely successful

Satisfying these three elements is notoriously difficult. The Australian Competition and Consumer Commission (ACCC) seldom runs misuse of market power cases, and when it does, is rarely successful. The Harper Review described the test as ‘not useful’ and ‘inconsistent with the overriding objective’ of competition policy because the test protects individual competitors rather than competition generally.

In its place the Panel recommended an effects test, consistent with the other anti-competitive prohibitions in the CCA.

The ‘effects test’ used in the CCA prohibits conduct that has the purpose or effect of substantially lessening competition. This test has the benefit of being well understood as is already widely used in the CCA. This approach would also bring Australia in line with the vast majority of other countries, other than New Zealand, with competition laws.

Are we ever likely to see changes to the CCA?

The Federal Government under Tony Abbott’s leadership had deferred consideration of the implementation of recommended changes to the CCA ‘indefinitely’ in the face of opposition from major supermarkets, banks and trade unions.

In contrast, the Nationals pursued the change to an ‘effects’ test following the release of the Agricultural Competitiveness White Paper, which identified that the 97 per cent of agribusinesses with an annual turnover of less than two million dollars are vulnerable to anti-competitive practices by retailers and distributors in the supply chain.

The Nationals are joined in their support for reform by the Greens and are opposed by Labor and the Business Council of Australia, who cite concerns that the ‘effects’ test will reduce competition and increase prices for consumers.

It is yet to be seen whether these ramifications have merit, but for now, the Nationals have succeeded in getting the effects test back on the agenda.

About the authors

Rebecca Halkett is the Head of Kain Lawyers’ Food & Agribusiness Group. She is a competition and consumer law specialist, has acted for and against the ACCC and is accredited as a practitioner of Competition and Consumer law.

Madelaine Donovan is a lawyer within the Food & Agribusiness Group at Kain Lawyers.